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.
ADDITIONAL READING
Copyright © 2014 Robert Asken writing as Slim Fairview
All rights reserved.
