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EPWN LISBON AND
IE BUSINESS SCHOOL
3 NOVEMBER 2011
Recession, or renaissance?Thriving in the new era
Gayle AllardIE Business School
WHEN WILL IT END?WHAT WILL THE POST/RECESSION WORLD LOOK LIKE ?
Part I:recession
The financial crisis and recession have taken a heavy toll on developed countries...
…and it isn’t over yet.
Governments (Ireland, Greece, Portugal, Spain, UK, US) are cutting deficits and implementing austerity; others paralyzed by indecision (US, EZ)
Global banking is still dysfunctional
Businesses are finding stiff international competition (hence mini-currency wars)
Consumers are unsure of their jobs, savings, pensions and future incomes and are afraid to spend
All of these factors will continue to dampen employment, incomes and consumer spending and could pull us into a second recession in coming months
Why was the periphery hit so hard?Economies were not prepared for the euro
Average 1982-2010. Source: OECD.
Solving the euro/debt crisis is one of the keys to global growth
The EFSF is too small to protect peripheral borrowers (€440bn); Greece alone may need €444bn, according to a recent study*
Italy and Spain are both too big to fail and too big to be bailed out
The cost of a euro breakup could be 40-50% of GDP for a peripheral country and 20-25% for a core country (UBS estimates); much higher than the cost of a bailout.
Germany: soaring new currency would devastate manufacturing, require bailout of banks with old euro assets
Greece: plummeting new drachma, crippling new debt and collapse of financial system (“mother of all financial crises”)
Some countries, like Portugal, may soon be making a comeback after harsh austerity
Some governments slashed spending, raised taxes and adopted painful reforms
Ireland and Portugal are starting to see a surge in exports, as they have brought costs under control and become more competitive
This is a painful “internal devaluation” which may be the only way out for eurozone countries
The crisis has broken down our growth model, and no one is sure what will replace it
Before, fast growth driven by “big spending” US (as well as overconsuming peripheral countries)What will the new world look like?
More multilateral and more balancedDifferent currencies rather than a hugely dominant reserve currencyMore balance between developed and emerging economiesMore rapid return to automatic adjustment on external accountsNew engine of growth in the new global economy?
Slower global growth, concentrated in emerging economiesContinuing pressure on labor costs in developed nations, as hundreds of millions of workers join the global labor marketCould we see a backlash against globalization and our present capitalist model?
Who will be the G20 in 2050? Some projections
For developed countries: the specter of “Japanization”?
Japan was supposed to be the world´s largest economy by 2010; it was the model for managementThe bursting of the asset bubbles in Japan and elsewhere in Asia in the late 90s sent it into a decade of crisisPoor leadership aggravated the crisisChina is now larger than Japan, and the most likely outlook for Japan is a steady and possibly irreversible economic declineWhat do we have in common with Japan?
Aging populationHeavy government debt burdenSlow growthUncertain political leadership
TRENDS THAT ARE SHAPING OUR WORLD
DEMOGRAPHY
GLOBALIZATION
SUSTAINABILITY
SEARCHING FOR TRUE SATISFACTION
Part II:renaissance
Demography was moving our world to a “new normal” even before the crisis
Portugal´s population pyramids
Fast growing population of workers and consumers stimulates growth
A large dependent population –old and young– harms growth because
They do not work
They make claims on a country´s income without contributing to it
They depress savings, which slows capital growth and productivity growth
Aging will slow growth everywhere
Slow or negative population growth will have some great benefits
We will need major pension reform and an overhaul of our public services, BUT
The pressure on the environment may be alleviated
A scarcity of workers will produce fiercer competition for talent
Unemployment may recede as a problem
How is globalization transforming our future ?
Globalization has brought huge benefits in declining prices, rising efficiency, higher real incomesBut for developed countries, it poses profound issues:
Higher prices for raw materials as demand from emerging economies surgesCompetition in labor markets is generating
Lower real labor costs (and rising structural unemployment)We may have to work harder, longer, for less in the future
Globalization has brought greater wealth equality amongnations, but greater inequality within nations
Rising debt in some nations could be a “cascading” effect to compensate for inequality and stagnant incomes
If we keep globalizingIf we keep globalizing If we stop globalizingIf we stop globalizing
× Pressure on labor costs will continue and jobs in traditional sectors will keep disappearing
Countries that find a competitive niche in high value added sectors will generate excellent jobs for a huge market
Better chance for emerging nations to develop
Higher prices, lower real incomes, lower growth
Preservation of traditional patterns of life and cultural identities
End to treadmill of world competition
More equality at home
There could be benefits both from more globalization AND from an end to globalization
Environmental pressures will change our world
If the world´s GDP expands six- or sevenfold by 2050, the planet will be unimaginably stressed
The earth´s regenerative capacity has already been passed
If China and India used as much energy per capita as the Americans, their total power consumption would be 14x the U.S.
If China, India, other emerging countries reach Western levels of car ownership, the world would have 3bn cars (4x current total)
Asia and West must make growth more sustainable:Carbon and resource taxes that will provide incentives to produce in a much less material- and energy-intensive way
Draconian rules on consumption of fossil fuels, fisheries, forest products
Massive investments in public infrastructure
Different models of production and consumption
A more environmentally friendly world would have huge benefits
Growth would be slower and real incomes lower, BUTWe could avoid the tragedies of destruction of species, wilderness, natural spaces Many new jobs would emerge in low-carbon, alternative energy, recycling, repair, cleaner industries, research and development, organic farming, socially responsible production, etc.Countries that move first to protect the environment will have a competitive edge
But maybe our world needs changing...because it isn’t giving us what we really want
Surveys asking people how happy they are indicate that the average level of happiness has not increased over several decades, despite large increases in income per capita in the United States, Japan, the UK, and continental Europe.
So what DOES make us happier?
Economic research demonstrates that past certain levels, higher income does not lead to greater happiness or life satisfaction
Recent research focuses on spending rather than income and concludes:If money doesn´t make you happy then maybe you aren´t using
it right.
What kind of spending makes people happier?Spending on leisure or experiences with other people (nights at home with family or “staycations”)
Giving money away
What makes us happy/unhappy?happiness
index
Income Family income up 50% relative to average +1
Family income down 33% relative to average -1
Freedom Quality of government improves (Hungary vs Belarus 1995) +2.5
Religion “God is important in my life” (“Yes”, all else constant) +2
Trust “In general, people can be trusted” (“Yes”; all else constant) +1
Morality “Cheating on taxes is never justifiable” (“Yes”; all else constant)
+1
Work Unemployed (rather than employed) -3
Job is insecure (rather than secure) -1.5
Family Divorced (rather than married) -2.5
Widowed (rather than married) -2
Health Subjective health down 1 point on 5-point scale -3
Slower growth in the “new normal” may actually move us in the right direction
The crisis has reawakened many people to the limits of obsessive consumptionThe “100 things challenge” invites people with money NOT to buy everything they can; rather, to limit their possessions to a minimumIf we rearranged our priorities away from consumption, there would be a sea change in behavior in the developed countriesThis could have remarkable results for human satisfaction …and for the environment.
People are finding that their homes are full of stuff, but their lives are littered with unfulfilled promises.
WHAT WILL THE NEW WORLD MEAN FOR WOMEN?WHO ARE WE… AND WHO DO WE WANT TO BE?
Part III:thriving in the new era
Female workers have transformed the postwar world
Expanding economic opportunities for women has drawn many into the work force
Female labor force participation rate has grown dramatically since 1960
Delayed childbearing, better education has accelerated this change
Men´s participation rate has fallen while women´s has soared: the difference is now only 26 percentage points, compared to 32 in 1980
Women have prepared themselves for better careers
Gender equality is an important indication of true democracy
Hillary Clinton, U.S. Secretary of State
Gaps between men and women persist in the workplace
Gender gaps persist in earnings and productivity across the world, at every income level
Women are overrepresented in informal work and in part-time and temporary jobsNumber of female bosses of large firms is still small
No female CEOs on France´s CAC 40 share
index or Germany´s DAX index
US: 15 executives of Fortune 500 companies
are women; in Britain: 5 of FTSE-100
Indra Nooyi, Pepsico
r
Christine Lagarde, IMF
Why does more diversity make good economic sense?
Women are more likely to understand the largest group of consumers in the worldThey represent an “underfished” pool of talentThey bring unique strengths:
More collaborative than menBetter at multitasking
Some evidence that companies with more women in top jobs perform better than those run only by men
McKinsey studied 89 companies in Europe with a high proportion of women in senior management posts, showed higher return on equity, higher operating profits and better share prices than the industry averageClearly, this minority of women is excellent
Patricia Woertz, Archer Daniels Midland
Why do women continue to lag behind?
Women do as well as men in university and are overrepresented in MBA programs
They hold more than half of the entry-level jobs in top companies
But they quickly fall behind:Less aggressive when negotiating salary and raises
In the US, women are 37% of middle managers, 28% of senior managers, 14% of executive committee members
Irene Rosenfeld, Kraft Foods
Why do women continue to lag behind?
Is it discrimination? Are legal, financial systems discriminating against
women?Do men consistently underestimate women?
Patronage does not work in favor of womenWomen may not have as many powerful backers as
menThey may also be reluctant to call in favors
Balancing act: women struggle to balance work and family, where they still have the main responsibility
“ Women look at the top and don’t see anyone they want to emulate… They become weary of what they often describe as game-playing, as they discover a greater level of jockeying and competition.”
Oprah Winfrey, Harper and OWN
How does family responsibility compromise women´s careers?
European women devote at least twice as much time as men to domestic tasks
Nordic: men spend 2.3 hours/day; women 3.4Latin countries are much worse: men spend 1.3; women 5.2
How do women cope with home responsibilities?Choose jobs with flexibility, predictabilityTake time off
In the US in 2009, 31% of women had taken a career break (avg. 2.7 years)66% had switched to part-time or flex-time work
Once on the “mommy track”, they may find it hard to get back on the fast track
Many have decided to avoid family responsibilities by not marrying or not having children
Women are having few or no children and (in Asia)
many flee marriage…
About 1/3 of Japanese women in their early 30s are unmarried
Why? Being both employed and married is tough in Asia:Men do 3 hours of housework a week vs 30 for womenFinancial independence and education contribute to decline of marriage
Can women be helped to balance work and family?
Government responses:Parental leave for both parents, with job guarantees on return
Part-time work
Child care
Holiday scheduling (work and school)
Company responsesChild care on site
Teleworking (nearly 20% of American workers
telecommute)
Understand family demands
Ginny Rometti, IBM
Are quotas the solution to greater equality?
Norway: all publicly listed firms must reserve 40% of seats on boards for womenSpain, France have passed similar laws; Holland will soon; Germany considering itEuropean Parliament passed in 2011 a resolution requiring that 40% of seats on listed companies´ supervisory boards will be reserved for women by 2020But quotas may elevate women who would not otherwise get onto the board
Ann Livermore, Hewlett Packard
Women also need to be creative
New generation of female entrepreneurs starting up business from home during a break from the workforce to have children (Australia: 15% of women with small children are “mumpreneurs”)
Technology helps
Control own destiny
Give high priority to flexibility
Sheryl Sandberg, Facebook
Bottom line: our own priorities and doing what´s important
What is success?What do I want to do with the time I’m given?What will outlive me?Just as our mothers or grandmothers had to buck trends and think outside the box to get
into the working world, we need to do
the same to seek true satisfaction
Melanie Healey, Proctor & Gamble
Don´t be trapped by dogma, which is living with the results of other people´s thinking. Don´t let the
noise of others´ opinions drown out your own inner voice. And most important, have the courage
to follow your heart and intuition. They somehow already know what you truly want to become.
Steve Jobs, 2005
THANK YOU!