Go Figure: The great business confidence gap

 
Man looking at change, business executives clapping

It's hard to explain why business leaders can be so pessimistic about the economy while being optimistic about their own company, writes Michael Blastland.

Most business people think the economy is on the slide. No surprise there. Business sentiment is often in the news.

But most business people also think - and we hear much less of this - that their own business is doing much better.

Curious. Can both beliefs be accurate?

It's a bit like everyone believing they're above average. To pose the obvious question* - how can most people do better than the norm?

Explanations later. What can be true is that one person is OK and everyone else is not. But it cannot be true that everyone is that one person. They can't all be exceptions.

But something not far from this seems to be the normal result of business surveys. Take this one for the Confederation of British Industry (CBI), conducted by Ipsos Mori from 4 October to 4 November, in which 70% said their level of confidence in the economic outlook had decreased from August, but only 30% said their own prospects declined.

As Ipsos Mori says: "Boardrooms are less likely to believe their own prospects have been affected."

Compared with August...

Up Down Same

Source: Ipsos-Mori for the CBI, 122 executives interviewed 4 October-4 November 2011 - "don't know" makes up 100%

My confidence in the economy as a whole is

6%

70%

24%

My own business prospects are

11%

30%

57%

Big differences appear despite a nudge by the pollsters towards consistency. The survey questions invited people to link their view of their own business with the answer they'd already given about prospects for the economy.

The language changes a bit between questions, from "confidence in the economic outlook" to "prospects for your business" which might explain some of the difference.

But other surveys suggest that it's to do with more than just semantics.

If this one from New Zealand is anything to go by - in which slightly more than half of those surveyed said their own business would improve but only a third said the economy would, or this one in London conducted for KPMG and the CBI - in which more than twice as many people felt optimistic about their own business as felt optimistic about the economy as a whole - such mixed expectations are common.

OK, the big question: What explains the apparent contradiction?

Well we're talking about belief here not fact. And beliefs can be, by varying degrees, wrong. Maybe those polled are right about the economy as a whole but wrong about their own prospects. That could plausibly be explained by too much self-confidence. They're wrong to think they're better than most.

Or maybe it's the other way round. They're right about their own businesses - these are the businesses they know best after all - but wrong about other people's. But it's what they think about other people that determines their views on the economy.

If true, that's weird too. Usually, most people prefer the evidence of their own eyes to that of hearsay or even aggregated data.

Is this a case where they accept that their own evidence is trumped by what they see and hear elsewhere? Can it be that in this instance business people don't believe the evidence of their own stories, except perhaps as proof of their own exceptional ability? If so, why?

Shopping bags Is business reporting to blame for the mismatch?

Ipsos-Mori highlights a few verbatim comments from its surveys. On the question about general economic prospects, this was top.

"Watch any TV programme or pick up any newspaper, the economic forecasts are all negative and the level of activity is decreasing."

Oh dear, our fault again - the media.

Or maybe both beliefs are a bit wrong and the truth is nearer the middle.

Which raises another question - are we reporting business sentiment properly when we concentrate on views about the economy in general, rather than using these surveys as a snapshot of first-hand experience?

That is, if we use business surveys to make a big deal of what people think about the general state of the economy, are we simply making news out of what people see in the news?

If so, would there be more value in reporting what they think about themselves than what they think about others? If we did, the business world would look more optimistic… or maybe, depending on your view of where the truth lies, more deluded.

* Beating the norm

There is another possibility. When I said that not everyone can be above average, it was only just true. Most people can be above average when we use average to mean the arithmetical mean. To see how, think of how many people have more than the average number of feet. Nearly all.

Applied to business surveys, this means that just as nearly everyone can have more than the average number of feet, so could nearly all businesses be doing better than the economy as a whole if the few parts of the economy that are doing worse are doing spectacularly worse - and so tilting the average performance of the whole economy below the experience of the majority of those who happen to be included in business surveys.

Another caveat - surveys of expectations do not all, or don't necessarily measure the absolute level of optimism or pessimism, they just measure how much those levels have changed. Some of these surveys are also small, the Ipsos-Mori/CBI survey was of 122 "business leaders" from the larger companies, though the New Zealand survey, for example, is of 1,000 smaller businesses - and produces similarly mixed responses.

 

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  • rate this
    0

    Comment number 108.

    An ongoing survey of UK finance directors has just arrived at the same conclusion. The FDs' Satisfaction Survey, being run in association with the ICAEW, found 40% of FDs believe their companies' prospects will improve in 2012. Just 7% feel the same way about the UK economy; and only 5% are optimistic on the world economy. http://realbusiness.co.uk/news/fds-reveal-striking-views-for-2012

  • rate this
    0

    Comment number 107.

    Actually this is easily explainable:

    Since a greater number see their own business prospects declining than improving it would infer that the economy as a whole is declining. The more informed answer being towards their own business, the less informed that towards the economy as a whole.

  • rate this
    -1

    Comment number 106.

    The difference is easily explained. Most business that have survived thus far are doing well and will continue to do well. However, the economy is being destroyed by a wasteful and incompetent public sector, Government is too frightened to introduce the policy that could revive the nation. Privatise all state funded services - keep state funding but ensure a customer mediated free market.

  • rate this
    +1

    Comment number 105.

    So instead of asking people what they believe, why don't they simply ask them how well their company is really doing? Predictions based on actual facts are bound to be more accurate than those based on pie-in-the-sky beliefs, whether optimistic or pessimistic. Durrr!

  • rate this
    0

    Comment number 104.

    Explanation for the difference is basic. Re economy as a whole, people tap information external to themselves eg., media reporting, which focuses on bad news, esp. in a recession.

    Re their own prospects, business leaders typically predict an upbeat future because they have the job of motivating others. To do anything else dampens morale.

    Two diff. constructs are being tapped by these surveys.

  • rate this
    0

    Comment number 103.

    88. Frank Lund

    The average for males is < 2 because there are going to be some males with 1 or 0. The average for females = 0.

    Therefore the average for the UK is going to be < 1 assuming that there are equal numbers of males and females in the UK.

    The problem with statistics presented by the government and the media, is that it is always to give an impression based upon the presenter's agenda

  • rate this
    +2

    Comment number 102.

    @Nieuw Divil #97 Given that those business leaders avoid £140 BILLION of tax EVERY YEAR I think their biggest "success" is that they've managed to rob the rest of us for so long (remembering all the subsidies they also receive). They don't pay 'our' dole, our taxes are their profits!

  • rate this
    0

    Comment number 101.

    The "economy as a whole" figures include public sector (roughly 50%) whereas the "my own business" will be private sector only.
    Difference explained. Easy.

  • rate this
    +1

    Comment number 100.

    fontainec
    I was talking about the causes not the consequences. If you want to blame the governments then lack of regulation of the private sector is your best bet.The credit crunch, resulting market crashes and increase in government bonds/decrease in tax income was not caused by government spending.

  • rate this
    +1

    Comment number 99.

    Isn't this story synonymous with those from a year or two ago reporting that we (the 'public') believed crime was on the rise, but just not in our neighbourhood?

    Ours (and business leaders') beliefs are a function (i.e. blend) of our own experiences and those of others relayed to us via the conversation, gossip, the media, the internet, etc.

  • rate this
    0

    Comment number 98.

    It seems every comment here about the stock market assumes people don't make money on the stock market, whilst at the same time justifiable criticising the excessive bonuses paid to those working for banks that evidently do make money on the stock market. Not every trader works for a bank and not every trader loses money, as with any business you just have to know what you're doing.

  • rate this
    -2

    Comment number 97.

    92 You and your kind hate success for some reason incomprehensible to me which is why you rant and rail against business leaders who, at the end of the day, are vital for the recovery of this country!

    If it wasn't for theses people your dole cheque wouldn't get paid - remember that next time you foment revolution from your bedroom!

  • rate this
    0

    Comment number 96.

    Does the accuracy of any such surevey matter, given the behaviour of the ratings agencies, their weighting of inputs and their impacts upon the rest of us?

  • rate this
    +1

    Comment number 95.

    93.Darren Shepperd
    2 Hours ago
    89.Frank Lund
    its clear frank lund has no real idea of business outside of gambling on the stock markets,




    It's clear that you state your assumptions without knowledge of me and my work

  • rate this
    +1

    Comment number 94.

    Re 92. KeyboardWarrior71
    If I was you, I wouldn't worry about Nieuw Divil. Yet again they've demonstrated that ignorance of any subject provides no excuse for not having an opinion about it.

  • rate this
    +1

    Comment number 93.

    89.Frank Lund
    its clear frank lund has no real idea of business outside of gambling on the stock markets, because otherwise he would know no matter how much money bankers had to lend it would all go unlent unless businesses have more customers than they can service with their present set-up only then do they borrow to grow.
    They dont suddenly wake up one day and say i know lets expand for fun

  • rate this
    +4

    Comment number 92.

    72.nieuw divil

    What a vile person you are - and I'm not a leftie - but then again EVERYONE is leftie compared to yourself.
    And what makes you think I haven't succeeded in life?? I'm just not bitter and twisted and feel I have to be vile on every HYS.

  • rate this
    0

    Comment number 91.

    77.pete6l
    3 Hours ago
    Please pull this article, it's embarrassing.




    A mere count without weighting according to size of business and magnitude of change has no use.

  • rate this
    +1

    Comment number 90.

    Pete61 @ 77 and 81 and sowhatdoiknowanyway @ 80. Spot on! It's great to see someone actually applying a little thought and unpicking the figures a bit - something that might have been included in the original analysis. If things are getting better for 11% but worse for 30% (and unchanged for the rest) then, overall, things are almost certainly getting worse.

  • rate this
    0

    Comment number 89.

    M Blastland ignores the very important opinions of the banks who lend to the businesses. They are the most telling things for him to GO FIGURE.

 

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