The End of Globalisation

Luc Vallée

Globalisation, a force for good in general, is at risk of losing its status ... again! But this time the threat may not come from youths eager to demonstrate and/or unionized workers wanting to protect their high paying jobs. Although these segments of the population are likely to participate in the second wave of attacks on globalisation, the core of the protests is likely to come from much more powerful interest groups: business leaders, high skilled workers, consumers and even government.

In the past business leaders have been ambivalent about opening boarders. In the one hand, they recognized the value of competition and valued the opportunity to grab new markets by expanding internationally. Yet, on the other hand, those businesses that had the hardest time adapting to this changing environment have been more reluctant to embrace free-trade and supported at least some form of protectionism.

High skilled workers have also generally benefited from globalisation and the more so when their skills could be protected by intellectual property rights. For a while this protection seems like it would offer a permanent bonanza to makers of “content” but the Internet and the Napsters of this world are rapidly changing the rules of the game. And the rest of high skilled workers who could not benefit from such dynamics increasingly feel the heat of Chinese and Indian Ph.D.s. Already an engineering degree which requires years of investment in education and hard work (compared to finance for instance) has become a commodity. As a result, most engineers in America earn next to nothing compared to other (protected) professionals. This has incited many to enrol into costly MBAs and other management programs to pull themselves out of an increasingly miserable situation.

Moreover, consumers who were the major benefactors of cheap goods until recently are now indebted or jobless. The other side of the split personality of consumers (they need to work as well in order to consume) is taking over and making many realize that they are puns in a game which is not being played with their genuine interests in mind; in spite of the rhetoric from the multinationals and their lobby.

Finally, governments which have been backing free trade for several decades are sensitive to the new found preoccupations of their constituents. And while they had to assume more powers to deal with the financial crisis, their interest and incentives to intervene in the affairs of the markets have increased substantially. Regulation is making a come back and free trade will not be exempted from its grip.

The danger is that this new coalition of protectionists tips the balance of power too far into the other direction and kills the goose laying the golden eggs. Unbridled emotions of the mob combined with justified moral outraged could produce a swing of the pendulum that would kill incentives and destroy the benefits provided by the efficient allocation of resources of a market economy.

Free Traders are indeed in need of a plan. Body of the Article

What happens when currencies are not valued right?

Nwakego Eyisi

Understanding paper money

What does a dollar, Yen, Pound Sterling, Yuan and Euro mean?

Paper money is a reflection of the health of an economy, in other words it moves in the same direction with the economy it represents.

For instance when the right policies are made it attracts capital flows or foreign direct investment. Capital flows creates jobs and increases economic growth. It also means the country is richer. When this happens the national currency appreciates.

The exact opposite happens when bad policies are made, it leads to capital flight and a reduction in economic growth, (in other words the country is poorer) eventually the currency depreciates or loses value.

Usually when a country’s currency loses value it means that export oriented industries will do well (for countries that are productive) and vice versa when the currency appreciates. That is one reason governments (for export driven economies) intervene to keep (or peg) their currency at a certain level.

Currencies (Yuan, Yen, Dollar) and fundamentals

Does a rigged currency reflect the true state of these economies?

“China is a top destination for capital but has a currency that is grossly depreciated”

“The Yen should trade higher because of capital flows and the strength of the Japanese economy”

“The EURO (currently) does not reflect the fundamentals of a productive German economy”

“Brazil and South Africa’s currencies are probably too strong (overvalued) for their economies”

If the big players (China, USA and Japan) are manipulating their currencies it means there is a distorted picture of the health of these economies (and the global economy by extension).

For instance Japan flooding currency markets with cheap Yen to reduce its value might help export oriented (Toyota, Mazda, Honda) industries but what would it do to savings and consumption? what about asset bubbles and inflation?

It is the same argument for China, where the authorities has not allowed the Yuan to appreciate when the markets demands that it appreciates.

Restive capital and add ons from global recession

This does not bode well for capital. Even when capital moves to countries (Brazil, Switzerland) where it is guaranteed higher returns it still creates problems because it is not wholly market driven. That is why Brazil imposed taxes on capital flows because it hurt the economy.

In 2007/2008 countries around the world lowered interest rates to accommodate the recession. This tinkering of interest rates makes capital restive because capital typically moves to regions of higher returns. Let’s not forget that low-interest rates debases paper money because central banks inflate and flood the markets with cheap money when interest rates are lowered.

Add this to the current currency wars and it is easy to predict anemic growth going forward.

Leadership, Intangibles & Talent

Michael Folkman

Going through this quarter’s articles, blogs and research, the key word or theme for this quarter is “complexity” and in particular how organizations should be embracing what is inherently complex, rather than trying to simplify and standardize across the board. This desire to simplify can range from high-level decision-making to talent management, where in many cases things are not always as they seem.

We transcript a part of the articles, those who want access to all the articles please contact the author (he’s into the contact list) or visit his web page www.fourgroups.com

Engagement

Regular readers of this update will know that employee engagement has been flavour of the month in corporate boardrooms for some time now. It seems that organisations are waking up to the fact that engagement and the willingness to go the extra mile in terms of discretionary effort is not necessarily down to pay and benefits but a far more complex and intangible set of criteria that require specific insight and understanding of culture, relationships and values. Given the number of conferences and seminars on offer covering engagement it appears that there is a cottage industry developing to guide senior executives through this tricky area.

However, with engagement unlike some areas of corporate development, teaching executives about how to engage their people suffers from a number of inherent difficulties. Firstly, can something as naturally intangible as engagement be taught in a systematic manner? Secondly, do organizations and more specifically, senior executives actually want engagement given the change in outlook and culture it will require? Michael Specht lists five criteria for successful engagement:

• Involvement in decision making

• Feel they are able to voice their ideas, & managers listen to these views

• Have line of sight between employee performance & company performance

• They have career development

• When the organization is concerned for employees’ health & wellbeing

To this I would also add strategic and e case for improved engagement is something all organizations are striving for? Well, I’m not convinced that many are willing or able to undertake the necessary changes in outlook and culture to achieve this. Digging a little deeper it appears that pursuing engagement as a key strategy in boosting performance is going to require change or a reversal in corporate attitudes that many executives may find too unpalatable or difficult to achieve even if they wanted to.

By looking a little closer we can actually start to understand what an organization would look like if it were to really focus on cultivating engagement as a key value. To start off with one of the main requirements of engagement is to give people autonomy or control over their role and an active say in decision-making. This came up in a provocative blog post by Paul Gillin5 entitled Gain Control by Giving it Up, where he talks about a new book called Open Leadership by Charlene Li6. In her book Li puts forward the notion that the traditional model of focusing hierarchical reporting and concentrating decision making and influence in the hands of a few senior executives is damaging to organisational performance. This is not a new idea but on this evidence I think Li makes a very strong argument. “Open Leadership will make a lot of people uncomfortable because it proposes that the only way to govern effectively in a transparent business world is to give up control and trust people to do the right thing.” “Li asserts that today’s business world is too complex and competitive to permit organizations to continue to manage the way they have since the Industrial Revolution. That top-down philosophy assumes that people are idiots who can’t accomplish tasks without instructions, rigid rules and constant oversight.”

“New business leaders set examples, demonstrate confidence and create cultures that tolerate intelligent, wellintentioned failure.” Li is not alone in her views on the damaging nature of traditional organisational structure, these are reflected in an excellent blog post by Gary Hamel7 in the Wall Street Journal. “I believe that many of the tools and methods we use to manage people at work are ill-suited to the challenges of succeeding in today’s “creative economy.” All too often, legacy management practices reflexively perpetuate the past—by over-weighting the views of long-tenured executives, by valuing conformance more highly than creativity and by turning tired industry nostrums into sacred truths.” “We should remind ourselves that dogma often masquerades as truth, and that we are often comforted by the deception. There are many who would prefer a lazy ramble along the gentle contours of the tried-and-true then a hard scramble up the rocky incline of the untested and unproven.” Hamel goes on to cite HCL Technologies CEO Vineet Nayer as someone who has successfully managed to “invert the pyramid” and empower employees so that they are at the heart of the organisation. “We must destroy the concept of the CEO. The notion of the ‘visionary,’ the ‘captain of the ship’ is bankrupt. We are telling the employee, ‘You are more important than your manager.’ Value gets created between the employee and the customer, and management’s job is to enable innovation at that interface. To do this, we must kill command-and-control.” This same view of challenging the traditional role of leaders is echoed in a Financial Times article by John Kay8: “Domineering chief executives often fill their boards with cheerleaders, and rarely seek sceptical counsel. An army of professional advisers can hardly wait to get its hands on fees. The independence of equity analysts is compromised by their association with deal making banks. Both analysts and journalists find their access depends on good relations with the businesses they cover. Many of the worst deals were widely applauded when announced. The modern cult of the heroic chief executive is at the root of the problem.” To underline the need for radical change in the role of organizational leaders, Gary Woodill9 argues that traditional management of activities such as strategic reviews, long-term business planning and centralized setting of objectives is a waste of time. “What is interesting is that new methods have been developed in providing companies foresight, at least for a few years. But most strategic planning is an extension of the past.” Giving up what we have long held to be productive and positive is something that Jeff Sutherland blogged about10: “Study after study at MIT and around the world show that incentive bonuses cause people to perform worse if they have to do any thinking in their job. (Hopefully, that is most of us.) Of course, all the research shows performance appraisals demotivate people but we still hand out performance appraisals thinking that will help employees improve performance proving that much of what we think and do is fundamentally flawed.” In her book Li argues that decentralizing power is an inevitable change that organizations are going to have to make. I think that many organizations or those leading them run a mile from this concept and most organizations are currently moving in the opposite direction. Advances in technology and the recession have meant that organizations are monitoring and looking to standardize their employee’s activities on a greater scale than ever. With greater monitoring and the unsuitability of traditional organizational command and control, mediocrity is perpetuated and people are forced to take a narrow view of their role in the organization. A blog post by Johnnie Moore discusses the idea of “closing the field”: “services get analyzed by experts and chopped into smaller functional units. Front and back offices are created; some back office functions then get outsourced. Each unit is given its own performance targets. For example, a call centre operator has to clear 60 calls a day. Inevitably, everyone learns to game the system; one way to deal with lots of calls is to cut people off or pass them along - leading to even more calls later etc etc.” In short, what is required is not a new strategy to focus on engagement but a new organizational culture that places engagement at its heart to highlight the difficulties in effecting cultural change, Gautam Ghosh12 highlights a video entitled “Culture eats Strategy for Lunch”. The reality is that the vast majorities of organizations have a culture or organizational structure that suits the command and control indset. Advances in technology have meant that it is becoming easier and easier to micro manage and standardize procedure to the nth degree. The upshot of this is that it actively disengages people from their role and perpetuates poor performance. My feeling is that faced with the choice of giving up control and influence or maintaining the status quo the vast majority of modern executives will go for the latter. Part of this is inevitably down to the herd mentality. As with bonus culture, the negative effect on performance is well acknowledged. The reason cited by executives however for sticking with bonus culture is that everyone else is doing it. It will take a brave leadership team to abandon the traditional command and control mindset. This does not mean engagement will not continue to feature heavily in discussions and in seminars and conferences. Enterprises will still continue to roll-out annual engagement surveys and I suspect many organizations will be on the hunt for marginal increases in engagement, if it means the culture stays the same.

RESOURCES: OWNERSHIP & ALLOCATION

Amer N. Raja

Definition of Resources:

Resource can be defined as anything that can be employed to satisfy human needs and wants. As the aim of all economic activity is to satisfy some human needs or wants and so because of their ability to fulfill that function, resource is of utmost importance in Economics and other Social Sciences. Therefore, for satisfying human needs and wants, resources (material) like water, land, animals, oil, etc are required and by employing human labor and organization on the natural resources we produce other products either naturally (like fruits, vegetables, cattle/fish farming, golf course etc.) or by employing knowledge (science and technology) we produce many other products and services (cars, electronics, hospitality advertising etc).

Types of Resources:

As per our definition of resources, all things that can satisfy some human need or want are a resource. Air and overall habitable planet is a must for very fundamental human need to breathe and live. This fundamental resource has never been taxed by human for it is beyond their power to control as well as available in plenty. There are other resources like land, labor (with varied intelligence), water, animals, minerals etc known as natural resources which are limited and their human ownership varies from society to society and from time to time. The value added resources are those which have been derived by applying human skill and knowledge on combination of other natural resources. The examples consist of simple table to money and to machines like cart and motorcar.

Ownership of Resources

Ownership is a major problem concerning all human activities. It will not be an exaggeration to say that ownership of the resources is the main problem. There are few wars that are fought on the basis of principle but for the aggressive party in general there is some hidden motives to gain ownership over resources and through this impose their own agenda.

There is a fundamental principle in Economics which is - TINSTAFL - an acronym of "There is no such thing as free lunch". In other words, according to Economics nothing is free. What about the natural resources: air, land, labor etc? What are their costs? Who primarily own them? The Creator or they are just as it is? This definitely lead us to consult the other branches of knowledge theology, anthropology etc.

In the very beginning when there were no such issues of over population and political or national borders, how the ownership of resources among human was determined? Originally the own-able resources supposedly would have been owned by family head and allocated as per his discretion or if some of the family member does not agree he may leave alone or most probably with his own supporters. At that time conflict might have existed because of jealousy, anger, greed, arrogance or such other factors. However, our concern here is not to find the causes of war but to determine ownership of resources. Yet battles are fought to gain power over one's own tribe or neighboring tribes that eventually can determine ownership of resources. The other view is that they (populace) signed some social contract through which a governing team was formed and they also were responsible for allocation of resources. This vague social contract concept is the foundation of modern nation states. In other instances, some religious code might have been the determining factor in appointment of governing team and allocation of resources.

Ownership in case of idea – Someone discovered the cure for a disease, let’s say cancer, who will own the idea? Once inventions/discoveries are made, they can become a great profitable resource. Their ownership cannot be fully controlled, either it is propagated voluntarily or others somehow copy or independently discover it. Whoever uses that discovery/invention is entitled to own the idea.

Ownership in case of uncultivated/abandoned land – Who owns the land, owns the material from it. Generally, it is the government, rulers or conquerors do so?

ALLOCATION OF RESOURCES:

The next issue is the transfer of the ownership or resources. We do not live in a stationary world and also all resources are not fixed. Primarily land is a fixed resource but by applying skills and technology on land we can enormously increase the output from land in the form of vegetable, fruits, cotton, multi-storey construction etc. The ownership of the products remains the entity of the producer or owner of the land till it is not sold. In practice, the excess output is sold in the market and through exchange the ownership title changes from seller to buyer. Also the labor/experts sell their services to the buyer. In these cases, price mechanism (supply and demand determines price of a product/service) determine the allocation of resources. The seller sells their product or service in exchange of cash to the buyer that changes the ownership of the product as well as service (for a limited time). This also applies to industrial production along with livestock and other businesses. Inheritance, gift and charity are other methods through which ownership or resources can be changed. Then, government or rulers also give the ownership of resources to some individuals.

Other ways in which ownership of resources changes that however theoretically unapproved are stealing, robbery, coercion and capturing the produce, service or land.

Case: Ownership on Moon. It will be a good case to study that how ownership can be determined on the moon. Ultimately, it is owned by the Creator. Now, is it acceptable that whoever, reaches their first owns the moon or anyone who can reach their can own the piece or the one who has first reached there, prevents other and battles are fought and winners owns the space on moon. If someone has the other resources like capital, spaceship etc and wants to offer a visit to the moon open as a tour operator and own a resort there, does he/she need some permission, if so why?