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05 December 2023

Could recession be a good thing?

By David Humphreys
Plunging stock market values, businesses in retrenchment, redundancies, diminishing consumer confidence – there’s no doubt that recessions are painful for individuals and companies alike and can be devastating to the economy. But can a recession be a good thing?

It may be a hard point of view to agree with, especially if you have been adversely affected by the economic downturn, but many economists argue that recessions are an inevitable (and healthy) part of a free economy. Economies “overheat” with high demand and (s)low supply and a recession is simply a correction, allowing the natural balance of supply and demand to be restored, and for businesses to adapt accordingly.

As the United States government pondered the bailout for the Detroit “Big Three” last month, some said that a handout would only delay the demise of the automakers.

A bleak assessment indeed, but there is some evidence that Ford, Chrysler and General Motors have been guilty of running their businesses poorly. Maybe it is time for new technologies and improved efficiencies to make an entrance and the “free market” forces to play out. After all, the auto industry wouldn’t have flourished in the first place without quite a lot of blacksmith redundancies in the early 1900s, would it?

In the same way a forest fire clears away suffocating undergrowth, pests and disease, a recession forces the market to pause and adjust, sloughing off poorly managed businesses and bad investments in the process. And that is a good thing.

Businesses should now be taking advantage of the recession and its casualties by aggressively preparing for when the market turns around.

For those on “The High Street”, the opportunity to increase market share at the expense of a competitor should be irresistible and can only be achieved through increasing (or at the very least maintaining) marketing spend.

Whilst the less experienced managing directors and financially weak companies rush to scale down their marketing efforts, business veterans will be instructing their marketing teams to proceed with plans to announce (dare I say it?) the next amazing real estate project, introduce a new customer loyalty scheme, or open a brand new hospital or education facility.

For some businesses, the focus will be to merely “sharpen the saw” by improving existing marketing tools, updating brochure collateral and working to elevate their visibility in the market. For others, an evaluation of their brand’s strategic positioning and a full re-branding exercise may be warranted.

Regardless, the prescient will move in the opposite direction of the thundering herd, because the recessions of today make prosperity possible tomorrow.

 - David Humphreys is Group General Manager and a founding member of tmh, a Dubai-based brand management consultancy established in 1997