What can we learn from past economic recoveries?

What can we learn from past economic recoveries? This was the question put to delegates by JCT Chair, Peter Hibberd, in his speech at the Scottish Building Contract Committee (SBCC) Annual Conference in Glasgow on 27th November.

In outlining the different types of economic recession, the activity that takes place during recession and the impact on the construction industry as recovery starts, Peter examined whether common features of past recoveries can be identified to assist construction businesses in dealing with both recession and being prepared for when conditions improve.

“During recession we see increased pressure on business, we see government becoming more activist – there is intervention, there are changes in consumption, there is a process of deleveraging and industries restructure. We also see that the wiser companies recognise the importance of improved customer service in a recession…”

“Research has shown that well managed companies can prosper in tough times and when better times arise they tend to accelerate faster than the competition. Companies that outperform in recession tend to enjoy sustained advantages.”
By examining what might be learnt from past recoveries, Peter highlighted the following features:

  • Innovation follows slow growth
  • Corporate insolvency is positively correlated to recession and the period directly afterwards
  • There is often a lack of capacity due to deleveraging, lack of investment and insolvency
  • Lack of relevant skills becomes exacerbated as workloads increase
  • Material procurement becomes more difficult
  • Inflationary trends emerge
  • Interest rates increase
  • Access to finance remains difficult
  • Payment periods get relaxed
  • Protectionism remains despite globalisation and free trade.

In looking at the specific impact on the construction industry, Peter explained how our current economic situation is unique and because of the use of Quantitative Easing and historically low interest rates the longer term path of recovery is largely unpredictable. The additional problem for the construction industry is, as always its role as an economic regulator – with house-building and public infrastructure currently propping up the industry.

Despite the uniqueness of the current conditions, Peter explained that some lessons, namely providing customer focus, improving productivity, planning for downturn even as the economy grows, applying good management and entrepreneurship, are pre-eminent:

“Generally, in the period following past recessions, good companies have made progress because they improved their offering during the downturn and because of the weakened competition. [This time] progress will likely be more muted and in some instances the competition will not have been lessened to the same extent. […] Hence the benefit of positioning oneself during the recession so as to provide customer focus, one that asks what they want, what they can afford and what are they prepared to pay.

“Survival should be planned – as we move to growth prepare for the next downturn. This means being properly funded and watching cash flow as though we had a compulsive disorder.

“In the end, although we know good companies can fail, it is entrepreneurial flair and the application of good management that provides success: it is those which are required regardless as to whether the economy is growing, or in decline."

Download the notes of Peter Hibberd’s full speech.

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