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Economic downturns: how to respond and thrive

A stream of companies has announced mass layoffs in recent weeks. The was a media frenzy with news outlets announcing and denouncing the likes of Amazon, Facebook parent Meta, Google parent Alphabet, and Microsoft. More recently, though, there’s less and less talk on the subject and it has started to feel like old news.

Yet, the waves of implications from the mass trimming of workforces are still rippling through industry and will continue to do so for some time. It’s like a cruise ship’s wake continuing far and wide long after the ship has passed. Many large employers, especially in the tech space, have slowed down or completely stopped recruiting. Many others have stopped offering the significant increases in salary they were offering to much needed prospective employees. The impact has also been felt in the recruitment sector. I wouldn’t call it doom and gloom, yet, but certainly a feeling of passive pessimism.

How bad is it really, though, and is the pessimism well deserved?

One needs to understand negative news is propagated. Have you ever wondered why there is hardly any positive news in the media?

Because we have evolved to deal with threats humans have developed what is called a negativity bias. Negative or bad news has a greater impact on our brains than positive or good news. From the dawn of the human race our survival has depended on our ability to spot and avoid danger. Simply put, our brain apparatus is super sensitive to negativity, and the news media houses know this.

More bad news equals higher TRPs for media houses, and as a consequence they themselves get hard wired to feed us negative news. What the media houses cannot do our brain does, by remembering bad news while relatively easily forgetting the good.

I always tell youngsters to study history. In fact each and every one of us must study history – there is a lot to learn from it. Recall one of the worst recessions in recent history during 2008 - 2009. Did every industry face a downturn? The answer is an emphatic No! One of the sectors that did very well during the recession was the gaming industry – not only video games but board games like chess, ludo, and monopoly. When you don’t have the spare cash during a recession to take your kids to cinema, malls, or restaurants and yet have to engage them or give them a break, you look at low-cost alternatives. In fact, some pundits even claim that the gaming industry might be recession proof!

More recently during the Covid pandemic, hospitality, tourism, entertainment, transportation, and travel were badly affected. At the same time, in India, Pharma, telecom, FMCG, E-tail, gaming, and OTT all enjoyed a significant boom.

As the world view changed post-pandemic, industries woke up to the opportunities that the pandemic had thrown up. Think about video calling – suddenly not just businesses but families were having meetings on Zoom, Teams, or Meet. This meant influx of resources into the underlying technologies, and into broadband services. An incredible rise in OTT (according to marketfeed, the OTT market in India is set to become a ₹12,000 crore industry by the end of 2023) meant, again, investment not only into broadband services, but into film production. E-tailers realised they could wrest millions of customers from traditional retail into their embrace and invested into technology, warehousing, and delivery.

Many other industries tweaked, or even overhauled, their business strategy.

Thus, in spite of what was being seen as a severe downturn, some sectors boomed as we moved out of the pandemic lockdown. Each transforming sector needed technology, and the sector employed people like there was going to be no tomorrow. In the year 2020, Amazon increased its headcount by 62.66%, and in 2021 by 23.88%. Infosys increased its headcount by 7.1% in 2021 and by 21% in 2022. Similar numbers for Tata Consultancy Services were 9% and 21.2%. These are impressive hiring numbers by any standards.

So, while 2023 may be seeing some layoffs, is it really as negative as some media houses would have us believe, or a minor corrective change from the hiring rush of 2022?

This brings me to business cycles. Not all industries have overlapping business cycles – some face a downturn while others are riding a crest. The cycle of expansion, peak, recession, depression, trough, and recovery are seen by all industries and sectors – but not all at the same time. While the implications of a recession or depression on a specific industry may be tough, the rest of the world should focus on the industries undergoing expansion and growth – stories that the media is not too keen to highlight, as discussed above – and find opportunities within them, rather than fall victim to doomsday prophecies and assume that downturns in certain sectors equals a downturn, period.

Now let’s explore the human psychology behind this and what it does to our performance.

As media feeds us negative news we tend to focus more on them and, more importantly, spread the negativity through social media and chat apps. After all, we thought the news was worth listening to, so it stands to reason that everyone else will, too. Pessimism breeds further pessimism.

At a certain point it sows the seeds for collective pessimism and a downgrading of expectations from us ourselves, from our teams, from our companies, and from our communities. This quickly spirals into a self-fulfilling prophecy - low expectations result in low performance, and gives us the ability to blame the economy, the environment, and the recession – essentially everyone but ourselves.

In his book Psychology of Money, Morgan Housel argues that during the Great Depression of 1929, it was just 5% of the market that actually tanked, and that it was the domino effect that caused the mayhem that resulted in one of the biggest depressions in a century. We now know that it is this collective pessimism that is the cause of every single recession.

Funnily, while economies experience recessions, the wealthy almost never do. In fact, the rich find ways to make even more money during recessionary times. Why is this, and what makes the rich recession-proof? When John F. Kennedy was asked about his memories of the Great Depression, he said, “we hired more gardeners as people were suffering”. Steve Jobs, too, seems to have shared this mentality. In Jobs’ 2011 biography Walter Isaacson calls it ‘warped reality’.

The rich do not engage in collective pessimism. Instead, they look for opportunities in times of adversity.

The 2001 Nobel Prize for Economics was awarded to George Akerlof, Michael Spence, and Joseph Stiglitz, for explaining the phenomenon of job vacancies coexisting with mass unemployment. Their work showed that in certain situations the market mechanism fails to work perfectly and can create a mismatch between job vacancies and unemployed workers, leading to employers having difficulty finding qualified workers while at the same time to qualified unemployed workers not being able to find jobs that match their skills.

But what if you are one of the unlucky ones who has been laid off? All this talk does not help you, does it, for you are suddenly unemployed and staring at a difficult period of financial challenges and no words are going to help you pay your next home loan EMI.

What this means to you is that jobs are usually there to be had even during the worst of times and that we must be more efficient to close the gap between unfilled vacancies and you finding the right job. The answer lies in us making ourselves highly effective.

What we must also remember is that India is different from the rest of the world. Again, let’s go back to the history. Why were we not hit so badly in 2008-’09? At 1.4 billion and counting, we are a whopping 20% of the world population. Even accounting for lower consumption levels than in the developed world, the total internal consumption within the country is at astounding scales.

Additionally, unlike China that exports a huge proportion of its production, most of India’s production is consumed within the country (in times of downturn lower exports, or higher internal consumption, is a boon). Our biggest export is technology, and we see the IT sector affected with global downturns, but that still leaves a huge market that remains unaffected.

In India we are seeing a resurgence in manufacturing. Real Estate is flourishing. Logistics companies are booming. Construction and infrastructure are thriving. And then there are sectors unique to the Indian economy, a case in point being the wedding sector. Praveen Chander Kumar of IHCL, talking to Forbes, suggests that the Indian wedding industry is currently estimated at ₹3.75 lakh crore and is expected to grow at 20 to 25 percent annually. The sector encompasses a wide range of industries including wedding planning, photography, catering, decoration, bridal wear, jewellery, and honeymoons.

So, how should we react when we hear of news of downturns or recessions? Should we be alarmed? Focus on negativity and spread pessimism? Emphatically, No. Instead, we need to be cautiously optimistic, find solutions, start looking for opportunities, and increase our own effectiveness and efficiency.


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