Future Generations Condemning Us

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/24/AR2010092404113.html?referrer=emailarticle

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"Of all the virtues, gratitude is probably the most neglected and least expressed."
(John C. Maxwell)

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Sunday's Washington Post had an interesting input from Kwame Anthony Appiah asking what future generations will condemn us for. His article was made that much more interesting by the added option of giving readers a "choice" to vote for four alternatives. In the 24 hours since my vote went in, 2,000 more people have voted. Cast your vote!

Overall, Appiah suggests that there are three signs that a particular practice is destined for future condemnation. First, people have already heard the arguments against the practice ("The case against slavery didn't emerge in a blinding moment of moral clarity, for instance; it had been around for centuries."). Second, defenders of the custom tend not to offer moral counterarguments but instead invoke tradition, human nature or necessity (As in, "We've always had slaves, and how could we grow cotton without them?"). And third, supporters engage in what one might call strategic ignorance, avoiding truths that might force them to face the evils in which they are complicit ("Those who ate the sugar or wore the cotton that the slaves grew simply didn't think about what made those goods possible.").

No matter how much we think we know about the various issues going on in the world, we can't know about all of them. Appiah calls our attention to the Russian Republic of Kalmykia where satellite photos show a "... vast expanse of parched wasteland that decades earlier was a lush and verdant landscape ... recognized in the 1990s as Europe's first man-made desert." Desertification, which is primarily the result of destructive land-management practices, threatens a third of the earth's surface.

It's good to have a philosophy professor like Appiah remind us occasionally that part of our worldwide decision-making process should be based on what we are leaving for future generations to deal with, cope with or stand for.

Attitude

http://johnmaxwellonleadership.com/2010/09/24/attitude-is-contagious-%e2%80%93-what-are-people-catching-from-you/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+JohnMaxwellOnLeadership+%28John+Maxwell+on+Leadership%29

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"People won't go along with you if they can't get along with you." (John C. Maxwell)

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Al Casey, whom many consider one of the Top 10 CEOs of the 20th century (as CEO of American Airlines in the 70s and 80s, he led the industry through deregulation), prized Dr. Charles Swindoll's definition of "Attitude." We'll quote a portion of it here: "The longer I live, the more I realize the impact of attitude on life ... I am convinced that life is 10 percent what happens to me and 90 percent of how I react to it."

John C. Maxwell carries the torch with his 9/24 post (attached). He reminds us that several things on a team are NOT contagious: talent, experience, willingness to practice. BUT, attitude is catching: "People have a tendency to adopt the attitude of those they spend time with - to pick up on their mindset, beliefs and approaches to challenges."

Maxwell goes on to quote an idea from Fred Smith about there being two kinds of people in any organization: polluters and purifiers.

"POLLUTERS are like smokestacks, belching out dirty smoke all the time. They hate clear skies, and no matter how clear the air is, they can find a way to poison it with gloom. When the people around them "breathe" their toxins, they feel sicker and sicker."

"PURIFIERS, on the other hand, make everything around them better. It doesn't matter what kind of rotten atmosphere they encounter. They take in the toxic words of polluters in the organization just as everyone else does, but they filter the words before they pass them on. What goes in may be gloomy and negative, but when it comes back out, it's fresh and clear."

Leading doesn't necessarily mean you have people working for you - leading is the example you set from wherever you are. Do you do what you say you are going to do when you say you are going to do it? Do you help others when you can?

Al Casey would have agreed. :)

The Short List

http://dealbook.blogs.nytimes.com/2010/09/22/after-summers-new-economics-chief-could-be-a-c-e-o/?scp=8&sq=Lawrence%20Summers&st=cse

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"The way I measure greatness is ... How many people can you make want to be better?"
(Will Smith)

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So, Lawrence (don't call me "Larry") Summers will be leaving at the end of the year. He is being given credit for being the "chief architect" of the Obama economic policy. Would that be the same as being chief naval architect of the "Titanic?"

We've attached the short list of potential replacements and we note with interest (and "hope") that Anne Mulcahy (the recently retired CEO of Xerox) is a contender. Not only would she bring some common sense to the position, but she would be the first business CEO to be added to the Obama team. In addition, if common sense wasn't enough, she would also bring a sensitivity to diversity which her predecessor clearly lacked (Summers only lasted two years as president of Harvard before he was ousted by a faculty vote of "no confidence" after he argued that differences between the sexes explained why fewer women pursued math and science careers. Actually, that was the immediate proximate cause - he had always been "tone deaf." How he ever became president of Harvard in the first place is beyond me - actually, it had something to do with having been Secretary of the Treasury. But, please...).

President Obama's appointment of Summers in the first place reflected a certain lack of sophistication about Summers' personality as well as the task at hand. Mulcahy suffers no such disadvantages.

Now three members of the original Obama economic team are gone. Treasury Secretary Geithner is referred to as "remaining" as the last of the team but that's only because Summers ignored Paul Volcker, the esteemed former Fed Chairman who is more qualified than the rest of the group put together and is still there. At least Volcker contributed the "Volcker Rule" to the financial reform legislation and is listened to by those who know what they are talking about. Volcker's position has consistently been that the legislation and the original "stimulus" were not enough. Summers failed at everything. Volcker has yet to fail. Mulcahy turned around Xerox when that was thought to be impossible.

Maybe President Obama won't be as tone deaf as his appointment of Lawrence Summers implied. Maybe he'll make a good choice now.

Change Your Thinking

http://johnmaxwellonleadership.com/2010/09/20/change-your-thinking-change-your-life/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+JohnMaxwellOnLeadership+%28John+Maxwell+on+Leadership%29

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"The biggest lesson I have ever learned is the stupendous importance of what we think. If I knew what you think, I would know what you are, for your thoughts make you what you are; by changing our thoughts, we can change our lives." (Dale Carnegie)

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John C. Maxwell has studied successful people for forty years and, as he says, though the diversity you find among them is "astounding," he believes they are all alike in one way: how they think! That is the one thing that separates the successful from the unsuccessful.

The good news is that it's possible to think like a successful person. Good thinking requires several specific thinking skills. Maxwell has put together 11 of them. Read what they are within the context of what he's written (attached).

For those of you who have experienced my interpretation of Maxwell's 360 Leader, think about what he's saying within that context.

Rising Poverty

http://www.nytimes.com/roomfordebate/2010/09/16/rising-poverty-and-the-social-safety-net?emc=eta1

http://www.nytimes.com/2010/09/17/us/17poverty.html?_r=1&emc=eta1

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"It's difficult to find common ground with others when the only person you're focused on is YOURSELF." (John C. Maxwell)

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So, the money not being spent on the U.S. economy in the form of capital expenditures from U.S. companies continues to be a drag on job growth. The report on this subject by Fareed Zakaria recently was backed up by Federal Reserve data released this week. The Fed's quarterly Flow of Funds report indicates that corporate liquid assets made up 6.12% of total business assets in the second quarter. That's just barely down from the 6.21% level in the first quarter when companies had the highest share of assets in cash since the early 1960s. And, any corporate CEO will tell you why: the regulatory and tax environment is still not settled.

The slight increase in capital expenditures in the second quarter (reducing the 6.21% number above to 6.12%) reflects spending on software and equipment, not people. Some would look at the prior sentence and say, "... software and equipment instead of people" since many CEOs and top finance staff view such expenditures as synomimous with more output "because" they're not spending on people. Consequently, they improve their "productivity."

All of this makes it possible for companies like Oracle (the world's biggest maker of database software) to report a 20% increase in net profit in the latest quarter. Oracle's results, reported Thursday, come as the company finds itself in the spotlight in the latest Silicon Valley soap opera: this one involving Mark Hurd, the ousted chief of Hewlett-Packard. Oracle has hired Hurd to sharpen its attack on HP in the area of computer servers, an area Oracle picked up with its $7.3 billion purchase earlier this year of Sun Microsystems.

The theatrics over Hurd's appointment as Oracle co-president (is that like co-CEO, only a level lower?) - a move HP has sued to stop (unfortunately, the HP Board was so anxious to get rid of Hurd that they didn't put a clause in his ($35 million?) severance agreement about working for the competition) - have overshadowed the fact that Oracle's core business is thriving because businesses have pumped up their investments in the programs that run their back offices. Oracle is a key company because its software is ubiquitous but largely hidden from the public view. It's used to keep bank transactions humming, airplanes landing on time and retailers shelves stocked with the right amount of merchandise.

While that's nice for Oracle, the providers of "services" in this service economy have a mixed bag of performance that is more reflective of what's really going on. FedEx Corp. indicated Thursday that the global economic recovery remains "uneven." While strength in international shipments is boosting their net income, FedEx is cutting 1,700 jobs in its U.S. freight business to offset losses there. Where do those people go?

Back to rising poverty. The percentage of Americans struggling below the poverty line in 2009 was the highest it has been in 15 years according to the Census Bureau report on Thursday. Four million additional Americans found themselves in poverty in 2009. That total is now 44 million or 1 in 7 residents. The share of residents in poverty climbed to 14.3% in 2009.

For a single adult in 2009, the poverty line was $10,830 in pretax cash income; for a family of four, $22,050. We've attached a second article (in addition to our first which includes an excellent graphic depiction of the combination of real median income in thousands, poverty rate and percentage without health insurance) which addresses what to do about the situation from various points of view. David R. Jones (President and CEO of The Community Service Society of New York) has the realistic view that we need to upgrade the skills of young people trying to enter the labor market - funding should be increased for vocational education that leads to real jobs after school. Essentially, we should concentrate our efforts on young people who are not going on to college. Otherwise, we have the makings of a permanent underclass. We would add to Jones' perspective that colleges need to get serious about working with students on getting them to options in courses that will lead to "employable skills" in profit or non-profit sectors that are growing (health care, for example).

Last, we noted with interest on Friday that Dell will open a second major operations center in China in the western city of Chengdu. This is a natural outgrowth of rising costs in the more developed coastal areas. We're sure China's perspective is supportive since the government is looking for economic growth away from its coasts. Dell, like other foreign PC makers in China, has struggled to increase its market share against Lenovo. Dell expects its new operations center to open in 2011 with manufacturing, sales and service centers which could eventually employ up to 3,000 people.

Dell estimates that it will spend more than $100 billion in the next decade in China on facilities, employment, research and development and purchases from Chinese suppliers. Here, we are tempted to ask why Dell can't spend some of that money in the U.S. - but we won't. Currently Dell accounts for 9% of the 16.6 million PCs shipped in China annually, putting them in second place behind Lenovo which has a 28.7% share (HP has an 8.2% share).

Unemployment, poverty and capital money being spent overseas by U.S. companies. There seems to be a recurring theme here. Getting capital money to be spent here would be a good way to jump start the economy and jobs.





So we are back to the issue of unemployment and poverty in the U.S.

We're Number 11

http://www.nytimes.com/2010/09/12/opinion/12friedman.html?src=me&ref=general

Newsweek's current listing of the 100 best countries in the world lists America as No. 11. This compilation is referenced by Thomas L. Friedman in his Times article attached.

Friedman goes on to quote Robert Samuelson in the Washington Post as saying that we've spent so much money on school reform in America and have so little to show for it. But, at least Samuelson says that our problem may be more than bad teachers, weak principals or selfish unions. Friedman quoting Samuelson, "The larger cause of failure is almost unmentionable: shrunken student motivation ... students, after all, have to do the work. If they aren't motivated, even capable teachers may fail ... Motivation is weak because more students don't like school, don't work hard and don't do well."

Are we apathetic? Is this Rome? Do we have, as Friedman puts it, "... a national epidemic of get-rich-quickism and something-for-nothingism.?"

Where are we going to find excellent students for our business schools who are then open-minded enough to listen to ethical thoughts on business and success?

Let me close by quoting Friedman again: "... In a flat world where everyone has access to everything, values matter more than ever. Right now Hindus and Confucians have more Protestant ethics than we do, and as long as that is the case we'll be N0. 11."

Was it Winston Churchill that said "America is the last best hope for democracy." We don't get it wrong all the time. If we look at the ten countries ranked ahead of us, I'd rather be 11th and live here. And, how do we explain (if we want to stay with education for a moment) people like Geoffrey Canada, founder of the Harlem Children's Zone. HCZ has used a comprehensive strategy, including prenatal Baby College, social service programs and longer days at its charter schools to forge a new future for one of New York's bleakest neighborhoods.

Canada's secret is that he has worked hard to assemble what he knows works: better-trained teachers working with the best methods under the best principals supported by more involved parents.

This is not rocket science. The problem with our U.S. approach is that the best pay and/or incentives go to those who choose Finance (for want of a better word) where the highest pay exists for the best minds who actually create "nothing." There are certainly economists who can argue what that "nothing" is but what we mean is no net tangible product - certainly the worldwide financial crisis was proof of that.

And, as for being number 11, when the worldwide financial crisis hit, I'm willing to bet that the head of the European Central Bank was real happy to get $360 billion from Ben Bernanke instantly without any debate in Congress and before the formal bailout legislation. So, perhaps the U.S. is number 11 until we are needed.

In the meantime, we can fix education - it just takes a national will to do so.

1938 in 2010

http://economix.blogs.nytimes.com/2010/09/08/stimulus-and-private-sector-hiring/?emc=eta1

http://economix.blogs.nytimes.com/2010/09/08/stimulus-and-private-sector-hiring/?emc=eta1

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"There is a great deal of difference between knowing and understanding. You can know a lot about something and NOT understand it." (Charles F. Kettering)

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Paul Krugman's September 5 article on how similar our current situation in the U.S. is to 1938 (when the Great Depression was in its 9th year) resounds with anyone that is a student of economic history. What is it they say about history? Anyone who doesn't study it (especially politicians) is doomed to repeat it.

Krugman writes wonderful stuff and he has the added cachet of knowing what he's talking about: "President Obama's economists promised not to repeat the mistakes of 1937, when FDR pulled back fiscal stimulus too soon. But, by making his program too small and too short lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment - and now it's fading out."

Krugman goes on: "And, just as some of us feared, the inadequacy of the administration's initial economic plan has landed it - and the nation - in a political trap. More stimulus is desperately needed, but in the public's eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs ... In short, welcome to 1938."

And, of course, the 1938 election was a disaster for the Democrats who lost 70 seats in the house and 7 in the Senate.

Then came WW II where, again to quote Krugman, "Over the course of the war the federal government borrowed an amount equal to roughly twice the value of GDP in 1940 - the equivalent of $30 trillion today."

So, the economic moral is clear: "... when the economy is deeply depressed, the usual rules don't apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse."

So, the lesson of 1938 is that massive deficit spending cured the problem by accident with the U.S. entry into WW II at the end of 1941.

Now, far be it for all economists to agree on what time it is let alone what cured the Great Depression. Casey B. Mulligan's post in "ECONOMIX" on September 8th, refutes Krugman's thinking. And, Mulligan has a chart!

(Before we go further, we want to add that Mulligan is a highly regarded University of Chicago economics professor who has been a leader in the behavioral economics movement - a movement which we think will be additive to the future sophistication of his profession.)

Mulligan's chart, "The Unemployment Rate Before Pearl Harbor," purports to show that WW II
spending did not end The Great Depression because the unemployment rate was on its way down before we got into the war. We won't spend a lot of time refuting his assertion but we would point out that smart people gear up for "wars" by building up materials in advance of potential hostilities just in case.

More importantly, Mulligan asserts that, if the current wars in Afghanistan and Iraq ended and 500,000 troops (or, whatever the number) were discharged from duty, our private sector would not contract, as stimulus advocates contend. It would, rather, EXPAND to absorb the new veterans. Seriously, what is he smoking? He needs to look more recently at what happened with our Viet Nam veterans: no jobs! Whether or not Mulligan's chart works, his reasoning on the economy's private sector expanding for returning troops makes no sense.

So, we'll vote with Krugman and we'll hope that all those Top 500 CEOs, who aren't spending any of the capital that they are holding back, will decide to start spending so that our GDP will have a chance to grow again. Right now U.S. GDP is growing at a steadily decelerating rate. That doesn't bode well for jobs.

Labor Day and Recession Economics

http://economix.blogs.nytimes.com/2010/09/03/comparing-this-recession-to-previous-ones-job-changes-6/?emc=eta1

http://www.nytimes.com/2010/09/04/business/economy/04jobs.html?_r=1&emc=eta1

Motoko Rich has an excellent article in today's nytimes.com on the new report that American businesses have added more jobs in the last three months than originally estimated, "... calming fears of a double-dip recession." He goes on to tell us that the "private sector" added 67,000 jobs in August, with some of the strongest gains in health care, food service and temporary help. That was higher than "consensus forecasts."

However; Rich goes on to point that the wind down of the 2010 Census, as well as state and local government layoffs, led to an overall loss of 54,000 jobs in August.

To use an old expression, Rich has done his best to "perfume this pig." Nominally, it takes roughly 125,000 jobs created per month just to stay even with population growth. Do we see that here? No.

Catherine Rampell's chart (attached) from today shows in one "picture" job changes in this recession compared to recent ones - the black line represents the current downturn. We are so far away from "recovering" that the contrast is stark.

Robert Reich, in his article (again, the Times, 9/2/10) posted on our SOM MBA Reading Group Blog, points out that this is a problem that has to do with the "structure of the economy" and not the business cycle. Basically, consumers no longer have the purchasing power to buy the goods and services they produce as workers. So, to Reich's way of thinking, this crisis began decades ago when, "... a new wave of technology - things like satellite communications, container ships, computers, and eventually the Internet - made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago."

Reich has some concrete suggestions that could help to generate a more widely shared prosperity. Perhaps he should be back in his old job (secretary of labor in the Clinton administration) when times were better and we had a U.S. budget "surplus."

For us, best case, it's a long way back from Catherine Rampell's black line.