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Stagflation: An Executive’s Recipe for Dealing with Economic Famine Published: Sunday, September 4, 2005 By: Dr. Manuel Ángel Morales

During the course of the last thirty years,Puerto Ricohas been experiencing a very dramatic transformation. Although this process has been manifesting itself covertly, its results are real and there is a strong base of empirical evidence to attest them. First, let me share with you some insights regarding these events.

By the 1970’s thePuerto Rico’s economic model came tumbling down under the heels of the petroleum price per barrel market fluctuations. Petroleum is regarded by the intellectual circles of advanced research inPuerto Ricoas the independent variable, that is, the reason which enables or constrains economic growth. Since that decadePuerto Rico’s economic growth has been dismal, at best.

To understand this we must consider the dependency the island has on importing articles and fuels to enable trade and economic activity. If petroleum rises, so does the cost of importing food, clothes, appliances and cars, just to name a few. It also drives the cost associated with energy production. These upward trends in price structure are defined in technical terms as inflation.

Briefly defined, inflation is a general and progressive increase in prices; another way to understand the concept is that in inflation everything gets more valuable except money, the main driver for foods and services consumption. Our estimates (QBS Intelligence Unit) foresee inflation for this natural year at almost thirteen (13%) percent, if the petroleum price per barrel goes beyond the $70 mark. So in simple words, if the petroleum price per barrel goes up,Puerto Rico’s economic growth is stalled at best or derailed at worst. This is the crude reality that has been slamming on our very pockets for the last thirty years.

Another important variable is the unemployment rate. For the most part of Puerto Rico’s history it has been beyond the single digit mark, and this brutal fact hast been a main driver of the feebleness ofPuerto Rico’s economic resiliency. Today unemployment is very close to eleven (11%) percent and our research indicates that it may start to reduce itself in the next 10 years, droved mainly by the numerical influence of the ageing population effect.

In synthesis all these variables contribute to our current economical situation, which is defined as stagflation. Stagflation is a term in macroeconomics used to describe a period of characteristic high inflation combined with economic stagnation, unemployment, or economic recession.

So what happens to enterprises, organizations and business during these times of economic feebleness and price structure destabilizations? Basically, they suffer the same challenges, trials and tribulations as public agencies and individuals. Their costs go up as everybody else’s, the need for maintaining profitability goes to the fifth dimension and the need for ensuring survival skyrockets. Thus, at the end of the day they need to do more with less. If not, the market forces will pass judgment andDarwinwill have the last laugh.

So as part of being a socially responsible organization, QBS provides the following strategies to help organizations to effectively deal with this economic stalemate. We call this array of strategies the exorcise-unleash-engage-suffocate recipe:

  • Exorcise Waste – It is important that enterprises and organizations drive out redundancies, re-work and inefficiencies from processes and activities. Our research has established that in Puerto Rico twenty-five (25%) of operating cost are associated with waste. 
  • Unleash Productivity – People need to understand that being present from 8 to 5 in the office is not the same as being productive. One way to understand this is to calculate the revenues contribution per capita; on times of economic famine each individual needs to contribute nine (9) time its salary to maintain financial soundness. 
  • Engage Customers Ferociously – During hard times organizations need to increase three-fold the effort aimed at maintaining the customer base, if not the market pressure will undoubtedly erode the organization’s customers and the revenues streams with it. 
  • Suffocate Potential Customers – If the customer base needs to be rock solid, acquiring new blood (customers) becomes the primary directive. Kick your executives out of the office and demand that they become the champions for driving revenue. Some of them will get their adrenaline pumping hard by the thrill of the hunt and the smell of blood once again.

In conclusion, economic hard times are only business opportunities dressed as bogeymen and goatsuckers. We believe that hard work, commitment, intelligence, optimism and faith always provide illumination to individuals, businesses and government leaders. We are completely convinced that these elements will also serve as a platform, from which to launch and deploy a dramatic agenda for change, which will shift our fortunes as a competitive society for the twenty-first century.

God bless you all.


Copyright 2005 QBS, Inc.

     

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