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Hope in the Doom and Gloom

I read an article by Kris Sayce in Money Morning recently and thought it was worth mentioning its most salient points.

At the moment, all we are reading about in the press is financial doom and gloom. The problems in Europe, especially in Portugal, Italy, Greece and Spain (affectionately now referred to as PIGS) and the debt riddled United States of America.

The Financial Times headlines, “Italy turns to China for help in debt crisis”.

The Age says, “Retailing to go from ‘bad to worse'”.

Every way you look, you see destruction… job cuts, companies going bust and countries borrowing and begging from other countries. If you look locally, people like Rick Damelian and Tony Bilson are closing down – or worse, being closed by the banks. A good friend recently had a Bank appoint an Administrator to 3 profitable businesses, simply because they had revalued one of his properties at 60% of what he had paid for it and required him to ‘put in’ over $2m to get their loan valuation ratios in order. Unbelievable, but true!

Things look bad. And if we’re honest… it is pretty bad.

Amongst all the gloom there is ironically something to look positively on; the PAST. “There is no progress without destruction.”

Progress needs destruction. We know that may sound weird, but it’s true. Throughout history all improvements to human life have come as a result of destruction.

The technology sector is a perfect example:

These businesses’ weren’t doing to badly but the entrepreneurs were looking for greater profits – so they find a different product when all else fails.

Look at how Steve Jobs and Apple have transformed the way we go about our lives with the invention of the iPod, iPhone and iPad.

From garage to retail giant; but only from the pit of despair as the company was going bankrupt. Steve went looking for a ‘new’ product.

The retail sector is another great example;

Retail giants such as Harvey Norman, Myers and David Jones have been dragged into the 21st century into the ‘on-line’ market. They have had to use the new media of the internet to regain their market share and customer base. They have also had to become more competitive with cheaper overseas companies – immediately.

Again, it’s all great news for the consumer as this also drives down prices.

And it’s good news for progress and creative destruction too.

Why? We are always – Searching for profits

At some point it becomes unattractive for new players to enter the market. Start-up costs and low profit potential means entrepreneurs will look elsewhere. Simply put, the “high profit signal” isn’t flashing anymore.

But in order for progress to advance, you need an environment where entrepreneurs can flourish. Without it – progress stops.

For years, Western governments have meddled with the free market by erecting barriers to entry to keep entrepreneurs from destroying established businesses with new innovations.

The current destruction of the European countries is representative of this progression, no matter how hard it is to watch and fathom.

The larger governments will have to shrink and the smaller ones grow if they are to make the countries flourish once more. It is simply progression via destruction of out dated ideas that have stemmed from a much ‘larger’ world. Today the world is small due to technology and we may learn to embrace the change, while baring the storm.

This won’t happen overnight. But ultimately, we’ve greater faith in the abilities of entrepreneurs than we’ll ever have in the abilities of meddling bureaucrats.

 

 

 

 

 

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