Tough economic times bring the need for even greater dedication to the principles of market success, not abandonment of the market in favor of government handouts.
The idea of pleasing the customer—first by attracting their business, then by gaining their loyalty—absolutely cannot be ignored in a system in which consumers are free to make choices among a competitive array of goods and services. When businesses start operating for the sake of the employees or the management, they will eventually and sometimes rather quickly lose traction in the marketplace. Ignoring, failing to notice or appreciate, or refusing to adapt to current desires of the purchasing public typically spells the death knell for an enterprise that snubs its source of revenue. Cutting costs, lowering price, and tailoring your product to the tastes of the current market, though, can work wonders in even a failing venture. And there’s market evidence to prove it.
One hero in this regard is the mega-successful chef and restauranteur Gordon Ramsay, now host of the BBC America series “Gordon Ramsay’s Kitchen Nightmares.” The whole point of Nightmares is to show restaurant owners how to turn their failing establishments into profitable establishments. It’s an eye-opener for nearly all of the business owners involved, but the secrets are not gastronomic, they’re economic. And they are no secret.
In every case, the solution for turning loss into profit rests on a few universals: 1) lowering costs without sacrificing quality, 2) paying attention to what customers want, and 3) acknowledging the realities of market conditions and the relevant competition. There are abundant and outstanding examples of Ramsay’s formula implemented in establishments around the globe. And restaurants being a ‘spot market’ business, the effects are quickly evident: rapid adjustments to market realities yield rapid and dramatic positive results.
None of this should be lost on other businesses and industries, large or small, in terms of staying competitive and achieving profitability. Bailout-or-bust is the consequence of distancing oneself from sound business strategy, and the evidence from Wall Street as well as Detroit is both staggering and costly.
The recent messages and pleas from the auto and financial industries, and a growing number of others, is that the government must act to ‘save’ their industries in the interest of saving American jobs. Some segments of academia have agreed, touting monetary policy and the Federal Reserve in particular as options of first resort. Most current discussion is centered not on whether, but on which particular economic rescue package the government should enact, how large that package should be, and the extent to which government ownership of the most severely affected industries should supplant private ownership, moving us steadily toward a centrally-planned economy.
This discussion of extensive government involvement isn’t as new as it seems, even in relatively recent history. In a 1975 Meet The Press interview, Nobel laureate F.A. Hayek explained that government and Federal Reserve bailouts of industry were futile, and ultimately harmful. Hayek’s arguments were eventually vindicated. Trying to preserve particular jobs under conditions where the market will not support them produces malinvestments and delays real economic recovery every time it has been tried.
The fortunes of big enterprises, it turns out, are governed by the same principles that determine profitability in smaller businesses. Restauranteur and automaker alike are bound by the mandate that in order to do well in any economic climate, you have to please the customer.
Demand, supply, and price rule all voluntary transactions in a free society, whether in good or in poor economic times. But moving away from these market forces makes us a less free society, without creating the economic prosperity or economic security that centrally-planned rescue schemes wish to promise.