THE COST OF CUTTING JOBS

An Unprecedented Phenomenon

·         The astounding number of job cuts in recent times has sent shockwaves around the world.

·         Following their below-par performance in 2008, some of the biggest names in the world of business were forced to downsize considerably and this trend is expected to continue for some more time.

·         From finance to automobiles, chemicals and consumer products, there is not a single sector that has been spared the ordeal.

·         While many companies have been on these rough rides before, there are others that are struggling to cope with the sudden reversal of fortunes.

The Cause

·         With the Financial Crisis making its presence felt across the world, most analysts don’t feel the need to search long and hard for the cause of the layoffs.

·         But, there are some who question the wisdom of laying the blame entirely on one cause. According to them, the crisis merely exposed the inherent weakness in the methods of working that some companies have adopted for years.

·         These faults never showed up as long as the economy was on the way up. They only became evident on the downward spiral.

·         To highlight this, experts point out how the crisis has failed to affect companies that work efficiently and whose products have a ready market.

·         According to some experts, layoffs are short-term measures at best. In all likelihood, companies are opting for this approach to fulfil their immediate goal of showing the current quarter’s performance in better light.

·         But, these stop-gap measures are actually compounding the issue. Companies are, perhaps, forgetting that downsizing will hit their performance; hardly desirable when the performance is heading south anyway. They also think that employees can be hired again when things change for the better, while ignoring the cost involved in doing so.

·         In short, it is a vicious cycle. Companies will downsize because they are in trouble and because of downsizing they will continue to slide into trouble.

·         Recession also has a habit of feeding on itself. Job losses contribute to weaker consumer spending, which causes the loss of more jobs in sectors like retail.

·         Layoffs are not an extraordinary step. In a strong economy, an individual company or even an entire business sector that is not doing well may resort to layoffs to improve their situation. But, in the present scenario, many companies are dumping jobs at the same time. As a result, the economy does not get a chance to recover.  

·         As mentioned earlier, not all downsizing is due to the economic crisis. Some companies have been forced to adopt harsh methods because of a declining demand for their core product. For example, it is common news that a loss of market for its PCs has hit Microsoft really hard, causing the company to shed jobs.

·         But, this decision was also prompted by Microsoft’s desire to diversify into other avenues, a desire that was obvious when it attempted to buy Yahoo a year ago. In fact, Microsoft is planning to hire personnel specializing in other fields to launch a fresh attempt to buy Yahoo. The layoffs are a strategic decision, rather than forced by the economic slump.

The Effects

·         Job cuts are usually the last resort, adopted only after other cost-cutting processes, such as reduced wages etc., have failed.

·         Companies that opt for job cuts usually have to deal with a lot of underlying problems. Managers need to select and notify employees, a task that is emotionally demanding.

·         The period after the layoffs is quite often characterized by a struggle to manage operations.

·         The management has to devote time to chalk out new business processes to handle assignments with the downsized staff. The prospect of losing out on important projects because of being understaffed to efficiently handle them is an ever-present danger.

·         The management also ends up devoting most of its time to employees who are being laid off and ignoring those who remain. There is little wonder, therefore, that the survivors complain of increased workload, lack of direction and a feeling of being undervalued and unappreciated.

·         The organization suffers as it lacks the confidence to take risks. There are increased rifts and differences between employees and an increase in the competition for resources within the organization.

·         There is also no reason to believe that the economy will never pullout of its nosedive. Therefore, companies need to be careful not to panic and downsize to such an extent that they lose out on competent people and, thus, fail to capitalize when growth options showup again.

·         As odd as it sounds, economic downswings have their uses. They help to eliminate inefficient business practices leaving behind only the best and most competitive.

INDIA'S BATTLE AGAINST THE GLOBAL FINANCIAL CRISIS

When experts chose to quell fears of the subprime crisis spreading to India, they cited the following reasons.

·         India had not invested heavily in US subprime mortgages.

·         Lending organizations in India followed a more conservative approach. Zero-interest lending and lending without proper documents were almost unheard of in India.

·         The Reserve Bank of India was a strict regulator. At no point did it cut interest rates to near zero, as the Federal Reserve in the US did when the real estate boom was at its peak.

Considering that the situation in India was so different from that in the US, it was only natural for many experts to express a rather optimistic view of the situation.

But, following the collapse of the financial system in the US, the same experts are no longer feeling so smug because there is no doubt that India has taken a hit. One has to only study the dramatic fall of the Sensex from its peak to realize this. 

Another indicator of the brewing crisis is the bursting of the housing bubble in some major cities, where home prices are rapidly on the decline. 

When Indian monetary policies were supposedly far sounder than the ones that precipitated the subprime crisis in the US, why are we suffering some of the ill effects? Does this mean that the causes of the subprime crisis are not just the ones that are commonly cited, but also some that lie hidden, waiting to bring the global economy to its knees?

The fate of economies around the world is decided by the swings in consumer confidence. Let us explore how the dramatic swings in consumer confidence affected the US economy and then went on to kick the rest of the world in the guts.

·         The upswing in the stock market and the subsequent boom in the economy fuelled consumer confidence in the US at the turn of the millennium.

·         In turn, the buoyed consumer confidence propped up the economy further. In short, customer confidence and the economy fed off one another.

·         Recently, consumer confidence in the US has shown a downward trend. Due to its close links with consumer confidence, the economy is also on its way down.

·         The financial trouble brewing in the US has made its presence felt across the globe in the form of drying credit markets.

·         Since there is hardly any money available in the markets, there are fewer consumers and a general collapse in prices.

The poor lending practices in the US were also a result of overconfidence in the belief that housing rates would only go up and that, therefore, there was no risk in lending with very little protection. The overconfidence was so high that financial experts failed to recognize the housing bubble they were sitting on. 

But, isn’t this something that the US needs to deal with? What has India got to do with it?

India and China are the most spectacularly growing economies in the world today. The fallout is that this tremendous economic boom has raised unrealistic expectations for investments in these countries. There was a time when investing in stocks was considered the best option. But, the poor performance of stock markets across the world has dented this belief. India is no exception. The falling stock market in India has triggered a parallel fall in consumer confidence.

Investing in real estate was always considered a safe bet in India. Like in the US, the belief that housing prices would only head skywards was also firmly entrenched in the minds of Indian investors. People failed to understand that the apparently dramatic difference in the price of a house over the years was mainly due to inflation. They paid little attention to the fact that consumer prices had also shot heavenwards in the same time. Now, with the falling prices of houses around the country, people are beginning to reconsider real estate as a sound investing option. Even here, it is clear how economies are affected by swinging consumer confidence.

Any turbulence in speculative markets like stocks and real estate will affect a rapidly-rising economy like India more than a country with a relatively stable economy. It is in vibrant economies that speculative turbulence wrecks the greatest havoc on traditional thinking.

India is as likely to be affected by the economic crisis, which has the world in its grip, as any other country. Urgent action needs to be taken on lines similar to those being taken in the rest of the world. More regulation needs to be introduced into financial markets and more policies adopted to ensure consumer protection.

ELIMINATE LEADERS OF TERRORIST OUTFITS, LIKE ISRAEL DOES

Some years ago Indian Expresshad published extracts of the terrorist killer Omar Sheikh's Diary. This was at the time when he was exchanged for the Kandahar hostages, and went on to lead Daniel Pearl to his death. Sheikh's brief from his handler in Sahranpur was to use his British accent to snarea half dozen foreign tourists in India, to be exchanged for captured militants held in Kashmir. The third foreigner captured was an Israeli and when Sheikh went to report his jubilation to his handler, he was roundly abused and told to release the Israeli immediately. The jehadi political agenda in Pakistan does not include tangling with Israel, a hard state. The last full scale war fought by Israel was in 1973, and since then, it has eliminated almost a hundred terrorist leaders, without going to war. There is much we have to learn.

In India, any social scientist, civil servant, politician, TV anchor or film star has an opinion -- on whether India should use force when attacked by terrorists. Force, apparently means going to war, where armoured columns rampage through Pakistan, occupy Islamabad and rule over a capital devastated by aerial bombing. This kind of uninformed opinion is akin to this writer, a military man for 33 years, and a security analyst for 15 more, holding opinions on how to run a TV channel, or make a Bollywood dance number, orhow to solve the child marriage problem in India. Raising the debate on retaliation to a respectable level to permit the professionals to participate without the accompanying noise, would be a worthwhile media venture.

Our retaliation for the Parliament attack, by mobilising for war, was an unmitigated disaster. There are some professionals who hold a contrary view, but the Mumbai attack is proof that we achieved nothing in 2002. The U-turn promised by Musharaf, never took place, because the masters of terror were never restrained. Our enemies are individuals, more than the Pakistani state, especially with a civilian government in place.

There is no record of so many private individuals who have 'waged war' on a country for as long as Hafez Sayed, Azhar Masood, Syed Salahuddin and Dawood Ibrahim have done on India. When Dawood flaunted himself in Dubai, all we did was send a letter to Interpol, in the best traditions of babudom.

To this gang of four we could add their henchman --the operational boss of the LeT, the financier, the computer specialist , the Pakistani major who burnt the Charar-e-sharif mosque and the ISI Colonel who put the Mumbai operation together. Individuals in 
Pakistan, who say good byes to their families and go to office every morning to wage war on India, must be eliminated. There are a few ways to do this, as the Americans and Israelis have demonstrated.

One of them is for a car bomb to go off when they start their cars in the morning, put there by 'god knows who'. In many ways this is the neatest. Another is to pick them up while they are on a relaxed foreign trip to Dubai, or Equatorial Guinea or wherever these sickos go to get their highs. Another is for a drone to fire a missile at their armour-plated SUVs when they are listening to Lata Mangeshkar. The Americans specialise in this. Alternately they fire a 250-pound laser guided bomb at their favourite terrorist, who has been illuminated by a laser gun held by 'god knows who'. This method leaves no trace. The best way is for the terrorist to have disappeared when his bearer goes to give him his morning tea, to be rediscovered in India, later.

These are the only ways of waging this war. After the event, we in India can (strike out where inapplicable) act innocent/blame the Taliban/blame internal conflict in the Lashkar/blame the ISI/blame the Americans/Israelis /blame god and make the same statements that the Pakistan foreign minister does: "We don't want war, but if it is forced upon us,we will, by god," etcetera etcetera.

Any lieutenant commander doing his staff college course in Indiais taught that the dumbest option is to have the choice of escalating to be forced upon us. This choice must be left to the other side. Pakistan as a smaller, weaker state will NEVER escalate, beyond a low threshold. But where are the tools to act the way the Israelis or Americans do?

Today we are acutely deficient in all the technologies required. Let Antony whois competing with Fernandez to be the worst defence minister India has had, get one thing right, and direct the three chiefs to put the required capability together in six months. Another attack will surely come.