Why business is like... a forest fire

Five thousand acres of California's San Fernando Valley were ablaze last month, whipped up by the warm Santa Ana winds whistling through the canyons. Every year, forest fires destroy tens of millions of acres, consuming up to 1,000 acres an hour. But this isn't necessarily a bad thing.

by
Last Updated: 31 Aug 2010

Jim Rogers, the contrary fund manager, has compared the crisis that has rocked our financial system to a forest fire. The occasional fire, he says, is part of the natural ecology of a forest - many plants rely on fire to create gaps for the light to penetrate the forest canopy. Other plants have smoke-activated buds, or seeds that are trapped by a resin until a fire melts it away. Our economy can similarly benefit from a clear-out every now and then: as some companies topple, others will come through.

Politicians, regulators and central bankers have not excelled themselves in their oversight of our economy. To avoid getting burned in the future, they might take a lead from the forest ranger.

For rangers, the secret is not to eliminate forest fires but to apply techniques that allow occasional and controlled blazes. Suppressing all fires prevents new shoots from taking hold. It also allows a build-up of perilous quantities of highly flammable underbrush, storing up worse and unbridled trouble for the future. Sounds a bit like the short-sellers in the recent economic crisis.

Having accepted the idea that economic fires are inevitable and can be a force for good, the focus should be on how to reduce the interconnectedness of the system to make sure they are of the 'controlled and occasional' variety. A fire-proof economy is a fallacy. We should set up commercial equivalents to the forest firebreak.

Jennifer Harris is director of JRBH Strategy & Management, www.jrbh.co.uk.

Find this article useful?

Get more great articles like this in your inbox every lunchtime