June 2011 - Global Economic Watch


Global Economic Watch


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Ursula Burns on Xerox's Transformation

06-30-2011 8:16 AM with no comments

When Ursula Burns took over as CEO of Xerox two years ago, her hiring was seen as an historic moment in American business history.  Burns became the first African American woman to head a Fortune 500 company.  She was also the first woman to take over from another female CEO.  The challenge at Xerox was, and is, a big one.  Burns has had to oversee a major shift, as Xerox's old position as a copier company was limiting.  Instead, Burns says she is leading a document services company--a position far more promising in this digital era.  Burns spoke with the Wall Street Journal's Alan Murray about the change:

Burns also spoke with Murray about how her upbringing prepared her for her work as CEO of Xerox.  You can watch that excerpt here.

Posted by Graham Griffith

McKinsey Global Report on 'Job Creation and America's Future'

06-30-2011 7:53 AM with no comments

The McKinsey Global Institute's new report on job creation paints a grim picture of employment prospects in the US for the coming years.  The authors write that in today's global economy "there is no more important economic priority than building a strong workforce." And they project a return to full employment will take longer than in previous recoveries.  Much longer.  Here is a look at their projection compared to past recessions:

The US economy needs to find jobs for the millions who lost jobs since the start of the recession, and then it needs to provide sustained growth and "better matching of US workers to jobs" for there to be any hope of a return to full employment by the end of the decade. From the report:

To return to prerecession employment levels by 2020 and accommodate the new entrants into the labor force, the United States will need to create 21 million net new jobs in this decade. To understand how this might be achieved, we created three scenarios of sector job growth, using our survey data, interviews with companies, and macroeconomic forecasts of sector demand.

In the most optimistic scenario, 22.5 million new jobs could be created by 2020, returning the economy to a 5 percent rate of unemployment by 2018. However, in the low-job-growth scenario, only 9.3 million net new jobs are added—implying continued levels of high unemployment. In our midrange scenario, about 17 million jobs would be created, with the unemployment rate remaining at nearly 7 percent in 2020 (Exhibit E2).

The low-job-growth scenario is frighteningly familiar. Essentially, it would be a continuation of the weak US job creation trend since 2000. It would mean further contraction in manufacturing employment, a continued wave of automation and offshoring in administrative and back-office positions, and a new wave of automation in retail (for instance, more widespread adoption of self-checkout). As in the past decade, our projections show that college graduates would fill a disproportionate share of whatever jobs would be created. Where the scenario would diverge from the past decade is in health care, in which large efficiency gains or significant cost controls unaccompanied by job-creating innovation could slow rates of job growth.

Read the full report, An economy that works: Job creation and America’s future, here.

Posted by Graham Griffith

Live Tweets and Live TV

06-29-2011 8:53 PM with no comments

Can social media save the video star?  Or at least bring appointment television programming back? 

eMarketer reports that the building in elements to programs that motivate the use of social media sites like Twitter and Facebook is having a positive impact on live television viewing:

Viewers are using Facebook and Twitter to comment about shows before, during and after they air. Television networks, grappling with the fragmentation of their audience, are experimenting with mobile apps, Twitter promotions and branded social networks in an effort to bring viewers back together. And a variety of other stakeholders are getting in on the social action as well.

“Experimentation still rules the day,” said Debra Aho Williamson, eMarketer principal analyst and author of the new report, “Socializing the TV Experience.” “There is a great deal of uncertainty about the paths that social media and TV will take, and the extent to which they will converge over time.”

Take a look at the Twitter activity connected to Survivor during 2011 episodes, when the producers began to encourage program talent to live tweet during broadcasts:

Read Social Media Brings New Engagement to TV here.

Posted by Graham Griffith

Bumblebees Conquer the Traveling Salesman Problem

06-29-2011 9:37 AM with no comments

After all these decades of some of the smartest humans trying to solve the Traveling Salesman Problem, researchers at Queen Mary, University of London's School of Biological and Chemical Sciences, decided to simply watch bumblebees and figure out how they make cost-benefit calculations.   From the press release:

"The Travelling Salesman must find the shortest route that allows him to visit all locations on his route," explained co-author Dr Nigel Raine, "Computers solve it by comparing the length of all possible routes and choosing the shortest. However, bees solve simple versions of it without computer assistance using a brain the size of grass seed."

The team set up a bee nest-box, marking each bumblebee with numbered tags to follow their behaviour when allowed to visit five artificial flowers which were arranged in a regular pentagon.

"When the flowers all contain the same amount of nectar bees learned to fly the shortest route to visit them all," said Dr Lihoreau. "However, by making one flower much more rewarding than the rest we forced the bees to decide between following the shortest route or visiting the most rewarding flower first."

In a feat of spatial judgement the bees decided that if visiting the high reward flower added only a small increase in travel distance, they switched to visiting it first. However, when visiting the high reward added a substantial increase in travel distance they did not visit it first.

The results revealed a trade-off between either prioritising visits to high reward flowers or flying the shortest possible route. Individual bees attempted to optimise both travel distance and nectar intake as they gained experience of the flowers.

So all we humans need to do is to use our much larger brains more effectively and make spatial judgments as if we were bees and our efficiency will climb and climb.  No problem. 

Read the release here.

(H/t Mark Thoma)

Posted by Graham Griffith

Carnegie Council Workshop on Global Business Ethics and Emerging Markets

06-29-2011 9:14 AM with no comments

As a multinational corporation grows it expands into new markets.  And each market is different, with its own business culture, traditions, rules.  And some emerging markets bring some shady business practices.  Okay, all markets likely bring shady business practices. So how and where does a multinational draw the line between doing what it takes to expand and dealing with corrupt partners? 

The Carnegie Council recently hosted a workshop on corruption in emerging markets with William O'Rourke, Jr.--Alcoa's vice president for Sustainability and Environment, Health & Safety (EHS).  In this brief excerpt from the workshop, O'Rourke says that first step in dealing with an ethical breach, or a possible ethical breach, is to take a deep breath and gather all the facts:

Watch the full workshop here.

Posted by Graham Griffith

Strong Dollar Rhetoric, Weak Dollar Reality

06-28-2011 8:20 AM with no comments

Politicians and policy makers in the US often talk a big game when it comes to the need for a strong dollar.  But as Willem Buiter, Chief Economist of Citigroup, and Ebrahim Rahbari, an economist for Citigroup, write at VoxEU, "US strong-dollar rhetoric has contrasted sharply with a weak dollar reality."  Buiter and Rahbari argue that current policy will keep the dollar relatively weak against other currencies.  But they also see no viable alternative to the dollar as the key currency in global business. 

Stepping away from the rhetoric about the dollar, Buiter and Rahbari remind us of some of the reasons policymakers may be okay with the dollar not getting to strong too quickly:

[A] low actual dollar exchange rate may be seen as a net benefit for the US, because, in the presence of nominal rigidities, a depreciation of the nominal dollar exchange rate implies a real depreciation and therefore an increase in the international competitiveness of the US tradables sectors. The US is quite an open economy today, with the ratio of trade (the sum of imports and exports) to GDP at around 30%, comparable to Japan (Figure 3). Net exports have also played a significant part in the slowly solidifying recent cyclical recovery in the US, though it is, of course, true that many factors affect the evolution of net exports besides the level of the (nominal or real) exchange rate.

Read The ‘strong dollar’ policy of the US: Alice-in-Wonderland semantics vs. economic reality here.

Posted by Graham Griffith

Report from Google on Brands, The Internet, and Word of Mouth

06-28-2011 7:23 AM with no comments

Google and the Kay Feller Group released a report earlier this month on how reliant brands remain on conversation.  The authors title the report "Word of Mouth and the Internet," and they find that most Word of Mouth conversations are still conducted the old fashioned way--face to face.  But the Internet is vital to brand impressions in those conversations.  It is the primary source of information for those conversations, surpassing television and other forms of news media. It is also where people turn for information following up a word of mouth conversation.  And for the moment, according to this Google funded study, search still dominates social media as the place people are getting most of their information.

You can read the report here, and watch the following video for a good summary of the findings:

Posted by Graham Griffith

New Paper on the Need for More College Educated Workers

06-27-2011 10:31 AM with no comments

You may have caught David Leonhardt's column on the value of a college education in the New York Times Sunday Review.  In it, he references a highly compelling paper by Georgetown professors Anthony Carnevale and Stephen Rose.  Carnevale and Rose argue that Americans are "undereducated," and that "the undersupply of postsecondary-educated workers has led to two distinct problems: a problem of efficiency and a problem of equity. degree attainment rates."  In fact, they argue that the US will need 20 million more college educated workers in the next 15 years. From the paper:

The increased focus on the availability of skilled labor in the United States is not born of idle concern; the evidence is clear that the United States needs more, not fewer, college graduates. Proof is apparent when applying the most fundamental concept of economics: supply and demand. In the labor market, workers supply their services for a price (or wage) and employers demand services in the form of jobs. The “supply curve” shows that workers are willing to supply more labor at higher prices and less at lower prices. Conversely, the demand curve shows that employers are willing to hire more workers at lower prices and fewer workers at higher prices. The market clearing price, or  “equilibrium,” is where the two curves intersect.



Read The Undereducated American here.


Posted by Graham Griffith

Startup Success and Getting the First Hires Right

06-27-2011 9:23 AM with no comments

Gurbaksh Chanal has successfully built a few companies, and he has come to believe that the potential success of any new business depends on the first hires.  The first five hires are especially important.  Get them wrong and the company will not take off.  Chanal wants his first hires to be hungry.  He explains his hiring philosophy in this short interview at Big Think:

Posted by Graham Griffith

Entrepreneur: 'Five Rules for Bootstrapping Success'

06-27-2011 9:02 AM with no comments

There is a lot to be said for growing an independent business without seeking funding from a VC or angel investors.  Control trumps financial resources for many entrepreneurs.  Jim Beach, David Beasley and Chris Hanks, writing at Entrepreneur, say that "bootstrapping can also be better for employees," as they have a stronger relationship with the company founder and "there is a clear and absolute line of authority."  Beach, Beasley, and Hanks say the key to bootstrapping is to get the business up and running quickly and efficiently.  And they advise following five rules:

1. Get Operational Quickly

2. Understaff

3. Keep Growth in Check

4. Forecast from the Bottom Up

and 5. Reconsider the Traditional Business Plan

The low-risk, bootstrapping entrepreneur doesn’t need start out by writing a detailed business plan. He or she starts small, with one or two sales, slowly building with little if any debt and using his or her day job as a cushion, creating a sustainable, profitable business from day one.

Using this formula, the only person who would read your business plan is you, and you already know what the plan is. Planning is important; spending weeks writing about it is not important. Later in your career as an entrepreneur, having a formal business plan may be a good idea as you venture into larger companies and indeed want to use someone else’s money to do so. But for now, that’s not necessary. Spend that time selling.

Read the full description of these rules here.

Posted by Graham Griffith

Brookings MetroMonitor on Employment and Recovery in 100 Largest Metro Areas

06-24-2011 10:57 AM with no comments

The Brookings Institution's latest MetroMonitor shows continuing growth in most metropolitan US markets, but the rate of growth is slowing as the labor market struggles continue.  Here's a look at the employment picture across metro areas:

From the report:

Seventy-three of the 100 largest metropolitan areas had job growth in the first quarter of 2011, up from 67 in the fourth quarter of 2010 and 35 in the third quarter of 2010.  However, the number of large metropolitan areas with job growth fell short of its recent high of 94, achieved in the second quarter of 2010.  Moreover, the rate of job growth in the first quarter, 0.3 percent for the 100 largest metropolitan areas combined, was very low, equivalent to only a 1.2 percent job annual job growth rate, which is too low to keep the unemployment rate from rising.

Twenty large metropolitan areas gained jobs in all of the last four quarters.  Austin, Charleston, Cleveland, Columbus, Dallas, Grand Rapids, Greenville, Hartford, Houston, Milwaukee, New Haven, Oklahoma City, Orlando, Pittsburgh, Provo, Raleigh, Salt Lake City, Toledo, Washington, and Youngstown gained jobs in every quarter from the second quarter of 2010 through the first quarter of 2011.  Thirty-two more metropolitan areas gained jobs in both the last quarter of 2010 and the first quarter of 2011.

Seventy-seven of the 100 largest metropolitan areas lost a greater share of jobs 13 quarters after the start of the Great Recession (the fourth quarter of 2007) than they did during the first 13 quarters after the start of any of the previous three national recessions.  Thirteen quarters after the start of the national recession, the 100 largest metropolitan areas combined had lost 5.3 percent of the jobs they had at the start of the Great Recession that began in 2007, compared to 1.1 percent for the 2001 recession.  However, in the 1981–1982 recession, employment in the 100 largest metropolitan areas had grown by 6.3 percent in the first 13 quarters after the start of the national recession and in the 1990–1991 recession it had grown by 0.5 percent.

Report author Howard Wial discusses some of the key findings in this short video:

Brookings has several interactive maps in support of the MetroMonitor report.  You can access them here.  And read the full report here.

Posted by Graham Griffith

Bhagwati on Free Trade and Economic Growth

06-24-2011 7:44 AM with no comments

At Project Syndicate, Columbia University professor of law and economics Jagdish Bhagwati makes the case for free trade as an engine of economic prosperity.  As exhibit A, he points to research by colleague Arvind Panagariya that shows a correlation between trade and growth in developing countries. Bhagwati:

Of course, it could be argued that GDP growth causes trade growth, rather than vice versa – that is, until one examines the countries in depth. Nor can one argue that trade growth has little to do with trade policy: while lower transport costs have increased trade volumes, so has steady reduction of trade barriers.

More compelling is the dramatic upturn in GDP growth rates in India and China after they turned strongly towards dismantling trade barriers in the late 1980’s and early 1990’s. In both countries, the decision to reverse protectionist policies was not the only reform undertaken, but it was an important component.

In the developed countries, too, trade liberalization, which started earlier in the postwar period, was accompanied by other forms of economic opening (for example, a return to currency convertibility), resulting in rapid GDP growth. Economic expansion was interrupted in the 1970’s and 1980’s, but the cause was the macroeconomic crises triggered by the success of the OPEC cartel and the ensuing deflationary policies pursued by then-Federal Reserve Chairman Paul Volcker.

Read Why Free Trade Matters here.

Posted by Graham Griffith

Leadership Lessons from the Chilean Mine Rescue

06-23-2011 7:45 AM with no comments

Michael Useem, director of the Wharton School's Center for Leadership and Change Management, has a new book out in which he shares 15 principles that can guide leaders through the most difficult challenges.  The Leader's Checklist covers lessons from history, including recent history like the collapse of AIG and last year's remarkable rescue of Chilean miners.  Useem discussed the latter with Chile mining minister Laurence Golborne.  Useem calls the rescue an important leadership moment.  Here is a video of their conversation:

Useem's book is available as a free download until June 28.  Click here for details.

Posted by Graham Griffith

Amartya Sen on 'dangers to democratic governance' in Europe

06-23-2011 7:16 AM with no comments

Nobel prize winner Amartya Sen is concerned that "democratic governance" in Europe is being influenced too much by financial institutions--ratings agencies in particular. 

While never a big fan of the euro to begin with, Sen is taking no pleasure in seeing the eurozone struggling in the wake of crises in Greece, Ireland and several other economies.  And he is concerned that the remedies are being driven by the wrong institutions, and in the wrong manner.  In The Guardian, Sen writes:

Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and the generating of public revenue through economic growth. The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.

This concern applies to a number of countries, from Britain to Greece. The commonality of the "blood, sweat and tears" strategy of deficit reduction gives some apparent plausibility to what is being imposed on more precarious countries like Greece or Portugal. It also makes it harder to have a united political voice in Europe that can stand up to the panic generated in the financial markets.

In addition to a bigger political vision, there is a need for clearer economic thinking. The tendency to ignore the importance of economic growth in generating public revenue should be a major item for scrutiny. The strong connection between growth and public revenue has been observed in many countries, from China and India to the US and Brazil.

Read It isn't just the euro. Europe's democracy itself is at stake here.

Posted by Graham Griffith

Bill Ford on the Future of Transportation

06-22-2011 8:43 AM with no comments

William Clay "Bill" Ford, Jr., executive chair of the company that bears his, and his great grandfather Herny's, name, has a vision for the future of transportation.  And some of what he sees would surely surprise his predecessors.  In this recent Ted Talk, Ford talks about the impact of gridlock on the environment, and what that means for his company and the cars Ford builds for the future, and for the type of infrastructure he thinks we need to build:

Posted by Graham Griffith

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