Tag Archives: Jobs

No more free-lunch bailouts

With governments spending on a massive scale to mitigate the economic fallout from Covid-19, they should be positioning their economies for a more sustainable future.
By Mariana Mazzucato and Andreo Andreoni – The Covid-19 crisis and recession provides a unique opportunity to rethink the role of the state, particularly its relationship with business. The long-held assumption that government is a burden on the market economy has been debunked. Rediscovering the state’s traditional role as an ‘investor of first resort’—rather than just as a lender of last resort—has become a precondition for effective policy-making in the post-Covid era.

Fortunately, public investment has picked up. While the United States has adopted a $3 trillion stimulus and rescue package, the European Union has introduced a €750 billion ($850 billion) recovery plan [albeit still under deliberation], and Japan has marshaled an additional $1 trillion in assistance for households and businesses.

However, in order for investment to lead to a healthier, more resilient and productive economy, money is not enough. Governments also must restore the capacity to design, implement and enforce conditionality on recipients, so that the private sector operates in a manner that is more conducive to inclusive, sustainable growth.

Government support for corporations takes many forms, including direct cash grants, tax breaks and loans issued on favorable terms or government guarantees—not to mention the expansive role played by central banks, which have purchased corporate bonds on a massive scale. This assistance should come with strings attached, such as requiring firms to adopt emissions-reduction targets and to treat their employees with dignity (in terms of both pay and workplace conditions). Thankfully, with even the business community rediscovering the merits of conditional assistance—through the pages of the Financial Times, for example —this form of state intervention is no longer taboo.

And there are some good examples. Both Denmark and France are denying state aid to any company domiciled in an EU-designated tax haven and barring large recipients from paying dividends or buying back their own shares until 2021. Similarly, in the US, the Massachusetts senator Elizabeth Warren has called for strict bailout conditions, including higher minimum wages, worker representation on corporate boards and enduring restrictions on dividends, stock buybacks and executive bonuses. And in the United Kingdom, the Bank of England has pressed for a temporary moratorium on dividends and buybacks. more>

Updates from McKinsey

Return: A new muscle, not just a plan
Return is not a phase; it’s a way of operating. A nerve center can help build the capabilities that businesses need in the “next normal.”
By Mihir Mysore, Bob Sternfels, and Matt Wilson – In less than four months, COVID-19 has upended almost all expectations for 2020. Beyond the loss of life and the fear caused by the pandemic, businesses around the world have faced disruptions at a speed and scale unprecedented in the modern era.

Companies everywhere are now wrestling with the question of how to reach the next normal safely. Many talk about a return to the workplace as a plan that needs to be implemented: a series of systematic steps to reach some kind of stable operating model, in a world where vaccines are adequately available or herd immunity has been reached. In many cases, these plans suggest a return to some relatable version of the past.

Yet the intrinsic uncertainties that might scupper such plans continue to mount. Executives readily admit, for instance, that it is tough to write a deterministic return plan because of the likelihood of a resurgence, discoveries about how the virus is transmitted and whom it affects, the nature and duration of immunity, and continued changes in the quality and availability of testing and contact tracing. The best possible plan today is merely a strawman that will need near-continuous recalibration and change.

Another critical uncertainty is the future of remote work. Some feel that recent events have driven a real productivity gain they do not want to lose. However, they recognize that a wholesale shift to remote work has had many false dawns. Silicon Valley has experimented with it most extensively, but after many attempts to implement telecommuting, our research found that at 15 top firms, only 8 percent of the employees work remotely. These companies do not want to try this again only to roll it back in a few years.

Customer behavior is a third unknown. Companies see the clear shift to digital among consumers and its inevitable impact: online shopping has expanded by up to 60 percent in some categories, and up to 20 percent of online consumers in the United States have switched at least some brands recently. But it’s unclear whether once the pandemic recedes, these customers will return to their old ways or if the pandemic will create new types of consumers.

Given these and other uncertainties and the need for experimentation and fast learning to navigate through them effectively, we believe that the next step in the response of businesses cannot be thought of as a phase at all. It will be open ended rather than fixed in time. A better mental model is to think about developing a new “muscle”: an enterprise-wide ability to absorb uncertainty and incorporate lessons into the operating model quickly. The muscle has to be a “fast-twitch” one, characterized by a willingness to change plans and base decisions on hypotheses about the future—supported by continually refreshed microdata about what’s happening, for example, in each retail location. And the muscle also needs some “slow-twitch” fibers to set long-term plans and manage through structural shifts. 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>

Protection against hostile takeovers: rethinking the free movement of capital

Should free movement of capital any longer be sacrosanct when it leads to predatory takeovers and regional inequalities in a globalized economy?
By Susanne Wixforth and John Weeks – ‘Is China buying up Europe’s south?’ Such headlines have become frequent since the 2008 financial crisis. The Chinese takeovers include Greece’s biggest harbor in Piraeus, companies operating terminals in Romanian and Spanish harbors and the airport in Frankfurt-Hahn. And bear in mind that the United States accounts for 38 per cent of global foreign direct investment (FDI), Chinese capital just 2.2 per cent—though its share is increasing, especially via investments in strategic infrastructure as part of its ‘belt and road’ initiative.

European infrastructure and companies operating in the single market are open to the world because of perhaps the foremost of the famous ‘four freedoms’—the free movement of capital. The orthodox-economics claim is that free movement ensures the optimal allocation of capital.

The globalization of capital flows, in combination with digital communication, enables capital markets to be in motion around the clock. The result is an unprecedented market interdependency, with a simultaneous loss of state regulation and increased vulnerability to crises. The second global crisis of the 21st century caused by the Covid-19 pandemic has led to a dramatic drop in share prices and company valuations.

This collapse facilitates takeovers by foreign companies. Does the European Union need a different interpretation of free movement of capital, to protect European key technologies and strategic infrastructure?

Fourteen EU member states have adopted regulation to control FDI. The German government is considering use of its coronavirus-linked Economic Stabilization Fund for company ownership to protect against hostile takeovers, while the French government has created an investment fund (Lac d’argent) for that purpose. more>

What will it take to stand up again together? Start with accountablity

By Nancy Gibbs – Our nation is not healthy enough to handle this much pain. A cascade of crises has brought us to our knees and to the streets: a pandemic that locked us down and ravaged the population, especially communities of color; an economic convulsion that flattened small businesses and hurled 40 million people out of work; and the three horrific killings of unarmed black Americans during this spring of despair.

What will it take to end the pain, to stand up again together? Let’s start with accountability — an end to the impunity that defines our age.

The 21st century has been generous beyond belief to those who came to the table already set up for success. I count myself among them. We can shelter in place, take a hit to our routines and even our savings, and expect to recover. The pandemic has exposed how willing we as a nation are to send disproportionately black and brown “essential” workers out to do their jobs whether or not it is safe.

It has exposed the breathtaking speed with which our leaders will write trillion-dollar checks to protect corporate interests and shield financial markets. And it revealed the willingness of rich and comfortable companies to take as much as they can get. more>

Updates from Chicago Booth

Think you’re not racist?
Research uncovers our secret prejudices, and ways to overcome them
By Alice G. Walton – It has been 50 years since the Civil Rights Act outlawed discrimination based on race, color, religion, sex, or national origin. The landmark legislation marked the end of the era of legalized racism. Now some affirmative action programs, created to encourage and promote diversity and the presence of underrepresented minorities, are being rolled back.

However, while overt racism may be on the wane in the US, research suggests it remains just below the surface. Very few people would admit to being biased, yet there’s strong evidence that biases continue, often under the level of our expression and of our awareness.

Ten years ago Marianne Betrand, Chris P. Dialynas Distinguished Service Professor of Economics at Chicago Booth, and Sendhil Mullainathan, then at MIT, published a famous study entitled, “Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination,” in which 5,000 fictitious resumes were sent in response to 1,300 job postings in Chicago and Boston. The resumes were either “high quality” or “low quality,” varying in the typical things that set resumes apart—job and internship experiences, academic institutions, and languages spoken. Then, the team randomly assigned either a “white-sounding” name, such as Emily Walsh, or an “African American–sounding” name, such as Lakisha Washington, to each resume.

The results were unambiguous. White-sounding applicants got 50% more callbacks than African American–sounding candidates. This didn’t seem to be a matter of how common the names were or the apparent social status of the applicant, but simply a function of what the names suggested about the race of the fictional applicants.

Even more disturbingly, white applicants with higher-quality resumes had a strong advantage over their African American peers. The authors suggest that this makes it less enticing for African Americans to develop high-quality resumes, which makes hiring discrimination part of a destructive cycle. more> [VIDEO]

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China in the Firing Line

By Clare Goldsberry – A two-hour webinar held by the Alliance of American Manufacturing last Thursday provided a forum for four members of Congress along with a business owner, a representative from the United Steelworkers, and the President and CEO of the National Council of Textile Organizations to talk about bringing manufacturing back to the United States.

“Crisis Brings Consensus: Prioritizing U.S. Industrial Policy in a COVID-19 World” began with a Q&A moderated by Josh Rogin featuring Marco Rubio (R-FL) and Josh Hawley (R-MO). Rubio noted that the increased push to bring back manufacturing and the need to change U.S. policies regarding trade with China is not “unique to a pandemic,” which has exposed vulnerabilities in the supply chain across several industries.

“This issue needs more than anger at China,” said Rubio. “While the Chinese Communist Party’s efforts to dominate the world in key sectors are evident, we’ve allowed them to do this. We need a strategy, then tactics to put in place the strategy to bring back U.S. manufacturing.” That would include developing incentives for companies to return their manufacturing to the United States.

Hawley began his remarks by noting that we live in a very different world today than we did after WWII. “The economic order is very different, and we need to address the rise of imperialist China,” he said. “We need very serious reform to address this different world and different [economic] system.” Hawley is not in favor of abolishing the WTO, while that issue has been raised by some. “I would rather ‘fix’ it than ‘nix’ it,” he added.

Hawley, who said he’s heard more about bringing U.S. manufacturing back home in the past four months than in the 14 months he’s been in Congress, does not approve of isolationism. “We are a trading nation and will continue to be, but we need reforms such as dispute resolution, which is a mess,” he stated. “We need an American economy that is strong and a strong American worker. Manufacturing is vitally important to the future of the United States. We need to bring back our supply chains.” more>

Why Society’s Biggest Freeloaders are at the Top

No, wealth isn’t created at the top. It is merely devoured there.
By Rutger Bregman – This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet – on reflection – cannot be denied. The truth that we are living in an inverse welfare state.

These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.

Now, we may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.

So entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.

In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it’s a non-issue.

To understand why, we need to recognize that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our “human capital” in economic terms) to create something new, whether that’s a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.

But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit. more>

Updates from McKinsey

Personalizing change management in the smartphone era
By Alexander DiLeonardo, David Mendelsohn, Nikil Selvam, and Alexandra Wood – CEOs know that making organizational change stick requires convincing big groups of geographically dispersed people to think, act, and approach their work differently. And this is devilishly hard, as human beings are motivated by many things, have different fears and aspirations, feel varying levels of empowerment and commitment, and tend to be reluctant to change in the first place. Undifferentiated approaches that don’t carefully consider employees’ mindsets will fall flat and may even breed cynicism that saps morale and undermines progress.

The good news is that when it comes to personalization, senior executives have plenty of inspiration, courtesy of analytical pioneers such as Instagram, Netflix, and Spotify, all adept at tailoring products to meet individualized preferences via apps and other easy-to-use digital platforms. A large global manufacturer’s ongoing experiment in tech-infused mass personalization shows how this thinking can be applied to organizational change. The company’s experience suggests how smart combinations of digital technology, analytics, and behavioral science can make change more inclusive and persuasive—and help employees unleash their enthusiasm in ways not possible otherwise. The key is to use the available tools to better understand people and meet them where they are—a guiding principle that’s equally relevant for implementing long-term change and for leading a remote workforce through the current disruptions caused by the COVID-19 pandemic.

For a few years, the manufacturer had tried with limited success to implement cultural changes across a key region’s 7,000-strong workforce—for example, by promoting behaviors it hoped would break down silos, empower and motivate frontline workers, and bolster performance. Now the CEO wanted a fresh start. An assessment highlighted places where the company’s organizational health was poor or needed strengthening. From these areas, senior leaders focused on three management practices: operational discipline, inspirational forms of leadership, and the use of rewards and recognition to better motivate employees.

The company then formed a team to translate these broad cultural goals into specific mindsets and behaviors that would both generate the desired organizational outcomes and also help employees better understand how they personally contributed to the improvement. For example, the manufacturer wanted employees to think of operational discipline as everyone’s job. One tangible way to promote this would be to encourage shop-floor operators and supervisors to consciously review the company’s “golden rules of safety” before every shift. Likewise, the company sought to instill a mindset of valuing continuous improvement and celebrating small victories. One way of doing this would be to encourage people to speak up immediately when they saw a colleague do something positive (a motivational take on the mantra “if you see something, say something”).

The team now had a discrete set of behaviors they wanted to encourage. But they knew that to do so effectively, they needed to meet people where they were—they couldn’t simply tell people to change. The team needed to address any mindsets or beliefs that could act as barriers. more>

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Updates from Chicago Booth

How leaders can rise to the challenge of COVID-19
By Daniel Diermeier – As cases of COVID-19 continue to grow across the world, leaders in business, government, and other spheres face unprecedented challenges. The disease has encroached not only on public health but on global economic well-being and on some of the most fundamental practices of modern society. It has generated great anxiety and exacted an enormous and growing human toll. And it has required virtually every organization to reinvent its processes to cope with a world in which many people simply don’t feel safe being in the same room together.

Crisis situations can overwhelm even the most experienced leaders, presenting unexpected, complex scenarios that evolve at a fast pace and in several directions. Even in cases in which contingency plans have been prepared, those plans need to be adjusted to respond to rapidly changing circumstances. Fortunately, there are tools and perspectives leaders can use to help their organizations weather difficult times. By building trust, managing fear, and encouraging a sense of duty and community orientation, any leader—whether in business, government, or the nonprofit sector, and in organizations big and small—can better navigate the difficult path of crisis management.

Crises frequently happen without warning and require a response under extreme time pressure. Decision makers often find themselves drowning in data, yet truly vital information is not available. During these situations, leaders must continue to build trust, both internally and externally. Doing so generates much-needed room to maneuver and the goodwill that leaders will need to rely on when tough decisions have to be made.

Even though the desirability of trust is obvious, leaders often struggle with building and maintaining it, especially during high-stakes crises. Research has identified four major factors that influence the level of trust among stakeholders involved in a crisis, summarized in what I’ve called the Trust Radar:

Full transparency is reached when, in the mind of your audience, all relevant questions have been addressed. Your audience—not you—will determine what information is considered relevant. What is relevant will also vary for different audiences. more>

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