Innovation Super-Nation

November 30, 2011

By Michael Hendrix, Research Manager

Ross DeVol, chief research officer at the Milken Institute, asked this question in The Atlantic recently: “What’s the pathway to ‘encouraging American innovation?’”  As a question that NCF is exploring too, most notably in our upcoming winter edition of the Business Horizon Quarterly, I was naturally curious what his reply was.  What Ross goes on to lay out is fascinating, romping through countries across the world looking for models of innovation that he can “stitch together into an Innovation Super-Nation.”

Human Capital

First up is Singapore.  DeVol points out the tiny city-state’s ability to invest in its human capital, draw in the talent it needs from around the world, and  use the accumulated ability to advance its industries.

“Today, Singapore is a leader in a host of knowledge-based industries, including the biomedical sciences. In just the past decade, the number of scientists has leapt from 14,500 to 26,600, a gain of more than 80 percent. In the most recent Global Competitiveness Report put out by the World Economic Forum, Singapore ranked 1st in the quality of its math and science education.”

High-Skilled Immigration

Next is Toronto, the paragon of Canada’s high-skilled immigration system.  On a per capita basis, Canada accepts more than twice as many high-skilled migrants as America does, with the bulk of those classed as “economic immigrants” going to Toronto.  ”Toronto alone absorbs approximately 100,000 immigrants per year, the vast majority high-skilled (or members of Richard Florida’s Creative Class) under the economic category and has transformed its economy.”  As NCF Scholar Nick Schulz pointed out in Forbes, high-skilled migrants are essential for building long-term prosperity in any country.

Research & Development

Finland is a country that appears to have taken a simple lesson to heart: Regulations affect research, and research matters for innovation.  Finland (and even France) have taken serious steps to cut the red tape that blocks the path of research.  Moreover, through directed tax credits and institutionalized relationships between universities, financiers, and start-up firms, “Finland now claims double the OECD average of patent output” per capita.

“Finland serves as another example of using policy solutions to transform its economy from resource-based to knowledge-based through consistently increasing gross expenditure on R&D. Simultaneously it has also pursued international scientific collaboration, university/industry partnerships, and enhanced venture capital availability.”

Taxes

Switzerland appears to be doing something right when it comes to corporate taxation, as the country now boasts a wide range of corporate headquarters and occupies the top perch on INSEAD’s global innovation index.   The country’s average rate of combined corporate taxation is just a notch above 21%, which is low compared to the OECD average of 25.5% and the U.S. average of nearly 40%.  Furthermore, as The Wall Street Journal reported earlier this year, “Switzerland’s states, known as cantons, are offering rock-bottom tax rates meant to tempt multinationals into establishing regional headquarters or other operations in their jurisdictions.”  Faced with the choice of parking your firm’s most costly (and most productive) assets among any of the core set of educated, advanced countries, which place would you choose?

Venture Capital

Ever since Dan Senor and Saul Singer wrote Start-Up Nation, commentators have pointed out how successful Israel has been in  incubating small- to medium-sized enterprises.  The country boasts a world-class network of 70 venture capital firms just itching to invest in the “next big thing”, which is a good thing because Israel’s companies beat all of the OECD countries in the amount they spend on research and development (R&D) as a percent of GDP.  Germany has had similar success in establishing a financing network for innovative firms, especially so for advanced manufacturers.  Whether it be Israel’s Yozma program or Germany’s Fraunhofer Institutes, respective governments of these countries appear to have figured out how to support R&D without readily succumbing to the temptation to pick winners.

Education

What was valid in 1100 AD still rings true today: the British Isles boast some of the best institutions of higher education in the world.  Since the founding of Oxford University in or around 1096 AD, numerous other universities have arisen that lead the pack in scientific research (among practically every other field as well).  ”The 2011 QS World University Rankings place the University of Cambridge first, the University of Oxford fifth, Imperial College London sixth and University College London seventh.”  And between 2009 and 2010, the top four British universities alone received over $1.2 billion in research funding.

Ease of Doing Business

We reach the end of our journey in South Korea, where the World Bank ranks the country among the best in the world for starting a business.  It’s ranked 8th in the world for its ease of doing business, thanks especially to the suite of reforms passed in the aftermath of the 2008 recession.  This past year saw the South Korean economy growing at over 6%.  While it’s true that the country lives in a great neighborhood for trade-induced growth, its northern neighbor clearly does not enjoy the same sort of prosperity.  The point is that rules and regulations matter when it comes to economic growth, and you needn’t look much farther than the Korean peninsula for a better comparative example.

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What is the hallmark of an innovation super-nation?  As the name implies, such a country adopts the rules and institutions that allow for broad-based innovation to be embedded in the DNA of its economy.  The countries listed above come in all shapes and sizes, but all show tell-tale characteristics that any country looking for long-term prosperity should take heed of.


Rise of the Machines

November 28, 2011

By Michael Hendrix, Research Manager

The Economist recently highlighted two gentlemen who are making a rather strange argument that they’re titling the Race Against the Machine.  These thinkers — Erik Brynjolfsson, an economist, and Andrew McAfee, a tech guru — argue that the problem with Western economies is that they have too much innovation and technology.  For as odd as this sounds, they may have a point.

Labor markets simply haven’t been able to keep up with the pace of change.  Moore’s Law, famously posited by Intel co-founder Gordon Moore, stipulated that technology processing power would double roughly every two years.  Given enough time, processors begin to take enormous leaps forward in capability.  Not only do computers begin to displace workers, but they do it at a rate that overwhelms the ability of employers to absorb or re-train the now marginalized workers.

“As a result, the labour force is polarising. Many of those once employed as semi-skilled workers are now fighting for low-wage jobs. Change has been good for those at the very top. Whereas real wages have been falling or flat for most workers, they have increased for those who have advanced degrees. Owners of capital have also benefited. They have enjoyed big gains from the increased returns on investments in equipment. Technology is allowing the best performers in many fields, such as superstar entertainers, to dominate global markets, crowding out those even slightly less skilled. And technology has yet to cut costs for health care, or education. Much of the rich world’s workforce has been squeezed on two sides, by stagnant wages and rising costs.”

George Mason economist Tyler Cowen made a similar point in his book The Great Stagnation, though he might downplay how much productivity has risen recently.  For all the wonders of innovation, Cowen points out, jobs aren’t as readily forthcoming as they once were due to serious structural (rather than cyclical) economic challenges.

Critics of Brynjolfsson, McAfee, and Cowen might well argue that man has always had to play catch-up to machines.  Luddites protested the invention of the automated loom, and noted economist John Maynard Keynes warned of “technological unemployment” in the 1930s.

What’s different this time is the pace and nature of the changes, not change itself.  Not only are machines improving faster and in shorter time-spans, but they are starting to assume capabilities once deemed uniquely human.  We marveled just last year at IBM’s Watson, a Jeopardy-winning supercomputer that can interpret human speech better than any machine that has come before.  But even that seems boring now compared to what Siri can do on Apple’s iPhone.

Education is one part of the answer to this labor market squeeze.  No machine can replace a human’s intuition or creativity.  The other answer is that we’re still in the midst of a transition in our economy, and that in time companies will likely find new ways to pair workers and machines.  As The Economist concludes, “It would be strange indeed if markets, given room to experiment with new technologies, couldn’t devise ways to combine man and machine in fruitful—and profitable—new ways.”


Blog Posts Driving the Debate

November 18, 2011

NCF curates a weekly list of blog posts that touch on emerging issues affecting the American business community.

Tom Duesterberg highlights “manufacturing’s new innovation labs” in the Harvard Business Review.

Motoko Rich in The New York Times’ Economix blog tackles a U.S. Census report showing how foreign-born workers earn a much portion of STEM degrees than native workers.

More on the productivity paradox, this time courtesy of Maxwell Wessell at the Harvard Business Review.

Stephen Smith at Forbes asks, Why is DC architecture so boring?  This question actually points to how local-level regulation can stifle creativity in an otherwise vibrant economy.

A snapshot of “Italy’s crashing money supply”, courtesy of The Telegraph and Marginal Revolution:


The Story of Manufacturing

November 17, 2011

By Michael Hendrix, Research Manager

Manufacturing has long been seen as the bedrock of economic growth in the United States.  From the factories of the Industrial Revolution to the semiconductor plants of the Information Revolution, America has a proud history of making things.  Yet anyone who has spent time in the Rust Belt has felt that uneasy sense that America’s manufacturing heyday lies in the past.  Decay and joblessness abound in former boomtowns, all while factories seem to rise up every day in countries like China.  Recessions come and go, yet manufacturing still seems trapped in the economic doldrums.  Or is it?  A close look at the state of U.S. manufacturing reveals a number of factors that seem to favor the future of U.S. production.  As a recent report by the Boston Consulting Group put it, “Within the next five years, the United States is expected to experience a manufacturing renaissance.”  Could this really be happening?

The story of manufacturing in the United States is best told through two indicators: employment and productivity.  At the middle of the last century, the number of manufacturing jobs was set on a steady course upward, peaking in 1979 at a total of 19.5 million jobs.   Throughout the 1950s and 60s, America enjoyed a wage bubble of previously unknown proportions.  But from 1979 onward, the decline was permanent.  In 2000, the bursting of the dot-com bubble took manufacturing employment out at the knees, and by 2011 only 11.75 million were employed in manufacturing (all while the overall population increased by nearly 30% from 1979).  It is this decline in jobs that made Nobel Prize-winning economist Paul Krugman lament that “manufacturing, once America’s greatest strength, seemed to be in terminal decline.”

On the other side of the coin is productivity in manufacturing.  In 1950, the average worker was producing goods averaging $12,600 in value each year.  That total doubled in faster increments, until by 2011 that same worker was making goods worth $153,000 a year.  In 2009, the United States was producing nearly the same amount in manufactured goods as Germany, Italy, France, Russia, the United Kingdom, Brazil, and Canada combined ($2.33 trillion versus $2.44 trillion).  In fact, while nearly all developed countries like Japan and Germany have seen their manufacturing output grow at relatively moderate paces over the past decade, America’s has marched on a steep path up after its brief dip in 2000-2001.

If demand for manufactured goods had kept up with this increased production, employment would have stayed roughly the same.  Yet, according to the Congressional Budget Office, less than 40 percent of U.S. consumer spending is now devoted to manufactured goods, down from 67 percent in 1950.  In short, “as consumers’ income has risen, they have increased their purchases of goods but boosted their spending on services — including medical care, notably — even more.”  In addition, manufacturing wages increasingly looked uncompetitive against the salaries being paid to blue collar workers in China, India, and elsewhere.  Not only could fewer workers make more than enough to meet demand, but firms could save a bundle in costs by off-shoring labor demand abroad.

Change is afoot though.  As Mark Perry states in NCF’s inaugural edition of the Business Horizon Quarterly, “the U.S. manufacturing sector is poised for growth.”  Anecdotal evidence is emerging that ever more firms are moving manufacturing jobs back to America; companies such as Caterpillar, Toyota, Otis Elevator, and others.  Wage growth in China – now at 14% year-on-year – is fast undercutting its wage advantage over the United States.  And while manufacturing output continues to grow, it only barely keeps up with the voracious demand in the BRIC countries (Brazil, Russia, India, China) and beyond.  Thus more employees are needed.  Closer to home, American makers are realizing the cost-savings of tapping manufacturers on our shores, knowing that they will avoid the steep transportation costs and intellectual property risks of having things made abroad.

Manufacturing appears to be recovery, but let’s face it: It has a long way to go.  According to MAPI’s Chief Economist Dan Meckstroth, the sector has only half recovered from its decline during the Great Recession.  A full recovery isn’t expected until the 2nd quarter of 2014.  Take out the tech industry from that count and you’ll be waiting for the end of 2015.  And while America is becoming more cost competitive, let’s not discount how much the high transportation costs and the natural and political risks of an over-extended supply chain can contribute to on-shoring in America.

In many ways we are at a tipping point in manufacturing.  Will America remain competitive?  Is there any hope for job growth in the sector?  How do we create a workforce that’s ready for 21st century manufacturing?  Such questions are increasingly relevant.  In the end, the future of manufacturing will likely not be about winning or losing the future.  Neither will it be about riding the bubble of the “next big thing.”  It will be about identifying the critical elements of manufacturing where our producers glean the greatest value-added.   We will have to shift our conception of manufacturing from smokestacks and drill-bits to white lab coats and design rooms.  And let’s not forget that education and innovation will remain the essential components of competitiveness throughout America’s economy.

America has always been about making things and making things happen.  That story hasn’t finished yet.


Hiring our Heroes – Securing the Future for America’s Veterans

November 17, 2011

By Rich Cooper, Vice President, Research & Emerging Issues

American citizens love their soldiers, a phenomenon that sometimes mystifies people from other countries. Indeed, the level of admiration and support we have for our troops is unique to the United States. For those who offer their service and their life to defend and advance our interests, Americans are quick to offer thanks and praise, as they should. Our veterans and active duty troops deserve it.

Yet, for a country that so clearly respects and appreciates its military, we sometimes forget that after the service is done, our veterans must have access to the opportunities, jobs and rewards they fought to protect. This, unfortunately, is not always the case. Even as the overall American unemployment statistics begin to show some hope for the future, according to the U.S. Bureau for Labor and Statistics, unemployment rates amongst veterans and their families continue to climb, currently around 12 percent or about 1 million veterans.

To advance the efforts of servicemen and women and their families in securing employment, the U.S. Chamber of Commerce launched the Hiring our Heroes program in partnership with the White House’s Joining Forces initiative. As a part of that, during the Chamber’s 4th Annual Business Steps Up event, First Lady Michelle Obama and the Chamber’s Vice President of Veterans’ Employment Programs Kevin Schmiegel announced a pledge by some of America’s biggest companies to hire 100,000 veterans and military spouses by 2014. This is, as the First Lady put it, unprecedented.

“Each of these steps is going to make a real difference,” the First Lady said. “Not just for our vets, but also for your businesses and more importantly for this entire nation, and that’s really what all of these efforts are about.”

Securing the homeland is not only about protecting our borders, resisting attack, and preparing for emergencies, manmade and natural. It is also about ensuring those in service to America have the security they need to raise families, start businesses and enjoy the American dream to which they offered their lives. With America’s part in the war in Iraq nearly complete, soldiers are returning home to begin the next chapter in their lives. It is incumbent upon us that we do as much to ensure their security as they did for ours.

From a patriotic perspective, hiring veterans and their families is honorable and important. For most businesses, however, the need to turn a profit often trumps more intangible motivations. Put another way, company’s hire not out of a sense of obligation but to satisfy their employment needs. It is important to understand then that America’s veterans and their families are not owed employment. Through their military training and experience, they have earned it.

“The case for hiring our heroes is an easy one,” Chamber president and CEO Tom Donohue recently wrote. “They have sacrificed for our nation, and our nation should honor their sacrifices with opportunities. But it isn’t just the right thing to do—it’s also the smart thing.”

Consider the skills required for most employment – leadership, decision making, responsibility and team work. Veterans have these in spades, lessons learned not in the slow climb up the employment ladder but in life and death situations. Learning to work well under pressure is a good deal different flipping burgers than it is in a fire fight. Simply put, veterans have the skills employers need, and our duty to our servicemen and women is to ensure America’s warriors receive the support they need to transition from military to private sector work.

Schmiegel, himself a 20-year veteran of the U.S. Marine Corps, noted three strategic initiatives the Chamber is pursuing to this end:

- Digital Support – An online architecture that gives veterans the tools, information and resources they need; this in addition to the ongoing hiring fares.

- Veterans Employment Advisory Council – A group including 16 of the country’s biggest employers, together accounting for 23 million jobs, focused on generating job-creation ideas for veterans.

- A Call to Industry – The Chamber is calling on its nearly 3 million member companies and the 3.5 million veteran small business owners in America to do their part.

If we are going to secure our homeland and our citizens from threats to not only their person and property, but their livelihood as well, we must offer a concerted effort to help veterans and their families find work. Non-Americans sometimes do not understand our love for our troops, mistaking it for a love of war. This is not the case. America’s servicemen and women are some of the best among us, and we admire them because of the virtues they embody – selflessness, dedication and honor.  We also support them because of the great benefit they offer our country, both in service to our military and as hardworking Americans elevating the strength of our private sector.


America in 2050

November 14, 2011

Joel Kotkin, an NCF Fellow, talks to us about his book The Next Hundred Million: America in 2050.  Check it out!

Joel’s piece in NCF’s inaugural Business Horizon Quarterly is well worth reading as well.  Here’s a snapshot:

Among the world’s major advanced countries, the United States remains a demographic outlier, with a comparatively youthful and growing population. This provides an unusual opportunity for America’s resurgence over the next several decades, as population growth elsewhere slows dramatically, and even declines dramatically, in a host of important countries.

This demographic vitality, however, can only work if there is substantive increase in the economic growth rate and particularly in employment. A growing population brings new entrants into the labor force at a rapid rate. Historically, a relatively positive relationship between workforce entrants and dependents, both old and young, has generated waves of growth across the past several decades. This is widely known as “the demographic dividend.”

In the 1950s and 1960s, a relatively youthful population helped drive rapid economic growth first in Europe and then in Japan. By the 1970s, this “youth bulge” shifted to developing nations of east Asia, notably Singapore, South Korea, Malaysia and Indonesia. China experienced this surge in workers in the 1980s and 1990s. More recently, the big winners in youth demographics could be found in countries such as Vietnam, Turkey and Brazil.

Yet remarkably throughout this period, the United States has retained its relative youthfulness. The last census showed the nation experienced 10 percent population growth over the first decade of the 21st Century, with a final count approaching 310 million people. This is in large part a product both of immigration and higher birthrates.

Today, the U.S. fertility rate of over two children per woman remains as much as twice as high as many countries, including Russia, Germany, Japan, Italy, Singapore and Korea. As a result, according to U.S. census projections, the United States will continue to grow to upwards of 420 million by 2050.


Blog Posts Driving the Debate

November 11, 2011

NCF curates a weekly list of blog posts that touch on emerging issues affecting the American business community.

Ryan Avent wrote on The Atlantic Cities page on “How to get more Apples and Facebooks.”

Will cheap energy plus cheaper labor power a U.S. rebound?

Susan Adams at Forbes drew off of the work of NCF Fellow Joel Kotkin in writing about ”the un-aging of America” and how demographic trends paint a surprisingly bright future for this country.

Edward Tenner wrote on The American about “the dismal new science of stagnationism.”

EconMatters examined the 7 sectors most likely to gain jobs by 2015.

The Wall Street Journal took a close look at the drivers of growth and jobs in the American economy over the past handful of years.  Spearheaded by WSJ journalist Phil Izzo, this video is incredibly informative and equally fascinating.

National Public Radio produced a fascinating and visually stunning video that showed how the world’s population grew to 7 billion.  V

In the eyes of Felix Salmon at Reuters, talk is quickly turning to a breakup in the Eurozone, yet that likelihood is clearly not priced into the markets.  ”So fasten your seatbelts: it could come sooner than you think.”

Megan McCardle at The Atlantic discussed the financial folly of fairness in light of the Eurozone crisis:

“As anyone who has ever spoken to a five year old knows, the sense of fairness is one of the most primal and intractable cognitive instincts we have.  In the best of times, it takes years to change public opinion about what is fair.  These are not the best of times, and we do not have years.  I am very much afraid that the euro zone is about to plunge us into phase two of the global financial crisis–and that as with the Great Depression, phase two may be even worse than the dismal years we’ve just endured.    In search of fairness, we may all get a lot more justice than any of us really wants.”

Too Big to Save?

November 11, 2011

By Michael Hendrix, Research Manager

Take your mind back to 2008, when the go-go days of the 90s weren’t such a distant memory and there were only echoes of a growing storm on Wall Street.  Rumor had it that banks had stuffed their balance sheets with bad loans of unknown value.  Main Street seemed fine, but the storm clouds were growing and casting a deepening shadow. It wasn’t until September of that year that Lehman Brothers shook our complacency.  A known entity was being threatened and in time we saw the venerable bank collapse.  Yet we still thought ourselves sheltered from the storm.  Time and loss proved us wrong.  We weren’t as safe as we thought we were.

Now, what if you had been told at the time of Lehman’s collapse that its liabilities were much larger than people claimed; not just two times, but three times its stated size?  What if $2.6 trillion in debt was hanging in the balance?  Would you have been more concerned about the health of the economy then, about contagion, with the apparent maladies of Wall Street infecting Main Street?

Brink of Disaster

I know that I would be concerned, almost dearly so.  So, what if I told you that the hypothetical I posed was real?   Today, Italy stands on the brink of disaster.  It is the third largest debtor in the world, paired with some of the slowest growth in the world. Its leaders dither and prevaricate like there’s a tomorrow.  And all the while countries on its periphery suffer from equally dire debt burdens – one readily thinks of Greece, Ireland, and Portugal, all countries whose combined debt don’t even come close to equaling that of Italy’s.

In short, the tempest that blew through the world economy in 2008, the one we’ve been recovering from for nearly three years now, may not even hold a candle to what may be on the horizon today.  Just as in 2008, we are distracted by lesser worries, such as Christmas tree taxes and Kardashian drama.

What’s at Stake?

Let’s be real then about what’s at stake.  First, the sanctity of Italy hangs in the balance.  Why?  Since the turn of the millennium, Italy’s growth has hovered around zero.  Its economy is tangled in a mess of red tape in the eyes of the IMF.  Productivity growth, as measured by the OECD, has barely crept past 1% in the past ten years.  Unemployment among the young sits at 27%, such that Italy’s most productive workers are left working part-time or short-term jobs for their best years.  To top it all off, Italy’s good governance indicators have been cratering since 2000 as well. This is a product not just of poor political leadership but of endemic levels corruption that chew up more than 17% of Italy’s GDP every year.

As of this week, a fatal threshold has been crossed. Similarly to Lehman Brothers, Italy stays afloat as long as its debt can be rolled over and then papered over with new debt issuance.  When Italian debt hit the 7% interest mark on the open market on Wednesday, traders had to start posting further collateral every time they handled Italian bonds in order to protect against the risk of default.  Ignoring the significant psychological impact that crossing that 7% line holds, Italy quite simply faces the haunting likelihood that when it turns to the bond market to issue further debt for obligations new and old, that traders will throw up their hands and say it’s not worth the cost.  It happened with Lehman and we know how that story ended.

Without the European Central Bank (ECB) stepping in to guarantee Italy’s debts (which it would somehow have to make credible) or buy its bonds in large quantities on the open market (which it has so far refused to do), Italy will likely default on its debts.  Any large-scale ECB action would likely be made on the assumption that Italy’s problem is one of liquidity rather than solvency, and it increasingly looks like the latter.   The European Financial Stability Facility, first created in May of last year to stem the European sovereign debt crisis, would simply be overwhelmed in the event of an Italian claim.  Banks across the Eurozone would be hit by a tidal wave of red ink, and on top of that American banks are more exposed to Italian debt than to any other Eurozone country.

Even with ECB support and a technocratic government at the helm in Italy, the only real way out of its debt burden is economic growth, and that takes time that the bond market may not provide.  According to Barclays this week, “Italy may be beyond the point of no return.”

The Eurozone itself is at stake too.  It’s no longer a matter of a two-speed Europe, with the fast (Germany) funding the slow (Greece).  We are already there.  As many Euro-crats are starting to murmur, we’re more likely at the point of a two-tiered Europe, with only the strongest countries holding on to the Euro.  As one European Union (EU) official said this week, “‘The difference now is that some countries are moving forward very quickly … The risk of a split, of a two-speed Europe, has never been so real.’”  The scariest prospect is simply that no one knows what happens then.  European Community law makes no provision for a country to leave the Euro.  It’s uncharted territory, and there’s nothing like the fear of the unknown to spur credit contraction.

What’s Next?

Faced with dire prospects at all turns, Italy itself could very well choose to simply switch its currency back to the lira from the euro.  The low interest rates of the Eurozone clearly no longer hold true, and having its own currency would allow Italy to inflate away its debts and makes its exports more cost competitive.  On paper, it’s quite an easy prospect.  Italian legislators could simply pass a law saying that all financial transactions were to be conducted in lira and Italy’s problems would be solved. Except that’s not quite the whole story.  If you knew that by tomorrow all of your dollar savings would be worth half their value tomorrow, what would you do?  If it were me, I would send my money out of the country to someplace where its value would stay intact.  Imagine a whole country doing that — at the same time.  It would be one of the largest bank runs in history; that is, until capital controls and travel restrictions ensued causing chaos of their own.  At that point, you wouldn’t be incorrect to expect a domino effect (the fact that this statement vaguely rhymes doesn’t improvement its reality), with Greece and others choosing to re-adopt their own currencies. At that point, the Eurozone would become a shell of its former self.

Ryan Avent at The Economist summed it up well:

“I have been examining and re-examining the situation, trying to find the potential happy ending.  It isn’t there.  The euro zone is in a death spiral.  Markets are abandoning the periphery, including Italy, which is the world’s eighth largest economy and third largest bond market.  This is triggering margin calls and leading banks to pull credit from the European market.  This, in turn, is damaging the European economy, which is already being squeezed by the austerity programmes adopted in every large euro-zone economy.  A weakening economy will damage revenues, undermining efforts at fiscal consolidation, further driving away investors and potentially triggering more austerity.  The cycle will continue until something breaks.  Eventually, one economy or another will face a true bank run and severe capital flight and will be forced to adopt capital controls.  At that point, it will effectively be out of the euro area.  What happens next isn’t clear, but it’s unlikely to be pretty.”

As the dust settled on Lehman Brothers’ collapse in 2008, talk turned to whether banks were “too big to fail.”  With storm clouds growing now over Europe, the threat now may very well be whether a country is too big to save.


The CEO as Hero and Villain – A Matter of Product, Perspective and Promise

November 10, 2011

Source: Wikimedia

By Rich Cooper, Vice President, Research & Emerging Issues

The United States is encountering one of the toughest economic times in decades. A rocky economy and divisive political and media bickering have spurred many voices to publically promote their own take on fiscal reform, political ideology and the path forward for America. Part of this has been vocal objections to how companies in this country do business, and for better or worse, when a company faces public outcry, it is the CEO who sometimes takes the heat.

Yet, even as big companies take punches from the left and right, it seems not all CEOs are created equal. Indeed, why is it that the public views some CEOs negatively and others with admiration?

In a time when many Americans are decrying big business and capitalism, former Apple CEO Steve Jobs’ death drew mourners to impromptu memorials and caused many prominent individuals to offer lavish praise on Jobs’ work. On top of that his authorized biography has become a worldwide best seller.

From this outpouring of admiration for a man whose work changed the way we interact and access the digital world, it seems clear that Americans do not reject businesses and their CEOs because they operate in a capitalist market. Rather, as some CEOs gain the spotlight and steward their companies through victories and challenges, it seems public opinion is built on the image the CEO presents to the public and the impact a company’s product or service has on the consumer and the country.

The iPod gave us music on the go, the iPhone revolutionized our idea of what a phone could be, and the iPad takes us into a new age of interactive, portable media. Apple Inc. drives innovation and offers products the public absolutely loves as evidenced by the company’s record Q3 2011 revenue of $28.57 billion. Clearly, consumers enjoy the products, the brand, and the capabilities they offer. As Jobs presented his technology to the world, he became synonymous with the innovation that Apple is celebrated for. Clad in a black turtleneck and blue jeans, Jobs image was and is wrapped up in the Apple brand. This is perhaps one reason why his death sparked such public mourning and praise – consumers love Apple products and by consequence loved Jobs just as much.

Source: Wikimedia

To be sure, public opinion is partly based on the nature of a company’s business. Companies that mine and drill for the fossil fuels that power our lives – even our iPods – can sometimes draw public ire. Take the Deepwater Horizon oil spill in 2010. It outraged Americans, particularly those who live near or whose livelihood depends on the Gulf of Mexico. As 4.9 million barrels of oil spewed into the gulf, then-CEO of BP Tony Hayward made some rather unfortunate statements – the most memorable being, “There’s no one who wants this thing over more than I do, I’d like my life back.” The public outcry after those words were uttered only made an already difficult situation much worse.   As a result, Hayward became the personification of  the oil spill for the public and became a full time lightning rod for criticism. It was no wonder that only two weeks after the ruptured well was capped, BP announced Hayward would be replaced as CEO.

Most often, CEOs are thrust into the public eye when something goes wrong, making their public relations role significantly more difficult. Even if Hayward had refrained from insensitive comments, he would still have been the public face of one of the largest environmental disasters in history. A heroic CEO does not an oil spill make.

Reflecting on Jobs and Hayward, however, it seems clear it is not simply a company’s size that makes a difference to Americans but rather, the character of the company and nature of the business. As a public-facing figure, CEOs can have an impact on how consumers view their company. They are entrepreneurs and innovators, and they can embody the benefits consumers enjoy because of their product or service. In this sense, they can be admired.

The other side of the coin is that when a product or company falls short of their promise – or worse, causes social, environmental or economic damage – the CEO sometimes becomes the focal point for public criticism. While Jobs and Hayward are extreme examples of how public sentiment can vary, the experiences of most CEOs likely fall somewhere in the middle, at once championed as heroes for leading their company while also sometimes being blamed for their company’s failings.

It is important to remember, however, that even as some Americans decry aspects of capitalism in tough economic times, the vast amount of public sentiment towards businesses and CEOs has more to do with image, timing, diplomacy and product than it does with a public rejection of our free enterprise system.


The Ugly Truth of American Education

November 9, 2011

Click here to read the report

By Michael Hendrix, Research Manager

The Chamber’s Institute for a Competitive Workforce (ICW) recently released a study done in cooperation with the National Chamber Foundation (NCF) that takes a close look at K-12 public education in every state in America across nine different categories.  Aptly called The Ugly Truth, it shows a widening achievement gap and ever more students dropping out of school.  Not only that, but proficiency scores are proving abysmal.  It’s not all bad news.  State after state show signs of reform, and the report takes the time to spotlight all of them.  And some of the best results among American schools came in the category of standards.  States and schools clearly know what their educational goals are.  How do we get there?

The report is well worth a read.  In the meantime, check out ICW’s Cheryl Oldham, who blogged on this report and is re-posted below.

“In March 2011, the U.S. Chamber of Commerce’s Institute for a Competitive Workforce (ICW) and National Chamber Foundation (NCF) released fact sheetsfor every state and the District of Columbia comparing the state of K–12 public education across nine categories. The fact sheets give business leaders, parents, community leaders, policymakers, and other stakeholders a snapshot of the education landscape in each state—what’s good, what’s bad, and what’s downright ugly. These are meant to arm leaders with basic facts and spur them to learn more about what is really happening in their schools and statehouses with respect to K–12 public education. In other words, the fact sheets are meant to fuel change.

Since their release, we have seen movement on a number of major policy issues: the debate about updates to the Elementary and Secondary Education Act, the beginning of a third phase of Race to the Top funding, and further development of the Common Core Standards. This movement is promising, but more is needed. To spur such movement, this week we released The Ugly Truth: A State-by-State Snapshot of Education in America, which includes all state fact sheets to provide an easy reference. The report also highlights some promising policy developments in a few leading states.

The fact sheets have been updated with additional National Assessment of Educational Progress results, information on the adoption of common academic standards in states, and newly released graduation rate data. The snapshots reflect data captured at a point in time and do not reflect the myriad changes taking place across the country, but when taken together, these state profiles paint a broad national portrait of K–12 public education—one that reveals just how much work lies ahead if we are to educate all students well and adequately prepare them for success in work and life.”