The Visible Hand

THE VISIBLE HAND

Limiting demand is the visible hand of economics.  Why?  Because “The invisible hand” loses potency with rising affluence.

“Rich people are insulated from price increases, but not from supply shortages.”  ~ Slim Fairview.

The Invisible Hand

The theory of the invisible hand says, “If there are more carpenters than needed, the wages of the carpenters will fall (supply exceeds demand) and many carpenters will be unemployed except for the fact that surfeit of carpenters means a dearth of plumbers.  The demand for plumbers and the higher wages arising from demand exceeding supply means people will become plumbers instead of carpenters and “the invisible hand” of the market will handle this…more or less.

The Visible Hand is entirely different.  By limiting the demand, you stabilize the economics of your entire enterprise.

Profits v. Growth

In this paradigm, maximising profits is not the overriding concern—stability is the overriding concern.  This is because stability is necessary for growth.

This is analogous to an investment portfolio.  You have growth stocks, you have income stocks.  At the outset, you want growth stocks.  When you get older, you want income stocks.

Think of the Sharpe-Markowitz Efficiency Curve.  Risk v. Return.

The visible hand is the growth stock portfolio.

In the early days of B-School (my early days) growth was described as having an inherent risk factor.

If you grow to fast (faster than your market) you tie up capital  and reduce your ROI. (Return on Investment.)

If you grow too slowly (if your market grows faster than you do) you lose customers, cut revenue, and lose market share.

Let’s review Mr. Putin’s Visible Hand.

MERGERS

Forming a Eurasian Economic Union.

ACQUISITIONS

Crimea

Mr. Putin is taking advantage of a competitor’s weakness (The EuroUnion) to expand Market Share and to Increase Revenue.

SALES/REVENUE

Mr. Putting stabilises revenue by limiting demand with a deal to sell natural gas to China.

SUPPLY CHAIN STABILISATION

Mr. Putin establishes a stable supply of oil with an oil deal with Iran.

MARKET PENETRATION AND DISTRIBUTION CHANNELS

The acquisition of the Crimea includes a warm water part and accesses markets.

Mr. Putin’s Economic Theatre of Operation is a Textbook Lesson on Strategic Planning.

• Market Analysis

• Mergers and Acquisitions

• Competitor Evaluation

• Supply Chain Stabilisation

• Distribution Channels

• Market Penetration

• Sales and Marketing

• The SWOT Test.

Mr. Putin’s SWOT Test

Strengths

Weaknesses

Opportunities

Threats

STRENGTHS

• Shared History and Culture with Eastern Europe

• Natural Gas Supply

• Natural Gas Deal with Germany

• Leveraged Capital Investment Opportunities in Russia

• Stable Government

WEAKNESSES

• Late arrival into the Global Free Market Paradigm

• Climate

• Lack of Warm Water Port(s)

• Activist Minority Stakeholder Dissent

OPPORTUNITIES

• Weak EuroUnion Economy

• Eastern Bloc’s Need for an Economic Union

• Iran Oil Sanctions

• China’s Growing Energy Needs

• The Crimea

• Slow U.S. and European Economies

• Emerging Nations

THREATS

• Trade competition from China

• Competition from Cheap-Labour Markets

• Sanctions by Western Nations

• Weak Global Economy

All of these describe THE VISIBLE HAND.  Not as practiced by a company within an industry or an economy, but rather by nations among nations in a global economy.  And right now, Mr. Putin is establishing a template for emerging nations to follow.

Warmest Regards,

Slim

The blogger known as Slim Fairview.

slimfairview@yahoo.com

ADDITIONAL READING

Putin's Overture in Eurasia Minor

Mr. Putin's Economic Theatre of Operation

Limiting Demand: Slim's Paradigm

Copyright © 2014 Robert Asken writing as Slim Fairview

All rights reserved.