The great trade collapse

Recently I came accross a remarkable site with a wealth of information, which helps answer the following questions:

Why did the credit crisis 2008 reach out to the real sector of the world economy? and
Why did this crisis led to such a significant and synchronized slump in sales?

On this site you will find different articles from various scientists, which reach a consensus about the reasons for the great economic crisis. The key note from Richard Baldwin → The great trade collapse: What caused it and what does it mean? provides the overview over the topic.

Crisis and Innovation

If you think about the creation of innovative products, this article series on the abovementioned site comes with some interesting insights:

We very much develop our solutions in a given context or trend. However it is not always certain that this context is meaningful at all (in the long run). In the abovementioned series of articles can you find the information that rigidities in supply chains, which we all have build in the last years, was the major reason for the fact that the slump was hard and sudden. A different factor was the high amount of trade imbalances, with countries like China and Germany on the one hand side, or the US on the other. Also this was largely taken as given, and we learn now that we need to rethink our assumptions in terms of export driven growth.
As many things in life it is confidence what counts. In the abovementioned articles can you will find the information that the crisis took over the real sector of the economy largely due to the fear factor:

As people around the world watched this unsteady and ill-explained behaviour of the US government, a massive feeling of insecurity formed. Extensive research in behavioural economics shows that people tend to act in extremely risk adverse ways when gripped by fears of the unknown…. Fall 2008 was a time when people really had no idea what might happen….

Consumers, firms, and investors around the world decided to “wait and see” – to hold off on postponeable purchases and investments until they could determine how bad things would get. The delaying of purchases and investments, the redressing of balance sheets and the switching of wealth to the safest assets caused what Caballero has called “sudden financial arrest” (a conscious reference to the usually fatal medical condition “sudden cardiac arrest”).

The “fear factor” spread across the globe at internet speed. Consumers, firms and investors all feared that they’d find out what capitalism without the capital would be like.“

Takeaway

In particular if you are working in the product management for large companies, it is not sufficient to just look at your customers, and your products. You (or our organization) also needs to take care of the overall context. Instead of just developing products after trends, we need to much more question wether certain developments make sense from the global perspective, and we need to try to lead the game. This is what I understand as sustainability. And, believe me or not, during my professional development I have seen many hypes and trends, were everybody ran behind before he learned that the trend was not meaningful, or a waste of effort.
As this crisis shows, we much more need to consider the overall (economic) context. As good as your products might be, if there are other reasons that prevent customers from buying it, they make no difference. I think it is helpful to see product development much more strategic, and not just in terms of margins, and profitability.
A further takeway is hidden in the articles, and namely in the below sentence. Depending on your school of thoughts, you might tend to see decisions as something what it taken with rationality. The current economic thinking for instance assumes that consumers decide with rational reasons, and that expectation building is rational. However, as the emerging field of „behavioural economics“ shows, consumers are irrational, and this irrationality has an influence on how we need to build and sell products.

„Extensive research in behavioural economics shows that people tend to act in extremely risk adverse ways when gripped by fears of the unknown“

Weiterführende Informationen

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