My blogger friend, Justin Choo, has a recent post “In bad times prepare for the good”, talking about a Singaporean CEO not retrenching his workers, despite the downturn for his company.
The CEO was quoted to say that retrenchment is morally wrong.He would rather ask his workers to take a a salary cut than to retrench them.I think his action is commendable and should be emulated by the CEOs of some of our companies that are now facing financial problems.
I would also like to quote the comment by romerz on that post:
In 1986, in my first job after graduation, I had to retrench 190+ factory workers because the company was going belly-up due to insufficient working capital not caused by the factory itself but the property development arm of the group.
It was the hardest thing I’ve ever done in my life.
Giving those retrenched their last salaries and asking them not to come back to work anymore (trying not to look into their eyes as I explained why to every individual). The exercise lasted 3 days and I couldn’t sleep those 3 nights.
In any economic downturn, besides stimulus package, cutting interest rates to make funds cheaper for businesses, one important aspect is to have a safety net for the retrenched and the poor.
These are the people without deep pockets. They must be given certain amount of basic assistance as well as retraining, to channel them to areas where manpower are still needed.
Otherwise giving them soft loans to start petty businesses, etc should be considered.
I think this Singaporean CEO has don the right thing to cut every body’s salary instead of retrenching staff. BUt as the economic worsens, there would come a time that retrenchment may become unavoidable, especially when the company is going under.
It is therefor important for a government to be prudent in its spending during good time, so that it can build up a reserve fund to be used during an economic downturn.
It is like a wage earner. He has to save during good time , and his savings would come handy should be face any problems during an economic downturn, or during times that he may be sick and unable to work.
In other words, during sunny days, prepare for the rain.
Ideally , a country should not have an budget deficits. Instead there should be surplus so that the government does not run up any debts. Instead, the Treasuryc should have savings to invest and be used during an economic downturn.
In practice, a short period, say a year or 2, of budget deficits may be tolerated to stimulate development, but a long period of budget deficits would make the government a debtor, and the money needed to service the debt would be higher and higher, cutting into the operating expenditure.
It all boils down to prudent spending.
It all boils down to “During good times, prepare for the bad”.