Sprawling cities, congestion, the race for resources (and a parking spot), a consumer economy, more waste than the earth can absorb… Most of us have witnessed the side-effects of an economy growing rapidly year after year. Yes, uninterrupted growth was the myth of the New Economy. But already in 1942 the economist Schumpeter predicted that the capitalist economy cyclically moves towards a point of creative destruction, when the old and obsolete (often monopolies) need to make space for the new (often innovative entrepreneurs).

At its core, the slowing down of an economy (aka a recession) is nothing more than a reality check. Awfully over-simplifying the complex social system that drives the economy, the “boom” part of the cycle can be seen as the optimism of new businesses and its reliance on the upwardly mobile consumer, combined with the greed, optimism and shareholder pressure of the large, established businesses setting forever more challenging targets and making their business decisions accordingly. The “bust” part of the cycle is simply reality.

When the sub-prime crisis eventually hit the US, Paul B Farrell could think of 17 reasons why America needs a recession. A few months later in an article published in the Boston Globe, Drake Bennett also takes a philosophical look at the potentially positive effects of a recession on an individual. This year, with the global recession confirmed, Denise Kawaii also posted some good points on why the slowdown is not necessarily a bad thing. She’s particularly upbeat about the positive effect an economic downturn has on creative writing, music and the arts.

Yesterday our National Treasury announced that South Africa is now officially in a recession, having experienced two consecutive quarters of negative economic growth. Time to despair, attack or reflect?

The knee-jerk reaction is to blame the banks and government. But the truth is that both parties have behaved quite prudently during our most recent economic boom phase. Restrained by the National Credit Act (NCA), banks could only lend to individuals who could afford it, largely abating the current housing market woes of the US and UK, for example. Despite pressure from trade unions and other economic liberalists, the Reserve Bank also stuck to its policy of firm inflation targeting, keeping interest rates high at a time when almost the entire globe was wearing rose-tainted glasses and borrowing and expanding. Our fiscal position is also much better than that of many developed countries.

For those of us who have watched the squirrels, learned something and stashed up on cash, now is an opportune time to attack those bargain assets: undervalued shares, easily affordable property and auctioned second-hand goods. For those of us who are experiencing our first economic handbrake turn, let us not forget to fill up the tank in future. It may take longer to reach our destination than we thought.

How long will this recession last? Treasury is hopeful that the Confederations Cup and the 2010 World Cup could pull us through soon. But a lot also depends on the appropriate allocation of our National Budget expenses, boosting infrastructure for growth after 2010, and of course on maintaining political and socio-economic stability in the country.

Let the rest and reflection that usually accompany a recession not pass us by. But eventually we will need individuals’ creativity and innovation to get us out of this slump and start growing again.

Tags: capitalism, creative destruction, Denise Kawaii, Drake Bennett, National Treasury, necessary, new economy, Paul B Farrell, positive, recession, schumpeter

This entry was posted on Wednesday, May 27th, 2009 at 2:05 pm and is filed under business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.