Economy

Successful Companies Don’t Adapt, They Prepare

Harvard Business Review: “In 1960, Harvard professor Theodore Levitt published a landmark paper in Harvard Business Review that urged executives to adapt by asking themselves, ‘What business are we really in?’ He offered the both the railroad companies and Hollywood studios as examples of industries that failed to adapt because they defined their business incorrectly.”

“Yet today, the railroads don’t seem to be doing too badly. Union Pacific, the leading railroad company has a market capitalization of over $80 billion, about 60% more than Ford or GM. Disney, the leading movie studio company, has a market capitalization of about $150 billion. That doesn’t seem too shabby either.”

“While nimble startups chasing the next trend are exciting, the truth is that companies rarely succeed by adapting to market events. Rather, successful firms prevail by shaping the future. That can’t be done through agility alone, but takes years of preparation to achieve. The truth is that once you find yourself in a position where you need to adapt, it’s usually too late.”

Are Americans Better Off Than They Were a Decade or Two Ago?

Ben Bernanke and Peter Olson: “Economically speaking, are we better off than we were ten years ago? Twenty years ago? When asked such questions, Americans seem undecided, almost schizophrenic, with large majorities saying the country is heading ‘in the wrong direction,’ even as they tell pollsters that they are optimistic about their personal financial situations and the medium-term economic outlook.”

“While thinking about the question, we came across a recently published article by Charles Jones and Peter Klenow, which proposes an interesting new measure of economic welfare… The bottom line: According to this metric, Americans enjoy a high level of economic welfare relative to most other countries, and the level of Americans’ well-being has continued to improve over the past few decades despite the severe disruptions of the last one. However, the rate of improvement has slowed noticeably in recent years, consistent with the growing sense of dissatisfaction evident in polls and politics.”

Does Economic Growth Kill People?

Washington Post: “Everyone wants economic growth, right? It’s part of every politician’s package of promises. Expanding economies make people richer, and study after study shows that the wealthier lead happier, healthier lives.”

“Yet in recent years, accumulating evidence suggests that rising incomes and personal well-being are linked in the opposite way. It seems that economic growth actually kills people.”

“Christopher Ruhm, an economics professor at the University of Virginia, was one of the first to notice this paradox. In a 2000 paper, he showed that when the American economy is on an upswing, people suffer more medical problems and die faster; when the economy falters, people tend to live longer.”

“In other words, there are great benefits to being wealthy. But the process of becoming wealthy — well, that seems to be dangerous.”

How a Slum in India Built a Billion Dollar Economy

Place: “Malik Abdullah’s plastic recycling business in Dharavi, the sprawling slum in Mumbai that is among the largest in Asia, has survived fire, building collapses, and the criminal underworld for decades. Now, it is threatened by development.”

“Thousands of small businesses like his thrive in Dharavi, creating an informal economy with an annual turnover of $1 billion by some estimates.”

“‘People think of slums as places of static despair as depicted in films such as ‘Slumdog Millionaire’,’ said Sanjeev Sanyal, an economist and writer, referring to the Academy Award-winning movie that exposed the gritty underbelly of Dharavi.”

“‘If one looks past the open drains and plastic sheets, one will see that slums are ecosystems buzzing with activity… Creating neat low-income housing estates will not work unless they allow for many of the messy economic and social activities that thrive in slums,’ he said.”

Millennials Aren’t Big Spenders or Risk-Takers, and That’s Going to Reshape the Economy

Los Angeles Times: “As they emerge this year as the United States’ largest demographic group — some 75 million strong — millennials are taking up the mantle as the most impactful generation since the baby boomers.”

“For starters, millennials are not big spenders, at least not in the traditional sense… Instead of material wealth, millennials show off through their travels, hobbies and even meals, which get photographed and posted on Facebook, Instagram and other social media.”

“Another key difference with their predecessors, particularly Generation X, is that millennials are not big risk takers. That seems especially true when it comes to starting businesses.”

To Fight Climate Change, Institute a Four-Day Workweek

Quartz: “A reduction in working hours generally correlates with marked reductions in energy consumption, as economists David Rosnick and Mark Weisbrot have argued. In fact, if Americans simply followed European levels of working hours, for example, they would see an estimated 20% reduction in energy use—and hence in carbon emissions.”

“With a four-day week, huge amounts of commuting to and from work could be avoided, and electricity used running an office could be saved. At a point when we need to massively cut back our carbon outputs, instituting a three-day weekend could be the simplest and most elegant way to make our economy more environmentally friendly.”

There’s a Devastatingly Simple Explanation for America’s Economic Mess

Washington Post: “According to provocative new research from Fed economists, there might be a simple explanation for the slow growth — and there might not have been much policymakers could have done about it. If the new explanation is true, it might also explain why efforts to boost economic growth — including trillions of dollars in monetary stimulus and near-zero interest rates — haven’t worked that well.”

“In a new paper, the Fed economists argue that America’s slow economic growth and low interest rates might have been largely inevitable — and they might not have much to do with the 2008 financial crisis at all. Their main culprit: demographics.”

Why Farmers Love the Trans-Pacific Partnership Agreement

Public Radio International: “The TPP would gradually remove tariffs, making American butter and cheese 30 to 35 percent cheaper and therefore more attractive to Japanese shoppers. That’s if the TPP is ratified.”

“It’s not just Pennsylvania dairy farmers watching the TPP. American corn growers could sell more to Vietnam, wheat growers could tap into the Malaysian market, and pork producers could find more buyers in New Zealand.”

“And that extra income could translate into jobs on the farm: some 40,000 nationwide.”

“That’s the sticking point of the TPP, though: jobs. Labor organizations oppose the trade deal, arguing that it would hurt too many American workers. One economic study concludes that the TPP could cost the US roughly 450,000 jobs. The Obama Administration concedes that jobs would be lost, but argues that the TPP would create new ones too.”

How Focusing on Geographic Disparity Can Mitigate the Negative Effects of Globalization

Jean Pisani-Ferry: ” In many countries, where you live tends to be an accurate predictor of what or whom you are voting for.”

“Regional or local voting patterns are as old as democracy. What is new is a growing correlation of spatial, social, and political polarization that is turning fellow citizens into near-strangers… Economic shocks tend to exacerbate this political divide. Those who happen to live and work in traditional manufacturing districts caught in the turmoil of globalization are multiple losers: their job, their housing wealth, and the fortunes of their children and relatives are all highly correlated.”

“What public policy must do is ensure that economic agglomeration does not threaten equality of opportunity. Governments cannot decide where companies locate; but it is their responsibility to ensure that, although where you live affects your income, where you were born does not determine your future. In other words, public policy has a major responsibility in limiting the correlation between geography and social mobility.”

Unwinding NAFTA Would Come at a Huge Cost

New York Times: “The view among mainstream economists is that NAFTA, over all, has raised incomes in the United States while also costing it thousands of manufacturing jobs. But whether you view the agreement as a net positive or a net negative for the country, the reality is that the United States, Canada and Mexico are now for all practical purposes a single integrated economy. That has wide-ranging consequences — especially if the next president tries to reshape or abandon the deal.”

Upon NAFTA’s repeal, “either major American industries would have to figure out how to restructure themselves to rely less on the movement of goods across borders, or the United States would find itself poorer and more of an island in the global economy.”

How Short-Term Thinking in Corporate America Is Strangling the Economy

Rachelle Sampson: “How big of a problem is a short-term business mentality? A significant one. The problem is masked because the US economy still ranks as the world’s largest, and among the most productive. But with short-term pressures on the rise, our future growth and productivity are threatened, with important implications for wages, standards of living, and our general well-being.”

“According to Bloomberg, companies spent 95 percent of their earnings on such share buybacks and dividends in 2014. We are on pace to set the record this year, with $160 billion in share buybacks in just the first quarter of 2016 — all in the face of declining earnings. It’s fairly obvious that when cash is returned to investors at increasing rates, even when a company is earning less, that the money has to come from somewhere. That somewhere is usually long-term investment.”