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Psychological Response To the Global Financial Crisis

23-04-2009

The paucity of articles in the business press about personal responses to the stress of the global financial crisis hints at an underlying major issue. There is an elephant in the room. It is about the human costs of this predicament. Not since the Nick Leeson and Enron scandals has the press been so bad for financial institutions and their high flyers.

Can you remember a front page of your paper in the last 6 months that didn’t have more bad news about the global financial crisis?

The predictable questions have been asked as humans (as is their wont), try to find meaning after the event. How could this have happened so quickly? Why didn’t the so called experts see it coming? How could better checks and balances have prevented this? Let’s find out who is to blame and punish them (ie. express our anger towards them).

Psychological responses to this threatening situation bear some examination. The first issue is demography. A successful operator in the finance industry, in their late 20’s or early 30’s, might well have never experienced anything, but consistent growth in the market since they started work. Many have become wealthy, provided they avoided the marginal loan pitfall. Their actions and advice to others were predicated by the assumption of “more of the same”. This exemplified the “confidence” people speak about in market reports. In this position people are unlikely to be amenable to counsel about possible flaws in the system. Let’s have no “negativity” here.

The literature is replete with articles about the radical nature of change, especially in communications, over the past decade. This has fostered globilisation, felt especially in the finance industry. The speed with which transactions can be effected via the net is astonishing. The emergence of “virtual” reality (is this an oxymoron?) has distanced humans from real “things” and values. One million dollars is a number on the screen rather than something more personal, such as the accumulated wealth of 30 years of hard work and careful saving.

As humans moved from “cottage” style businesses into the industrial revolution in the 1850”s, they became distanced from the consumer of their product, the meaning of their activity and the big picture decision making about their business. We now have a further 160 years of this process to deal with. In 1960 the composition of America’s Fortune 500 took 20 years for a third of the companies to change. Now it takes 4 years. Since the 1980’s work forces began slimming down. A worker in the 1960’s had an average of 4 employers by aged 65. Today they average 8 by aged 30 (The Economist, March 2009).

My parents experienced the Great Depression and it left an indelible mark upon their psyche. Those of my generation (baby boomers) probably heard the depression spoken about as something every bit as threatening as World War II. These people formed the second growth surge in the so-called “middle class”, mainly in Western cultures. They were financially conservative, valued education, married young, experienced stable financial circumstances for decades and lived in a relatively uncomplicated world. Their descendants (now in their mid 50’s to 60’s) have experienced at least 2 recessions, the .com boom and bust and an exponential rate of technological change. There is the sense that “things will eventually be OK” amongst this group. They have seen the resolution of recessions on more than one occasion.

The research about work-related stress problems has mainly addressed two big ticket items; unemployment (as a result of increased numbers of unemployed in the 70’s and 80’s) and “burnout”. There is a worry that Sophie’s choice might lie between these two options. You are either working too hard or you haven’t got a job at all!

The global financial crisis has caused a “shake-out” in most industries, but especially in finance. People are confronted (often for the first time) with the prospect of an unpredictable and therefore insecure future. People identify with their work role eg. I AM a broker. In view of the threat to our sense of well-being and who we “are”, unemployment is a negative life event. The demands required by this change event (change in role, status, income and sense of the future) make it all the more toxic. Not surprisingly, there are increases in rates of lowered self esteem, poor morale, anxiety disorders and depression. Attempts at self treatment result in higher rates of alcohol and drug abuse. Suicide risk increases as does that for physical problems eg. hypertension and heart disease.

These risks apply equally to both genders. The risks increase as the duration of unemployment increases. There is a “ripple” effect where family stability is also jeopardised as a result of unemployment.

Mention should be made of those who aren’t sacked during a shake-out. Those doing the sacking might well be giving very bad news to a colleague of several years, who is often liked and respected. Mixed feelings are likely in this group, from relief that “it’s not me” (yet)! to empathy with the colleague’s predicament and the resultant guilt. Those left behind will often over-work to protect their positions making them more likely to experience so-called burnout.

Burnout occurs where, over time, people invest too much of themselves in work at the expense of their non-work interests and friends. The features (first named in the 1970’s) include emotional and physical exhaustion, diminished interest and motivation and a reduced sense of accomplishment. If this continues without attention, depression often results.

The current situation for the finance industry is problematic. People are working in a much less predicable, therefore less personally “safe” environment. Previous presumptions about global sources of capital are less valid as governments intercede to moderate the effects of the crisis on local economies. There is increasing pressure on banks (often propped up by taxpayers’ money) to lend to markets they understand better ie. locally. Those involved in investment are required to “think outside the square” with the back-drop of continued growth having dissolved. The days of “the big bonus” might be numbered. Once again, there is a demand to adapt to change ie. this is a toxic set of circumstances to work in.

When discussing how to manage ones psychological health in these circumstances, some initial provisos apply. There is probably a need to realistically assess what are reasonable, personal goals. It might be that minimising harm is a fair starting point.

Given the fickle nature of “business confidence”, it is a time for distinguishing between what is personally achievable ( is under our internal locus of control) and what is due to factors beyond our personal control (an external locus of control).

At the risk of rehashing a series of motherhood statements the following check list, it should be reviewed on a regular basis (in no necessary order of priority).

Avoid so-called “future tripping” ie. imagining, therefore experiencing, possible worst case scenarios. Try to remain in the present and try to solve immediate problems rather than get caught up with toxic ruminations
The most powerful predictor of psychological well-being is the quality of social supports ie. your important relationships. They need time and effort to nurture. They are probably your most important investment.
Plan in detail for regular physical activity. Frequency is more important that intensity and this should be at least 5 times per week. It is best done in a pleasant environment with company and rewarded afterwards.
Avoid drugs and alcohol. Short term band-aids rapidly become career threatening problems.
Art, music, literature, theatre, film. It is no accident that human kind invented them. They do good things for brain chemistry. No one knocks on your door with theatre tickets. It has to be organised and requires planning.
Explore that hobby or quirky interest you had always put on the back burner.

It will be obvious that these activities all require planning and an output of effort. (Dare I say it, as much as work itself). They don’t compete with work, but compliment it.

Some predict a Darwinian “survival of the fittest” response to the global financial crisis. This involves a weeding out of firms which are less innovative. For those who do survive the advantages will include a reduction in competitor numbers and a glut of good people available for employment when things eventually improve.

However, the Darwinian comparison has some flaws. The evolutionary process took millions of years, and was predicated on the notion that genetic variability allowed some species to adapt better to the environment. They were therefore able to reproduce and that species survived. They had no conscious say in the matter. The current “environmental crisis” demands intellectual effort as a pre-requisite for survival. It is the people who take better care of themselves (physically and psychologically) who will be in a position to make the innovation calls. These will be the survivors.

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