Surviving the slump
May 28th 2009

America’s non-financial businesses are suffering. But they will emerge from the recession leaner and stronger than ever, says Robert Guest (interviewed here)

Reuters
THE crisis began on Wall Street. Financial conjurors suddenly discovered that their tricks for making risk vanish had only disguised it. Their leveraged bets went sour, and the derivatives they thought insured them against any shock turned out to be worse than worthless. Trillions of dollars disappeared. Credit markets froze, and the pain spread to Main Street. This special report looks at how American business will cope with that pain and with the big policy issues that the country will face in the aftermath of the crash.
America’s recession began quietly at the end of 2007 (see chart 1). Since then it has mutated into a global crisis. Reasonable people may disagree about whom to blame. Financiers who were not as clever as they thought they were? Regulators dozing Homer Simpson-like at the switch? Consumers who borrowed too much? Politicians who recklessly promoted home-ownership for those who could not afford it? All are guilty; and what a mess they have created.

Since 2007 America has shed 5m jobs. More than 15% of the workforce are jobless or underemployed—roughly 25m workers. The only industries swelling their payrolls are health care, utilities and the federal government. The value of listed shares in American firms collapsed by 57% from its peak in October 2007 to a trough in March this year, though it has since rebounded somewhat. Industrial production fell by 12.8% in the year to March, the worst slide since the second world war. Mark Zandi, an economist at Moody’s Economy.com, predicts that the recession will shrink America’s economy by 3.5% in total. “For most executives, this is the worst business environment they’ve ever seen,” says Lenny Mendonca, chairman of the McKinsey Global Institute, a research group.

 
Times are so tough that even bosses are taking pay cuts. Median pay for chief executives of S&P 500 companies fell 6.8% in 2008, according to Equilar, a data provider. The overthrown titans of Wall Street took the biggest knock, with average pay cuts of 38% and median bonuses of zero. But there was some pain for everyone: median pay for chief executives of non-financial firms in the S&P 500 fell by 2.7%.

Nearly every business has a woeful tale to tell. For example, Arne Sorenson, the president of Marriott hotels, likens the crisis to the downturn that hit his business after September 11th 2001. When the twin towers fell, Americans stopped travelling. Marriott had its worst quarter ever, with revenues per room falling by 25%. This year, without a terrorist attack, the hotel industry is “putting the same numbers on the board”, laments Mr Sorenson.

The hotel bust, like most busts, was preceded by a breathtaking boom. Although many other big firms resisted the temptation to over-borrow, developers gorged on cheap debt and built bigger and swankier hotels as if the whole world were planning a holiday in Las Vegas. When the bubble burst, demand collapsed. Hoteliers found themselves with a multitude of empty rooms even as a gaggle of unnecessary new hotels was poised to open.

Other industries have suffered even more. Hordes of builders, property firms and retailers have gone bust. And a “carpocalypse” has hit Detroit. Last year the American car industry had the capacity to make 17m vehicles. Sales in 2009 could be barely half of that. The Big Three American carmakers—General Motors, Ford and Chrysler—accumulated ruinous costs over the post-war years, such as gold-plated health plans and pensions for workers who retired as young as 48. All three are desperately restructuring. Only Ford may survive in its current form.

Hard times breed hard feelings. Few Americans understand what caused the recession. Some are seeking scapegoats. Politicians are happy to pander. Bosses have been summoned to Washington to be scolded on live television. The president berates their greed. The House of Representatives passed a retroactive 90% tax on bonuses at AIG, a bailed-out insurer. (The bill died in the Senate.) The attorney-general of New York threatened to release the bonus recipients’ names unless they returned the cash.

Extravagance is out
Retroactive taxes and personal threats? Businessfolk pray such habits do not spread. Meanwhile, they are bending over backwards to avoid seeming extravagant. Meetings at resorts are suddenly taboo. Goldman Sachs, an investment bank, cancelled a conference in Las Vegas at the last minute and rebooked it in San Francisco, which cost more but sounded less fun.

This special report will make several arguments. The pain will eventually end. American business will regain its shine. Many firms will die, but the survivors will emerge leaner and stronger than before. The financial sector’s share of the economy will shrink, and stay shrunk for years to come. The importance of non-financial firms will accordingly rise, along with their ability to attract the best talent. America will remain the best place on earth to do business, so long as Barack Obama and the Democrats in Congress resist the temptation to meddle too much, and so long as organised labour does not overplay its hand.

The crisis will prove hugely disruptive, however. Bad management techniques will be exposed. Necessity will force the swift adoption of more efficient ones. At the same time, technological innovation will barely pause for breath, and two big political changes loom.

Mr Obama’s plan to curb carbon dioxide emissions, though necessary, will be far from cost-free, whatever his sunny speeches on the subject might suggest. The shift to a low-carbon economy will help some firms, hurt others and require every organisation that uses much energy to rethink how it operates. It is harder to predict how Mr Obama’s proposed reforms to the ailing health-care system will pan out. If he succeeds in curbing costs—a big if—it would be a colossal boon for America. Some businesses will benefit but the vast bulk of the savings will be captured by workers, not their employers.

In the next couple of years the businesses that thrive will be those that are miserly with costs, wary of debt, cautious with cashflow and obsessively attentive to what customers want. They will include plenty of names no one has yet heard of.

Times change, and corporations change with them. In 1955 Time’s man of the year was Harlow Curtice, the boss of GM. His firm was leading America towards “a new economic order”, the magazine gushed. Thanks to men like Curtice, “the bonds of scarcity” had been broken and America was rolling “in two-toned splendour to an all-time crest of prosperity”. Soon, Americans would need to spend “comparatively little time earning a living”.

Half a century later GM is a byword for poor management. In March its chief executive was fired by Time’s current man of the year, Mr Obama. The government now props up the domestic car industry, lending it money, backing its warranties and overseeing its turnaround plans. With luck, this will be short-lived. But there is a danger that Washington will end up micromanaging not only Detroit but also other parts of the economy. And clever though Mr Obama’s advisers are, history suggests they will be bad at this.

1. aftermath n. 不幸事件之后果,余波

2.payroll n. 工资单(计算报告表)

3.swell v. 增大,使...膨胀,积聚

Her ankle swelled up after the fall/The wind swelled out the sail

4. utility n. 公共设施,效用,公用程序,实用品,实用

5. trough n. 木钵,水槽,马槽

The business cycle is a series of peaks and troughs. 商业周期就是淡旺期交替。

6. titan n.a person of exceptional importance and reputation

The newspaper was covered with reports of the meeting of the three political titans in the world.

7. take the knock vi. 经济上受到沉重打击

8.liken  

 Life can be liken to a journey with an unknown destination. 人生就好比一场不知终点的旅行

9. put the number at vi. 估计数目为

10.gorge n.峡谷 v 狼吞虎咽

11. swanky adj 炫耀的，时髦的，爱出风头的

12. poise n. 平衡,姿势,镇静 v. 使...平衡,保持平衡,保持...姿势

13.horde / hordes of fans had thronged on the concert hall. 大群的歌迷一窝蜂地涌向音乐厅

14. gold-plated  镀金的

15. pander  v.迎合

Since she was an only child, her parents pandered to her every whim. 由于她是独女，父母对她总是百依百顺

The newspapers there pander to people's interest in crime and violence. 那儿的报纸迎合读者对犯罪和暴力的兴趣。

16.berate  v 严责 censure severely or angrily

17. retroactive  adj  反动的,追溯的,有追溯力的

18. recipient  . 接受者,收信人

19. bend over backwards to do sth 尽最大的力量（做某事)

20. pause for breath 停下来喘息

21. ailing adj. 生病的

22. pan out 结果(是)成功,有成果

23. boon 恩惠  Parks are a great boon to people in big cities. 公园对大城市的居民是大有裨益的设施。

24. gush v  涌出 Her word gush forth when she meet her mother. 见到母亲时，她的话滔滔不绝。

25. scarcity  /The factory is in frequent scarcity of raw materials. 这个工厂经常原料不足。

26 byword The soldier's name was a byword for bravery. 那个战士的名字原是勇敢的代名词。