Hello from Hamburg,
During the Great Depression of the 1930s, Vladimir Smirnov, the founder of the Moscow vodka distillery bearing his name—which had since relocated to Istanbul and Paris—was forced to sell his company to the United States. Amid the recession, Smirnov had been unable to turn vodka into a bestseller outside of Russia. Rudolph Kunett, the buyer, integrated the production into his spirits company, G.F. Heublein Brothers Inc. He pondered how to raise the profile of vodka, which was unknown in the U.S. In 1941, one of his managers met Jack Morgan, the owner of the Cock’n Bull Pub in Hollywood, who wanted to market his homemade ginger ale. According to legend, the two of them created the Moscow Mule in its distinctive copper mug. Riding on the cocktail’s coattails, the vodka’s market launch in the U.S. was a success.
In the early 20th century, Vorwerk—a carpet manufacturing company founded in Wuppertal-Barmen in 1883—also produced electric motors for gramophones. When radio emerged in the 1920s and, at the same time, German households were connected to the power grid, the market for gramophones and their self-powered drives collapsed. Vorwerk found itself with empty factory halls amid a deepening recession. Out of necessity, the resourceful chief engineer Engelbert Gorissen attached an electric motor and a bag to a tube, added a suction device at the bottom, and invented the one-handed vacuum cleaner. The product, patented in 1930 and named the “Kobold,” however, required a great deal of explanation for German housewives. In response to the economic crisis, Vorwerk promptly hired World War I veterans—who were themselves in precarious circumstances—as commission-based sales representatives to demonstrate the Kobold in households. This marked the birth of direct sales in Germany and the Kobold’s breakthrough, which continues to this day.
Rapidly rising energy prices, high inflation, sales problems due to the war in Ukraine, and supply chain bottlenecks caused by China’s strict COVID-19 policies are causing a specialty agricultural machinery manufacturer in northern Germany to fall into a structurally unprofitable situation in 2022. Management approaches the necessary review of structural costs in such a way that it does not end up being a blanket “across-the-board” approach, but rather subjects the business units and overall work practices to critical scrutiny. And lo and behold: After years of discussions about a cherished but loss-making product line—one that had been unprofitable even during its peak—the company finally finds the courage and resolve to divest itself of it. Product innovation—which had long been artificially divided into “Ventures,” “New Business,” and “New Business Units” operating at different locations, thereby causing delays, duplication of effort, and endless discussions about interfaces—is now consolidated into a single team that will henceforth collaborate across locations on a shared platform.
Resourceful people, entrepreneurial courage, and consistent leadership in times of corporate and economic crises are the threads that tie these three stories together. They demonstrate the creative power that crises can unleash. In my view, this perspective on the current overall economic climate is often overlooked amid the prevailing fears of crisis and recession.
Using the example of the seven recessions Switzerland has experienced since 1948, the NZZ has calculated that, despite these recessions, real gross domestic product (GDP) increased roughly sixfold from 1948 to 2021. These are well-known downturns: the recessions of 1958, 1982, 1991–93, 2002–03, the 1975–76 oil crisis, the 2008–09 financial crisis, and the 2020 COVID-19 crisis. On the downside of these economic downturns is unemployment—usually short-term; in the worst cases, long-term as a result of structural change leading to the disappearance of certain professions. Vocational and college graduates who enter the job market at a critical juncture face temporary difficulties.
However, these crises have a positive macroeconomic impact and contribute to increased prosperity through their role in accelerating structural change and correcting past economic excesses. The cleansing effect of the 2008 Lehman bankruptcy on the U.S. real estate sector (even if we’re not entirely out of the woods yet) and the current mass layoffs at major tech companies like Google, Facebook, and others are examples of the correction of exponential growth expectations and inflated corporate valuations. Ultimately, such corrective effects set economies on a path toward higher growth and future job creation.
So instead of lamenting the decline of the West, imagining society to be on the verge of a nervous breakdown, or heralding the end of the free-market economy due to the supposedly increasingly evident “irrationality of it all” (as the director of the Institute for Social Research in Frankfurt recently did), it would be good for us to focus on the strength that lies within crises. And to avoid falling into a fallacy: believing that crisis is the exception and stability the norm. The opposite is true, as history shows and the future will prove. Rainer Hank recently reminded readers in the FAS that the economy is subject to a cycle of fluctuations—a steady rise and fall, globalization and deglobalization, booms and downturns.
Certainly, our current crisis has the potential to throw everything out of balance due to two factors: The detonation of even a few of the more than 13,000 existing nuclear weapons, combined with climate change, is more than enough to wipe out the human race on this planet. Until then, it is up to each and every one of us to stand up against this and do the right thing—even in the face of adversity, and now more than ever.
