Category Archives: Business

Social commons: the social protection we want

Universal basic income would offer a deadweight subsidy to low-paying employers. The route to security for all lies in the concept of ‘social commons’.
By Francine Mestrum – The coronavirus crisis has put ‘basic income’ once more on the agenda. It is understandable, since the crisis has hit all vulnerable people in our societies particularly hard. Many in precarious working conditions have lost their job and joined the ranks of the poor. These people deserve help. Ergo, give them some money, without conditions.

Sure, but let us be clear what we are talking about.

Once again—even more than in the recent past when the debate previously erupted—there is an enormous semantic confusion. Sometimes authors speak of the universal basic income as proposed by Phillippe Van Parijs or Guy Standing. But, in most cases, what is meant is some kind of minimum income, only paid to those who need it. This is the case, for instance, with the ‘basic income’ now introduced in Spain.

The first option, the ‘real UBI’, has to be rejected, as earlier explained. First, if one wants to solve poverty, there is no need to give money to the rich, who most often do not even pay taxes. Secondly, if one wants to improve mental wellbeing—as mentioned in the Finnish report on the brief experience with ‘basic income’ there—there are many ways to achieve this. Income security can indeed be a very important factor for wellbeing but the former is not synonymous with a universal basic income.

Thirdly, it seems rather contradictory to seek a fair tax system with contributions from big corporations, if at the same time the state allows companies to lower wages and offers to complement these wages with a basic-income subsidy—a kind of negative income tax. That would, at best, be a zero-sum game, for the state as well as for the corporations.

A UBI can only be acceptable if it can guarantee a decent standard of living, complementary to social protection. But then it becomes a very serious financial problem—far too expensive, as Van Parijs and Rutger Bregman admit. more>

Updates from McKinsey

The value of value creation
Long-term value creation can—and should—take into account the interests of all stakeholders.
By Marc Goedhart and Tim Koller – Challenges such as globalization, climate change, income inequality, and the growing power of technology titans have shaken public confidence in large corporations. In an annual Gallup poll, more than one in three of those surveyed express little or no confidence in big business—seven percentage points worse than two decades ago. 1 Politicians and commentators push for more regulation and fundamental changes in corporate governance. Some have gone so far as to argue that “capitalism is destroying the earth.”

This is hardly the first time that the system in which value creation takes place has come under fire. At the turn of the 20th century in the United States, fears about the growing power of business combinations raised questions that led to more rigorous enforcement of antitrust laws. The Great Depression of the 1930s was another such moment, when prolonged unemployment undermined confidence in the ability of the capitalist system to mobilize resources, leading to a range of new policies in democracies around the world.

Today’s critique includes a call on companies to include a broader set of stakeholders in their decision making, beyond just their shareholders. It’s a view that has long been influential in continental Europe, where it is frequently embedded in corporate-governance structures. The approach is gaining traction in the United States, as well, with the emergence of public-benefit corporations, which explicitly empower directors to take into account the interests of constituencies other than shareholders.

Particularly at this time of reflection on the virtues and vices of capitalism, we believe it’s critical that managers and board directors have a clear understanding of what value creation means. For today’s value-minded executives, creating value cannot be limited to simply maximizing today’s share price. Rather, the evidence points to a better objective: maximizing a company’s value to its shareholders, now and in the future.

Recently, the US Business Roundtable released its 2019 “Statement on the purpose of a corporation.” Dozens of business leaders (the managing director of McKinsey among them) declared “a fundamental commitment to all of our stakeholders [emphasis in the original].” Signatories affirmed that their companies have a responsibility to customers, employees, suppliers, communities (including the physical environment), and shareholders. “We commit to deliver value to all of them,” the statement concludes, “for the future success of our companies, our communities and our country.” more>

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Updates from GE

Air Blockchain: This App Could Help The Airline Industry Recover Faster
By Brett Nelson – The aviation industry has weathered severe turbulence before — consider the oil crises in the 1970s and 9/11 — but the COVID-19 pandemic has inflicted damage of a different magnitude.

The number of passengers per year, on a steep climb for the last decade, has plummeted so dramatically in recent months that it looks like someone fell asleep plotting the graph: In 2020, the number of worldwide passengers will drop by anywhere from 2.3 billion to 3.1 billion — between 40% and 53% of seats offered by airlines — erasing $300 billion to $400 billion in their revenues, according to estimates in a June 5 report from the International Civil Aviation Organization.

As planes are once again getting ready to taxi down the runway, the industry is enlisting powerful new technologies like blockchain to help passengers feel safe and get to their destinations as soon as possible.

Take, for example, a new mobile application developed by GE Aviation with TE-FOOD, a company that uses blockchain to track goods moving through the food supply chain. The aviation app is using blockchain to help monitor whether planes, crews and passengers have cleared specific health and cleanliness checks before takeoff. The solution, enabled by Microsoft Azure, is available now, and demonstrations are underway with airlines, airports and industry groups.

“GE Aviation’s business model is predicated on airlines flying GE engines,” says David Havera, general manager of GE Aviation’s blockchain solutions. “Therefore we are doing everything we can to get passengers back into the air as soon as possible.”

Blockchain technology is the highly secure, record-keeping framework beneath cryptocurrencies like Bitcoin, but it has myriad other applications, too. With blockchain, companies can store and trace a virtually infinite number of digital records, as if stringing together unique chains of building blocks. more>

Updates from Adobe

The Future Is Now
By Laura Staugaitis – Dramatic, intriguing, thoughtful, and beautiful: Seoul-based creative Giseok Cho crafts powerful images, but he says he doesn’t consider his photographs to be art. “I think I’m doing it to express beauty from my perspective,” he says. The photographer builds careful compositions filled with rich colors and luxurious textures that surround solitary figures. His mysterious portraits blur boundaries of time, culture, and gender, leaving the viewer to wonder about the worlds his ephemeral characters come from—what moments have just passed, or are about to arrive.

When asked about how he wants viewers to relate to the characters in his photographs, Cho counters that he doesn’t necessarily have goals like that in mind. “I just want to do what I want, and want people to think that person does his thing.” Rather than making individual statements about his subjects, Cho prefers to keep his imagery more conceptually high-level, reflecting the complexities of Korean culture, the fickleness of fashion, and the ambiguity of beauty.

The photographer’s carefully staged portraits draw on his background in the fashion industry. Cho has worked as a graphic designer, set designer, and art director, crafting imagined worlds to bring Korean fashion to life. He continues to use fashion as a powerful means of expression, taking advantage of the ever-changing aesthetics. “Fashion has so much to offer to express beauty, and it’s dynamic, so there’s a lot of variety. It’s fun for me.” more>

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America’s new civil war (II)

By Basil A. Coronakis – A chaos theory that claims a butterfly in Manhattan may generate a tornado in China.

That’s the theory, but in practice the tiny virus that was either purposely or accidentally dripped from China’s Wuhan Institute of Virology has created world-wide chaos, and we are just at the beginning. Our society has just entered into a large-scale evolution, seemingly far from a final settlement. How far that end is, nobody can seriously predict. Nor can they imagine exactly how it will end as the process is taking on the shape a major social confrontation. Everybody is taking positions against everybody else, and everyone will end to be on its own.

At present, very few people understand what kind of situation the world is getting to. The general panic caused by the virus was just the excuse to trigger a large-scale evolution, which for the time being remains under the radar, due to the fact that it is only the very beginning. The reasons can be summarized by the unbridgeable social gaps generated by periods of prolonged austerity, extended overregulation, the ever-increasing politically uncontrolled powers of administration and a scarcity of true political leaders.

When coupled with an unreasonable and prolonged lockdown, which added unemployment and misery to an already toxic mix, you have the perfect recipe for a social uprising.

Presently, three players affect the socio-political making of our times – the United States, China, and Russia. The European Union, although an integral part of the West, is leaderless and acts more like an unhappy player with no real role in a play where the first act is being staged across the Atlantic.

The United States is in civil war and one intelligent exercise would be to figure out what title future historians will give to this hopefully short, chapter in their history. more>

Updates from Ciena

How governments can solve layer 3 network complexity
What if government agencies could monitor and analyze their IP networks to ensure peak efficiency and service continuity—all while trying to modernize the network, balance cost, performance, and resiliency? Jim Westdorp, Ciena Government Solutions’ Chief Technologist, explains how this is possible.
By Jim Westdorp – Do you know what your layer 3 network is doing?

The dynamic nature of IP networking makes it virtually impossible to know at any point in time how traffic is traversing your networks. Troubleshooting problems by issuing pings and router CLI commands, scanning log files, and manually correlating the results is imprecise and inefficient. Many government networks disable services like Internet Control Message Protocol (ICMP), which makes these inefficient tasks impossible. The results can impact service delivery, the agility of the network, and mission.

Traditional management tools have several limitations. For example, they can’t:

  • Provide real-time visibility into routing paths across the network
  • Provide unique alerts for Layer 3 technologies related to: state changes, pathing, performance, and the availability of the network elements to route packets
  • Show and model how routing errors and changes impact service delivery
  • Understand the resiliency of the network
  • Correlate routing events with performance metrics of network services to assure service performance
  • Compute and provision transport paths to deploy new services
  • Provide unified visibility and analysis for multi-vendor, multi-layer networks

Think about all the things you’d like to be able to do with your network, and ask yourself a few questions:

  • What if you could get a graphical view of all the IP flows in your network and gain deeper insights into traffic patterns, flows, and congestion?
  • What if you could drill deep into specific flows to understand the detailed route and particular pieces of network equipment those flows traversed?
  • What if you could troubleshoot your network using DVR-like functionality to see the exact state of the network at the time of an event, even if it was days in the past?
  • What if you had automated analytics to help identify the best paths to route traffic through your network?
  • What if your cyber team could utilize the same platform to be alerted to conditions indicative of external interference with a government?

Often, “what-ifs” are hypotheticals. Not in this case, with Blue Planet’s Route Optimization and Analysis (ROA).  This technology has been field-proven for more than a decade with government entities that have strategic imperatives to monitor and analyze their IP Networks to ensure peak efficiency and service continuity—all while trying to modernize the network, balance cost, performance, and resiliency. more>

Updates from Chicago Booth

The notorious failure contains valuable lessons for investors
By James E. Schrager – Amid the many stories of business turmoil this spring has produced, the legal drama surrounding WeWork and its lead investor, SoftBank Group, stands out for its roots not in disease and social distancing, but old-fashioned bad decision-making.

In early April, WeWork announced it had filed a lawsuit against SoftBank for backing out of a tender offer to purchase about $3 billion of WeWork stock, an offer made as part of a bailout package from SoftBank after WeWork’s planned initial public offering fell through last fall. About a month later, WeWork cofounder and former CEO Adam Neumann, who could have sold up to nearly $1 billion of stock as part of the tender offer, filed his own suit against SoftBank.

To the uninitiated, the saga of WeWork’s journey toward an IPO—which was abandoned after a precipitous decline in the company’s valuation, from $47 billion to $8 billion—must have raised a number of questions.

Is it typical for failed founders to demand nearly a billion dollars for their efforts, as Neumann has done, no matter how badly things turn out?

Is an entrepreneur’s compensation package directly and positively proportional to the amount of money he loses for investors?

Are startup funds so abundant, borrowing costs so low, and big risks so encouraged that giant paydays are the rule even for losing CEOs? more>

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The Looming Bank Collapse

The U.S. financial system could be on the cusp of calamity. This time, we might not be able to save it.
By Frank Partnoy – The reforms were well intentioned, but, as we’ll see, they haven’t kept the banks from falling back into old, bad habits. After the housing crisis, subprime CDOs naturally fell out of favor. Demand shifted to a similar—and similarly risky—instrument, one that even has a similar name: the CLO, or collateralized loan obligation. A CLO walks and talks like a CDO, but in place of loans made to home buyers are loans made to businesses—specifically, troubled businesses. CLOs bundle together so-called leveraged loans, the subprime mortgages of the corporate world. These are loans made to companies that have maxed out their borrowing and can no longer sell bonds directly to investors or qualify for a traditional bank loan. There are more than $1 trillion worth of leveraged loans currently outstanding. The majority are held in CLOs.

Despite their obvious resemblance to the villain of the last crash, CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system. Like former Fed Chair Alan Greenspan, who downplayed the risks posed by subprime mortgages, Powell and Mnuchin have downplayed any trouble CLOs could pose for banks, arguing that the risk is contained within the CLOs themselves.

Banks do not publicly report which CLOs they hold, so we can’t know precisely which leveraged loans a given institution might be exposed to. But all you have to do is look at a list of leveraged borrowers to see the potential for trouble. Among the dozens of companies Fitch added to its list of “loans of concern” in April were AMC Entertainment, Bob’s Discount Furniture, California Pizza Kitchen, the Container Store, Lands’ End, Men’s Wearhouse, and Party City. These are all companies hard hit by the sort of belt-tightening that accompanies a conventional downturn.

Under current conditions, the outlook for leveraged loans in a range of industries is truly grim. Companies such as AMC (nearly $2 billion of debt spread across 224 CLOs) and Party City ($719 million of debt in 183 CLOs) were in dire straits before social distancing. Now moviegoing and party-throwing are paused indefinitely—and may never come back to their pre-pandemic levels.

Meanwhile, loan defaults are already happening. There were more in April than ever before. Several experts told me they expect more record-breaking months this summer. It will only get worse from there. more>

Updates from McKinsey

The economic impact of closing the racial wealth gap
The persistent racial wealth gap in the United States is a burden on black Americans as well as the overall economy. New research quantifies the impact of closing the gap and identifies key sources of this socioeconomic inequity.
By Nick Noel, Duwain Pinder, Shelley Stewart, and Jason Wright – The United States has spent the past century expanding its economic power, and it shows in American families’ wealth. Despite income stagnation outside the circle of high earners, median family wealth grew from $83,000 in 1992 to $97,000 in 2016 (in 2016 dollars).

Beyond the overall growth in top-line numbers, however, the growth in household wealth (defined as net worth—the net value of each family’s liquid and illiquid assets and debts) has not been inclusive. In wealth, black individuals, families, and communities tend to lag behind their white counterparts. Indeed, the median white family had more than ten times the wealth of the median black family in 2016. In fact, the racial wealth gap between black and white families grew from about $100,000 in 1992 to $154,000 in 2016, in part because white families gained significantly more wealth (with the median increasing by $54,000), while median wealth for black families did not grow at all in real terms over that period.

The widening racial wealth gap disadvantages black families, individuals, and communities and limits black citizens’ economic power and prospects, and the effects are cyclical. Such a gap contributes to intergenerational economic precariousness: almost 70 percent of middle-class black children are likely to fall out of the middle class as adults. Other than its obvious negative impact on human development for black individuals and communities, the racial wealth gap also constrains the US economy as a whole. It is estimated that its dampening effect on consumption and investment will cost the US economy between $1 trillion and $1.5 trillion between 2019 and 2028—4 to 6 percent of the projected GDP in 2028. more>

What’s the Difference Between Today’s US Space Force and the Reagan Era Star Wars?

By John Blyler – The U.S. Space Force is being brought to life with federal funding and contractor rockets and electronics. This might be a good time to remember the lesson’s learned from the earlier Reagon era Strategic Defense Initiative (SDI) program.

First, let’s check out what’s behind the Space Force. A few years back, President Trump floated the idea of a space force as a new branch of the military. The Pentagon was quick to remind the president that a space force already existed in the armed services, mainly under the purview of the Air Force. No matter, the White House believed a new initiative was needed especially in light of the tensions and trade war with China. Dominance in space was the rallying call.

For those of us working in the defense industry in the 1980s and 90s, this all seemed eerily reminiscent of the famous “Star Wars” program initiated by former US President Ronald Reagan during the Cold War era. Officially known as the Strategic Defense Initiative (SDI), the program focused mainly around a space-based anti-missile system aimed at protecting US from potential preemptive military strikes from the former Soviet Union.

At the time, the main components of the SDI were considered technologically impossible – i.e., anti-ballistic missiles including lasers and electromagnetic weapons. While there were some successes, the program failed to meet its loftier technical goals.

Now let’s fast forward to today. While many dangers persist in the world, it’s not clear that the most imminent threat is from space. For example, it would be far easier and less costly to launch a cyberattack against an enemy’s infrastructures, steal technology IP, rig an election process or upset financial markets than to dominate in space. Regardless, the race to create a space force has been awakened and – more importantly – funded. more>