In the first quarter of 2020, major companies were predicting that 2020 would be another bumper year for profits. Asean’s growth rate was predicted at a high 5%, double the global average.
Yet by April 2020, as the Covid-19 pandemic raged on, Asean’s growth rate had shrunk to 1%, the lowest in Asia. As more countries paused economic activity for public health reasons, companies suddenly saw their revenue dry up. They went from boasting that profits would last forever to going to the government for a bailout, tail between legs.
Major companies frantically cut costs and headcount as the pandemic worsened. Millions around the world have been fired with little to no protection. In Indonesia alone, three million employees in the formal economy were retrenched.
But does this really come as a surprise? For years, there has been a growing sense of awareness that good corporate numbers are not really connected to economic performance or the real economy. During the pandemic, we were given more proof of this, for example, with the disclosures about Wirecard’s fraud.
There was a growing disparity between stock markets — increasingly the go-to symbol of corporate performance and rewards — and realities on the ground, where wages and productivity had stagnated. Mergers and acquisitions (M&A) led to larger companies but never realised the promised cost and efficiency savings, all while hurting actual assets that support companies, like workers. Established brand names like Toys ‘R’ Us, despite good fundamentals, would later go into bankruptcy as private-equity owners raided their assets and swamped them in debt.
Corporate operations have become obsessed with running numbers for the financials, not running companies with people as the key asset. This must change, and Asean needs to be more vigilant than ever, given that under current models of achieving growth and valuing stocks, the region is predicted to have the largest global share of M&A. Asean needs to carefully examine the true social costs of this type of consolidation, which largely serves the demands of financial markets.
Before the pandemic, global companies appeared to be incredibly resilient, at least according to established orthodoxy. Interconnectedness was supposed to mean that a problem in one place would shift supply chains elsewhere, and consumers would never see the difference.
