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Fingers

Can Modern Company Structure Cause Recession

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When the July 7th bombs went off, traders were told to switch off their automatic trading systems to prevent a downward spiral of stop loss selling. A good idea.

Since the last recession, companies have moved their structures more towards outsourcing and flexible work contracts. We're also a far more goal/incentive driven as a society, and this can be seen inside companies in the form of middle and upper management bonuses based on revenue, profit, shareprice, etc.

We've already seen announcements of layoffs from some big names, based on them (or their competitors) experiencing slightly weaker sales, and forecasting generally lower sales. Protecting profits and bonuses by reacting to events that haven't happened yet.

Can this corporate agility, and lack of 'inertia' in the employment force, mean that a recession can go into a much tighter negative feedback loop than 15 years ago?

Fingers

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The reverse, I think. The economy will be much quicker to respond to changes in demand. Equally, however, it will be quicker and more responsive to new opportunities. The stickiness in the old system of vast nationalised or quasi-nationalised industries with workers isolated from what was happening to demand inevitably les to periodic shocks where reform/adjustment was necessary. That is less likely if things are flexible.

Admittedly it means more 'shocks' but much less severe and in practice experienced only at the level of unsuccessful or unlucky companies or sectors which are too slow to adjust to changes in the marketplace.

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If the companies we're talking about are owned by british shareholders, then protecting profits by keeping workforce levels in line with demand should just mean that we have a more efficient private sector, and as you say, some more people out of work ready to go to new demand elsewhere.

The thing that's difficult to quantify is whether a negative sentiment ripple would be caused sooner than would have been otherwise, and if some people lose their job earlier, then do their friends and family tighten spending sooner than otherwise, etc etc

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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