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When Growth Goes Flat
Some economists predict many more years of sluggish demand, which means companies that want to grow their profits will need to invest in new technologies to cut costs.
Nov 25, 2013—
In Japan, they call it "Ushinawareta Jūnen"—the Lost Decade. After the Japanese housing bubble burst in 1991, the country's surging economy slowed to a crawl. In fact, it is still limping along at a sluggish rate. There has been some pickup recently, due, in part, to Prime Minister Shinzo Abe's government stimulus program, but past jumps in economic growth have been short-lived. Some economists are now predicting a similar situation for Europe and North America, which means companies that want to grow profits cannot rely on a general increase in consumer spending to carry the day.
I will explain the current arguments (as I understand them) and how companies can respond. And then, at the end of this piece, I'll outline why I don't fully accept the current consensus of thinking among economists.
Consumer demand is weak. Central banks lower the interest on borrowing in an effort to free up money to stimulate demand, but interest rates have been near zero for years. There is little more that central banks can do. Governments could spend money to stimulate demand. Deficit spending could work, but most governments are so deep in debt themselves that spending more risks a loss of confidence by investors buying their bonds. So that is not an option in most countries (particularly the United States).
If demand remains low for a decade or two—or more—businesses need to find ways in which to steal market share from competitors, or boost profits by cutting costs. Taking market share from competitors is something most companies try to do every day. So it is not easy to grow by doing this—remember, they are trying to take your share, too.
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