THE VISIBLE HAND
Limiting demand is the visible hand of economics. Why? Because “The invisible
hand” loses potency with rising affluence.
“Rich people are insulated from price increases, but not from supply shortages.” ~
The Invisible Hand
The theory of the invisible hand says, “If there are more carpenters than needed,
the wages of the carpenters will fall (supply exceeds demand) and many carpenters
will be unemployed except for the fact that surfeit of carpenters means a dearth of
plumbers. The demand for plumbers and the higher wages arising from demand
exceeding supply means people will become plumbers instead of carpenters and
“the invisible hand” of the market will handle this…more or less.
The Visible Hand is entirely different. By limiting the demand, you stabilize the
economics of your entire enterprise.
Profits v. Growth
In this paradigm, maximising profits is not the overriding concern—stability is the
overriding concern. This is because stability is necessary for growth.
This is analogous to an investment portfolio. You have growth stocks, you have
income stocks. At the outset, you want growth stocks. When you get older, you
want income stocks.
Think of the Sharpe-Markowitz Efficiency Curve. Risk v. Return.
The visible hand is the growth stock portfolio.
In the early days of B-School (my early days) growth was described as having an
inherent risk factor.
If you grow to fast (faster than your market) you tie up capital and reduce your
ROI. (Return on Investment.)
If you grow too slowly (if your market grows faster than you do) you lose
customers, cut revenue, and lose market share.
Let’s review Mr. Putin’s Visible Hand.
Forming a Eurasian Economic Union.
Mr. Putin is taking advantage of a competitor’s weakness (The EuroUnion) to
expand Market Share and to Increase Revenue.
Mr. Putting stabilises revenue by limiting demand with a deal to sell natural gas to
SUPPLY CHAIN STABILISATION
Mr. Putin establishes a stable supply of oil with an oil deal with Iran.
MARKET PENETRATION AND DISTRIBUTION CHANELS
The acquisition of the Crimea includes a warm water part and accesses markets.
Mr. Putin’s Economic Theatre of Operation is a Textbook Lesson on Strategic
Mergers and Acquisitions
Supply Chain Stabilisation
Sales and Marketing
The SWOT Test.
Mr. Putin’s SWOT Test
Shared History and Culture with Eastern Europe
Natural Gas Supply
Natural Gas Deal with Germany
Leveraged Capital Investment Opportunities in Russia
Late arrival into the Global Free Market Paradigm
Lack of Warm Water Port(s)
Activist Minority Stakeholder Dissent
Weak EuroUnion Economy
Eastern Bloc’s Need for an Economic Union