28 Feb 2012
Like many other countries today, South Africa has an awful unemployment problem. But ours is not a new problem. For too long it has simply been denied, and only recently has it become a “big issue.” Now, there’s panic in the land.
As other countries are discovering, disaffected young people who have no hope are extremely dangerous. So it’s in everyone’s interests to do everything possible to deal with the matter. Government must play a key role, not just in employing people and providing a welfare net for those who don’t find jobs, but also in creating a policy and regulatory environment that makes hiring people a good idea. And business, naturally, has a huge part to play too.
Here is a speech I made at a graduation ceremony at the University of Johannesburg on September 29, 2009, which, hopefully, will trigger some reflection … and action.
Tony Manning
Graduation Address
University of Johannesburg
September 29, 2009
Good afternoon, and thank you for inviting me to be here today.
Let me begin by congratulating you on your achievement. I can only imagine the hard work and sacrifice that has brought you to this graduation. I’m very proud to be part of your celebration.
Obviously, when you invite someone to talk at an event like this, you expect them to tell you something interesting or useful or entertaining. But I’d like to start by asking you a question. One that I hope you’ll think hard about in days and weeks to come.
The question is this: what are you going to do to make a difference in this world?
It’s especially important to ask that right now, for the world is in a delicate and dangerous state.
A year ago, Lehmann Brothers collapsed, and the global financial system went into meltdown. Research by some economists shows that on many indicators, the crisis we’re still working through is worse than the Great Depression 60 years ago.
There are massive challenges ahead. As Jeffrey Immelt, the chairman of General Electric has said, this a time of “reset” in which organizations, institutions, systems, processes and values are being turned on their heads. Ideas and deeply-held beliefs about everything from capitalism to climate change, from consumerism to corporate governance—and yes, business education too—are all under the microscope.
But I’d like to focus on just one issue.
Exactly five years ago, in September of 2004, I wrote an article in Business Day headlined, “What if unemployment can’t be fixed?” The former editor of a major newspaper suggested in a letter to the paper that I was being racist—the same tactic now used so quickly when someone doesn’t like what you say.
But consider where we are now.
Some jobs were created as growth improved after 1994. But there weren’t enough of them, given the increase in population, to soak up the new job seekers. So while the unemployment level came down, it remained stubbornly high.
When ASGISA was announced with much fanfare in February 2006, the intention was to light a fuse under the economy in order to halve poverty and unemployment by 2014. And for a brief moment, we happily rode the wave of an international economic super-cycle that was like nothing anyone had seen before.
But then, along with just about everyone else’s, our economy dived from strong positive growth into negative territory. And right now, we’re bumping along, with many things just getting less worse rather than really better.
Even as pressures grow for government to add to an already long list of things to do and expensive promises to meet, Finance Minister Pravin Gordhan warns that the tax take is in a nosedive and the budget deficit is rising fast. Economists see growth in the next few years hovering at perhaps 3% to 4% rather than the 6%-plus ASGISA goal.
This year, anywhere from 250 000 to 475 000 jobs have been lost, depending on which survey you use. And while there is now quite a lot of chatter about “green shoots” of recovery, there are also worrying signs that when it does come, it’s likely to be weaker than we’d wish.
Globally, massive long-term unemployment will plague societies for years. Add this burden to exploding government debt, weak consumer spending, and massive overcapacity in many industries, and there’s a very good prospect of a recovery that’s not V-shaped or U-shaped, but W-shaped – in other words, some short-term good news followed by another sharp slump.
For many years, I have made the point in books and speeches that manufacturing will never be the job-creation miracle it was expected to be. So it’s no surprise that we now hear Ebrahim Patel, the Minister of Economic Development, warning that this country could become de-industrialised. That risk will grow as aggressive foreign companies appear on our doorstep and chase after our local customers in their efforts to recover from this recession. It really is a dog-eat dog world, and the fight will be deadly.
Other sectors of the South African economy—tourism and commodity exports particularly—will take up some of the slack. Infrastructure spending is a timely boon. The FIFA 2010 Football World Cup will undoubtedly give us a boost. But the harsh fact is that in this knowledge age, South Africa is not making the progress it should in creating knowledge work and knowledge workers. At the same time, we’re stuck with a legacy of many millions of people who simply aren’t equipped to get or hold a job in the information age. And we have a basic education system which has been labeled a toxic mess, and which will not produce those workers—perhaps for decades.
The bottom line is that for all the promises, plans, and grand intentions that fly about, we’ll struggle to grow this economy as fast as we must to lift people out of poverty and create a better life for all.
Which brings me to the critical point.
A few months back, Johnny Steinberg wrote an article in Business Day in which he commented on a UCT study of young people in three communities around Cape Town. He noted especially how very hopeful they were of a bright future. This, in the face of the harsh reality that most will be disappointed, frustrated, and deeply angered by their inability to ever escape their lives of perhaps not-so-quiet desperation.
Then about two weeks ago, Brian Whittaker, the Chief Executive of the Business Trust, picked up on that article, and in an article of his own in the same paper said this:
“… leaders are going to have to build a shared understanding of where we want to go as a nation and lead their constituencies to places they would not go on their own.
“For business leadership, this means coming to terms with the fact that the building of a prosperous nation requires simultaneous attention to growth inequality and poverty.”
And he posed this question: “…if we expect those who have the least to defer their demand for a better life, what will those of us who have prospered in this land give in return?”
What indeed? This is the big question—our elephant in the room. The Development Indicators report released last week by the Presidency paints a disappointing picture of our fight against poverty. As Professor Haroon Bhorat commented, South Africa is “the most consistently unequal society in the world.”
The 2009 Budget Review reports that government spending on social protection shot up from R72.3bn in 2005/06 to R118.1bn this year. About 13.4 million people rely on grants. We are entrenching dependence, poverty, inequality, and exclusion.
Pre-empting other commentators, I ended my 2004 article by saying, “As a matter of extreme urgency, leaders in all sectors need to consider not just how to create jobs, but also how to deal with a society in which expectations are high and jobs do not come. There are dangers ahead, and we are denying them.”
So back to my question: what are you going to do to make a difference in this world? This should be the question that keeps you awake at night.
Many years ago, Marshall McLuhan, a famous media expert, coined the term “global village.” In his book, Understanding Media, which became a best-seller long before anyone imagined the Internet and cellphones, he made the point that courtesy of new media “none of us can any longer think of ourselves as passengers on Spaceship Earth; all of us are crew.” And so it is with Spaceship South Africa—all of us are crew.
You are among the fortunate few, educated to succeed in a modern economy. You are our best and brightest, our hope for the future. The choice now is whether to be just another passenger on Spaceship South Africa … or one of the crew.
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28 Feb 2012
What on earth is going on? Just what is the outlook for the world economy? Are there better times ahead … or will things get worse? Are we entering a new recovery phase … or are we in for a protracted period of little or no growth? Or are we on the edge of an abyss? What should companies plan for?
Opinions are all over the place. The signals are mixed, and making sense of them isn’t easy (and this is such an important issue, that everyone and his dog has an opinion on it!)
UNDERESTIMATING THE CHALLENGE
When the global economy hit the skids in 2008, few people saw real trouble ahead. Fewer still saw lasting trouble. Most “experts” forecast a quick turnaround. After all, wasn’t the subprime problem in the US an isolated one, affecting just a small sector of that country’s property market? Weren’t the major economies of the world “decoupled” from each other, so that cracks in one wouldn’t appear elsewhere? Hadn’t central banks worked out how to run things smoothly and avoid sudden ups and downs? And weren’t we, in any event, all in the midst of a “long boom” which would last for decades, narrow the global poverty gap, and enable billions of people to enjoy a better life?
Of course, there were reasons to imagine that a temporary glitch would not lead to long-term pain. And of course, most people wanted to believe that everything was OK, and that soon conditions would return to normal.
But as things got steadily worse, opinions began to diverge. Some pundits argued that the trend would be V-shaped, with a short, sharp downturn followed by a rapid upturn. Others said it would be U-shaped: sharply down, bumping along the bottom for a while, then sharply up. Or perhaps a “bathtub” shape, with more time on the bottom. Or, worst of all, W-shaped, with a quick recovery followed just as fast by another nosedive. Even now, there are arguments about which of these is right, and whether or not the world is on the brink of a dreaded double-dip recession—or, God forbid!—a fully-fledged depression. So every day we’re treated to talking heads on business TV channels arguing vehemently for one view or another. And to widespread confusion.
Looking back, it’s clear that most economists misread what was to come. Optimists outnumbered pessimists by a wide margin. Most growth forecasts were too high. And even now, the human tendency to pounce on the positive and brush aside the negative continues to shape opinion.
A TROUBLING PICTURE
What’s ahead for the world economy depends primarily on what happens in just three places: the United States, Europe, and China. But it could also be impacted by events that are already unfolding elsewhere—in the Middle East, Afghanistan, Pakistan, Nigeria, Somalia, and so on. And given the recent surge in natural calamities, more “black swan” disruptions should not surprise us—but they will.
In a sharp downward revision, the World Bank recently forecast global economic growth of 2.5% this year, down from a June estimate of 3.6%. The Euro area may contract by 0.3%, down from a previous estimate of a 1.8% gain. The U.S. growth outlook was cut to 2.2% from 2.9%. The forecast for China was unchanged, at 8.4%—though the Chinese government has since cut its own forecast for the medium-to-long term to 7.5%.
Growth will be uneven. High-income economies are expected to grow by 1.4% this year, down from a June estimate of 2.7 percent while emerging economies will grow by 5.4%. However, there is many a slip twixt cup and lip, and predictions have been ratcheted down so fast recently that it makes sense to be edgy. Besides, there’s a risk that turmoil in the Eurozone and problems elsewhere will feed on each other, leading to a worse outlook for everyone.
The U.S. economy appears to be gaining steam: Consumer confidence is the highest in a year. January jobless claims were down for the third month in a row (albeit largely because a growing number of unemployed people have given up searching for work). Car sales have been accelerating for some time, as evidenced by General Motors’ announcement of a record $9.7 billion annual profit. On February 21, the Dow rose above 13 000 for the first time since 2008 (it’s up more than 60% on Obama’s watch). Companies are flush with cash, and some are starting to rebuild inventories.
But all is not well in the world’s largest economy. Gas prices are going up, and eating into household budgets. There has been no net increase in jobs for a decade, even though the population has grown. Wages and benefits are being cut. Home sales and prices keep falling, and a third of homeowners owe more on their mortgages than their houses are worth.
As USA Today reported on January 9, the nation’s debt of more than $15 trillion is now as big as the entire economy, and growing faster. (The economy would have to expand by 6% a year to keep up!) President Obama’s budget sees debt of more than $26 trillion by 2022. And it’s sobering to reflect that Greece, Iceland, Ireland, Japan, Italy, and Portugal are the only advanced nations whose whose debts are bigger than their economies.
As if this sorry state of affairs were not worrying enough, political gridlock and a pandering to special interests is preventing necessary changes. Election-year rhetoric doesn’t help either. But whoever is sworn in as President in November faces the stark reality of that debt bomb, and will have to act fast and brutally to have any hope of dealing with it.
China, too, has hit a bump in the road (though many observers quip, “Which country wouldn’t welcome a drop in GDP growth to only 8% or so?”) It suits us to think it’ll keep powering ahead, because so much rides on that happening. But a slowdown has been in the making for a while, which could be worse than the World Bank thinks; some bearish analysts say growth of only 5% or 6% is likely.
Foreign direct investment into China has fallen sharply. Overseas customers are spending less, and Chinese exports are taking strain. A property bubble is inflating. Rising wage rates are starting to affect competitiveness, and Chinese companies are relocating manufacturing operations to other, lower-cost Asian countries. Social unrest has been spreading, and there are fears of more of it as new job seekers surge to the cities and many firms cut back on hiring.
However, Robert Zoellick, outgoing President of the World Bank, sees “a soft landing” for China. And Jim O’Neill, Chairman of Goldman Sachs Asset Management and author of The Growth Map, an excellent book on the rise of the BRIC nations, reminds us that “in the 6 weeks of 2012 so far, China will have created the equivalent of 1/2 another Greece.”
The Chinese central bank has just cut the level of reserves required of the country’s banks, to enable them to lend more easily. A range of other interventions is likely. In addition, China is under pressure to make much needed structural changes to its economy in coming years, and will surely tackle some of them. It will also continue its massive infrastructural spend, and keep importing raw materials. And its manufacturers will keep moving relentlessly up the value curve, churning out more high value-added products—at prices foreign competitors can’t match. So the 800-pound Asian gorilla will continue to grow at a good lick, and to play an increasingly pivotal role in the world economy.
And then there’s Europe—the elephant in the room. The region which has the rest of the world holding its collective breath.
According to the European Commission, the Eurozone is now in “mild recession.” Eight European economies will shrink in 2012—the double-dip we’ve been warned about. Better performance is possible, but it hinges on real progress in repairing the continent’s finances. And there’s no certainty this will happen.
For more than two years, Greece has been a nasty boil that should have been lanced and cleaned out decisively. But Europe is still kicking that can down the road. Doing as little as possible as late as possible to defer the inevitable. Pretending that if Greece gets a helping hand, it won’t default and leave the Eurozone, unleashing a wave of trouble across the continent—and the world. And imposing increasingly onerous conditions on a country that’s already on its knees, with truly pitiful prospects of lifting itself up.
Europe’s finance ministers have agreed to a second bailout package of $171 billion (€130 billion) by 2014, with private investors “voluntarily” writing off $53.3 billion of their Greek bonds (half of that country’s private sector debt). In return, Greece must cut its budget deficit to 120.5% of GDP by 2020.
The architects of this charade are banking on Greek politicians being able to deliver their side of the bargain, and on voters in the countries Greece now relies on agreeing to all this. They’re hoping against hope, too, that the promise of yet another chunk of cash—which had to start flowing by March 20 to avoid Greece going bankrupt—will persuade rioting Greeks to get off the streets, accept even more crushing hardships for the next couple of decades, forget about state jobs for life, become successful entrepreneurs soon enough to buy their next meal, and rise past the humiliation of it all. Oh, and keep their money in Greece and pay their taxes!
While the Greek parliament has OK’d the deal, that’s just the beginning. Previous promises to reform came to nothing. Perhaps it’ll be different this time, because it’s clear there will be no quick or easy fix. But citizens will get angrier as life gets tougher for them. Igniting growth in Greece will be a very long, very hard slog. A Citigroup report warns that Greece is in for a long depression, and that its debt-to-GDP ratio will hit 160% by 2020, rather than the intended 120.5%. So there will come a time—quite soon—when the nasty truth has to be faced that Greece has to default, has to abandon the Euro, and has to paddle its own canoe.
The assumptions on which this bailout is based are daft. The chances that another bailout won’t be necessary are about zero. There’s a lot of agony to come—not least for the European banks that have been coerced into taking an ugly short-term “haircut” rather than face the prospect of losing everything. No one is sure just how bad the pain will be, but it will be bad. And it will be widely shared. And it will last a long time.
And that’s just Greece. There’s also Italy, Spain, Ireland, and Portugal. They’re all limping along on the edge of catastrophe, and a default by any of them would have worldwide repercussions that would be much worse than the Lehman effect. Their chances of simultaneously slashing their budgets and growing out of trouble are not good. So chances of further defaults—and resulting contagion—are high.
RE-THINKING ECONOMICS
The world is in the midst of a great economic experiment whose outcome is entirely uncertain. Capitalism is under siege. Governments are becoming more interventionist. Economists are rethinking their favorite theories. The Keynes vs. Heyek debate has a long way to run. The full impact of government stimulus efforts on the one hand, and austerity programmes on the other, is yet to be felt and understood.
So far, opinions are mixed. Nobel Prize-winning economist Paul Krugman, a long-time critic of the austerity camp, argues in his New York Times column of February 19 that things have been made worse than necessary “by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons history.” Unfortunately, he adds, “the confidence fairy has failed to show up.”
In similar vein, Mohamed El-Erian, CEO of PIMCO, the largest US bond trader, warns that the lessons of Argentina a decade ago are being ignored by the financiers and politicians dealing with the Greek crisis today. Instead of boosting confidence, austerity measures in Argentina caused citizens to empty their bank accounts and spurred capital flight. The government failed to meet its policy commitments, social and political pressures mounted, and the country defaulted in December 2001.
But consider Britain—a clear leader in the austerity stakes. As David Smith points out in London’s Sunday Times of February 26, it’s on course to undershoot its £127 billion borrowing needs for 2011-12—perhaps by as much as £10 billion. Car manufacturers boosted production by 15.6% in January, compared to the same month a year ago. The CBI says export orders are well up on long-term averages. Austerity measures have not yet fully kicked in, but an analysis by Goldman Sachs says last year took the big hit.
To complicate matters, this high-stakes economic experiment is being conducted in a laboratory where scientists are coming and going, opinions are divided, political games are being played in the hallways, and surrounding societies are in spasms of anxiety. And it’s happening in a time of great change, when an array of major events is unfolding with the potential to throw even the best of plans off course and to radically affect our future.
Can you cut your way to growth? Will disgruntled citizens give governments the leeway to do their thing? What will become of the unemployed masses?
The world is undergoing a radical reset, not a minor tweak. There are no easy answers.
CRITICAL CHANGES ADD UNCERTAINTY
High unemployment has become a structural reality across the globe. Countless millions of people will never have a job in their lives—or get a new one. Countless millions will either retire later than they intend, or have to forget about retiring at all. Demographic shifts are altering the shape of societies: in some countries, the population is growing and young; in others, it’s slowing and old. Almost everywhere, people are streaming from rural areas towards towns and cities in the greatest migration ever.
The early promise of the “Arab spring” has given way to deep concerns about what comes next in the Middle East, and how events there will spill over into other regions. Iraq is still not at peace with itself. Afghanistan appears to be unravelling, and the Taliban are resurgent. Libya and Egypt are a mess. Syria is an unmitigated disaster. Iran’s obstinate stance over nuclear power could result in oil prices going through the roof and a nuclear race in its neighborhood (it also raises two questions with awful consequences: will Israel bomb first, or will Iran get a bomb first?)
Meanwhile, Nigeria is being torn apart by Boko Haram terror attacks and political strife. Terrorism is a growing threat in Kenya. Somali pirates are causing problems for shipping along Africa’s east coast, and hostage-taking is a growth industry. In major cities around the globe, the “Occupy” movement is already affecting views about the role and responsibilities of both both government and business, about social inequality, and about executive pay—debates that will surely intensify.
Coming months will see elections and possible leadership changes in some of the world’s most important countries. Outcomes of this year’s elections in Russia, France, and the United States are uncertain. In China, a succession process is under way with Vice-President Xi Jinping look set to to take the top job.
Other countries, too, have leadership issues. North Korea has just confirmed a 28-year-old, untested but belligerent new dictator, who is keen to prove himself. Venezuela’s Hugo Chavez has cancer and may not be in office too much longer. Robert Mugabe will cling to power in Zimbabwe if his health holds up, no doubt to do further damage to his beautiful country. And South Africa will have a fractious year, as the ruling ANC gears up for its July policy conference and December elective conference, and politicians vie for power and tenders.
At the same time, extraordinary breakthroughs in technology are transforming industries, enabling companies to operate in new ways, and changing customers’ lives. Cyber-crime and attacks are becoming more plentiful, frequent, costly, and disruptive. And there’s growing pressure to deal with climate change.
In a year when Charles Dickens is being celebrated, his words from A Tale of Two Cities (1859) ring truer than ever:
It was the best of times,
It was the worst of times,
It was the age of wisdom,
It was the age of foolishness,
It was the epoch of belief,
It was the epoch of incredulity,
It was the spring of hope,
It was the winter of despair,
We had everything before us,
We had nothing before us,
We were all going direct to heaven,
We were all going direct the other way
BUSINESS IMPLICATIONS
So what does the future hold for business? Here’s what I think matters most:
- Tough economic times will be with us for many years. This truly is an age of frugality. But population and productivity growth will enable some countries and regions to do exceptionally well, and they’ll provide great opportunities for others.
- We can see quite a lot of what lies ahead, but not all of it, and there will be surprises. Companies need to strengthen their sensing capabilities and spend more time making sense of what they see. They also need to strike a careful balance between investments and activities that are “fixed” and those that are flexible, and develop the mindset and the processes that make swift change possible.
- Competition in virtually every industry is escalating at an astonishing rate. Companies everywhere are desperate to sell stuff to anyone they can—and selling anything is getting harder. They’re innovating and hustling as never before. If you blink, they’ll eat your lunch.
- Every market is an emerging market. The rules of the game are changing everywhere. They’re turned upside down by new customers, new customer behaviours, new competitors, new distribution possibilities, new regulations, new social trends, new media, etc., etc.
- Offering “good enough” products or services (a popular new mantra) might get you into a market, but it won’t give you an edge for long. As competitors drive value up and costs down, customer perceptions of “value” change rapidly. If you don’t keep making a difference that matters you just won’t stay in business.
- Business needs to keep rethinking its role and responsibilities in society. Companies need to create value for an array of stakeholders, not just for their shareholders.
- If your company is not fighting fit for this new world, you need to shape up fast. There really is no time to waste.
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9 Feb 2012
As a voracious reader of business books and journals, I’ve become increasingly jaded and disillusioned. I’ve spent countless hours over the past quarter century searching for insights, concepts, and tools that might really change things. Yet for all the hype that “management” gives rise to and is prone to, most of what I’ve seen is just more of the same, repackaged for a new time and possibly a new audience. Some of it is vaguely interesting. A good deal of it is just plain nonsense.
For all the efforts of academics, consultants, executives, and writers, there’s been surprisingly little progress in the field of management thinking. A handful of concepts cooked up 30, 40, 50 – or even close to 100 years ago – are still the ones that matter; and they are the core of what now gets touted as “new,” “breakthrough,” or “revolutionary.”
The DuPont chart, a tool for thinking about how companies create wealth, appeared almost a century ago. Fifty-odd years ago, Peter Drucker noted that every company needs to answer three questions: 1) who is the customer? 2) what is value to that customer? and 3) how can we deliver it? And around the same time, the human resources school of organizational behavior gathered momentum with its message that people are the most important resource, and treating them well is smarter than treating them badly. So what has changed? Answer: nothing. What better advice is on offer? Answer: none. These long-in-the-tooth ideas remain the bedrock of today’s “freshest” management thinking. Again and again, they’re tarted up for a new audience by management’s “thought leaders.”
Of course, there will be howls of protest at this view. After all, a lot of people have a lot riding on the world being eager to hear what they have to say – and being willing to pay for it. But one thing I’ve learned about management is that we have a very good idea of what works. Get these few things right, and you have a chance of success; get them wrong, and you’re roadkill. Another lesson is that there are no silver bullets in business. And in this time of great change, we really can’t afford to keep reinventing the wheel or flailing around for answers that don’t exist.
There are three possible tests of the value of any new insight or concept: 1) how useful it is to busy, practicing managers; 2) whether it advances our understanding of a particular topic such as strategy, leadership, change management, customer service, or operations; or 3) whether it becomes a catalyst for further investigation and thought. By these tests, very little of what’s dished up is worthwhile.
This is alarming, given that management is the discipline at the very centre of human affairs. The one that makes pretty much everything happen. That makes businesses competitive and schools, hospitals, and armies effective. That makes cities, ships, trains, power stations, and much else work. And that drives innovation and progress.
You’d think that, by now, we’d have figured out how to manage things. That we’d have settled on a set of core principles and a proven set of practices. But we haven’t. Instead, we keep on searching. And searching…
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