Keynesian Model and Firms

There were lots of discussions on the recession and its effects. There were lots of discussions on how this recession ends (or rather has to be ended?). Governments all over the world were pumping money to the frozen market in a hope to get it revived. Banks were not lending after the sub-prime experience (we have a saying in our native language which literally translates to " the cat learnt its lessons of not playing with the fire after burning its ass".. funny). Somewhere from the middle of the crisis, some economists were discussing about possible application of Keynesian model of economics to the current recession. After all, I was curious about Keynesian model of economics? Searching (rather "googling") through internet, I learnt about Keynesian model. In simple layman's language it is defined as follows. When the economy is in recession, jobs are lost and unemployment jumps. This will have knock effect which creates a vicious circle resulting in slowing down of economic activities. In such a scenario, Keynes advocates that it is possible to revive the economy with the government's intervention because only government has the resources to keep the economy going by implementing new projects such as construction of roads, rail networks etc which provide jobs to thousands. This will create positive knock on effects resulting in more jobs, more spending and ultimately reviving the economy.

This seems to be very simple. As I was thinking about this, as usual, effect of MBA appeared in my mind. Why not companies with enough cash balances go for the application of Keynesian model? I argue that, by doing so, companies could gain competitive advantage. Here are the reasons for my thinking. In the slowing economy, the spending by the organizations diminishes. So too for the demand for products and services. As a result organizations slow down on R&D activities which results in the loss of human resource. Organizations also know that it takes much more effort, time and money to hire them again when the economy recovers. My thinking is that instead of companies slowing their investments and firing the employees, they should start looking into the future opportunities coming on the way when the economy recovers. If the company invests its money in bettering the products and services during the recession would gain the competitive advantage of beating the competitors when the economy recovers. THey even could get best talents in the market for cheaper rates. Because the competitors would have spent less on their R&D and would have fired their employees to shield themselves from the recession.

It seems to be a good strategy for the firms with huge cash balances because these companies can utilize their excess cash to gain the competitive advantage.

So, what do you think? Do you think there is some substance in my arguments?

-Deepak