Well it’s another week and there’s yet another economic crisis to prepare for. As markets tend to repeat themselves and run through economic cycles, we as humanity ourselves, continue to make the same mistakes as is the nature of our being. The old adage that we learn from our mistakes does not seem to transpire generationally.
In terms of these issues in the market place, governments and regulators generally act retrospectively in a reactive way, which in most cases only serves to stifle the corresponding market place even more. What we continue to see, unfortunately, is that when markets are booming, most government institutions, federal banks and regulators tend to be short sighted. This leaning towards not curbing the market proactively needs to be reconsidered in order to maintain a more positive market outlook during booming cycles.
The US and China are markets which currently have several teeter-point economic issues that regulation plays a big part in. For instance:
China is currently working through their own housing bubble and appears to be throwing money at this situation in an attempt to ease the issue. The government is currently investing money into Tier 1 cities—Beijing, Shanghai, Guangzhou, and Shenzhen which has seen Cities like Shenzhen property sales reduce but prices increase – not the supply/demand model you would expect to see from a housing market. However, to reduce the risk of their real estate bubble bursting, China must learn from the mistakes of the West leading up to the 2008 banking crisis.
In the US, the presidential candidates Donald Trump and Hillary Clinton have polarizing economic views on what the regulatory market should look like for many of the US market sectors, including: Energy, Financial and Pharmaceutical. While the Democratic Party is looking to tighten regulations in these sectors, Republicans are looking to significantly reduce regulations and government oversight. I see these extremes as both having potential negative impacts on each particular market. If the US increases regulations across sectors there will mainly be a short-term negative affect whilst industry companies work these changes into their procedures and adapt. If the US decreases regulations it can have a positive impact in the short term but as we’ve all seen, it’s then taken advantage of by certain members of that industry leading to a negative impact on a longer basis that in some cases can affect the global economy.
We often jest about the ever growing regulations imposed by government and the hold it has over a company. Unfortunately, the fact is that whilst there are opportunities to take advantage of people, structures or markets, we need regulation. Companies – even industries as a whole – can suffer because of the actions of a few “bad apples”. The other equally as unfortunate fact is that no matter what the regulation there is always someone working on a way to get around it and take advantage.
Which brings me to my closing thought: if companies in these industries want regulation to ease so they have the opportunity to grow, we, as businesses need to be as transparent as possible and to treat our customers as colleagues on the path towards wealth together. Without us they may flourish, but without them we cannot.
Simon Calton is Co-Founder and Chief Executive Officer of Carlton James
(www.carltonjamesgroup.com), an investment firm that specializes in hospitality, property and technology.