Economists are awesome when explaining how the world works but somewhat remiss at forecasting. That’s what business people are for.

All businesses are linked to the global economic infrastructure.

Big or small, all businesses can learn from simple economics.

Simple economics are flags for business to read.

Successful businesses learn how to link the flags.

The basics

All businesses are inextricably linked to the global economic infrastructure. As a general rule, in the current global economic order, when the US catches a cold, the UK sneezes. When an ill wind blows in China, the chill is felt across the globe. Conversely, in more normal times, when the US is showing strong growth, Chinese output grows along with global oil and raw material prices. Although simplistic, these are examples of global macroeconomic things that affect business in the UK, big and small.

So, can the average business person learn anything of significance from simple economics, and the answer is absolutely yes. For example, if the price of oil is up, which is globally traded in US dollars, and the pound is falling against the dollar, then even a small business will be very quickly affected by the rapid rise in fuel prices at the pump. Sometimes significantly. Simple economic indicators are flags for business to read and prepare for the future whether it be good or bad. If you read them right, then sometimes bad can be good and if you don’t read them at all, then even good times can be bad. It does not need to be intense or boring, you just need to keep your eye on the basics through things like news headlines or feeds; maybe a few economic indicators such as inflation; the pound and oil and perhaps the odd associated short article. You are probably more in tune with these things than you realise but just need to link them together and apply them to your circumstances. Click on the highlighted text for more information.

More complex

Many medium to large businesses tend to have a reasonable handle on the basics even though they still get caught out. But only the very large international corporations have the capacity to engage people whose purpose it is to interpret the fundamentals of the workings of the global economic order. I am not an economist, but I assure you that the practical principles are not beyond the understanding of the average medium enterprise. Those who already import will be very familiar with exchange rates, supply chain and several associated costs. Those who export, will similarly understand the economic considerations of selling goods in a competitive global economy. But how many really understand and are able to optimise the economic principles that enable this cross-border trade? Like the basics which apply to all businesses, it is a case of recognising the flags and then steering your business in the right direction. You don’t need a degree in economics. I would encourage you to sign up for a few news feeds or some tailored emails like The Economist and if you are savvy most are free. However, be warned, Keep It Simple Sally or you will fail.

If you want to try to be a just a little more sophisticated about Economics, there are some excellent theoretical concepts that can be wisely interpreted and applied to many medium and large businesses. Believe me, they are not beyond the comprehension of the average senior manager and show that economics is not just for academics. A series of these were very cleverly explored in some fascinating short articles in The Economist titled Six big ideas in 2016 such as “The Market for Lemons” or “booms sow the seeds of busts”. Although these refer to specific issues, what is really interesting is how the basic principles can be applied to a variety of situations in normal businesses.

A new World Order

It is generally accepted that even ‘relatively’ modest events like Brexit and Trump, coupled with Chinese economic imperialistic ambitions, mean an unprecedented period of change is ahead. Nobody can predict what the new political and economic order will be in 10 years time. Or even in two years time. But what is absolute is that change creates opportunity and opportunity breeds success for those who embrace it. At the start of 2017, there were a multitude of primary indicators that suggested that after nearly a decade in the doldrums, the global economy was ready to bolt out of the starting gate, led by the US. How quickly things change as we start 2019. A slowdown in China partly attributed to Trump’s trade war; economic fragility in Europe mainly blamed on weakness in the global economy; a significant slowdown in the British economy caused by Brexit and political dysfunctionality, all pointing to a significant downturn ahead. However, my macroeconomic abstract has not changed. As history has shown, Britain will find its way through this crisis and although deeply scarred, I firmly believe it will be stronger and fitter and better able to optimise its position in the evolving global order. All it will need is astute and visionary business and political leadership. The big, the bold and the informed are already setting out their stalls. The tectonic plates in the global political and economic order, established throughout much of the 20th century, are shifting East and South. Those that watch the basic economic indicators, or even some of the modestly more complex principles, will be able to see the fresh trade winds blowing and will be better prepared to make headway in the Brave New World. And this applies to all savvy businesses, big or small.