Kim Jong Il – farewell and good riddance

Too soon?

WHEN someone dies it is cruel to make jokes at their expense immediately thereafter.

However, not just any crackpot loony has the ability to single handedly plunge an entire nation into abject poverty.  Well done Kim!

Kim Jong Il, who passed away today (in case you missed the memo) will be fondly remembered along with other notable historical leaders such as Pol Pot (Cambodian genocide), Mao Tse-Tung (the Great Leap Backwards) and Adolf Hitler (The Holocaust).

Kim Jong Il was by all accounts a raving lunatic, and if you would like to laugh at his expense you can:

  1. check out Kim Jong Il looking at things here, and
  2. ponder the ridiculous fate of his son, Kim Jong Un, who is privately doubting that he’s crazy enough to run North Korea.

So, jokes aside, what can business leaders learn from one of the world’s worst leaders?

Luckily, Kim Jong Il was such a dreadful leader that it is very easy learn from his mistakes. Simply ask yourself “what would Kim have done?” and then do the opposite.

Here are three hand-picked leadership lessons brought to you by the dear leader:

  1. be a tyrant (don’t – you should encourage worker engagement),
  2. discourage diversity (don’t – you should promote a meritocratic work environment where people are hired and promoted based on value contribution rather than gender, ethnicity, sexual orientation, age, or other arbitrary forms of categorisation), and
  3. prohibit freedom of expression (don’t – you should keep the communication lines open because you should not be competing against your colleagues but against your own personal best performance).

Understanding Michael Porter: The Essential Guide to Competition and Strategy


MICHAEL Porter is the thought leader in the field of business strategy.

He has single-handedly shaped the way in which the world’s top business leaders think about competitive strategy and success. And his concepts like “competitive advantage”, “value chain” and “five forces” form the bedrock for management thinking about complex business issues.

Unfortunately, his frameworks are often bastardised, misused and misunderstood.

The good news is that there now appears to be a solution to this problem.

Joan Magretta, former editor at Harvard Business Review, launched today a book called Understanding Michael Porter.

The book is said to be the first concise, accessible summary of Porter’s revolutionary thinking.  To quote the Harvard Business Review:

Magretta uses her wide business experience to translate Porter’s powerful insights into practice and to correct the most common misconceptions … that competition is about being unique, not being the best; that it is a contest over profits, not a battle between rivals; that strategy is about choosing to make some customers unhappy, not being all things to all customers.

Free book chapter

As an amazing bonus, you can read the introduction to the book for free here.

Buy the book

If interested, you can visit Amazon, read the reviews and consider buying the book: click here.

Review

As an aside, your author has not yet read the book (but intends to do so).

If you have read the book, what did you think?

Post a comment below.  We would be interested to know your thoughts.

We need you to lead us

You too can put a ding in the universe

THERE are three simple steps to being a visionary leader. That’s it. Just three simple steps.

To be a visionary leader, you need to:

1) Learn from everyone,
2) Follow no one, and
3) Look for patterns.

So simple and easy to remember.

Learn always, never follow, and look for patterns.

Oh, and one more thing. You’ll need to work like hell.

Go, get moving, we need you.

Interest rate on 10 year government bonds

A picture says a thousand words

BACK IN 1995, which country had the second highest 10 year government bond yield?

As Europe’s third largest economy, Italy is too big to bail out.  Past performance is not a predictor or future performance.  However, if historical bond yields provide us with any insight about the Europe’s future, you should not be overly surprised if Italian and Spanish government bond yields rise above 11% before too long (hint: this is bad news for Europe and the future of the euro currency).

January 17th, 2012 #OWS

Things just escalated

LEADERSHIP has been described as the process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task (Chemers 1997).

From a “theory of leadership” perspective, what is interesting about the Occupy Wall Street movement is the absence of any one person as the identifiable leader.  This is remarkable when you consider that the movement started on September 17th and remains in full swing.

What can business leaders learn from the Occupy movement?

One thing comes to mind.

A resilient organisation is united be shared beliefs (“we are the 99%”).

US Unemployment Rate Drops: good news?

Recent improvements in the unemployment rate have come from people dropping out of labour force

THE unemployment rate in the US has dipped to its lowest level in more than 2 years (source: NYT).

Is this good news?

Before answering this question, it would help to understand exactly how the US Bureau of Labor Statistics measures the unemployment rate.

Measuring the unemployment rate

The “unemployment rate” refers to the percentage of the labour force that is unemployed.

The labour force consists of anyone who is either employed or unemployed, which means that the “unemployment rate” refers the number of unemployed people as a percentage of all those people who are either employed or unemployed.

The US Bureau of Labor Statistics defines a person as unemployed if they fit three criteria:

  1. they do not have a job;
  2. they have actively looked for work in the last 4 weeks; and
  3. they are currently available for work.

Implications

As a result, there are three ways that the unemployment rate can drop. An unemployed person might:

  1. become employed (good); or
  2. become underemployed (less good); or
  3. fail to find a job and stop looking for work, and as a result no longer be considered “unemployed”. That is, a person might drop out of the labour force (plain ugly).

Why has the unemployment rate in the US fallen recently?

According to the New York Times, the US unemployment rate dropped partly because 315,000 workers simply stopped applying for jobs (this is ugly).  Bloomberg Businessweek stated on Wednesday that, “In November about two-thirds of the improvement in the jobless rate came from people dropping out of the labour force and thus out of the calculation of the unemployed. Only one-third was because of actual job creation.”

Even excluding the people who left the labour force, the US has more than 13 million unemployed workers whose average period of unemployment is a record high 40.9 weeks (source: NYT).  The large number of Americans who are long term unemployed are at risk of becoming discouraged, and if they stop looking for work this is a bad sign for the US economy.

That being said, if a large number of people stop looking for work this could significantly lower America’s officially reported unemployment rate.

With presidential election set for next year, this could be good news for Obama.

Monkey Economy

Monkeys learn to use money – what can we learn?

ASSOCIATE PROFESSOR of Economics Keith Chen taught a bunch of monkeys to use money.

What he discovered was that not only could the monkeys learn to understand the value of money and how to use it, they were also very good at changing their consumption behaviour when prices changed. 

This experiment provided four great insights:

  1. money is a tool which is easy to learn how to use
  2. money stores value, and can be exchanged for other things – a coin for jello, or a coin for sex
  3. trading with money encourages selfishness (what you may have done out of a sense of curiosity, kindness or passion, money incentivises you to withhold until you get paid)
  4. once its value is understood, throwing money around may drive you crazy. For example, excessive consumption causes jealousy which begets more consumption; handing money out for free encourages laziness

What are your thoughts on the monkey economy?

Life moves pretty fast

Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it ~ Ferris Bueller

THE FRENETIC pace of daily life in Ho Chi Minh City combined with incredible time lapse photography produce a short video that gives you pause for thought (hat tip to Mike Maier for the video).

Are your urgent engagements really that important?  You’re moving pretty fast, but are you really going anywhere?

Stop, take a moment, watch the video.

I really enjoyed it. I hope you do too.

US Unemployment Rate Systematically Understated

RECENT falls in the officially reported US unemployment rate are an optimistic sign. 

That said, it is worth remembering that the official US unemployment rate (currently around 9.1%) systematically understates the “real” unemployment rate. This is not a new phenomenon, and occurs because of the particular way in which the US Bureau of Labor Statistics chooses to define a person as either “employed” or “unemployed”.

1. Understating the number of unemployed people

The US Bureau of Labor Statistics defines a person as unemployed if they fit three criteria:

  1. they do not have a job;
  2. they have actively looked for work in the last 4 weeks; and
  3. they are currently available for work.

The second criteria potentially excludes a large number of people from the definition of “unemployed person” because, in order to be considered unemployed, a person needs to have actively looked for work in the 4 weeks prior to the survey date.

It seems reasonable that an unemployed person would actively look for a job in any given month, but there are two reasons why they may not do so:

  1. Discouraged workers: An unemployed person might become discouraged. As difficult economic times persist, more and more people stop looking for work. This may happen because an unemployed person:
    • becomes discouraged due to previous unsuccessful attempts to obtain work;
    • believes (reasonably or not) that there are no jobs available in their industry or location;
    • lacks the skills needed for the jobs which are available, either because they never had the required skills or because their skills have eroded due to a long period of unemployment;
    • is discriminated against by prospective employers for some reason beyond their control (e.g. age, race, gender); or
    • becomes addicted to Twinkies and day time television. This one sounds like a joke, but it is conceivable that after a prolonged period of unemployment a person who previously had an aversion to receiving welfare payments could become welfare dependent.
  2. Passive job search: Anyone who has not made active efforts to look for work in the last 4 weeks is excluded from the definition of “unemployed” person. The US Bureau of Labor Statistics considers passive job search methods to be any form of job search that does not have the potential to result in a job offer.  So, this would mean that a person who has attended a job training program, searched through online job boards, and read through job classifieds for the last four weeks would not be considered unemployed. It is more likely that they are unemployed, but that they have become discouraged workers (see point 1).

2. Overstating the number of employed people

The US Bureau of Labor Statistics considers a person to be employed if they did any work at all for pay or profit during the week in which they are surveyed.  

There are two reasons why the official estimate of the number of “employed” people will overstate the real number of employed people:

  1. Underemployment: Some people are underemployed. For example, a PhD graduate who works at McDonalds would be considered underemployed because the person is highly skilled yet works in a low paid/low skill job. Any part-time or casual workers who would prefer to work full-time are also considered underemployed. For the purposes of calculating the unemployment rate, underemployed people are considered to be “employed” which means that the unemployment rate overstates the percentage of population that is fully-employed.
  2. Unpaid family workers: Under the US government’s definition of employment, a person is considered employed if they have worked without pay for 15 hours or more per week in a business operated by someone in their family. While working for free for your family may be dutiful and supportive, to consider a person who works for free to be “employed” would seem to overstate their employment status. Unless slavery within the family is permissible (I’m not a US lawyer, so I stand to be corrected), it would seem more logical to categorise unpaid family workers as neither employed nor unemployed. The problem with doing that of course is that it would increase the officially reported unemployment rate.

Death to Pennies

Inflation erodes the value of real currency

ECONOMISTS tend to favour a small positive rate of inflation, and there are 4 reasons why this makes sense:

  1. Labour market flexibility: inflation allows relative real wages to adjust even if nominal wages do not move.  A company that tries to pay workers less money is likely to meet with resistance. Disputes over wages can distract business leaders from strategic priorities and lead to strikes and industrial action. Most recently, Qantas grounded its entire domestic and international fleet due to widespread industrial action. While it may be difficult for a company to reduce worker pay, inflation can improve labour market flexibility by reducing the real wage of any worker whose nominal wage does not keep pace with inflation.
  2. Avoiding the liquidity trap: central banks normally conduct monetary policy by controlling short term interest rates. Where interest rates are zero, or near zero, a central bank will not be able to stimulate the economy by lowering interest rates further (the liquidity trap).  A moderate level of inflation helps to avoid the liquidity trap. For example, if inflation were 3% then a central bank could set the real short term interest rate at 0% by lowering the nominal short term interest rate to around 3%.
  3. Investment in physical capital: moderate inflation encourages businesses to invest in physical capital (e.g. plant, property, equipment and inventory) instead of holding investments denominated in dollars (e.g. cash or bonds).
  4. Avoiding “the deflation”: If people expect prices to fall then they are likely to hoard money and delay consumption. A widespread expectation of deflation is likely to be self-fulfilling, and reduced consumption would depress the economy.

For all its good deeds, inflation does have blood on its hands.

Inflation killed the penny.

The Fed is Europe’s new dealer

Europe may not go to rehab before it is too late

THE US Federal Reserve took steps yesterday to make it easier for European banks to borrow and lend dollars. The Fed is now providing such cheap money to Europe that the European Central Bank can borrow from the Fed at lower interest rates than American banks. The Fed was joined in its efforts by 5 other major central banks: the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.  The scope of the coordinated global effort gives you an idea of the enormity of the problem.

While the new world/old world solidarity is heart warming, the coordinated central bank action does nothing to address the underlying cause of the problem: European governments have too much debt. By providing cheap credit to Europe, the Fed aims to ease pressure on financial markets by increasing the supply of credit to households and businesses.  Ironically, cheap money means lower interest rates and allows heavily indebted European governments to continue borrowing.

Even if Greece and Europe’s other credit junkies do not abuse the cheap money, pumping money into Europe may actually hurt Europe’s most vulnerable economies. How would this happen? Lending money to Europe means moving money into the Euro-zone which would increase the demand for Euros. A strong Euro would make goods produced in Europe more expensive compared with its trading partners. Expensive products are more difficult to export, and lower exports from Europe’s weak economies would lead to lower national incomes and less tax revenues. Embattled European governments that cannot raise enough tax revenue are likely to continue borrowing.  They may have no choice.

Concerned well wishers hope that the supply of cheap credit allows Europe to buy itself time ahead of the scheduled intervention in Brussels on December 8. However, according to the Wall Street Journal, there are growing fears that Europe may not go to rehab before it is too late.