Times are tough. So what’s new?
Internationally, it’s the worst financial crisis since the Great Depression—or so we’re told. Back then banks and businesses collapsed. Credit was impossible to get and investment stopped. Millions were unemployed and there were no jobs even for no pay.
Eighty years on, that doesn’t sound like our economy—at least yet. But there’s gloom forecast. The economy is in its fifth quarter of recession and growth is collapsing. Interest rates are falling, but unemployment is rising and will go much higher if the Treasury and forecasters are even half right. In a recent commentary, Westpac said: “The economy is in reverse, with spare capacity increasing and labour market deteriorating.”
So what should the creative industries do? Is it time to knuckle down, be vigilant about the cash flow, restrict investment, reduce risk and avoid anything risky—like innovation, backing the Big New Idea? Can creative industries afford not to be bold and risk-taking?
Steven Carden, a former McKinsey consultant and author of New Zealand Unleashed, says “economists are still a bit deluded about what it will take to remedy this recession”. Big stimulus packages, he says, probably aren’t the answer. “A recession is a propelled by a downward spiral of fundamental insecurities. That’s why you can pump billions into the banks, but insecure bankers still won’t lend. You can slash interest rates, but insecure people will still not purchase houses. You can hold a job summit, but insecure employers will still not hire workers.
“That said, I’m actually fairly optimistic about the ability of New Zealand’s creative industries to come out of the recession in good shape. For years they’ve had very little cash, so they’re already lean and hungry.”
At DNA Design, Mike Meachen is expecting some clients to spend less—particularly those whose business strategy in tough times is to discount their prices. “Our focus is primarily around helping clients reposition brands [and] improve value propositions, so we tend to be working with proactive clients looking for strategic advantages—in both good and bad times.”
His advice: make yourself indispensible to clients.
“We’ve added specialists including a consumer psychologist, business analysts and interaction designers to our brand, strategy and online development teams and can now offer a much wider range of perspectives on a client’s needs—and more integrated solutions to those needs.”
Creative industries typically aren’t bricks and mortar businesses. A short business life means they may not have the reputation, brand presence or the confidence of their suppliers and bankers that others have.
Jeremy Harding, policy advisor at the Wellington Regional Chamber of Commerce, says it’s a matter of attitude. “Creative businesses are not inherently less creditworthy or attentive to their financiers than other businesses, but lenders may well feel that they don’t want to take the risk. If the lenders retreat to bricks and mortar businesses, then their caution will become a self-fulfilling prophecy.
“It may be that the kinds of people who are in those businesses will work even harder and come up with more innovations and new ideas to see them through the bad times.”
Carden is more sceptical. “Smart people come up with good ideas to grow in any economic environment—but unless the smart people come up with new ways of accessing cheap capital, all the other good ideas they develop won’t amount to much.”
The government is aware of the problem. The Ministry of Economic Development has already advised ministers that innovative high-tech firms may struggle for funding. “Their common characteristics (low to negative cash flow, newness to market, and untried and unproven products), as well as the relatively small New Zealand capital market’s limited ability to respond to niche opportunities, mean that firms with growth opportunities that benefit the wider economy can go unfunded.” (For more on our funding dilemma, see ‘Where is the money?’ in Idealog #19.)
These are not normal circumstances. And around the world, as in New Zealand, government leaders are pumping money into their economies by guaranteeing bank deposits; increasing spending, typically on infrastructure; and by seeking to instil confidence that if we all continue to believe it will be okay, then it will.
Unfortunately, as Carden notes, markets don’t work that way. But in New Zealand, most creative industries have never been that comfortable anyway. Perhaps they’re perfectly qualified now to lead the way.