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A well known adage warns us to never discuss politics or religion at the dinner table. But if – hypothetically – capitalism is our new religion, should the adage be changed to reflect that? As the US economy still struggles to turn around from the disconcerting downward spiral of the past year, this may be a dangerous (or at least socially reckless) question to consider, but that hasn’t stopped economist Paul Krugman from rising to the challenge. With the recent publication of his latest tome, The Return of Depression Economics and the Crisis of 2008, Krugman has updated his 1999 release to encompass the what, why, and how of today’s current financial woes and how they correlate with the events of the Great Depression.
In his book, Krugman states that it is impossible to discuss economic systems without the framework of the political systems that allow them to flourish – or in this case, to wither on the vine. Economics, as a subject, can rarely be described as easy reading, but Krugman’s dry wit and broad academic knowledge assist him in creating a book on misguided finance for the lay person – at a time when explanation is not only important but necessary.
Paul Krugman – The Return of Depression Economics
By revisiting the economic crises that struck the Asian and Latin American markets in the 1990′s, Krugman attests that they were strong warning signs that no one – even leading economic pundits – were heeding. As foreign markets were plummeting, American markets were little affected, leading many economists to believe that the circumstances that led the country into the Great Depression had been addressed. He makes no apology for the criticisms he levels at Ben Bernanke and Robert Lucas, who is quoted as saying ‘the central problem of depression-prevention has been solved, for all practical purposes.’ What seemed, at the time to be a statement of financial certainty, of faith in our free market enterprise, seems now to be woefully naive, or as Krugman puts it, ‘incredibly smug.’
An expert on macroeconomics and international trade theory, Krugman cites examples of missteps on the part of foreign financial institutions, and the resulting consumer-driven fear and investor panic that furthered the crises and delayed an economic revitalization. His argument for depression economics – increased government funding and a renewed focus on building export demand – rests on strong historical evidence, while acknowledging that our financial institutions are much stronger than those in the past, which should help to shorten the road to recovery. Krugman also calls for greater government regulation – an idea that has gained more stead in the wake of the lending scandals of the last year.
Economic systems are indeed heady topics – and Krugman is not without detractors who have railed against him for oversimplification and disseminating flawed arguments to the masses through his widely-read New York Times financial blog. He is unapologetic regarding his liberal bent, blaming much of today’s current economic fiasco on policies enacted during the Bush administration, leading many to feel that his views are politically self-serving. But regardless of which side of the fence one is standing on, Krugman’s works don’t shy away from asking the difficult questions – only time will tell if he has come up with the right answers.
Pay no attention to that man behind the curtain. The Oracle of Omaha has spoken. Warren Buffett may not be the Wizard of Oz, but considering his almost mystical track record as a powerhouse investor and one of America’s most successful businessmen, it would be easy to understand any confusion. The Berkshire Hathaway CEO is well-known for his frugality, continuing to live in the modest Omaha home he bought in 1957, despite a reported net worth of $37 billion. And while he may distill his investment strategies down to a few simple rules, one can almost believe that he has stumbled upon some previously unknown fundamental truth – so when the man behind the curtain speaks, people – and markets – tend to listen.
At least, they usually do. In September, amidst news of the worsening global financial crisis, Berkshire Hathaway announced its acquisition of 10% of little known (in America) Chinese company BYD for $230 million. The company, based in Shenzen, China is a world leader in manufacturing batteries, cellphone handsets, and low cost laptops – and recently stepped into the automobile industry. But few failed to realize what this new arrangement would herald – a possible mid-game shift in the failing auto industry, which has been struggling to develop a feasible electric car. BYD, already a leader in the rechargeable battery industry, has now set its sights on a new goal – building an electric car that the world will want to drive.
By most reports, BYD is nothing short of a phenomenon. Started in 1995 by Wang Chuan-Fu, with $300,000 worth of borrowed money, BYD quickly grew from a small-time battery supplier to manufacturing cellphone handsets for the largest carriers in the business – among them Motorola’s popular RAZR, and the AT&T/Apple iPhone. Like Buffett, Chuan-Fu spared every possible extraneous cost, including the expensive robotic arms that are standard in most tech facilities. BYD’s assembly lines were instead populated by people, an anomaly in the industry, and rely on stringent quality control methods and testing protocols. And unlike their Japanese competitors, BYD batteries have never had a recall.
BYD F3DM Auto Commercial
By controlling costs, BYD has been able to retain the capital needed to explore new ventures without relying on third-party borrowing. With little knowledge of the auto industry, their 2003 buyout of an unsuccessful, government-owned automaker may have been judged by some as a failure waiting to happen. But, as with every other venture BYD has undertaken, their tenacity – and engineering prowess – has paid off. The BYD-manufactured F3 is now the best selling sedan in China. With the company primed to enter the electric car race, the stage was set. Now enter Warren Buffett.
Buffett has long been a supporter of alternative fuels and clean energy solutions – but not of technology trends. Famously opting out of the ’90s tech bubble – and possibly sparing Berkshire Hathaway billions of dollars in lost capital – Buffett firmly stands by his rule to never invest in a business he does not understand. However, when trusted business partners Charlie Munger and David Sokol insisted to Buffett that he should take a closer look at BYD, and CEO Chuan-Fu, it didn’t take long for Buffett to be convinced.
While most automakers are struggling to release a cheaper, better electric car, BYD has already done it. Their plug-in hybrid, the F3DM has a range of 62 miles on a single charge – and sells for less than the reported retail prices of the not-yet-released all-electric Prius and the Chevy Volt. And the reason behind their success? Their battery division. The development of electric cars have been hindered, in large part, by the inability to create a longer-lasting, faster-charging battery. With BYD’s significant expertise in the area, they already have a lead on the competition.
While initial reviews of the F3DM have been less than stellar, BYD should be lauded for retaining complete control over all aspects of the manufacturing – from air-conditioning components to seat-belts. As public interest in electric vehicles grows – for their reduced emissions and lowered fuel costs – BYD’s early entry is still a promising step forward. At least, the Oracle in Omaha seems to think so. In fact, he’s banking on it.
“I want to work for a company that contributes to and is part of the community. I want something not just to invest in. I want something to believe in. ”
- Dame Anita Roddick
Dame Anita Roddick was not a wallflower. She was not timid, quiet, or dispassionate. She was not afraid of courting controversy, or challenging conventional stereotypes. She was, to paraphrase French novelist Emile Zola, here to ‘live out loud.’ And today, nearly two years after her death, her considerable legacy is a testament to the miraculous difference one person can make in the world.
As founder of The Body Shop, she built one of the world’s most successful – and globally conscious – cosmetics franchises. In an industry often more concerned with profits than social responsibility, The Body Shop was the first to prohibit animal testing in the development of their products, to support fair trade agreements with third world countries, and to challenge the harmful stereotypes of women portrayed in the media and in advertising campaigns. The eco-conscious concepts that now seem commonplace – such as recycled packaging and the use of organic and vegetarian ingredients, all found their strongest commercial push in the products for sale at The Body Shop stores around the world.
While Roddick cannot be the only one credited, the brave (and fiscally treacherous) initial step – to align quality products with social activism – was one of the key shifts in corporate mindset behind today’s ethical consumerism movement. With thousands of products on the market, consumers began to ‘vote with their wallets’ in choosing companies that share their values and that pledge to support a cause they believe in. By virtue of their international presence, The Body Shop had a powerful influence in countries around the globe, uniting citizens in the common effort to promote change and social responsibility.
Roddick’s stance as an activist, and her highly visible role as a successful businesswoman, did not always come without a price. Her early alliance with Greenpeace, an environmental organization whose tactics are sometimes criticized for being too radical, raised concern among franchise owners and customers, sparking debate over whether she was becoming too political and potentially endangering the future of the company.
In addition, the 1997 Ruby ad campaign, meant to raise awareness over the media’s portrayal of women also caused controversy – though its self-esteem message can still be seen in marketing efforts today, most recently in Dove television and print ads. Ruby, a size 16 plastic doll, was the centerpiece of the ads, with a tag line that read “There are 3 billion women who don’t look like supermodels and only 8 who do.” Consumers, wary of the current, waif-ish ‘heroin chic’ look, appreciated the campaign’s message, but the doll’s visual similarity to Barbie caused toy maker Mattel to balk, demanding the company pull the doll’s image from American stores.
Anita Roddick Interview
Throughout her life, personally and professionally, Anita Roddick continued to challenge the status quo, not as a rebel without a cause, but as a concerned citizen whose aim was to leave the world better than how she found it. With one voice she managed to enact change on a global level, bringing awareness to a myriad of social and environmental issues. Though she passed away in 2007, through the company she founded and the charities she supported, her message of hope and change will continue to influence lives for generations to come.
Adaptation is an alteration in the structure or function of an organism that results from natural selection and by which the organism becomes better fitted to survive and multiply in its environment. This is a concept well embraced by those in the biological sciences, but less so in the corporate world. As the worldwide economic crisis has shown us, even the largest corporations (GM, AIG, Ford) can fall prey to relying on yesterday’s business model, and ignoring the changing climate that tomorrow will bring.
Employed by Royal Dutch Shell for 38 years, Arie de Geus was in a prime position to witness the successes and failures of one of the world’s largest petroleum companies. Since retiring from Shell, de Geus became an author, consultant, and speaker on the concept of organizational learning. Referencing subjects as varied as psychology, immunology and evolutionary biology, de Geus’ book, The Living Company, outlines the key changes – adaptations – that need to be made in today’s corporate environment. Through studying several long-term companies (200+ years) and dissecting the methods, and the madness, de Geus was able to distill sustainability into four common factors.
Global Summit on the Future o the Corporation – Sustainability Challenges – Arie de Geus (start at 2:20)
To maintain a strong and viable company – for generations – the importance of a strong financial structure is vital. As we have recently seen, financial institutions may come and go, but the ability to react to the changing economic climate is made infinitely easier when there is money in the coffers. Financial stability allows a company the freedom to invest in new opportunities without depending on third-party borrowing. Being conservative also gives companies the strength to weather occasional market downturns – without sacrificing assets.
Companies do not exist in a vacuum. In being aware of changing interests and developments, executives can better prepare for the business climate of tomorrow, adapting the deliverables to the needs of the market. What was once the biggest business in town – be it lumber or floppy disks – can change in years, not decades. By continuing to gain knowledge, a company can diversify into under-developed areas and create new materials for tomorrow’s consumer.
A strong thread throughout de Geus’ work is the importance of community building within the company. From hiring practices to employee development, the fundamental mission of any company should be to support its workers, so they in turn, may help the business to prosper. By adhering to an agreed-upon code of values and ethics, employees will understand their position – and their contributions – in the company. In view of long-term sustainability, employees will be acting as stewards – a distinctly different viewpoint than working to improve next year’s profits and loss statement.
Building a management team from the inside has more benefits than just reducing the need to rely on outside recruiters. As current members of the community, employees understand the culture better than an outsider. In addition, by training employees, and giving them the freedom to explore new avenues that could lead to future advancements, they are increasing the potential for success in the future.
We are a culture of the new – now more than at any other time in our history. Recent technological advancements have shrunk the world – to great benefit, but there still exists a tendency to rely on old ideologies, especially in the realm of business management. In a culture where the goal of short-term profits is more important than long-term sustainability, managers and CEOs are failing to learn the lessons that will guide their interests into the next millennium. Viewing the company as a biological entity, and embracing a new philosophy – adaptation – may enable us to steward today’s companies into the hands of our grandchildren.