The perils of seeking success “on the cheap”

Whether it’s financial returns, business profits, or personal achievement, doing it on the cheap is packed with risks. In the last few days, there have been multiple instances of what happens when people try to get what they want on the cheap. Sadly, there’s little sign that anyone is learning from what has been going on. The temptations will always be there, but wiser heads know that what seems too good to be true nearly always is exactly that.

Hedge funds and investment banks had a bonanza in recent years, fueled by cheap credit and the kind of belief in personal invulnerability usually associated with hot-headed teenagers. They not only ignored the risks of what they were doing, they came to believe in some strange way that the risks weren’t even there. You could make vast sums of money by borrowing other peoples’ cash and speculating with it. It was the primrose path: financial success on the cheap.

One of the nation’s largest toy-makers also appears to have believed that they could make big profits without it costing them anything like what it should have done, by outsourcing all the production to China, doubtless driving a hard bargain even there. Now they have discovered lead in the paint and other hazards, and the withdrawals will cost them millions and a large slice of their reputation. There’s nothing inherently wrong in buying products from overseas, but did it never occur to them to spend a little more money on constant testing and quality control? I guess not, given the number of toys being recalled.

We seem to be suffering a whole business culture constructed on the notion that you can produce constantly escalating profits and build mighty organizations on the cheap. All that matters is the bottom line. Never mind paying ordinary people good salaries; just reward the few at the top. Forget about providing a route to adequate pensions or health care; that costs too much. Forget about giving consumers quality or a pleasant buying experience; pile it higher and higher and sell it cheaper than the next guy. But don’t cut your profits. Keep them high by cutting everything else: staffing, quality, systems, standards. Business on the cheap.

What’s the deal?

An article by Charles H. Green in The Huffington Post caught my eye. It’s called We’ve All Caught the Detroit Disease and refers specifically to the woes of the US automakers, but sums up the attitudes of management on the cheap perfectly:

The truth is, Detroit had and still has an American disease. It has a few key symptoms:
  • Belief that we are the biggest, standalone market, immune from global competition, and that the Big 3 [General Motors, Ford, Chrysler] had dominant market share.
  • Belief that GDP growth drives auto sales, that growth means growth in market share, and that buyers are price-driven.
  • Belief that, in the immortal words of Lee Iacocca, brought back a few years ago from the taxidermist to re-appear on TV, “the most important thing is the deal!”

That last point is crucial: belief in “the deal” as the basis of everything.

If everything comes down to “the deal,” there is no place for humanity, ethics, foresight, or even commonsense. Life and work are reduced to simple financial transactions, with an underlying assumption that the best deal is the one that gives you the most in return for the least: the foundation stone of Hamburger Management in all its current manifestations. Never mind the quality, or the value. Look how cheap it is.

In a society based on “the deal,” every transaction becomes competitive, since the deal is there to keep the score. If people complain that politics has become polarized, you can see why. Who wins in “the deal” that has to be made to get any legislation passed? Who comes out best in terms of spending allocated to pet projects?

In business, relationships also become deals: an exchange of favors and influence, with the winner being the one who gets most and gives away least in return. Buying and selling are deals too: how little can I, the seller, give you for your money; how little can you, the buyer, pay to get what you want. Even consumers caught the disease, leading to the spectacualr growth of discount, big-box stores. Low prices are everything, we are told. All consumers are fundamentally price-driven. Utter drivel!

As a result, in life and at work, many people want to do deals with reality, trying to get as much as they can with the least input. Never mind what career might be best suited to your talents; go for the work that will allow you to earn most fastest. Don’t wait for anything; buy now, borrow the money, and worry about paying it back sometime—maybe never, if you can go on borrowing and borrowing. When the loans run out, as they are doing now, life suddenly turns very bad for the most vulnerable and those who made a fortune lending to them.

Undoing the mess

Charles Green sums up the effect that the cult of “the deal” has had on the automakers like this:

The Japanese in particular always believed it was a global market, far bigger than the US, and that they, including Toyota, were small players on a global stage. For them it was always about growth, not share. And for them, price was not something you jacked up with leader models and white-walls and radios, it was something you set low, for growth, and built in all the quality you could, until you earned the right to sell at higher price points. It was not “the deal” — it was, profoundly, the relationship. They were—oh, what’s the word?—right.

What has being constructed in recent decades is a culture based on the belief that whatever you want can be had at half of yesterday’s price (and one third of its quality) so you can get still more things to replace those that have already failed or proved worthless. Quantity rules. Quality is old-hat. Life success is measured in dollars and shoes, not in happiness or satisfaction or the value you have brought to this life on earth.

Stop the world. Some of us want to get off here.

How can we undo the mess? First we have to reverse the attitude that you can get a good life on the cheap: that it’s laudable to cut corners, live off credit with no chance of repaying it, walk away from obligations when they have served your purpose, and treat relationships with others as “deals” you can “win” by short-changing them. “No money down” isn’t free. The bill will turn up sooner or later—often at the time when it’s least possible for you to meet it.

Live now and pay tomorrow still means paying. Short-termism is what the word says: looking at the short-term and ignoring the longer-term consequences until they come crashing down on you. Just ask those poor folk, persuaded by wonderful “deals” to take out mortgages they couldn’t afford; the ones who are now facing foreclosure and loss of everything. Were the short-term benefits worth the pain they’re facing today and will continue to face into the future?

Reality doesn’t do deals with you or me or anyone else. It is what it is, and real, lasting success takes what it takes. No discounts. No easy credit terms. And reality’s bills always, always have to be paid in full. You can’t declare bankruptcy and walk away from what you owe it.

We would all do well to remember that.

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