How Good is Your Judgement?

In a 2016 article Paul Schoemaker and Philip Tetlock remind us that “companies and individuals are notoriously inept at judging the likelihood of uncertain events, as studies show all too well. Getting judgements wrong, of course, can have serious consequences. Steve Ballmer’s prognostication in 2007 that there’s no chance the iPhone is going to get any significant market share, left Microsoft with no room to consider alternative scenarios,” (p.74).

 

There’s a direct link between judgement and accountability. For example in our youth our judgement often goes awry simply because we don’t feel accountable for our actions and hence don’t think things through properly. Even organizations have issues with ‘judgement’ because individuals aren’t held accountable; and hence don’t ‘learn’ to think things through quickly. In fact one of the downsides of command and control style leadership is that these leaders use their power to avoid accountability when it comes to ‘bad’ judgements being made.

 

Schoemaker and Tetlock mention “the experience of a UK bank that lost a great deal of money in the early 1990’s by lending to U.S. cable companies that were hot but then tanked. The chief lending officer conducted an audit of these presumed lending errors, analysing the types of loans made, the characteristics of clients and loan officers involved, the incentives at play, and other factors. She scored the bad loans on each factor and then ran an analysis to see which ones best explained the variance in the amounts lost. In cases where the losses were substantial, she found problems in the underwriting process that resulted in loans to clients with poor financial health or no prior relationship with the bank – issues for which expertise and judgement were important. The bank was able to make targeted improvements that boosted performance and minimized losses,” (p.74).

 

There’s the other side of the coin too – organizations that are so ‘risk averse’ that employees make judgements based on ‘fear of failure’ which rarely leads to optimum solutions for the organization in the short or long term. Most of us learn through the mistakes that we make and through the risks that we have taken in our lives. Being able to take risk is based on values like accountability, but also integrity and excellence, and safety where appropriate. Our core values, if aligned correctly, should be enough to allow us to make those judgements that have risk attached but the rewards are worth it; where even failure has a reward, as we learn ‘what doesn’t work.’

 

Schoemaker and Tetlock highlight how “most predictions made in companies, whether they concern project budgets, sales forecasts, or the performance of potential hires or acquisitions, are not the result of cold calculus. They are coloured by the forecaster’s understanding of basic statistical arguments; susceptibility to cognitive biases, desire to influence others’ thinking, and concerns about reputation. Indeed, predictions are often intentionally vague to maximize wiggle room should they prove wrong. The good news is that training in reasoning and debiasing can reliably strengthen a firm’s forecasting experience,” (p.75).

 

A key cognitive bias is the perceived culture of the company and the perceived impact this culture has on the judgements you make. This perceived culture will be different for employees in different departments; or at different levels or at different stages in their career; as well as the personal values of each of the employees in the organization.

 

Schoemaker and Tetlock remind us that “cognitive biases are widely known to skew judgement, and some have particularly pernicious effects on forecasting. They lead people to follow the crowd, to look for information that confirms their views, and to strive to prove just how right they are. Training can help people understand the psychological factors that lead to biased probability estimates, such as the tendency to rely on flawed intuition in lieu of careful analysis. Another technique for making people aware of the psychological biases underlying skewed estimates is to give them confidence quizzes,” (p.75).

 

We live in a world where judgements that are made can impact more than just the individual making the judgement, but can impact the whole world. Take global warming, a scientific phenomenon that if correct and not ‘checked’ will be the end of the world as we know it. Yet recently the President of the United States broke away from the Paris Accord on Climate Change, claiming ‘global warming’ was a politically driven ‘con’ and that because his grandfather was a Professor at MIT, he had an instinct for science – hmmm, making judgement on a phenomenon that could be the end of life on earth requires patience, accountability, integrity and much more serious debate.

 

Schoemaker and Tetlock remind us of the importance of building the right teams. “Whether a team is making a forecast about a single event or making recurring predictions, a successful team needs to manage three phases well: a diverging phase, in which the issue, assumptions, and approaches to finding an answer are explored from multiple angles; an evaluating phase, which includes time for productive disagreement; and a converging phase, when the team settles on a prediction. In each of the three phases, learning and progress are fastest when questions are focused and feedback is frequent,” (p.77).

 

The key to judgement in the 21^st century, besides the values already discussed is the concept of trust. We need to recruit the right people with the right experience and values; then trust them to make the right judgement calls and trust them to be flexible in their approach so that they will be honest when things start to go wrong or don’t work.

 

The judgements organizations make today shouldn’t just be about short term shareholder value, but about long term sustainable growth. The UK has seen the ‘high street’ change so much in the last 12 months. Retail stores that have been around for hundreds of years closing their doors for good or closing down a large proportion of their stores laying off thousands of employees. These closures are due to poor judgement and now everyone pays, even the shareholders.

 

As we become more technologically advanced; and as we see the divide between rich and poor become even greater, we need leaders, both from business and politics to make better judgement calls for the world in general – otherwise the future could be very bleak.

 

Finally Schoemaker and Tetlock suggest that “companies should systematically collect real time accounts of how their top teams make judgements, keeping records of assumptions made, data used, experts consulted, external events, and so on. Where well-run audits can reveal post facto, whether forecasters coalesced around a bad anchor, framed the problem poorly, overlooked an important insight, or failed to engage team members with dissenting views. Likewise they can highlight the process steps that led to good forecasts and thereby provide other teams with best practices for improving predictions,” (p.78).

 

References:

 

Schoemaker, P.J.H. and Tetlock, P.E. (2016). Superforecasting: How To Upgrade Your Company’s Judgement. Harvard Business Review, May, p.72-78.

Do Ethics Matter?

It seems that not a week goes by without the reporting of unethical behaviour in business and politics. Yet most organisations usually have a list of corporate values on their hallowed walls somewhere – but does the constant stream of scandals mean that the only place you can find corporate values in the 21st Century is on walls, rather than in the hearts of leaders and employees, where they belong? It definitely seems that organisations are failing to move their values from ‘wall plaques’ to actual living entities within their employees, at all levels, in business (and politics for that matter).

 

As citizens of the world we have to decide the kind of world we want the next generations to inherit and then teach our children accordingly. If greed and unethical behaviour is going to be the rule rather than the exception, as it seems to be – then we might as well take the leap and start develop our children to be excellent liars and cheats; giving them a head start into the business world they will eventually join.

 

But if we genuinely want a world where ethical values are the rule – then we really need to start standing up to the constant stream of unethical events around the globe and start holding people and organizations to account. We, that’s the global ‘we’ of consumers, have the power to make significant change if we really want to. Politicians and the media know the power we have – which is why they are constantly trying to keep us divided – as they know if we come together and use our consumer power, we can make more change in a day than any government or multibillionaire makes in a year (or more) – just simply through our combined buying power.

 

We’ve been brainwashed into believing ‘this is the world we live in’; ‘we can’t change anything’; etc, but we have to stop believing this rhetoric and start ‘fighting’ for the world we want for our children and their children.

 

As an example of the stream of scandals and unethical behaviour I just researched two days, Friday 8th September and Monday 11th September and looked at some of the unethical practices being reported in the media; some of which I’ve shared below.

 

We’ve seen the report of a young British mother who is suspected of running a massive tourist sickness scam that allegedly defrauded the industry of at least 9.2 million British pounds. She is alleged to have controlled touts who enticed hundreds of British holidaymakers in Majorca to make false sickness claims against hotels on the island over the past three years (Graham K Madrid, The Times, Fri 8th Sept, p.5). On the same day the Times reported how two retired footballers are alleged to have invented ‘ghost learners’ to steal 5 million British pounds meant for training apprentices.

 

The environment editor of the Times, Ben Webster, reported how Tesco has been accused of holding on to millions of pounds that should have gone to charity from the proceeds of the compulsory 5 pence charge on disposable plastic bags. The retailer retained 3.4 million British pounds last year to cover the ‘cost of administering donations’ unlike other major supermarket chains, which did not deduct any of the proceeds for that purpose, (p.8, 8th Sept).

 

Mark Bridge, the technology correspondent of the Times, highlighted how ‘virtual assistants’ are at risk from hackers. Where researchers in China have found that cheap off-the-shelf technology could compromise virtual assistants from companies such as Apple and Amazon, potentially enabling criminals to instruct them to carry out tasks for their own illegal ends. Imagine situations where ‘psst, Alexa, unlock the back door. And Siri, transfer $1,000 to bank account number …..’ Where criminals could use ultrasonic sounds to ‘whisper’ commands and take over voice-activated electronic devices such as smartphones, (p.17, 8th Sept).

 

We had David Bond and Emma Dunkley on the 8th September reporting how staff at Bell Pottinger have been told that the scandal-hit PR firm is likely to go into administration as early as next Monday, after attempts to find a buyer failed. Co-founded by Margaret Thatcher’s favourite advertising executive Tim Bell in the late 1980’s, Bell Pottinger has been battling for its future after the PR industry’s UK trade body expelled the agency for at least five years over the Gupta controversy. In a damning report, the Public Relations and communications Association concluded that its messaging for the Guptas targeted wealthy white individuals and corporations in South Africa and was likely to inflame racial tensions, (p.12, FT, 8th Sept).

 

Sarah Harris, Jack Doyle, Daniel Martin and Tom Payne, reported in the Daily Mail on 11th September how demands were growing for the Government to slash the ‘outrageous’ interest rates of up to 6.1 per cent levied on student loans. Chancellor Phillip Hammond is being urged to use his next Budget to help students by at least replacing the outdated inflation measure used to set repayments – the Retail Prices Index (RPI) – with the historically lower Consumer Price Index (CPI). Its adoption could save students as much as 18,000 British pounds over their lifetimes, according to recent estimates. Last month Theresa May’s former joint chief of staff, Nick Timothy, described higher education as an ‘unsustainable and ultimately pointless Ponzi scheme’ that burdens graduates with debts and needs radical reform, (p.10, Daily Mail, 11th Sept).

 

Ilan Ben Zion, from Tel Aviv, reported how the controlling shareholder of one of Israel’s largest supermarket chains was arrested on suspicion of corruption. Rami Levi, chief executive of Rami Levi Chain Stores Hashikma Marketing, as well as a local politician, another businessman and a reporter were detained for questioning for alleged fraud and breach of trust involving the owners of a shopping mall and the local municipality; according to a police statement, (p.14, FT, 11th Sept).

 

Ben McLannahan, from New York, reported in the Financial Times how emerging markets are hit by financial crime curbs. The global regulators’ assault on terrorists, tax dodgers and money launderers is sapping vitality from a host of emerging market economies, according to the private-sector arm of the World Bank, as big banks cut ties that could expose them to sanctions. Over the past few year’s banks such as HSBC, BNP Paribas and JPMorgan Chase have paid billions of dollars in fines for failing to keep tabs on criminal activity, while spending heavily to increase their routine flagging of suspicious transactions, (p14, FT, 8th Sept).

 

At the political level you had Laura Pitel from the Financial Times in Ankara reporting how New York prosecutors have charged a former Turkish economy minister with taking millions of dollars in bribes in order to conceal a scheme that bypassed US sanctions. Where Mehmet Zafer Caglayan is accused of receiving cash and jewellery as part of an international operation to trade billions of dollars of gold with Iran, (p.3, FT, 8th Sept).

 

Joe Leahy and Andres Schipani, from Sao Paulo, report how the Brazilian supreme court ordered the temporary arrest of billionaire Joesley Batista, who in May revealed he had secretly taped a conversation with Brazilian President Michel Temer allegedly discussing bribes, has been ordered to face at least five days in jail alongside close associate, Ricardo Saud. “There are multiple indications …. Showing that they were part of an organisation dedicated to the systematic practice of crimes against the public administration and money laundering” supreme court judge Edson Fachin said in the order, (p.2, FT, 11th Sept).

 

And of course not surprisingly on the same day, 11th Sept, Joseph Cotterill, Southern Africa correspondent for the FT highlighted how Robert Mugabe’s spy agency secretly controls a diamond mine in Zimbabwe’s Marange region that has enriched the president’s allies and funded state repression, according to anti-corruption campaign group. The evidence, gleaned from company records and secret documents linked to CIO, will reignite fears that a hole of up to $31 billion in reported revenue from Marange has enriched the country’s political elite and the ruling Zanu-PF, (p.4, FT, 11th Sept).

 

As I start to wind down my own career and think of retirement, I’m genuinely concerned for the future of business and politics; and the generations to come after me. In my lifetime I’ve seen a dramatic change in business behaviour, mostly for the worse. I do wonder how long it will take us to work together as consumers to make positive change and make a real difference throughout the business world, for the generations to come.

I don’t believe (or don’t want to believe) the reported argument that that the current generation don’t care – I actually believe they do. The problem is we are ‘divided’ and until we come together for the greater good, these greedy, unethical people and businesses will be laughing at how gutless we all are, all the way to their offshore banks.

At the moment I think history will look back very poorly on the current world we live in and how much ‘crap’ citizens are prepared to take – let’s stop being divided and come together to make a difference; and lets starting living our corporate values today.

What's Wrong With Leadership Today?

As years roll into decades the image of leadership seems to be sadly going downhill fast. While there is an increase in firms and individuals offering leadership development solutions, the world as a whole seems to lack the face of even one inspirational leader. Which makes one wonder what current leadership development is focusing on and why it isn’t having any impact – at least noticeable impact.

 

There are excellent inspirational leaders out there – I have the pleasure to meet more than my fair share; as will many reading this – but these leaders aren’t becoming visible to make a real difference where it counts; which is way beyond the walls of their own organisations.

 

As much as we’d like to think business and politics are miles apart – sadly in today’s world the umbilical cord between the two has not been cut; with most politicians and their respected parties around the world being financed through big corporate donors.  Where for some strange reason politics has simply become entertainment – where, for example, the media parade future leaders out in front of the public and either attempt to humiliate them; or the candidates seem to have a natural instinct to humiliate themselves.

 

If our current and future world leaders are being portrayed as a ‘form’ of entertainment – what ‘inspirational’ impact can this have on the millions around the world watching – wanting to be inspired to be better, but being ‘taught’ sets of values that have absolutely no place in an effective leaders repertoire. This must lead to complete confusion in the emerging leaders mind – reading what leadership is about from the millions of related articles; and hearing what leadership is about from an abundance of courses; and then comparing these ‘stories’ with seeing today’s leaders in action. What are they more likely to believe and react to – what they read or what they see in action?

 

In a brilliant 2016 Harvard Business Review article by Jack Zenger and Joseph Falkman entitled ‘the trickle-down effect of good (and bad) leadership’ they highlight how “we know that emotions are contagious. Research by UC San Diego’s James Fowler and Harvard’s Nicholas Christakis has shown that happiness is contagious, for example. If you have a friend who is happy, the probability that you will be happier rises by 25%. We also know that behaviours are contagious. Christakis and Fowler determined that if you have overweight friends, you’re more likely to be overweight yourself. If you quit smoking, your friends are more likely to quit. Rose McDermott of Brown University found that divorce is contagious; etc.

 

We wanted to know how such ‘social contagion’ affects leaders. We already know that good leadership creates engaged employees and that leaders influence a variety of outcomes such as personnel turnover, customer satisfaction, sales, revenue, productivity, and so on. But if you’re a good leader, do you make the people around you more likely to become good leaders as well? And which behaviors are most readily ‘caught’?”

 

So we should be aware that today’s bad leaders and the portrayal of bad leadership behavior is simply creating future generations of poor leaders; and worse still poor leaders who actually think they are good – and will be able to pull out of the archives video clips of supposed top leaders behaving in the same way they do.

 

The media seem to assume that the population of future leaders can see through the entertainment aspect of their portrayal of effective leadership – but that is a bridge too far in their thinking and the fundamental flaw in their theory.

 

Zenger and Falkman highlight how “specifically, we tested 51 behaviours and found significant correlations in over 30 of them. (All 51 showed some correlation, but not all the correlations were statistically significant.) Within the behaviours that appeared contagious, there were some that appeared even more contagious than others. Behaviours that had the highest correlations between managers and their direct reports clustered around the following themes, listed in order of most contagious to least contagious:

 

1) Developing self and others

2) Technical skills

3) Strategy skills

4) Consideration and cooperation

5) Integrity and honesty

6) Global perspective

7) Decisiveness

8) Results focus

 

We also examined overall performance. Unsurprisingly, the direct reports of the worst-performing HL (high level) managers were also below-average performers.”

 

It’s worth looking at the list one more time, slowly, and then visualizing the impact both positive and negative influencers would have on each of these behaviors and how this would manifest itself in the work place and in future leadership development.

 

As the world waits for the inspirational leaders to show themselves; we also have a responsibility to not just talk about effective leadership; but enact it on a daily basis as well – and that’s in all our interactions, including social media as well.

 

It’s worth concluding with a 2014 report from the Center for Creative Leadership, which stated that “more complex and adaptive thinking abilities are needed” and “leaders are no longer developing fast enough or in the right ways to match the new environment.”

 

References:

 

Zenger, J. and Falkman, J. (2016). The Trickle-Down Effect of Good (and Bad) Leadership. Harvard Business Review. January.

 

Are Western Organisations Prepared for Global Economic Change?

We instinctively create our expectations around our past experiences – but what if our past experiences are no longer a predictor of future behaviour – how easy is it for us to re-position our future expectations to a state we’ve actually never experienced before? This is the state of the global economy – which is predicted to change in the next ten years to a state we’ve not experienced for over 30 years, i.e. to a state many people simply have no experience of, other than through economic history books.

 

In October 2015’s Harvard Business Review, Richard Dobbs, Tim Koller and Sree Ramaswamy highlight how “North American and Western European companies now capture more than half of global profits, and measured as a share of national income, are at their highest level since 1929. It has been a remarkable era, but it’s coming to a close. Although corporate revenues and profits will continue to rise, the overall economic environment is becoming less favourable, and new rivals are putting the Western incumbents on notice. Many of the new players are from emerging markets, but some are surprise intruders from next door, either tech companies or smaller-technology-enabled enterprises. These competitors often play by different rules and bring an agility and an aggressiveness that many larger Western companies struggle to match. In this new world, corporate performance will no longer outpace the global economy. We forecast that in the decade ahead, although operating profits will continue to grow in absolute terms, they will fall to 7.9% of global GDP – around what they were when the boom began,” (p.50).

 

The impact this has on the world, especially the Western world, cannot be underestimated as the upcoming changes will, for example, require organisations to be visionary and innovative enough to see the errors of many current business ‘philosophies’ and ‘consulting’ interventions and will require organisations to be open enough to develop and implement ‘business principles’ that are ‘new’ – in that they will actually shape organisations for a future state, that many organisations and their respective boards may not believe is coming.

 

Just this ‘small’ strategic re-alignment will create significant opportunities for SME organisations to take significant leaps forward against established larger organisations who, like a large tanker, are often much slower at responding to a future state, significantly different to what they are expecting and planning looking for.

 

But it’s not just organisations that are going to need to re-adjust, employees are going to have to re-adjust as well to the changes to come as they will have to re-align their own career and salary expectations. Some will rightly argue that employees in many countries are already battling with having had to except lower salary levels and lower salary increases, less than the annual increase in the consumer price index, leaving them with less consumable income year-on-year – where the counter argument to this hypothesis is that employee expectations were that the global financial crisis was just a ‘phase’ that they would have to work through and that the good ‘old’ times would return again – and the fact that salary levels may never go back to what they were, may be something many employees find hard to swallow.

 

On a global scale, we’re already seeing large Western corporates laying off thousands of people in 2015 – and these events, though reported as single events, have not yet been reported at the cumulative level and when they are many employees in Western organisations will start to sit-up and be more concerned for their own future stability and welfare.

 

Dobbs, Koller and Ramaswamy suggest that “the challenge facing big North American and European companies is to maintain and even extend their lead in the face of much tougher and more varied competition and a less favourable environment. Half of the worlds GDP growth over the next decade, and many of the new competitors will come from smaller cities in the emerging world – places such as Kochi and Kumasi – places that most Western executives would be hard-pressed to locate on a map. Even the most global firms retain a strong local bias in their operations, making close to half their revenue at home. The local market also influences how firms choose to innovate; the products they create, their supply chains, and their investment strategies. For Western executives, an ‘emerging market’ view or even a view of the ‘Chinese’ or ‘Indian’ market is not enough,” (p.60).

 

Accepting a complete change to how Western organisations approach business in the not too distant future will definitely sort out the exceptional leaders from the mediocre. But the fact that many Western jobs in the large corporates will be in the hands of their leaders, should make both employees and stakeholders stand up and start, maybe genuinely for the first time – to truly question the capabilities and vision of their organisations executive leadership.

 

Though tough times are ahead – as always there is a great opportunity to put right one of the greatest errors of the first decade and a bit of the 21^st century – and that is to not only make leaders truly accountable for their actions – but to identify who the best leaders are, not just for the ‘now’, but for the sustainable future of your organisation – as they could hold your future in their hands. 

 

So in conclusion Dobbs, Koller and Ramaswamy suggest that “North American and European multinationals have enjoyed an exceptional three-decade ride, and they have plenty of reasons to remain upbeat as they look ahead. But to maintain or increase profits, they’re going to have to shake things up. The competition will be relentless and less predictable, and the operating environment not nearly as supportive. Vigilance, agility, and optimism have always been prized characteristics of successful companies; but over the next decade they will have to be doubly so…..” (p.62).

 

References:

 

Dobbs, R., Koller, T. and Ramaswamy, S. (2015). The Future and How to Survive It. Harvard Business Review, October, p.48-62.   

What’s Happened to the BRICS Countries?

Malcolm Scott highlighted in Bloomberg News back in July this year how “the combined economic output last year of Brazil, Russia, India, China and South Africa (the BRICS nations) almost matched the U.S.’s gross domestic product. Where back in 2007, the U.S. economy was double the BRICS.”

 

"Despite some disappointments in some of the BRIC economies, led by China and India, their collective weight in global GDP continues to rise and therefore also does their importance," said Jim O’Neill, the former Goldman Sachs Group Inc. chief economist who coined the acronym back in 2001, without South Africa.

 

Yet are the BRICS countries really as strong as some would like to make out and are Brazil and South Africa leading the pack in beginning to go backwards after such a great start and such an opportunity for genuine prosperity for their respective countries?

 

As of 30th September Standard & Poor's credit rating for South Africa stands at BBB-; Moody's rating for South Africa sovereign debt is Baa2; and Fitch's credit rating for South Africa is BBB. Where for those not in the know a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of countries like South Africa, thus having a big impact on the country's borrowing costs.

 

In an article in the Economist (29th August 2015) they report how “during the global commodity boom before the 2008 financial crisis South Africa’s mines struggled to expand because of underinvestment that led to bottle necks at ports and on railways. Some reckon the country’s coal and iron ore mines could have increased their exports by as much as 50% had they had the means to get their minerals out to international markets.”

 

Now in August 2015 the dire economic news released for South African showed the economy had shrunk at an annual rate of 1.3%. The Economist forecasts that “this will be a problem for some time to come with foreign investors wanting to build power-hungry factories being asked to come back in a few years. Few will bother.”

 

Also in South Africa many state owned firms are racking up huge loses. Petro SA, a national oil company, is about to post a loss of about 15 billion Rand, ($1.1 billion), the largest ever by a state owned company in South Africa.

 

Worse still for this once promising BRICS country since “the left’s grip on government has grown even tighter. Most new plans for the economy are now drawn up by two communists, Ebrahim Patel, the economic development minister, and Rob Davis, a trade minister who doesn’t think much of trade. Their model is China. An ANC policy document gushes that the economic ‘leadership of the Communist Party of China….should be the guiding lodestar of our own struggle.’ Many of the ANC like the idea that the ruling party should control business directly, and China’s recent troubles probably won’t change their minds.”

 

Bloomberg reported on 10th September 2015 how Brazil’s sovereign rating was cut to junk by Standard & Poor’s, taking away the investment grade the country enjoyed for seven years, as President Dilma Rousseff’s struggles to shore up fiscal accounts amid a faltering economy.

 

Brazil’s rating was reduced one step to BB+, with a negative outlook, S&P said in a statement after markets closed. Brazil’s largest U.S. exchange-traded fund tumbled 6.6 percent in late trading along with American depositary receipts for Petrobras, the state-controlled oil company.

 

The downgrade, and S&P’s warning that another cut is possible, puts pressure on Brazil’s economic team led by Finance Minister Joaquim Levy to win passage of measures that would shore up the country’s fiscal situation by cutting spending or raising taxes. Rousseff has been unable to find support for her initiatives amid an investigation into corruption at the state-controlled oil company that allegedly occurred while she was its chairman, sending her popularity to a record low and generating calls for her impeachment.

 

“The downgrade could be a wakeup call but the political situation is so bad that it’s difficult to resolve, so it’s a dark path ahead,” Daniel Weeks, the chief economist at Garde Asset Management, said from Sao Paulo. "Markets will take this as a negative, and it will probably drag down emerging markets at a global level.”

 

Standard & Poor's credit rating for Russia stands at BB+; Moody's rating for Russia sovereign debt is Ba1; and Fitch's credit rating for Russia is BBB-.

 

Neil MacFarquhar mentions how “sanctions have caused a recession in Russia, and that it is even affecting the spending habits of the wealthy. Where Barvikha Luxury Village – a neatly groomed shopping mall housing brands like Prada and Gucci as well as two car dealerships, Bentley and Ferrari/Maserati – is deserted most days. With the economy reeling from the oil-price crash and Western economic sanctions over Ukraine, the ruble has sunk precipitously, inflation is up sharply and real wages are shrinking for the first time in years, forcing Russians – even the wealthiest – to make do with less.”

 

India's sovereign credit profile was more vulnerable to drought than most of its Baa-rated peers because of the relatively high share of agriculture in GDP and employment, weak rural infrastructure, inefficient food distribution and the relative share of food subsidy cost in the fiscal deficit.

 

"Although India may avoid drought this year, its economy remains vulnerable to future drought or fluctuations in rainfall, and its sovereign credit profile is more exposed to the negative effect of drought than those of most Baa-rated sovereigns," Moody's said in a report.

 

It currently rates India at 'Baa3', the lowest investment grade -- just a notch above 'junk' status.

 

"Our positive outlook on India's rating reflects our view that the measures that central and state governments are taking to improve rural infrastructure, agricultural productivity and food distribution, will over time lower overall inflation levels and volatility, including volatility associated with drought. But in the near to medium term, policies to improve infrastructure, food distribution, and non-agricultural employment opportunities hold the key to reducing the annual economic uncertainty that is linked to the performance of monsoon," it stated.

 

Standard & Poor's credit rating for China stands at AA-; Moody's rating for China sovereign debt is Aa3; and Fitch's credit rating for China is A+.

 

In an article in Fortune magazine dated 2nd September 2105, they highlight how “analysts are increasingly worried about the situation in China in part because the global economy has grown increasingly interconnected. According to the Treasury Department, 30% of the jobs created in the U.S. since the Great Recession were export-dependent.

 

Meanwhile, the share of economic growth coming from emerging markets has increased markedly over the past 20 years. Back in the late 1990s, emerging markets accounted for 20% of global GDP; now it’s 40%. And during this decade, China has accounted for a third of global growth, compared to just 17% for the United States. Given this change, Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management, has argued that China is now the “critical link” needed to power a prosperous global economy. There’s no doubt that a slowdown in China will seriously crimp global growth, given the role the world’s second largest economy has played in recent years.

 

Of course, 2015 isn’t 1998. China is a much bigger force in the global economy today than countries like Thailand or South Korea, where the trouble in Asia started a generation ago. But while a slowdown in China might be more meaningful in terms of global growth, there’s plenty of reason to be skeptical that it will lead to slower growth in the United States. Exports only account for about 15% of U.S. GDP, while exports to the Pacific Rim account for just 2% of GDP. With figures like these, even a 10% decline in trade to the region would shave just 0.2% from growth in the U.S.

 

The prospects for the U.S. don’t look spectacular. We’re living in a world of ho-hum 2% growth. But there are no serious signs of a domestic recession on the horizon. Unemployment continues to trend downward, and commercial and residential investment look bright.

 

Investors in equity markets, on the other hand, may have reason to worry. By many measures, U.S. stock markets are pricey, and we’ve been due for a correction for months now. But the stock market follows the beat of a different drummer, with momentum mattering much more, at least in the short term, than economic fundamentals.

 

An article by Heather Stewart in the Guardian dated 29th September states that “rising global interest rates could prompt a new credit crunch in emerging markets, as businesses that have ridden the wave of cheap money to load up on debt are pushed into crisis, the International Monetary Fund has said.

 

The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF’s twice-yearly Global Financial Stability Report. This borrowing binge has taken business debt as a share of economic output from less than half, in 2004, to almost 75%.”

 

Probably the only country that has got it right is China – their growth rate was never going to continue at its past rate – any economic life-cycle will tell you that. The ‘party’ is probably over and China will now grow like other mature nations – but out of all the BRICS countries they have probably had the best response to their economic woes, regardless of what the press may have you believe.

 

What the world needs now is both stability and strong economic leadership – sadly, with politics becoming a celebrity, power brokered game, rather than a serious business – the future is precarious at best, and we can only hope that some great, inspirational leadership emerges soon from the complete mess that exists around the globe at the moment. We desperately need politicians who will look beyond their own ego’s and actually do what it says on the ‘tin’ – which is to work for the best sustainable long term strategy for all their citizens. This will give greater confidence to business and help the growth of genuine exceptional leadership in the workplace too.

 

References:

 

MacFarquhar, N. (2015). Russians Tighten Their Belts. Portfolio Magazine, Issue 116, p.84-87.

 

Matthews, C. (2015). Will The Crisis in China Sink the US Economy? Fortune Magazine. 2nd September. [on-line: http://fortune.com/2015/09/02/china-crisis-us-economy/]

 

Scott, M. (2015). Here's the $17 Trillion Reason Why the BRICS Summit This Week Is a Big Deal. Bloomberg News. 7th July [on-line: http://www.bloomberg.com/news/articles/2015-07-06/here-s-the-17-trillion-reason-why-the-brics-summit-this-week-is-a-big-deal]

 

Stewart, H. (2015). IMF Warns of New Financial Crisis if Interest Rates Rise. The Guardian. 29th September [on-line: http://www.theguardian.com/business/2015/sep/29/imf-warns-new-financial-crisis-interest-rates-rise]

 

The Economist (2015). Poorly managed state owned companies are dragging down the wider economy. August 29th. P.41-42.

 

 

What Should the Minimum Working Age Be?

A recent article in The Times by Rhys Blakely highlights how “Bolivia has caused anger among human rights advocates after legalising child labour from the age of 10. Supporters of the move, signed in to law in July 2014, say that lowering the minimum working age from 14 merely acknowledges a reality. Many poor families in Bolivia have no choice but for children to work, and backers say the new laws offer safeguards.”

 

There is a natural reaction in ‘the West’ to equate child labour to sweatshops – where a sweatshop is defined as a factory or workshop, especially in the clothing industry, where manual workers are employed at very low wages for long hours and under poor conditions. Many workplaces through history have been crowded, dangerous, low-paying and without job security; but the concept of a sweatshop originated between 1830 and 1850 as a specific type of workshop in which a certain type of middleman, the sweater, directed others in garment making under arduous conditions and where child labour laws were often violated.

 

Yet at the other extreme if we look at some teenage Internet millionaires from the West, they all started their ‘careers’ as kids – Nick D’Aloisio, Cameron Johnson, Adam Hilderth, Juliette Brindak, Ashley Qualls, John Maggenis, Adam Horwitz, Jon Koon, Tyler Dikman, for example.

 

Where Nick D’Aloisio started using computers at 9 and writing apps at 12; Cameron Johnson was 5 when he started selling vegetables to neighbours and was 9 when he started his first business ‘Cheers and Tears’; Juliette Brindak was just 10 when she came up with ‘Miss O and friends’; and Tyler Dikman was selling lemonade at 5, making $22 an hour and at 10 was making $74 an hour and even started investing in stocks.

 

So is it the age that’s the problem or the type of work and experience that is the real crux of the problem? The Bolivian situation is ‘meant’ to be a win-win for both parties – and though these youngsters aren’t likely to be Internet millionaires is some work experience at a young age better than none at all?

 

In the US the Fair Labor Standards Act (FLSA) sets 14 as the minimum age for most non-agricultural work. However, at any age, youth may deliver newspapers; perform in radio, television, movie, or theatrical productions; work in businesses owned by their parents (except in mining, manufacturing or hazardous jobs); and perform babysitting or perform minor chores around a private home.

 

The US legislation is mirrored in many Western countries where in today’s social media and reality driven world there are a host of parents trying to get their kids accepted as ‘child stars’ of some kind or another – be it in movies, music, anything. And one wonders which is worse – a child in the West being ‘forced’ into audition after audition; or the 10 year old in Bolivia?

 

The new law in Bolivia stipulates that “ten year olds will be able to work as long as they are under parental supervision and also if they attend school. Twelve year olds may be contracted to work for other than their parents.” The Bolivian president, Evo Morales, who worked as a boy herding llamas, has backed the new working age.

 

Opponents of the new law argue that people who start work as children obtain less education, followed by lower earnings as adults – and they are then likely to send their children to work, perpetuating the cycle.

 

So in the 21st Century should we be looking at age – or the working conditions and opportunities for the child – and when we are critical of countries like Bolivia are we sure that our home countries have got the ‘recipe’ right for our own ‘home-grown’ children.

 

There are more child celebrities and entrepreneurs than ever before in the West, and though this is great for them – I don’t think the jury has reached a verdict on the impact on other young children; and whether this has a negative influence on a child’s perception of work and reality.

 

Some may argue that a 10 year old in Bolivia is more ‘aware’ of their own environment and the opportunities than many of their counterparts in the West – so what is the answer and how should one define a minimum working age?

 

References:

 

Blakely, R. (2014). Bolivia law allows children to work from the age of 10. The Times, Saturday 19th July, p.44.