The White House says the recession is over, top business forecasters concur and a rash of statistics points to recovery in many parts of the country, albeit a slow one.
Now that the pain is beginning to ebb, there's a natural tendency to forget the bad times. But just as those who forget history are condemned to repeat it, the recession that business just survived offers some useful lessons.
Some are obvious, of course. Good times don't last. Be adaptable. Treat your customers right. Buy low. Sell high.
But some are a little less obvious.
Harvard Business School Prof. Pankaj Ghemawat, for example, finds that ever since the Great Depression, businesses have tended to cut investment way too much during hard times--two to four times the drop in industrial output and up to eight times the drop in gross national product.
"People worry about red ink in a downturn," he said. "They have less concern about the opportunity costs they don't see."
That can be a terrible mistake. In his study, Ghemawat found that the U.S. semiconductor industry failed to invest enough after the 1974-75 recession and was driven out of the market for discrete memory chips, the largest semiconductor market, by the Japanese, who had continued investing.
Intel Corp., the Santa Clara, Calif., semiconductor giant, learned this lesson well. It invested $422 million in 1989, $680 million in 1990 and will invest perhaps $1 billion this year and for the next couple of years, all on plant and equipment, an Intel spokesman said. Despite the 1981-82 recession, Intel has raised research and development spending every year for the past 10 and will spend more than $600 million on R&D this year.
"For us to have the opportunities and not bet on them, I don't want to lose that way," Intel President Andrew S. Grove said.
Why does investment suffer so much during recessions?
One reason is that managers focus on survival--everyone battens down the hatches. Also, liquidity may be severely restricted. Then there's the herd instinct; Ghemawat says, businesses over-invest during good times. Finally, when hard times set in, it's less painful to cut long-term investment than to cut the work force.
Another lesson? Don't cut costs indiscriminately, especially if it affects quality or customers.
"Most organizations cut Indians and not chiefs," complained Don Potter, president of Windermere Associates, a San Francisco management consultant whose specialty is firms under stress.
Recently, Time Warner Publishing announced plans to cut 600 jobs from its magazines, including sales and editorial staff, to save $30 million a year.
Yet Time Warner Inc. Co-Chief Executives Steven J. Ross and Nicholas J. Nicholas Jr. were together paid $99.6 million in 1990, counting the current value of their stock options, according to Graef S. Crystal, a Napa, Calif.-based compensation expert who used to write an annual executive pay analysis for Fortune, a Time Warner magazine. (He stopped because of what he called "management interference" arising from his valuation of Time Warner's executive pay.)
One ironic lesson from the immediate past is the need to look ahead. The nation's first recession in eight years caught many managers flat-footed. Lulled by growth, they didn't anticipate the downturn and failed to adapt fast.
Without exception, management consultants say companies with leaders who acted decisively in the face of hard times did better.
Tod Kingsland got into the family stucco business--La Habra Products--22 years ago, unloading boxcars. Today, he's president of this Anaheim construction materials concern.
He weathered two major recessions before this one, as well as other tumultuous times in construction.
This year, trouble struck again. In a depressed market, La Habra's sales slipped to $20 million from $30 million a year ago. But this time, as soon as he saw the economy heading south, Kingsland moved swiftly to cut expenses and coddle steady customers by improving service and delivery.
To compensate for the 30% drop in sales, he trimmed his work force to 100 from 130. He cut inventory. He encouraged every employee to think and act like a salesperson. And he asked for help.
"I pray a lot," said Kingsland, whose grandfather founded the family stucco business in 1926.
Kingsland did one other thing: He hired a full-time person to do nothing but collect receivables.
The experts say focusing on these I.O.U.s is a great way to make money out of thin air.
"The cash is in there," said Bob Pearlman, a Woodland Hills CPA with many small-business clients. "Companies can go out of business by being paid late."
Just ask Jonathan Funk, a founding partner of InterVen Partners, a Los Angeles venture capital firm: "We had a painful experience where some customers almost dragged down one of our companies. We really had to crack down on collecting the money."