Interview with Professor Schoors

"Research is a need, so no decrease expected in the following months”


Koen Schoors is professor economics at Ghent University and Vlerick Business School, Member of different professional bodies, forums and research centers and author of a series of articles about economics that appeared in national and international academic and business journals.

We had the opportunity to ask Professor Economics Koen Schoors some questions about the current credit crisis and its impact on companies. In this interview, he explains the nature of the current credit crisis, shares his opinion about the role of rating agencies and tells us how he thinks the credit crisis will affect the market research industry.

Second crisis

Jolien: We are in the middle of the second crisis in a few years. People say this one could even be worse than the one we faced in 2009. Are they correct?

Prof. Schoors: No, they are not, in the sense that we are not facing a second crisis. It’s the same crisis we are still feeling, but it presents itself in a different way now. Two years ago, everything was about the banks, which were out of resources. Now we have a situation where governments lack resources. In the first scenario, the banks were saved by the governments, but it’s very unlikely that private companies will come to the rescue of states. So if we don’t react fast, yes, it definitely will be a hard time. But governments and states are warned by everything that has happened in the previous years, so I think they will (and of course they also have to) look out to prevent that we are facing an enormous recession.

Rating agencies

Jolien: Much is said about the role of the rating agencies. What should we believe about their independency and their influence on the situation by the ratings they give to companies and countries?

Prof. Schoors: Officially, they are as indeed independent agencies, who give ratings to companies and countries. The ratings indicate the chance of a default; i.e. the chance that a company or country is no longer able to solve its financial debts. But the critics clearly have their point too. The rating agencies are paid by the companies they rate, so they definitely have a certain commercial interest. Secondly, by their ratings, they influence the whole market. They influence the way people and governments spend their money and make banks inert institutions. They can just rely on the ratings and this means that they do not have to be active monitors anymore. So I totally agree with those who say there is something permanently wrong. But on the other hand, we should be careful not to confuse the messenger with the message. Even though the way the agencies work is not fully transparent, their message about the enormous financial gaps governments are building up (and banks were), should be heard too.
Jolien: Are there at this moment initiatives which aim to change this situation?

Prof. Schoors: Yes, absolutely. At this moment, governments are discussing the possibility of independent or government rating agencies, which should work independently from commercial interests. There has been a split between consultancy and rating to prevent conflicts of interest and there is regulation (partly under way) to supervise them. There is an agreement that something needs to be done about this situation, so I think we will soon see things change here.

Impact of the crisis on companies


Jolien: A Flemish newspaper wrote on August 12 that even though people do understand that the financial problems of our governments are scarifying high, the spending of households and the activity of companies has not yet diminished. How do you think the current situation will affect the business sector in the coming weeks and months?

Prof. Schoors: The sector of services will lose some of their work in the following months, that’s for sure. Just like the governments, companies have to economize at some level to arm themselves against possible even harder times. Furthermore, in a lot of countries is the government an important client. Given the fact that of all sectors, the governments will have to economize most, I assume that most companies in the service sector will feel the recession in one way or another.

Jolien: Soft services, as communication and research are said to be one of the first services that are hurt when there are financial problems. Are there difficult years to come for us?

Prof. Schoors: Most companies started economizing in the last years, so probably the spend for research won’t go under the level it is at this moment. Research is still a strategic need for every company, so they can’t wipe out the whole budget if they want to continue in the following years. I think for the research sector, the hardest years, with discharges and losses of projects are already passed.

Jolien Verheust