January 2011 - Global Economic Watch

Eichengreen on the End of the Dollar's 'Singular Status'

01-31-2011 8:55 AM with no comments

The US dollar may be losing its global status.  But Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley and research associate at the National Bureau of Economic Research, says the dollar's status slide will not be immediate.  He also argues that, for the US, the end of the dollar's "singular status" will not be as bad as many make it out to be.  Here is an excerpt from Eichengreen's presentation at a Carnegie Council event titled Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System:

Watch the full event here.

Posted by Graham Griffith

US Trust in Institutions Decreased in 2010

01-31-2011 8:27 AM with no comments

Globally, trust in institutions is on the rise.  But not in the United States.  Those are among the findings in the 2011 Edelman Trust Barometer, which Richard Edelman presented to global leaders at the World Economic Forum in Davos last week.  Here is Edelman summarizing the key findings:

And here are a couple of interesting charts from the presentation.  First, take a look at levels of trust in business among the top 10 GDP nations:

And take a look at how, in the US, trust dropped in the four institution types the Edeleman report covers:

Read the full report here.

Posted by Graham Griffith

Inflation and Unrest

01-28-2011 9:29 AM with no comments

The eyes of the world are on Egypt and Yemen today with pro-democracy protests and rallies intensify.  With US media outlets cutting back on foreign reporting over the last few decades, you'll find comprehensive coverage at the BBC Middle East news site.  Not to take away from the larger, more immediate story, but it is impossible to separate the events across the Middle East and North Africa from economic issues.  Alen Mattich of DowJones reminds us of the role that commodity price inflation in the stability, and lack thereof, in developing countries:

Posted by Graham Griffith

Real GDP Rose an Estimated 3.2% in 4th Quarter

01-28-2011 9:02 AM with no comments

Real GDP grew at an annual rate of 3.2% in the fourth quarter of 2010, according to an advance estimate just released by the Commerce Department. And the economy grew at a rate of 2.9% in 2010 after Real GDP decreased 2.6% in 2009.  According to the Bureau of Economic Analysis, personal consumption expenditures, exports, and nonresidential fixed investment were the primary drivers of the fourth quarter growth:

Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.4 percent in the third. Durable goods increased 21.6 percent, compared with an increase of 7.6 percent. Nondurable goods increased 5.0 percent, compared with an increase of 2.5 percent. Services increased 1.7 percent, compared with an increase of 1.6 percent.

Real nonresidential fixed investment increased 4.4 percent in the fourth quarter, compared with an increase of 10.0 percent in the third. Nonresidential structures increased 0.8 percent, in contrast to a decrease of 3.5 percent. Equipment and software increased 5.8 percent, compared with an increase of 15.4 percent. Real residential fixed investment increased 3.4 percent, in contrast to a decrease of 27.3 percent.

Real exports of goods and services increased 8.5 percent in the fourth quarter, compared with an increase of 6.8 percent in the third. Real imports of goods and services decreased 13.6 percent, in contrast to an increase of 16.8 percent.

Read the BEA release here.

Posted by Graham Griffith

NYT: Japan's 'Silver Democracy' and Struggles of Younger Workers

01-28-2011 8:28 AM with no comments

Japan's economy continues to struggle with weak growth and young workers are having a difficult time finding jobs.  According to the New York Times's Martin Fackler, those young workers who do find jobs are likely to hold so-called "irregular jobs" well into their thirties, with the regular jobs held for older workers.  Fackler:

An aging population is clogging the nation’s economy with the vested interests of older generations, young people and social experts warn, making an already hierarchical society even more rigid and conservative. The result is that Japan is holding back and marginalizing its youth at a time when it actually needs them to help create the new products, companies and industries that a mature economy requires to grow.

So one big casualty of this demographic inequality may very well be entrepreneurship, and Fackler points out that the characteristics of Japan's economic growth in the Twentieth Century--namely, innovation--seem nonexistent today.

While many nations have aging populations, Japan’s demographic crisis is truly dire, with forecasts showing that 40 percent of the population will be 65 and over by 2055. Some of the consequences have been long foreseen, like deflation: as more Japanese retire and live off their savings, they spend less, further depressing Japan’s anemic levels of domestic consumption. But a less anticipated outcome has been the appearance of generational inequalities.

These disparities manifest themselves in many ways. As Mr. Horie discovered, there are corporations that hire all too many young people for low-paying, dead-end jobs — in effect, forcing them to shoulder the costs of preserving cushier jobs for older employees. Others point to an underfinanced pension system so skewed in favor of older Japanese that many younger workers simply refuse to pay; a “silver democracy” that spends far more on the elderly than on education and child care — an issue that is familiar to Americans; and outdated hiring practices that have created a new “lost generation” of disenfranchised youth.

Read In Japan, Young Face Generational Roadblocks here.

Posted by Graham Griffith

Marketplace Whiteboard: 'Spotting a double-dip recession'

01-27-2011 8:16 AM with no comments

Is it possible to spot a double-dip recession before it hits?  Marketplace's Paddy Hirsch is dubious.  But he is willing to give it a try.  And considering the challenge reminds him of surfing:

Double-dip recession from Marketplace on Vimeo.

Posted by Graham Griffith

For Small Businesses, Hiring in 2011 Brings New Opportunities, and New Challenges

01-27-2011 7:48 AM with no comments

If indeed the economic recovery continues to the point where small businesses are able to start hiring, managers will likely be using a whole new set of tools to find candidates than they did three years ago.  Social media presents some new opportunities.  And the sheer number of people available to work has to affect the process (good candidates are out there, but finding the best candidates may take more time).

At Small Business Trends, Rieva Lesonsky writes about how big corporations are planning on going about new hires this year (she cites the Wall Street Journal and a Corporate Executive Board survey).  And she argues that there are some key lessons for small businesses:  

First, get back to basics. I think it’s ironic that big companies are turning to some of the time-honored tactics small companies have always used to find employees. Getting referrals from current workers, using your network of contacts to seek candidates, and even looking to your competitors as sources of job applicants are all strategies that work well for small businesses.

Second, take advantage of the ability that social networking and the Web have given us to supercharge our employee-search tactics. In the past, you would have had to actually get on the phone with 50 or 100 contacts to put the word out that you’re looking for a new marketing director, now you can let people know about it with the click of a mouse.

Third, focus on quality, not quantity. Putting the word out to a few select people you truly trust gives you better results than posting a job opening on Facebook (although the latter still beats a general job board listing for delivering relevant candidates). You’ll save time by not wading through piles of applications—and find the perfect employee far faster.

Read Do You Need to Hire This Year? Where Will You Find New Employees? here.

Posted by Graham Griffith

Animated Case for Revenue Performance Management

01-26-2011 9:12 AM with no comments

Show me the money revenue.

Eloqua is a marketing automation company that works with some fairly significant global businesses. The company believes strongly in its approach to improving sales efficiency--something names Revenue Performance Management.  They not-so-humbly call it the next big idea in business.  We'll leave it to you to decide.  But we found this video on RPM compelling:

(Hat tip Barry Ritholtz)

Posted by Graham Griffith

FCIC Report Calls Economic Crisis an 'Avoidable Disaster'

01-26-2011 8:48 AM with no comments

It looks like the New York Times managed to acquire an early copy of the Financial Crisis Inquiry Commission's report.  Sewell Chan summarizes the report's conclusions, in today's Times, writing that the crisis " was an 'avoidable' disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street."

Acoording to Chan, the FCIC had trouble coming to a bipartisan consensus, with Republican members "focusing on a narrower set of causes" than the commission as a whole.  We can expect to see a lot of detailed blame for certain government officials in the full report, which is scheduled to come out as a book tomorrow.  Chan:

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”

Read the full article here.

Posted by Graham Griffith

Connecting with Neglected Markets

01-25-2011 8:25 AM with no comments

As Director of the Lab for Social Computing at the Rochester Institute of Technology, Elizabeth Lane Lawley is impressed with a lot of the ideas of creative directors these days.  But she believes a lot of them aren't connecting with some potentially valuable customers.  In this talk at CaT London--now available from AdAge--Lawley argues that by ignoring consumers because of where they live, or their age, or perceptions about the way they live, limits the reach and viability of social media strategies:

Posted by Graham Griffith

Scott Shane: 4 Reasons for Small Business Pessimism

01-25-2011 8:07 AM with no comments

For all the talk of the US economy rebounding, many small business owners continue to feel left behind by any recovery.  Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve University, sees little in the present economic situation or in the near future that suggests small business owners have much to be happy about.  Writing at Small Business Trends, Shane gives four reasons small business owners feel left behind.  First, the housing market woes have a greater impact on smaller businesses:

Moreover, small business financing depends a lot on housing prices. Big public companies obtain the capital that they need by issuing bonds and stock and selling them to investors, but small businesses rely heavily on personally guaranteed and personally borrowed money from banks. Analysis I conducted with my colleague Mark Schweitzer of the Federal Reserve Bank of Cleveland shows that the fall in housing prices has eliminated almost $25 billion in potential credit for small business owners.

Second, big businesses can better take advantage of the more robust economic growth occurring in other countries. Small Business Administration data shows that small businesses only account for 31 percent of exports but generate more than half of non-agricultural private sector GDP. The lesser reliance of large businesses on economic conditions within the country has worked to their advantage in recent months.

Third, increase in government regulation, as seen in the financial and health care reform bills have imposed a disproportionately large burden on small businesses. In a recent paper, Nicole and Mark Crain of Lafayette University wrote that “small businesses face an annual regulatory cost … which is 36 percent higher than the regulatory cost facing large firms.”

Fourth, most government policies to combat the weak economic conditions have helped large companies more than small ones. For instance, the stimulus program, which worked in part through government contracting, favored large businesses that knew how to work the public contracting system.

Read Is Small Business Prosperity Just Around the Corner? here.

Posted by Graham Griffith

Global Risks to be on the Agenda for Business Leaders at Davos

01-24-2011 8:54 AM with no comments

This week global business and policy leaders will convene the Annual Meeting of the World Economic Forum in Davos-Klosters, also known simply as Davos.  The theme for Davos this year is Shared Norms for the New Reality.  And we can expect a lot of discussion off of the recent World Economic Forum Global Risks report.  Global Risks 2011 features 37 risks for economies and business, but calls two risks "especially significant": Economic disparity and global governance failures.  These two risks, the report's authors argue:

...both influence the evolution of many other global risks and inhibit our capacity to respond effectively to them.

In this way, the global risk context in 2011 is defined by a 21st century paradox: as the world grows together, it is also growing apart.

Globalization has generated sustained economic growth for a generation. It has shrunk and reshaped the world, making it far more interconnected and interdependent. But the benefits of globalization seem unevenly spread – a minority is seen to have harvested a disproportionate amount of the fruits. Although growth of the new champions is rebalancing economic power between countries, there is evidence that economic disparity within countries is growing.

Issues of economic disparity and equity at both the national and the international levels are becoming increasingly important. Politically, there are signs of resurgent nationalism and populism as well as social fragmentation. There is also a growing divergence of opinion between countries on how to promote sustainable, inclusive growth.

To meet these challenges, improved global governance is essential. But this is another 21st century paradox: the conditions that make improved global governance so crucial – divergent interests, conflicting incentives and differing norms and values – are also the ones that make its realization so difficult, complex and messy. As a result, we see failures such as the Doha Development Round of the World Trade Organization (WTO) and the lack of international agreement at the Copenhagen Conference on climate change. The G20 is seen as the most hopeful development in global governance but its efficiency in this regard has not been proven.

Read the full report online, here.  And watch Robert Greenhil--the World Economic Forum's managing director and chief business officer--discuss Global Risks 2011:

Posted by Graham Griffith

eMarketer Predicts Twitter REvenue to Triple in 2011

01-24-2011 8:35 AM with no comments

Twitter began selling advertising space and other marketing services in 2010, and the social media site saw its first revenue, bringing in $45 million.  eMarketer is bullish on the prospects for Twitter to grow significantly in the next two years, predicting a big jump in revenue:

By 2012, eMarketer forecasts, Twitter revenues will reach $250 million. But the company must show it can live up to its hype.

“If Twitter can grow its user base and convince marketers of its value as a go-to secondary player to Facebook, it will succeed in gaining revenue,” said Debra Aho Williamson, eMarketer principal analyst. “In 2011 it must work overtime to give its early advertisers a positive experience.”

Twitter’s monetization efforts will go into full gear this year, with the current Promoted Products suite and the pending launch of a self-serve platform akin to Facebook’s highly successful ad targeting system.

Read Twitter Ad Revenues to Soar This Year here.

Posted by Graham Griffith

New Markets, New Models

01-21-2011 8:52 AM with no comments

When companies enter into developing markets to sell their goods, they likely realize that they need to develop new strategies to find success.  What worked for them in their old markets will likely not work in the new.  Matt Eyring, president of Innosight, argues that it isn't enough to "tweak" strategies.  Rather, companies need to develop new strategies.  One approach, as Eyring, Mark W. Johnson, and Hari Nair write in the latest Harvard Business Review, is to treat entry into a developing market as if your company is a startup:

Established companies entering emerging markets should take a page from the strategy of start-ups, for which all markets are new: Instead of looking for additional outlets for existing offerings, they should identify unmet needs—“the jobs to be done” in our terminology—that can be fulfilled at a profit. Emerging markets teem with such jobs. Even the basic needs of their large populations may not yet have been met. In fact, the challenge lies less in finding jobs than in settling on the ones most appropriate for your company to tackle.

Many companies have already been lured by the promise of profits from selling low-end products and services in high volume to the very poor in emerging markets. And high-end products and services are widely available in these markets for the very few who can afford them: You can buy a Mercedes or a washing machine, or stay at a nice hotel, almost anywhere in the world. Our experience suggests a far more promising place to begin: between these two extremes, in the vast middle market. Consumers there are defined not so much by any particular income band as by a common circumstance: Their needs are being met very poorly by existing low-end solutions, because they cannot afford even the cheapest of the high-end alternatives. Companies that devise new business models and offerings to better meet those consumers’ needs affordably will discover enormous opportunities for growth.

Read the article (subscription required) here.

And watch Eyring discuss the need for creating new business models:

Posted by Graham Griffith

Fortune: 5 Business Myths

01-20-2011 7:58 AM with no comments

One benefit of lean economic times: they give cause for re-calibration and reconsideration of supposed truisms.  Verne Hamish, Fortune contributor and CEO of Gazelles Inc., writes about 5 myths that the recession should have taught entrepreneurs to reject.  Including myth #3, You really know your market:

Gathering real data may prove you wrong. Dave McLurg, chief strategy officer and partner at Adaptive Technologies in Scottsdale, was certain that only big companies wanted his firm's software, which helps users predict which clients will be the most profitable. But surprise! After encountering a midsize firm that wanted something like it, he undertook market research that showed that others did too -- only for a lower price -- and launched a new version. "It's turned into a multimillion-dollar division for us that we hadn't anticipated," he says.

Read all five myths here.

Posted by Graham Griffith