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What the #%?* is a Currency War?

kathyrobison — Fri, 19 Nov 2010 13:23:16 +0000

Most American’s (including politicians) don’t know what a currency war is, why the media is focused on it, how world currencies are connected, how China is involved, or what the implications of such an economic war would be.

Why care?

If you’re an American who wants your job back, or who wants to keep your job, we as a country have to move up the value chain, and be a leader in global issues. We have to get our own house in order first, and learn a new place in the global economy because, to be blunt, our old place is no longer relevant.

The reality is that the US and China are inexplicably dependent upon each other. The idea that the US would interfere with China/US trade if they don’t let their currency appreciate is daft. Equally as silly is the notion that China would then dump a ton of US debt on the market in retaliation. Either move would hurt both countries – it’s like going back to the cold war days of threatening nuclear war – nobody wins so what’s the point.

In the meantime, countries like Brazil, who let their currency float more freely, run the risk of overheating when capital floods their boarders. They are then forced to resort to capital constraints in the form of higher taxes on foreign investors to slow the pace. But foreign investment is good for Brazil and good for the rest of the world because Brazil has a growing middle class, which is the lifeblood of the global economy.

Confused?

Join the crowd. There is plenty of good information in The Economist and the Financial Times on the subject. “How to Stop a Currency War!” was the lead article in The Economist Magazine a couple of weeks ago. But for the layperson it’s confusing, and, as a trained economist, even I have to read the articles twice.

It is incumbent on us to find ways to make these topics more accessible, and more visceral, to people outside of finance and economics. If we don’t, we become subject to politicians reverting to protectionism because they think it’s an easy ticket to getting elected, when they don’t fully understand the dire results of such policies. Protectionist policies will only bring results opposite to what we all want, which is a growing global economy.

A Little Currency Background

Global exchange rates need to fluctuate and interact properly with each other. To do so, they need an unbiased benchmark—something that can have a stabilizing effect across all currencies. Today, the US dollar is that benchmark in most cases, and that is proving to be problematic for the long-term.

Prior to the 1930s and the rapid emergence of US world dominance, the gold standard was the stabilizer. In the 1940s, under Roosevelt, the US dollar became a key reserve currency as it became more desirable than gold. Gold then went through a period of undervaluation, leading to Nixon’s decision to de-link the US dollar from gold in the 1970s.

The US dollar as the key reserve currency worked well until we arrived in the 21^st century, when our dominance in the world become less significant and we began to show unexpected and dramatic signs of economic weakness.

When a country’s currency drops in value, it typically signals some combination of a lack of productivity, a lack of innovation in general, and a lack of competitiveness as compared to other countries. In the last 20 years US currency valuation has masked these very important warning signals because it was propped up as a reserve currency. As a result, the US now finds itself behind the curve and has yet to fully acknowledge its predicament, let alone fully engaging in its comeback.

That’s why a protectionist driven US unilateral currency war with China is absolutely the wrong approach to what is being touted as borderline currency manipulation. It would be a kin to going backwards in time, and we desperately need a forward-looking, 21^st century plan that embraces globalization. Politicians should be focused less on China’s currency appreciation, and more on boosting innovation, emerging industries, and exports in general.

It’s a Multi-lateral Issue

Stabilizing global currency markets requires three critical actions that involve many countries, not simply the US and China.

1. Change: Make substantive changes to a system that only partially works by using a multi-lateral approach through the G-20. It’s time our global systems were updated to reflect the realities and the benefits of the 21^st century global economy.

2. Rebalance: It is in everyone’s best interest to move significant amounts of the world’s capital toward emerging economies and away from indebted rich countries. That should also provide an incentive to the rich countries to pay off some debt, innovate, move up the value chain, and generally push the envelope to make room for progress in emerging economies.

3. Focus: Countries should focus more on the value they bring to the world than substantiating their place in the world through market manipulations. Creating value should bring sustainable demand, despite currency fluctuations.

It’s a small world

Globalization is no longer an option. The entire world, and nearly every economy, are inexorably linked. Global monetary relations significantly affect even the smallest business on Main Street USA. Understanding the intricacies of a global economy—particularly as it relates to global exchange rates—is critical to the growth of US companies, the US economy, and the global economy.

The global capital markets turn over $4 trillion daily in currency markets and the total global sovereign debt market is estimated to be somewhere around $34 trillion dollars. A large chuck of that currency and bond trading occurs between countries and each is affected by the others. Interference in open market forces by one country trying to create a local effect creates a counter-effect in other countries.

Make markets, not war!

As US citizens living in this interconnected world economy, we have a vested interest in electing officials with a strong willingness to show understanding and global leadership in the area of international economics. Yet many politicians seem to be promoting the reverse—protectionism—because that’s what they believe Americans want.

That’s a complete copout. Such politicians irresponsibly enact policy based on the lowest common denominator of understanding rather than what is right for the long-term interest of our country, economy, and citizens. They might be surprised to know that we’re a lot smarter than they realize. We know that by properly positioning ourselves for success, when the rest of the world expands and prospers, we will as well.

If politicians think that forcing China to let the renminbi appreciate will somehow create more jobs in the US, they are simply misinformed. Nor is it even possible for us to make such demands. In the opinion of many respected economists, export expansion is the best option for generating substantial growth in the US in the near term (see previous blog post for more on US growth). It’s impossible for the US to compete on cheap labor and an undervalued currency. So, how can we compete?

Creating jobs through products and services the rest of the world wants can only come from within our borders and from evoking more creative competitive and innovation business strategies. An expanding world economy means expanding markets for US goods and services. That’s the elemental link the politicians miss.

We should recognize that countries like China, whom we perceive to be a threat, are in fact birthing the world’s largest middle class of consumers. We need strategic leaders who recognize the issue is not a US vs China currency war, the issue is: What can we sell China and other emerging markets that no one else is offering?

Bellyaching about US consumers buying Chinese products won’t get jobs back. Competitive business strategies will. There is an opportunity here for the US to re-focus on creating attractive exports based on things like innovation of new products that attract investment, filling usability demand gaps at the bottom of the pyramid, and offering unbeatable ingenuity in the delivery of on-going services.

Retooling our industries and work forces into higher levels of value added manufacturing allows us to trade short-term pain for long-term gain. In 10 years, if they act NOW, rust belt cities like Detroit can be thriving hubs of manufacturing again, focused not on aging consumables, but on nano technologies, green energy, applied materials, and other innovative industries just now emerging.

If the US can make products highly usable and full of irresistible purpose, the buyers will be there regardless of what is happening in the currency markets. It doesn’t always have to boil down to price. The key is focusing on what we want to support in the world and who we want to be — as opposed to what we are against and whom we can blame for our troubles.

Rebalancing the World’s Capital

When value creation comes first, money will ultimately follow. It’s time for global capital to become far less speculative and far more connected to long-term objectives and strategies for global economic stability. Hopefully the evolution of finance will begin to reward creating and following value and purpose as opposed to simply following short-term gains. We’ll have to wait and see on that one.

Yet, as we have seen in Europe, the capital markets are finally realizing that traditionally “safe” developed economies (i.e. Greece, Ireland, Spain) can actually carry risks significantly greater than those in emerging economies. A shift in capital away from the traditional rich economies and toward the emerging economies underlies part of the pain the US is undergoing. This shift is necessary and contributes to a growing global middle class that will ultimately increase global consumption, and therefore benefit all.

The dance becomes how much should shift and when? When do the risks tilt back in the other direction as an emerging economy begins to overheat or doesn’t have the political stability or infrastructure to cope with the rate of growth? And how quickly can the developed world reinvent its competitive edge and begin to attract some of that capital back?

Focused on the Wrong Things

The relationships between one country’s currency to another’s can have large and sweeping impacts on capital and export markets. This is precisely why we see China reluctant to let the yuan’s value appreciate.

Appreciation of the yuan would have an adverse affect on China’s exports, a large driver in their economy (or so they believe). The best answer for China is to allow for controled appreciation over time and focusing on gaining more growth from domestic demand. Strategic multi-lateral pressure can be helpful. Demands from one country simply won’t work.

The best answer for the US is to focus on pathways to becoming more competitive and innovative. There are more ways to gain a competitive advantage in the export markets besides cheap labor and a cheap currency. We must ask ourselves: What can we do to use our gifts of freedom to continue to supply the world with some of its greatest insights and products and innovations?

To remain the leader of the developed world, it’s imperative that we use our ingenuity to continue to push the envelope on technology and progress. This is our largest advantage over China. China’s repression of its citizens and control of almost everything, in turn suppresses creativity, connectivity, innovation, and ingenuity . . . all essential ingredients for 21^st century global success. China’s biggest threat is itself, not the West. The US and other advanced democratic economies should take full advantage of China’s current self-fulfilling inability to fully compete.

What’s next?

We can only address these problems together, not through unilateral sparring. Our best option for sorting out some of these disputes is to encourage the G20 finance ministers to set some basic codes of conduct around what can be perceived as currency manipulation. This week I was happy to learn that the G20 is making some headway in discussions and is willing to address the imbalance in the voting allocation at the IMF as part of the negotiations.

We live in a complex world. China, currency, and the state of the US economy are complex issues, with complex questions: Today, are politicians on both sides of the aisle trying to pacify US labor groups and the general population in the run up to elections? Are they engaged in some all bark and no bite rhetoric against China? Or are they trying to solve the real problem at hand—the sluggish US economy?

We need to understand issues, and hold leaders accountable, and say: If you’re not doing the right thing I’m voting for someone else. Global exchange rates are complex, but what the US needs to do is actually quite straightforward. If the only thing I convey in this blog post is the need for greater focus on the root issues facing America (not China’s currency exchange rates), then I will consider it a success. America has been the most innovative, forward-thinking, and exciting country in the world for over 2 centuries. We have always accomplished the seemingly impossible. Unless we quickly remember what makes us unique and use those talents to jump-start new products, services, and leadership the world needs, we risk loosing our greatness and trading it for ordinary. I said it was straightforward, not easy and not without a lot of hard work!

Do They Really Think We’re That Stupid?

kathyrobison — Thu, 26 Aug 2010 14:49:27 +0000

I don’t know about you, but I find it a little disturbing when I see politicians stand up and say that the administration’s entire economic team should be fired because they haven’t created enough jobs. First of all, governments don’t create jobs, businesses do. Secondly, governments can create environments that promote jobs, but its effectiveness is still a couple of steps removed and often comes with a long time lag. Do they really think we’re that stupid?

If we want to be honest, and I think we should, there is plenty of blame to go around for the predicament the US finds itself in today. We severely damaged our financial system through greed, ineffective regulations (notice I’m not saying a lack of), and a over zealous homeownership policy; we somehow forgot that economies and businesses work in cycles; and we all (people, businesses, and gov’t) failed to heed the wise advise of paying down debts when times were good.

Such a significant amount of economic damage requires corrective adjustments that will simply take a bit of time to work through the system. There’s nothing wrong with a slow and steady recovery. It certainly beats a continual decline or a Japanese style decade of stagnation. What’s is wrong are politicians trying to use the slow recovery to get ahead in the poles by scaring the public into thinking the sky is falling again. That may get you elected, but it will only harm the recovery because it breeds fear and continues to divide us. Fear affects confidence, and confidence can either have a positive multiplier effect or a negative one (Its our choice).

Let’s first look at what is NOT going to drive us out of this recession; and yes it’s the list of things that works in most recoveries, just not this one. It’s not going to be the housing market, since it was part of the problem. We are still in an adjustment period of getting people out of homes that really couldn’t afford them in the first place. There simply isn’t going to be much unmet demand until after the economy gets going again. Consumerism is another area where we got out over our skis and adjustments are necessary to find a sustainable level. I never really understood why the government chose to incentivized people to buy houses and new cars as a way to stimulate the economy . . . it just seems a little counter intuitive to me. The stimulus was definitely warranted, but we could have come up with some smarter programs. But since the government owned big chunks of the banks and automakers, perhaps one can see their logic . . . conflict?

Now, where’s the potential, the upside, the areas we can focus on that can produce meaningful results. Some economists are saying that we need investments in businesses (boosts productivity) and a focus on exports, which I agree with for the most part. We can use the demand that is stronger in other parts of the world to help create enough economic activity in the US, which in theory should help jump-start our own demand. That’s the beauty of globalization.

We can also look to trends, future needs, and how this new era of globalization is shaking out to find those niche areas that require capital. Anything that is working toward solving global issues, utilizing technology in innovative ways, and meeting the needs of people in lower socio-economic stances is likely a good investment. I can promise you, the companies working on the $1,500 car and mobile banking/markets for the developing world, will look like geniuses 25 years from now. We may actually be creeping up on the inflection point where it is actually more risky to bet on an investment that focuses on traditional methods of growth in developed markets than it is to explore the frontier where there are bucket loads of unmet demand . . . the bottom of the pyramid.

Success for the US in the 21^st century requires a new way of thinking, a new mindset, and paying far less attention to what the politicians are saying.

What’s All The Fuss About this New Sheriff at Downing Street?

kathyrobison — Thu, 15 Jul 2010 13:41:09 +0000

With an British mother and an American father, comparing the US and Great Britain is simply a way a life in my family . . . plus it gives me a bit of street-cred in this department. In this story, in my opinion, the Brits clearly win!

Sunday mornings with Fareed Zakaria on CNN are sacred in my house. Which basically means that my kids and husband abandon me for that hour. More often than not, I’m highly tempted to blog about one or two of the topics Fareed covers. I typically resist, because I rarely disagree with Fareed and over time I’m afraid I might come across as a “Fareed Groupie”, which could tarnish my image of a self-thinking, intelligent, strategic, modern woman. That said, this week, I am giving into temptation. I simply must blog about this new British government and the 39-year old George Osborne (Chancellor of the Exchequer – Secretary of the Treasury to Americans) whom I found to be slightly pompous (expected), highly intelligent (expected), but unexpectedly refreshing and on-point in his ideas around what people really want from their governments. I personally, think the US Republican party could take a lot of cues from the new conservative sheriffs at Downing Street. As an Independent, I actually prefer it when both the Democrats and Republicans are acting wisely as it makes for better candidate options and more solution oriented action.

If you missed the show, it’s easy to watch or listen on demand. Just click here.

Just to add my own touch to the conversation, and keep up my image, here are the four primary reasons why I like what I heard from Osborne and feel strongly that this is the direction that successful politicians will have to take (regardless of party) to be successful in the future.

Not Afraid to Act

Osborne has pledged to the British people that he will not hide hard choices from them and he will make them. He has clearly lived up to this campaign promise with his austere budget that is getting a lot of press. He feels strongly that the public wants a government who can admit when there is a real problem, and work quickly to get it fixed.

Proper Leadership

The kicker here is their assumption that the public can and should act as an intelligent deputy to a sheriff who is willing to make and stand behind decisions regardless of which direction the political winds are blowing. This new conservative party clearly recognizes that the British public clearly understands there is a debt problem, and that the country has been living beyond its means for some time, and so they are willing to take it on as their first priority. They also realize that not only Great Britain, but Europe, requires proper leadership to bolster their image and regain the world’s confidence in their ability to pay their own way.

Collaboration is Not a Death Sentence

Osborne speaks of forming a proper coalition government where the other party holds seats in the cabinet and how the real benefits of diversity in Parliament are less about looking different and more about being different and thinking different. One of the best statements Osborne makes in Fareed’s interview is, “We can’t abandon whole areas of policy to the Left in British politics. There is no reason why the Conservative Party should not have a progressive policy on climate change or be interested in issues of poverty and equity in our society and have answers to those issues.”

Open, Open, Open

They are open to new ideas, new views and anyone who can come up with a better way to reach a common goal. Osborne indicated that he constantly seeks out second opinions and alternative views. He encourages large numbers of people to come into meetings and say what they want to say, and understands that listening is a large part of the job. His office recently asked the broader group of public servants for their ideas on how to reduce budgets in a way that doesn’t damage the frontline services people receive. They received over 65,000 responses in a couple of weeks, and had some of them around to Number 11 Downing Street for a chat recently. Interactive governement . . . what a concept!

I’ve been saying for years (just ask my friends) that the politicians in the US are simply making things worse and what most people really want is an entirely new breed of politician that is much more suited for the 21^st century. We need politicians who care less about party line and more about solving problems. We need politicians who can explain both sides of an issue, without bias, and why they believe their decision is the best option. We need politicians who can work with other politicians to get the job done and stop wasting the public’s time and money on petty politics.

As much as I love they way in which this new and refreshing British government is behaving, I would certainly caution them that the best solution in today’s environment is likely a combination of austerity in some areas and stimulus in others. Because western politicians failed to play the austerity card when times were good, we are all now stuck in a precarious position. The equation is really quite simple and it works for government, companies, and at home. When times are good you pay off your debts, make smart investments, and put a little under the mattress for a rainy day. When times are hard you dig out your mattress money and stretch on credit a little if necessary. If used responsibly, credit can be a very stabilizing element in an economy. When abused, as we all now know, credit can backfire as surely as a 1970’s MG.

One of the things I love the most about this new government is the fact that they aren’t letting fear run the show. They are taking a stance, creating a strategy, and they are willing to listen to other ideas. The longer we let fear run our households, our businesses, and our politics, the longer this era of uncertainty will linger. It really is that simple.

Haiti: The Western Hemisphere’s Greatest Potential

kathyrobison — Sun, 24 Jan 2010 23:30:02 +0000

This post is dedicated to the tens of thousands of Haitians who have lost their lives; to those who will undoubtedly loose their struggle in the coming weeks; to my friends and colleagues at Aimer Haiti and to the wonderful creative economic development ideas we were working on that now mean more than ever before. See previous posts for more information on Aimer Haiti.

Globalization is no longer optional for any nation, company, or person in the world, regardless of their beliefs. The realities of our globally interconnected world are more evident now than ever before given the failures in our global financial systems that are far more intertwined than many realized. This coupled with the shrinking populations in many developed nations ensures that disasters such as Haiti and other atrocities happening in under-developed countries are everyone’s challenges and everyone’s potential. It is now in the self-interest of the developed world that these tragedies are tended to and we band together to allow capitalism and democracy to bring people out of poverty creating new and sustainable consumers and markets for everyone to access. It’s no longer optional; and for me that brings hope.

In order for economies to grow, they require something to create an increase . . . more consumers, cheaper inputs, faster production, more products . . . you get the idea. Until this century, the developed world has been able to primarily rely on their own increases in population, growing middle class, advances in technology, and fierce consumerism to feed the ever-increasing wheel of economic activity. Take a look around today . . .

Populations in many developed countries are decreasing or slowing
Consumerism has taken a big hit as many realize debt gone wild is bad and things don’t bring happiness
The environment is feeling the effects of careless growth increasing production costs around the world
Non-renewable commodities/resources continue on a trajectory of ever growing costs because, well, they are non-renewable
Finding cheaper inputs is a strategy of the past, including labor, as the world is realizing its better to pay a decent wage and create a consumer

What does all that mean? It means that the primary resource of capitalism has moved from capital, to labor, and to knowledge over the past 150 years and is now moving toward Connectivity . . . Stronger, deeper, more trusting, compassionate, and creative connections in every direction imaginable will drive the future. You can’t touch connectivity. You can’t buy it. You can’t even learn it from a textbook, but it can be cultivated and societies are increasingly hungry for it. Those who can connect the seemingly un-connectable dots in new and inventive ways will win. Businesses that connect to what their customers and employees value the most will win. Capitalists that figure out how to connect to and serve the Bottom of the Pyramid will win. Those who can embrace the connection between failure and success will win. Those who have the courage to connect to their passion and not to the herd will win. Those who figure out that hording no longer works but collaboration does will win. Those who learn how to tap into the innate energy that exists in every person to do good in the world will win. Those who can disconnect from fear and connect to the creativity in courage will win.

The US, Europe, and the rest of the developed world must realize that in order to continue our own standard of living and our own comforts in life we must begin to help other countries build middle classes and become the productive citizens they desire to be. My hope is that perhaps this tragedy in Haiti can bring light and education to the need for global citizenship and the prosperity it can bring to so many (rich and poor). We have an opportunity to help Haiti rebuild itself and become a model to be used by other struggling nations.

Changing our outlook and expectations from the short-term to the long-term is key. Today, liquidity does exist; it just exists with a short-term expectation of return and is invisible to most of us. So we have what is referred to by some economists as a “wall of liquidity” that is searching the world for immediate arbitrage situations and completely ignoring the long-term opportunities that exist today in many industries and places around the world. That “wall of liquidity” brings a risk of continued global financial instability as it preys on unlikely places such as Russia where the currency will likely normalize in relation to the USD and EUR and monetary policy has allegedly been mismanaged. It is critical that we recognize the many unintended consequences of the past and vow not to repeat them in the future.

“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.” ~ Theodore Roosevelt

Rebuilding Haiti – A Unified Strategy

kathyrobison — Mon, 18 Jan 2010 14:15:16 +0000

When you see the level of response from the US and nations around the world to the tragic earthquake that rocked Haiti only a few days ago, it is hard not to feel proud of the quality of global citizenship displayed by so many. Individuals and organizations have been sent to help with security, medical care, food distribution, general aid, and journalistic coverage and they should be commended for their commitment to humanity.

However, as an economist who was working on economic development in Haiti before the tragedy, I know that the strategy and model used for rebuilding is the key to success. Despite good intentions, the developed world does not have the best track record for helping under-developed countries gain any significant traction. There has never been a lack of funds or good intention, but there has been a lack of effective and unifying strategies designed with the population’s physical and cultural needs in mind. This unfortunate and tragic earthquake has presented the world and Haiti with an opportunity to set the rebuilding of Haiti on a course that will have long term significance for its people, if we are all willing to try something new and think about building sustainable economies with a new perspective.

There are a number of areas that will obviously require simultaneous focus, however the primary force and core strategy should be helping Haiti to rebuild their own country, with their own hands, and resist the temptation to do it for them. Often our own need to help gets in the way of truly understanding what is needed. This may sound over simplified or inconsequential to many, but I assure you it is not. The rebuilding must be done in a way that unites and aligns citizens, government, businesses, investors, and aid organizations. Without unity, there will be continued factions, hoarding, corruption, and minimal progress. This monumental task requires a top-down strategy with a bottom-up implementation plan. I have faith that with the assistance and guidance from the rest of the world, Haiti can rebuild itself and become much stronger than it was before the earthquake.

We must avoid simply jumping in with quick fixes and rebuilding everything back they way it was. A master infrastructure plan that is comprehensive in its ability to connect the disparate parts of the country and support agriculture and other industries is critical. It must take into account the reverse urban migration that is likely to occur as a result of the earthquake. Many people will go back to the small towns and villages where they are from because they no longer have homes and jobs and have nowhere else to go. The people in Haiti’s countryside are generally the poorest of the poor — why so many migrated to the big cities in the first place. Supporting agriculture, tourism, and arts industries in the countryside will provide people the means to stay, to start over and to allow the country to grow in a more balanced way.

Agricultural Development Aid is a crucial component, and it will be required in a way never seen before. With the traditional strategy of sending a disproportionate amount of food aid compared to Agricultural Development Aid, we generally set a country up for failure. Sending only food aid does serve an immediate need and feeds people today, but it can also destroy what markets still exist. Building chicken farms, developing farm land and building other food production facilities puts people in business so they can build up their own markets allows the aid to continue to churn through the economy and even increase economic activity over time. Simply handing out food produced elsewhere and brought in through an outside distribution channel fills an immediate need, but if it is not balanced with other strategies eventually also feeds the equation of poverty.

Businesses must be created and financially supported so they can hire local employees and begin the re-building process. Contracts must be structured with built-in profits from the rebuilding efforts that can be used to create further self-sustaining economic activity. The banking industry must be supported such that the bankers can make enough profits to stay in business and grow while providing heavily subsidized loans for building businesses and rebuilding structures. The World Bank and the IMF need to find creative ways to support industries and businesses directly as opposed to giving the lions share of funds directly to the government. When businesses begin to grow and more money is invested in capitalistic endeavors, the government’s revenue will grow in sustainable ways and can it begin to rely less and less on foreign hand-outs. The government should be orchestrating, aligning, and ensuring coordination of all efforts. The government should be making master plans and ensuring long-term strategies are properly focused on growth. Groups like Aimer Haiti, who can help build and mentor businesses, should be working with the government, the World Bank, the IMF, the US, foreign investors and domestic investors to develop completely new strategies for growth. Aimer Haiti has already been working on such collaborative and creative economic development strategies since their launch in 2009 and for years before as concerned citizens and Haitian business owners.

Energy has been a growing issue for Haiti as its population rises, and is now even more critical. Electricity has never been reliable and is often supplemented with large battery stores powered by diesel generators. The good news is that technology has advanced enough that a country like Haiti can leap-frog many of the evolutionary steps in energy that the developed world could not. It’s a matter of getting the brightest minds together, inside and outside of Haiti, to come up with the best solutions given the unique conditions of the country. Before the earthquake Aimer Haiti was exploring the possibility of using small solar energy units in some of the poorest areas to provide light, refrigeration, and power. With refrigeration, people can store and sell perishable products such as produce and fish. With power people who cannot read or write can begin the process of building an education base through radio and television. Mobile phones can be powered and connect people to markets to sell their goods.

Solving the energy issue is also the key to stopping deforestation. Until there is a reliable source of energy to replace charcoal, and until there are jobs and small businesses to give people a means to survive, deforestation will continue. Deforestation causes rapid erosion, which leads to road and bridge destruction, and leaves the land unsuitable for farming ensuring the cycle of poverty continues. The cutting down of trees does not happen because Haitians do not care about their land, it happens because it has become a means of survival for so many people.

The interconnectedness of all of these major issues in Haiti is another reason why getting the overall re-building strategy right is so key to its long-term future success. Every solution and every single effort of aid and rebuilding should be viewed as an opportunity to put Haitians in businesses that will create jobs. For example, the distribution of food and creation of helicopter landing sites, which is happening right now in Haiti, is a huge opportunity to employ people and allow them to feel a part of the solution and not a part of the problem. There shouldn’t be such a stark line between those giving aid and those receiving aid. This is an example of the change in thinking and the change in mindset that is needed to change the trajectory of how under-developed countries are assisted, particularly in times of need.

This type of re-building is not done from an office or over the phone, it is done by creating relationships on the ground, building businesses, one at a time, and helping families, one at a time. It’s about doing, creating, uniting, and elating in each small success that both dedication and determination will bring.

History has proven time and again that capitalism and the building of a significant middle class are still the best ways to bring people out of poverty. Before the earthquake, one of the first billboards you saw when you were leaving the Port au Prince airport, was the large unity triangle of Aimer Haiti, which of course translates to “Love Haiti” in English. I hope it is still standing!

What Does the Debate on Climate Change Have to do with 21st Century Business Models and Global Economic Development?

kathyrobison — Fri, 18 Dec 2009 13:31:37 +0000

The short answer is EVERYTHING. The long answer is what this post is all about. These are three of today’s most pressing issues that are all too often discussed in a vacuum. The best progress will be made at the margins where each of these pressing issues overlap. When we begin to see them each as an integral component of global economic progress and prosperity and not discrete issues, much will be gained.

Perhaps the inclusion of 21^st century business models is a surprise to many lumped in with the other two that get a lot more focus and media airtime, but please notice that I use the predication “21^st century”. If we want to do something about the ramped greed and selfish strategies that exist in many of today’s firms, then it must be added to the mix. If created correctly, new and improved business models can be a large part of the solutions to climate change, global economic development, and their own perils of decreased employee morale and disgraced public opinion.

They all require new, passionate, and innovative solutions. In fact, we must assume that the very best solutions are not yet known. Thus, the solution frameworks that are being bantered around today need to accommodate the unknown solutions of tomorrow. It’s beyond out of the box thinking and into a world without the constraints of boxes of any sort. It’s about unleashing the mass of untapped potential and productivity that lies dormant inside people and organizations around the world.

They are each integral to the success of the others. Slowing population growth in the developing world is one of the keys to avoiding a climate catastrophe down the road. Economic development and the creation of a middle class is the most effective way to slow population growth in the developing world. Private sector ingenuity is key to new technologies that will reverse the current trajectory of climate change as well as promote economic development in the developing world.

Alignment is key to effective solutions in each case. Businesses are learning how to align their shareholders, employees, customers, and the public in ways that will dramatically increase productivity. When transparent alignment and partnerships are created between foreign aid, domestic and foreign private investment, and public money, global economic development will become significantly more efficient and effective. Unless we properly align the big players in the world on climate change soon, it will likely suffer the same fate as the Green Revolution in Africa.

The most successful businesses models in the 21^st century will be those that realize contributing to the creation of new markets is a winning long-term strategy, that focusing on something besides growth and profits is the key to engaging employees and winning the hearts of customers (yours as well as your competitors), and that how you decide to be in the world can be just as important, if not more important, than what you sell.

Too often when these topics are discussed in the media, there is too much focus (in my opinion) on the facts known today which narrows the conversation and too little focus on what we want to create. In other words, discussions and potential solutions are being filtered based on what we know how to do today and not on whether or not they fit what it is we are trying to create. All great movements start with an unadulterated view of what should be created, if anything is possible. There isn’t much humans can’t do once they set their minds to it. Some things take a few months and others a few generations. The problem is that we sometimes lack the belief that it can be done, which ends up being the biggest thing that holds us back from succeeding.

Looking for Profits in All the Wrong Places

kathyrobison — Wed, 02 Dec 2009 18:19:50 +0000

Investment comfort in the world of high finance all too often comes from fast profits in known and proven markets. The never-ending game of offering higher profits at lower [apparent] risk to attract capital was certainly alive and well before the global economic crisis. The question is, why does it appear to be coming back? Didn’t we learn anything?

A global economic recession of epic proportions should have taught us a few lessons, but the days when CNN is glued to the US consumer expenditure figures as if it were the only barometer in existence, it seems it isn’t so. Too much investment comfort will lead to not enough investment in the future and much greater economic turmoil down the road. For economies to flourish they need to grow, and we seem to continue to look for growth in places where the potential is quite low.

One of my mentors used to always say that if you aren’t feeling nervous and agitated about a deal, then it’s probably not a good one. We were investing Goldman Sachs money, so the deals we worked on weren’t small and were often the first of their kind in that country. A healthy amount of discomfort means we’re forging new territory. Forging new territory in a world that primarily relies on capitalism to make the wheels go around is a good thing. Running in the same old markets over and over and over again may move the wheel around, but it does little to make the wheel bigger. In a world where we are slated to break 9 billion inhabitants in the next 40 years, we will definitely need a bigger wheel.

There is an inherent flaw in this mindset of investment comfort. It stays in the world of what is known and it over-exploits markets such as US housing, US consumer, and luxury hotel. While billions of dollars were being invested by countries all of the world in relatively finite (but comfortable) markets, much of the world’s potential new markets were being ignored. I would argue that it is actually riskier to invest in false markets (backed by too much debt) that are unsustainable and maxed out on growth than it is to invest in creating completely new markets in the emerging and developing world that are backed by sustainable commerce. It doesn’t feel riskier because it is known territory and feels comfortable, but from a purely economic system point of view it is, definitely riskier in the long run.

I believe this will be the biggest lesson of the 21^st century for both the private and public sectors around the world. During the 20^th century, there was adequate growth potential in the population and quality of life in developed countries to support investments shrouded in the comfort of known markets. This will not be the case for the 21^st century. The 21^st century requires new investment models, new leaders, and new perspectives on globalization.

I predict that the very best Wall Street firms will turn from security selection and asset management in known markets to designing unique investment solutions that build entirely new markets around the globe. They will bring public and private money together in ways that have never before been attempted. The old model of trying to build nations through foreign aid and local (sometimes corrupt) governments alone clearly doesn’t work. We need new models that forge new territory and challenge conventional thinking. The potential and the opportunity are there. The question is are we going to seize the moment and begin to look at the world differently? Are we going to set future generations around the world up for success or for failure?

An uber-macro-global economic view of the world indicates that with stagnant population growth and an already high quality of life in much of the developed world, the economic progress and growth necessary to continue building global wealth must come in large part from under-developed countries. In other words, the developed world is becoming over-saturated with capital. The excess capital is creating false markets in many cases because new markets are unobtainable. Companies are either stealing customers away from the competition or simply swallowing the competition because the markets are not big enough to support them all. We also saw this play out over the five years prior to the recession where cheap debt allowed for an ever-increasing portion of returns to come from debt arbitrage as opposed to real investment fundamentals, which basically masked the issue.

Though, without the comforts of known markets, the developing world represents a significant potential for entirely new markets. These new markets won’t get created overnight; however, they will require long term commitments and a lot of hard work. The ones we are seeing pop up in China and India have been in progress for decades. Creating entirely new markets requires both time and investment in infrastructure to create an environment where a middle class can flourish and grow. Investors are starting to consider places like China and India, which is good, but they must realize that though the business mechanics are similar, the subtleties, relationships, and manner in which business is conducted is quite different. There is still much work to be done in these markets and well as smaller ones that get far less attention but hold an equal amount of promise.

Success in creating new markets and building a middle class in nations void of one will require new and innovative ways of combining public global aid with both foreign and domestic private investment. Creating partnerships that promote food security, business investment, and job creation to jump-start capitalistic activity seems far more beneficial than the old ways of shoring up the local government and banks. When businesses are sustained, tax collections will shore up the governments in much more sustainable ways, and citizens will gain more political power to avert corruption. It’s about starting an economic cycle, not circumventing it. Governments generally do not produce economic activity, but they do benefit greatly from it. It starts with building business, not building governments. We need an entirely new perspective on how we can work together to build markets and bring people out of poverty and increasing the quality of life of those who currently reside at the bottom of the pyramid. This ultimately requires a broadened view of capitalism. Creation of the haves and have-nots does not have to be a side effect of capitalism. We can choose a different path for the future of our world. This is what it means to start thinking like a global citizen.

Can the US be the Kind of Leader the World Needs?

kathyrobison — Tue, 17 Nov 2009 17:40:06 +0000

It depends really on the US’ ability to recognize that the type of world leader required in the last century is quite different than the world leader that is needed in the 21^st century. Just as in business, what qualifies as effective leadership changes over time as the constituents being led change not only demographically, but also in what they value the most. Successful leaders of the 21^st century will be the ones that are more inclusive than exclusive; the ones put their egos aside; the ones that lead more by relationships than through control; the ones that recognize that every person and every country has their own story and though on a different scale they may in fact be doing the best they can. Leaders of the future are not afraid to give credit where it is due, and in some cases they must step aside and let others lead.

Last week I attended the US-China Business Forum Green Texas 2009 in Austin Texas, organized by the US Department of Commerce, US Chamber of Commerce, and the Austin Chamber of Commerce, among others. The overwhelming take-away for organizations wanting to take advantage of the tremendous business opportunities in China was that you must be willing to make a long term commitment that is centered on relationships, alliances, trust, and respect. If you think you are going in as the big, intelligent, egotistical American, you will likely be in for a big disappointment. We heard from folks that have done business in China for decades and newcomers that are still on their journey, and the most successful are open, respectful, and go in knowing that they will learn a lot from the Chinese. It can be a wonderful win-win for both countries.

We may not always agree with the ways of the Chinese government, but the reality is that they are doing a lot more than the US in getting the world’s economy back on its feet. They may not have an open political system, but they are very far along in an open economy and that is a massive step forward and certainly one in the right direction. They may have substantial environmental issues to contend with, but considering where they started, they are definitely moving forward. We cannot support immoral activity, but we can and should, in my opinion, support what they are doing well and their commitment to an open economy. Political change will eventually come from within when the growing middle class become large enough and courageous enough to speak up for what they want. Listening to a talk on China by James Mills of the Economist, this growing middle class and the political implications it may bring is a big concern for the Chinese government.

It would not surprise me if China eventually leads the world in the rate of environmental change. They are starting at a much lower position than the rest of the developed world, and they will be able to leapfrog the stage we are in and go directly to the latest technologies with the best results. Despite the large size of their country, their ability to make large sweeping changes is greater than any democracy because they simply lay out the new rules and begin demanding change. I am certainly no advocating communism, but it is hard to ignore that in the case of environmental clean up in China it will likely be very effective. My personal opinion is that slowly over many decades China will continue to take on more and more democratic practices in an effort to maintain peace and stability within their own country.

If we do not keep our eyes open, acknowledge and embrace the changes that our own country needs, and are not willing to support other countries in their struggles to become leaders themselves, we will miss the proverbial boat. We will wake up one day and realize that the US is behind the times and has lost an important and powerful opportunity to continue to lead the world to success, out of poverty, and to a peaceful existence.

We must be proud of countries like Brazil, and be proud that they have one the recent bid for the 2016 Olympics. Though we all wanted Chicago to be chosen, if we dig deep down in our hearts, we know that Brazil needed it much more than we did. They now have a goal to work toward to clean up some of the violence, and prop up some of the infrastructure. I only wish we could have see that before and perhaps graciously asked that Brazil be the winner. Instead, we have confirmed what much of the world thinks of America; that we are selfish and sometimes a bit of a bully. What a lost opportunity!

According to last week’s Economist (special report on Brazil), “Brazil has long been known as a place of vast potential. It has the largest freshwater supplies, the largest tropical forests, land so fertile that in some places farmers manage three harvests a year, and huge mineral and hydrocarbon wealth. Brazil could easily be one of the 5 largest economies sometime this century. Shouldn’t we be asking them what they would like to create and how can we help? Instead we always seem to be saying, “Here’s what you need to do.” Shouldn’t we be helping our own entrepreneurs do more business with Brazil? A strong and successful Brazil means wealth and stability for a large chunk of South America . . . and that has to be good for the spread of democracy and the globally interdependent economy.

It’s clear that later on in the century the US may loose it’s first place standing in some measures, or at least loose it’s massive lead. We can either sit around worrying about how we can keep our edge in whatever measurement the media is focused on at the moment, or we can become true global leaders and help our comrades become leaders themselves and in their own right.

This is the exact same struggle that large corporations are facing today. They can continue their hard-line ways of controlling their employees and making sure that all the decisions are kept close to the chest at the top of the pyramid, or they can realize that tomorrow’s greatest companies will come about through a new kind of leadership. Leaders that genuinely deflect the limelight, constantly support their customers and employees, and believe in people enough that their full potential shines through. These are the companies that will attract the best and brightest employees that design and develop the best products and services. People will gravitate to companies where they can become themselves at the office and aren’t forced to go down a certain path or abide by a certain set of rules.

As the US learns how to help countries without dictating, and listens to what they really need, and has the compassion to put others first on occasion, then, and only then, will we deserves to be the leader the world can truly look up to.

It’s simple really. When you gain their trust and have compassion, then you have a chance to really create a positive influence. Without trust, you will, at best, maintain the status quo.

From Linear to Exponential: A Lesson from the World Business Forum

kathyrobison — Tue, 20 Oct 2009 15:36:57 +0000

One of the most important lessons from this year’s World Business Forum in NY, is the need to update our business models for the 21^st century. Believe it or not, most of today’s business models are based on how the military and large industrial companies were managed over 100 years ago. Gary Hamel’s presentation, in my opinion, was brilliant in presenting why we need new models and what they might look like and how to get there. The best quote I jotted down was “How do we build an organization that can change as fast as change itself?”

Don’t worry; you don’t need a degree in calculus to get the jest of this post. But when you’ve finished reading it, you will understand the point. In the graph above, the red line is linear, the blue cubed, and the green exponential. Image the vertical axis is the rate of change, and the horizontal one time. The point being that as time progresses, the change we see in our lives, society, technology, etc is increasing at an increasing rate. A couple hundred years ago, change was very linear and much slower. Now we are in a time of exponential change, where many of the new technologies and new insights allow things to change on the fly. In other words, the reality of rapid change is already built in. Think about the iPhone, even if you purchased the first model, you still get many of the great upgrades because they put new features in the software instead of the hardware. The question then becomes, are today’s business models equipped for such a world. My answer is a resounding NO! The good news is, we can get there fairly quickly.

Even the military recognized the need for a new model. Commander’s Intent, or Miliary 2.0 Thinking involves the realization that there is great value in today’s soldiers’ ability to see and thus communicate things that their leaders cannot. Thus today’s soldiers often operate under the Commander’s Intent as a guiding concept rather than absolute orders.¹

The primary goal of large-scale manufacturing companies during the industrial revolution was to get people to do the same job day in and day out without complaining while paying the least amount possible in wages. The great production innovations created millions of un-fulfilling jobs. In 1913, the year of the first moving assembly, large groups of workers at Ford began to leave with turnover peaking at 380%. Ford finally ended up offering workers $5 per day (twice the minimum wage) and reduced the workday from 9 to 8 hours. Thus the traditional relationship between employer and employee was born, dictating that employees would do as they were told by their superiors in return for more money and time off.² It was a trade most were willing to make because they desperately wanted a better quality of life. It solved the issue it was aiming to resolve, but I would argue that it masked the root cause of an unfulfilling job. This foundation still today, underlies many modern companies . . . and we wonder why so many workers, and even executives, are unhappy and dispassionate about their jobs.

The issues today’s companies face are quite different. For starters, they want people to think, and collaborate, and innovate especially as we come out of this recession. However, most companies are not aligned with any of those outcomes. They are aligned with rule followers, and people who are afraid to even consider revolutionizing anything. Sure, there are some industries, or departments, or companies that have figured out how to promote creativity and passion in the workplace, but most have not. Command and control methods of management won’t work in a world where people want to feel valued, care if the company they work for is a good steward of the earth, and want to be challenged and grow as human beings. Fifty years ago, very few believed that kind of job was possible. Today, most people know that they do exist and there are more examples every year of companies with enough courageous to challenge the status quo. That courage will pay off and provide the first movers with a tremendous competitive advantage.

The rate of change that occurs today in society, technology, infrastructure, and knowledge is far greater than it was 200, 100, or even 50 years ago. Traditional business models are very linear in nature, which generally worked in the past because for a long time the rate of change was relatively low. You could decide on a business plan and it would work quite well for a decent amount of time. When a crisis hit, it was time to try something new. Today’s business models need to handle change occurring at an exponential rate. The 21^st century requires a business model that is fed by change. Where crisis will hit if you stop changing, updating, and improving, not when it’s too late. This is where competitive advantages will be born in the near future. Is your firm ready?

It is imperative to start challenging long held beliefs about how businesses can and should be managed. It starts with a commitment to change and a willingness to be brutally honest with yourself and your team about what works and what doesn’t. If you have those two things, you will be amazed at what you can create, and you will be even more amazed by what your team can create once you give them the freedom to succeed.

This is a tremendously exciting time in business, and the ones that are more creative, have the courage to challenge old beliefs, and want to have a bit of fun along the way will WIN.

1 Smartsourcing by Tom Koulopoulos

2 The Support Economy by Shoshana Zuboff and James Maxmin

Is Less Risk Really the Best Business Strategy?

kathyrobison — Tue, 22 Sep 2009 23:30:15 +0000

Was it really the amount of risk taken in the past few years that triggered the financial crisis, or might it be the type of risks taken that are the real culprits? Perhaps, a simple case of too many eggs in one basket for too long? Yes, banks kept piling on debt securities from residential and commercial mortgages based on a model that had value increasing in perpetuity. Yes, hypermarkets such as CDX/CDS were created without anyone taking the initiative to add them all up and see if the insurance sold was actually more than the companies were worth. Yes, Investment Banks were allowed to leverage up to levels that had never before been implemented. But to me, that says that we took too much of those particular kinds of risks for too long and did not scrutinize the underlying assumptions nearly enough.

At the same time, we were under-funding, intellectually and financially, innovation in new technologies and revolutionary products. We cracked the code to the human genome a decade ago, and yet the average person sees little evidence of it in their daily lives. We seem to be lacking in our abilities to bring new discoveries and breakthroughs into marketable territory. Was it just a myth that we were in an era of great innovation, because we said out loud enough times that we actually believed it? Were the best and brightest young minds being shuffled to Wall Street because they are better salesmen? What can we teach and what can we do to promote and support entrepreneurs? Perhaps some of those investment dollars (many coming from overseas) could have been better invested funding innovation instead of financial securities. Funding innovation may seem like a much riskier bet, but I can promise the underlying assumptions would be a lot more realistic than the bets that were made in slam-dunk securities the last few years.

What I’m trying to say is that, as a nation, we seemed to have taken the easy way out (at least that is what we thought) and bet against what we knew was an inevitable cycle in hopes of piling on a bit more cash. Where is the innovative and courageous American spirit that this country was founded upon? Where is the spirit of the people who came together 2 short decades ago and created the impossible . . . a nation built solely on the promise of freedom? We have become complacent as we pretend to be a happy lug of androids that go to work, do what we are told, and go home. Now that we know it won’t work in the future, we have a chance to make some game-changing moves.

We need to harness those adventuresome spirits that lead droves of people across the entire country in wagons with no real idea of what lay ahead. Those are real risks, laced with dreams, passion, and courage. Many of us have become our own silos. We lack connections, challenges, and most of all the passion required to create real success.

The point is, if we are going to take risks, which we know is a part of life and business, we should take risks that are worth taking. Let’s not take the same old risks over, and over, and over again until we look a bit daft for not recalling that economies run in cycles. If we take risks in areas we are passionate about, and stop living up to the herd mentality, then we can make great strides in the growth necessary to push this next cycle. It’s clear that the same-old thing is going to work this time. Whatever we do must be different, inspiring, and creative. Most every industry is being forced to reinvent itself in one way or another, which is an open invitation to do better.

Broaden your lens, stand on your head for a new perspective. . . do something, anything, to ensure that you are taking a new kind of risk that has some passion and guts behind it.