The Relentless Pursuit of Growth and Low Prices; For How Long Can it Go On?

There has been an impressive growth during the last seventy years in the Western world.

This growth was initially fuelled by rebuilding post – war Europe and catering for the needs of an increasing population in the US. We produced more and we consumed more. Companies were rewarded with capital investments and higher stock prices.

When the growth at home slowed down, the leaders of these companies tried to find ways to compensate for it. They moved some of the production in countries where wages were lower and sourced components in countries where they cost less. The products became cheaper and as a result they were affordable to more people both at home and abroad.

Again the companies were rewarded with more capital investments and even higher stock prices. The leaders of these companies proudly talked about the value they created in terms of billion of dollars. They also talked about the high number of jobs they created at home and the millions of people who moved above the poverty line in the countries they invested (which are positive developments). Pension funds and governments also enjoyed the benefits of this success since their investments increased in value.

This relentless pursuit of growth and low prices had many unintended consequences too.

First, for the model to work, people need to consume. The more, the better. Lower prices entice people to do so. To achieve these lower prices, manufacturing and supply chains (and many jobs with it) moved to lower cost countries. When a few companies did this at the beginning, it was revolutionary and they were rewarded for this innovation. Now most of them have to do it to stay competitive.

At the same time, people got used to buy low cost stuff that don’t last long. This false sense of prosperity encourage us to consume more (it is difficult to resist to the sophisticated marketing to which we are constantly exposed to both online and offline) with detrimental implications to the environment.

As jobs move to other countries to reduce costs, the senior managers of these companies are very well remunerated. Their annual salary is many times higher than the average salary in the companies they lead. So, they are further incentivised to go aggressively for more growth without considering the negative impact to the society.

Hindsight is a wonderful gift. Now it is possible to see both the positive and the negative sides of the system. The lower prices of goods we all enjoy don’t include either the price for the jobs that migrated to lower wage countries or price for the polluted environment – which we will all have to pay in the end.

Although we cannot change what happened in the past, we have the opportunity to change what will happen in the future.

The system cannot focus only on efficiencies. We need to find metrics that track the wider impact on the society and reward companies that do good. (What gets measured, gets managed). We don’t only have a responsibility but also a collective interest to do so.

On a personal basis, we need to be aware that our consumer behaviours matter (a lot). If we change from a cost-minimisation mindset to a value optimisation one (in other words buy fewer but better quality products which might cost a bit more but will also last longer), change in the way the companies operate will also follow.

Why you need to care: The relentless pursuit of growth happens by continuously reducing costs in order to achieve lower prices. This model has significant implications on societal structure and climate change which sooner or later will affect all of us. As consumers, we can be part of the solution by changing our behaviours. Companies will eventually have to adjust to our new habits.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced and constructive.

Posted in b4iapply, Economics, Self development | Tagged , ,

10 predictions about how the “New Norm” would look like

Covid-19 has disrupted our lives in a way than none of us would have predicted. The current thinking is that we will go back to normal (albeit a new normal) when effective vaccines will be available.

In this blog, I would like to share with you my thoughts how the ‘New Norm’ would look like. This exercise is not about fortune-telling but more about forecasting.

  1. We will become more health conscious (we will eat healthier, we will exercise more and we will sleep more).
  2. The value of family unit will increase and we will spend more quality time together.
  3. We will be working more from home although we will still have opportunities to connect in person for a few days per week/month.
  4. There will be more need for space and access to nature.
  5. Most of education and up-skilling will take place either online or on the job (or a combination of both)
  6. We will become more sociable and caring although we will interact less with people in person.
  7. Activities with large audiences will be virtual or hybrid.
  8. We will travel less frequently to other countries. When we do, we will stay longer.
  9. Social media usage will increase. At the same time, regulations will be introduced to avoid monopolies and manipulation.
  10. Our value system and aspirations will focus more on improving quality of life and overcoming social problems (inequalities, climate change, etc) and less on consumerism and monetary gratification…

This is how I visualise that the ‘New Norm’ would look like. I have discussed the benefits of this exercise in the blog post ‘Imagine the Future; the art of forecasting can be useful not only for corporations but also for individuals’.

I would suggest you put some thinking in how you would like the new norm to be.

Why you need to care: For two reasons. First, you will be better prepared for it. Most importantly though, if you have a vision of how you want the ‘New Norm’ to be, you will help create it.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced, constructive and solution-oriented.

Posted in b4iapply, Career Advice, Coaching, Personal development, Professional development, Self development | Tagged , , ,

Imagine the Future; the art of forecasting can be useful not only for corporations but also for individuals

Corporations are used to think about the future. They put effort in understanding the different trends, identify various scenarios and have a concrete plan for each of them.

They usually have a base case scenario (the most likely one to happen) and also consider the best (better than expected) and worst case (worse than expected) . This exercise enables them to do the thinking and planning early, to decide where and how much to invest and then they focus on execution (in other words what they can control).

This technique can be useful at a personal level too. Instead of worrying about the future (especially during these uncertain times), it will be more useful if we channel our energy in imaging it.

This is not an exercise about predicting the future but about thinking what scenarios are probable. (There is an important distinction between probable and possible. Probable is what is likely to happen; possible is what might happen but it is not ce rtain. For example, although it is possible for me to win the lottery, it is not probable.).

Think what is likely to happen and use this as your base case scenario. Then, imagine how the situation could be better than expected and also worse. In this way, you will be better prepared..

In general, this exercise is not about fortune-telling, it is about forecasting.

As an example, let’s imagine when the virus will be under control and life will be normalised (albeit a slight different normal).

It is expected that effective vaccines will be available mid-2021. Hence, many people will be vaccinated by the end of 2021 (at least in the Western world) which will allow us to go back to normal activities (base case scenario). If vaccines are ready by the end of this year, then we might expect the situation to be under control from mid 2021 (better case scenario). If it takes longer to get an effective vaccine or there are manufacturing bottlenecks, then we may have to wait until mid-2022 (worse case scenario).

By imagining these scenarios, we are in better position to prepare for them. Instead of worrying about what might happen, we move to think about what we can do which is within our control.

Get into the habit of imagining how the future would look like. It might feel a bit awkward at the beginning. Like everything else, the more you do it, the better you become at it.

I personally prefer to do this exercise with friends. It is fun (my kind of fun at least!) and the input from others usually helps me to refine my thoughts.

Why you need to care: The forecasting technique that is widely used by corporations can be very useful for you too. The more you learn to visualise the future, the more you learn to focus on what you can control. Fear of the unknown will be replaced by action.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced, constructive and solution-oriented.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced, constructive and solution-oriented.

Posted in b4iapply, Career Advice, Coaching, Self development | Tagged , , | 1 Comment

Should Private Wealth Fund Public Debt?

It is widely reported that 1% of the population owns as much as the poorest 50%.
However, when there are suggestions to increase the taxes of the very wealthy individuals and their corporations, the usual answer is that this will result in lost jobs since there will be no incentive for them to continue investing.

This sounds a reasonable argument at face value. But is it really the case? Or is it a tagline that interest groups are using?


Businesses invest because they expect that the rate of the return of their capital will be higher than the interest rate they will have to pay for the money they borrowed.

Also, although capital investments in the past implied significant creation of new jobs, the situation lately has changed. Investments are primarily technological and fewer people are needed. So, this argument becomes less and less strong.

While I was reading a book called`The Capital` by Thomas Piketty (the chapter ‘Metamorphoses of Capital’ to be specific), I finally understood why governments support private wealth.

(BTW, this is an excellent book and features in the library of anybody who wants to be somebody. If you read it though while you work full time, it will take you between 6 months to 6 years to finish it.).

Most of us are accustomed to the fact that the taxes we pay fund the public services we get (e.g. schools, roads, etc). So, it is natural that if we want more services, we need to pay more taxes (on profits for corporations and income for individuals) for the Government to be able to afford providing them.

The other funding option the Government has is to borrow money instead of increasing taxes.

Gross Domestic Product (GDP) is a key performance indicator for a country. The higher the GDP, the better the creditworthiness of a country. In other words, the country can borrow money at a lower interest rate (and pay for the services that needs to provide).

GDP is the sum of net public wealth and net private wealth. So, if the private businesses of a country are doing well, the GDP will be higher and as a result the better the creditworthiness of the country. Hence, they will be able to borrow at lower rates and fund the services.

This is the economic side. There is also a political one.

Governments need to win elections. So, they will choose the policies that will get them elected.

Increasing taxes is unpopular. Poor people don’t want to pay taxes. Rich people don’t want to pay taxes either. Hence, many Western governments prefer to borrow money instead of increasing taxes.

Until recently, it was a relatively good solution given the low interest rates. As a result, jobs have been created. Even if a few people have disproportionally benefited, the overall impact was positive.

During the last few years, the environment has significantly changed. The companies that fare better are the ones in the technology sector which don’t require many employees. For example, let’s compare Facebook and Pfizer. The market cap for Facebook Inc is around $760bn and employs 52,500 whereas, Pfizer’s market cap – a pharmaceutical company – is $200bn and it has 88,300 employees.

(By the way, Amazon’s market cap is $1.6 trillion and it has 840,400 employees – this is a significant bigger number than Facebook because Amazon needs many to work at their warehouses. Note though that most of these jobs are part-time and earn minimum wage.).

So, although governments benefit by having a strong private sector (which improves the GDP and as a result the interest rates at which a country borrows), it is also realistic to assume that from now on the growth will mainly come from technological advancements and only a small number of additional (and highly skilled) individuals will be needed. Hence, we need to prepare for this new norm and adjust our tax systems accordingly.

On reflection, it seems that the question of this post needs to be changed. It is not an either/or answer but at what degree the private wealth will fund public debt.

Why you need to care: We are at a turning point. The foundations of the social order of the past are changing. Tech companies in particular will create significant value but will employ only a small number of employees. Hence, although the governments benefit by having a strong private sector, they also need to consider the wider impact to the many. Our tax systems need to be adjusted for the new realities.

I started the b4iapply blog because I passionately believe in empowering people to make informed decisions about their career, their finances and other societal topics that affect all of us directly or indirectly. I only share my views and I aim to be balanced, constructive and solution-oriented.

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Working from Home: Output Matters

The Covid-19 pandemic forced many people to work from home. Working habits that have developed for years suddenly were not applicable anymore.  You don’t commute to the office. You don’t sit next to your co-workers. Chats around the water-cooler is not an option. Your manager is not around to watch every move you make.

All you need is a computer and a good internet connection. If you want to work in your pyjamas or be nicely dressed is up to you. If you want to work from the kitchen table or have your own office space is up to you (depending on your negotiations with other members of your household of course unless you live on your own).

On the one hand this newly-found flexibility is very much appreciated. At the same time, many people are afraid that if they are not visible, they will be forgotten. They are obsessed to be by their computer all the time, answer emails immediately as they land into their inbox and set up unnecessary  TCs just to prove that they are working.

Managers are anxious too. They are uncertain how to manage their teams. Their challenge is not only to ensure that people are actually working and not spending their time watching Netflix but most importantly how to recreate the ‘virtual space’ for collaboration.

How can we ensure that this ‘new working norm’ is both productive and fulfilling in the long-run?

It will help to start focusing more on input instead of output. In other words, what matters is the value a person adds and not how busy he/she is. (By the way, this concept has been discussed for years in the corporate world but with mixed results.)

The big question is how to assess output.

We have been used to measure the hours that a person puts into a project (and frankly it is easier!) than the quality of the work he/she produced. Also, we usually work in teams. For example, one person might have a great idea that somebody else will built on. Both contributions are valuable although very different.

Companies will need to experiment with metrics they use to measure performance. A combination of both input/output measures will be a good start.

Also, those in senior positions  will have to lead the change. Since most of them though have spent their careers based on the model defined by the industrial revolution, they will have to overcome their own biases first. Time and trust will be key for the transition to take place.


The bottom line: A mindset shift is required in order to adjust to the new working norm. We need to focus more on output and less on input. Time and trust will be key.

Korina Karampela is the founder of b4iapply. She passionately believes in empowering people to  make informed decisions about their career and their finances. She is a senior executive in the pharmaceutical industry and has an MBA from MIT Sloan. In her limited spare time, she wants to join forces with others to help everybody to be a better version of themselves.

 

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