World economies are unstable, making it increasingly difficult to lead a business over the past few years. The uncertainty that business leaders face today is palpable. Some of the news is good, some is bad, but it is altogether uncertain and seemingly random. On one hand, there are wars, terror, market crashes, bailouts, budget crises, cliffs, and sequesters. Yet we also have higher corporate profits, positive consumer sentiment, and low interest rates. This is part of the reason that the stock market, which used to move a fraction of a percent each day, now shifts in record swings with increasing volume. Yet as the global recession continues into its fifth year, there are signs that businesses are adapting.
The brain doesn't like volatility, so it struggles to find a new "normal." Often, after years of abuse, victims no longer recognize that they are being abused. The brain normalizes the abuse. An extreme version of this is Stockholm syndrome, so named after a Swedish bank robbery in 1973, in which after only five days of being held hostage, the victims identified with and defended their captors. On a smaller scale, the brain treats any kind of volatility as stress. In fact, the brain is well-equipped to manage short-term stress: it releases adrenaline, raises the heart rate, and makes us more alert so we can handle whatever situation is causing the stress. Long-term, however, the brain isn't made to cope with stress. Long term stress causes fatigue, irrational behavior, and myriad physical ailments. In order to keep the mind and body safe from these effects, the brain attempts to normalize any kind of long-term stress it encounters.
Volatility and stress are as bad for business as they are for the brain. Business owners often pull back when faced with challenges like political instability, market inconsistency, and fluctuating consumer confidence. That means that they simply avoid making important changes in hopes of receiving more consistent information down the road. Over time, however, businesses become accustomed to bad news and adjust: Stockholm Syndrome Incorporated.
Today, the environment in which businesses must operate has become consistently inconsistent and predictably unpredictable.
We are starting to see how businesses are adjusting to this tumultuous business and economic climate. Last month in the United States, the "sequester" took effect, cutting $85 billion from defense, mental health programs, education, and a dozen other government programs. The day prior to the deadline, the Senate voted on each party's plan to avert the crisis, but from their inception, neither bill had any chance of passing. The Democrats blamed the Republicans; the Republicans blamed the President. It was the latest headline with the same running theme: impending economic crisis and a federal government that is unable or unwilling to stave it off. This is a big deal and the response should have been palpable for the markets, businesses, and individuals. The actual response: nothing. The stock market continued its climb, business sentiment remained at the same level, consumer spending was constant.
That reaction was in clear contrast to the reaction of businesses and the markets in 2011, when the debt ceiling debacle actually caused markets to dip significantly. This past month we saw what has been described as "a terrible, horrible, no-good, very bad jobs report." A few years ago, that also would have thrown the world markets into a tailspin — but not this time. And it is not just the negative news that is being ignored: strong corporate earnings are evoking little more than positive sentiment from news anchors desperate for a story.
The world stage is no more stable than the domestic economy. Greece and Italy are broke, the UK's debt rating has been downgraded, and many other European countries are wobbling. Most recently, the tiny nation of Cyprus asked for a bailout from the European Union, which was countered with the condition that Cyprus must take cash from depositor accounts held in Cypriot banks. This outlandish situation could cause a long-term banking collapse, but even this incident was largely ignored by the markets and businesses alike.
Business owners have an increasingly positive outlook despite our political and economic instability. They have come to accept variability and are becoming more immune to the economic drama unfolding across the world. Dun & Bradstreet Credibility Corp. and Pepperdine University's annual Economic Forecast Survey showed that 70% of small and mid-sized business owners in the United States felt as strong or more so about their business growth prospects in 2013 than they did in 2012. Business owners are feeling even more confident about their personal prospects — a majority expects to make more money this year than they did in 2012. That's an optimistic outlook, particularly given that 61% reported making less money in 2012 than they did in 2011.
This is not to say that instability is not a concern. The same survey found that 62% of business owners think that political turmoil is negatively impacting their ability to hire. Similarly, in a recent Newtek survey, 60 percent of small business owners reported that Washington's uncertainty is the factor that has most negatively affected business. But the relative health of the markets, and the fact that business owners are optimistic and confident in their futures, shows that unpredictability has become all too predictable.
We are stuck in an economic tunnel: there is no light and no end in sight, but at least we are getting used to the dark.