Opinion

4 principles to remember in the age of austerity

By Matthew Lynn (China Daily)
Updated: 2010-07-28 09:50
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Three: Look for better mousetraps. Governments won't just be able to cut their way out of trouble. The deficits are just too big for that. They will have to innovate as well, finding new ways of doing the same things more cheaply. The private sector is much better at that than the public sector. So look for companies in health care, education or outsourcing that can come up with new, more-efficient ways of doing things. They will have plenty of demand for their services.

One example. Capita Group Plc, which provides a criminal-records service for the UK Home Office, is pitching money-saving ideas to the British government. If they are good, they can expect an enthusiastic reception.

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Four: Don't forget about growth. The historical record shows that times of austerity are also ones of great entrepreneurial energy. During the 1930s, new industries such as consumer electronics and plastics were created. In the turbulent mid-1970s, the personal-computer industry was born, as companies such as Microsoft Corp. and Apple Inc. were founded. When times are hard, a lot of smart people don't have any choice but to set up their own business. And they will have to do it on the cheap as well, which is usually the best way.

So don't be too defensive. Even amid austerity, there will be some terrific new companies getting started. It is a good time to be looking for businesses to back.

Where should you be looking? How about Nathaniel Rothschild's new mining company, Vallar Plc, which has just listed its shares in London? The best brand name in global finances should be able to open a few doors, and resources are a growth industry.

Some of those investments may do well, others badly. But stick to those four principles and your portfolio should survive just fine. Ignore them, and you can expect to get burned.

Matthew Lynn is a Bloomberg News columnist and the author of "Bust," a forthcoming book on the Greek debt crisis. The opinions expressed are his own.

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