The New Prudence--Or Not

In the aftermath of 9/11, columnists, commentators and pundits of all political orientations rushed to say that “things will never be the same”; that in some fundamental way the West, and America in particular, had lost its innocence. Yet within a few months, apart from airport security hassles, the daily lives of most people changed not at all. Americans, many of whom groaned at George W. Bush’s admonition to resume shopping, rushed back into malls at pre-9/11 rates.
Now, amid what is widely being called the “most sever economic crisis since the Great Depression”, we are again being told that things will never be the same (c.f., Newsweek’s article on October 11, 2008, “End of the Ownership Society”, http://www.newsweek.com/id/163451. But, if history is a guide, not much will change in the end. There will be some short-term belt-tightening, but the preponderance of evidence suggests that markets are prone to speculation, bubbles, and “irrational exuberance”. The Tulip Mania of the 1600’s is sometimes cited as the first speculative bubble. Yet, despite this incredibly clear case study, the world’s markets have cycled through dozens of booms and busts in the intervening centuries, all fueled by the same greed and exuberance.
Maybe the real lesson is that economic communities cycle between greed and fear (we are most certainly in the fear part of the cycle now). Decision-making at the emotional extremes tends to be problematic—there’s a wealth of data in the psychological literature suggesting this—and therein lies the problem for organizations pondering strategy at the moment. Just as the delusion that the markets only go upward is to be avoided in strategizing during good times, so too is the belief that a downturn means the end of life as we know it. History suggests otherwise.