In weak economic times, we often look at our neighbors to see how they are doing. It is natural. We all know somebody that has lost a job or is struggling to pay bills. My family has been in that boat for a while, timing bills, some of which we weren’t sure would get paid.
We have two examples of similar conditions in the international community that can shed light on why looking at one’s neighbors isn’t enough.
Back in the early 1980s, the world watched a titan collapse. Japan’s economy went bust and they made the choice to shrink their economy and cut spending. What resulted was the infamous “Lost Decade”. The ramifications of their decision were born out in a smaller, weaker Japan. Though they eventually regained relative economic health, they never regained their eastern dominance.
In the early 1990s, a similar economic panic fell upon the unifying German people. The wealthy West was uniting with a poor East. They similarly chose to cut spending and shrink the economy. The ensuing decade was not lost, however. Their hard work and sacrifice led to the slow-build of the most powerful economy in Europe.
So why did austerity work in Germany and not Japan? There are two obvious reasons.
One, Germany was in the midst of reunification. They had goals and tangible projects. The government was still involved in the creation of new infrastructure. The entire social safety net wasn’t scrapped, but in fact, was strengthened through a new, united voice. This is far from the case in Japan, in which they lacked either the common goal or the pressing need to continue improving the infrastructure and the government.
The second, and perhaps more important reason, is that the global economy was lousy in the 1980s and strong in the 1990s. Germany benefited from incredibly good rates on loans and could export vast quantities to booming Europe. The foundation of their economy could be easily raised up by the free-flowing cash from France, Spain, Italy, and Britain. On the other hand, Japan toiled away with high interest rates on its loans and a weak U.S. and Europe who were not willing to prop up a failing Japan.
Which sounds more like today?
The wider lesson for us is not only to look at where our friends and neighbors are at, but how everybody else is doing before we decide the best approach. It is clear that cutting back in lean times can work when the rest of the world is doing great. If not, it must be time to spend.
In your world, whether it be business, nonprofits, advertising, or the church, ask your neighbors how they are doing. But base your plans on how the other guy is doing. The one on the other side of town, the country, or the world. Because her success will determine yours.
Who do you need to check up on? Who is your “other guy”?