- Raw Materials
- Supply Chain
For the past few months there have been persistent signals that global trade has been slowing. The reduction in activity has been noted by the OECD, IMF, World Bank and most of the nations of the world. The sense at the moment is that this is temporary and based primarily on events that have shaken the global economy since the start of the year. There are those who see something more endemic in these numbers and point out that the slow growth is taking place in the economies that were once thought to be hot.
The two events that have had the most negative impact on global trade have been all over the news for the bulk of the year. It has been the severe supply chain disruption that was caused by the earthquake and tsunami in Japan and then there is the impact of the “Arab Spring”. The latter had a number of indirect impacts on global trade but the most notable was the hike in the price of oil as it added considerably to the cost of transportation for several months.
The latest setback as far as trade is concerned is focused mostly on the emerging market nations. Exports from Asia fell by 3.9 and exports from the Middle East and Africa fell by 4.6%. The export sector in the US by comparison grew by 0.7% and even Europe saw export expansion of 0.1% despite the maelstrom of financial confusion caused by Greece. The import numbers told a similar story with much of the damage taking place in the nations that had been surging previously. The question now is whether this is just a short term reaction to the problems this spring or whether this is a sign that the global economy has really started to reverse.
Analysis: The two reasons to think this is temporary stem from the observation that conditions this spring really were pretty awful and uniquely affected global trade. The Japanese role in the global economy had been discounted by many and the world was reminded just how integral Japanese manufacturing is to the bulk of the business community. The good news is that Japan is largely back in business and if this catastrophe was really the cause of the trade setback there should be evidence of recovery showing up pretty soon. The oil price spike is over for the moment and that should allow more trade growth as well. If these events are causal factors, the next few months should show some improvement. The other reason to assume that this setback is temporary is that Europe seems to be closer to getting control of the financial fiasco. If there is calm in Europe the trade patterns may have a chance to recover.
The main reason to assume that this will not be temporary is that there is abundant evidence that the US and Europe are not exactly poised to launch back into the consumer mainstream. The slow growth in these nations affects the level of exports from other nations and the weak dollar makes it even harder to sell into the US. The demand that drives global trade still comes from the US and Europe and there is still a long way to go before real recovery can be said to have taken place.
Union membership in the US is as low as it has ever been. Only 6.9% of the private sector work force is in a union and when one adds the more heavily unionized public sector the percentage only increases to 11.9%. As recently as 1983 the percentage of workers in the country represented by unions was over 20%. The role of the union in the workforce today is one of the most controversial issues one can devise – from an economic and political point of view. The issue range from the role of the union in business profitability to the ability of the union to deliver on worker expectations. Even the structure of the American union is controversial as compared to the way that unions are organized in other nations. One of the key differences between unions in different nations is that most of the unions of the world are either general unions that encompass a wide variety of jobs and workers or they are unions that are tied to a specific company. The US system is organized loosely by trade and that often sets up situations in which a company must negotiate with several different unions that do not have all that much in common as far as the issues. The airline industry is the classic case as there are unions for the machinists, the pilots and the flight attendants and they all see the world very differently.
The latest set of controversies comes from the proposal from the National Labor Relations Board. It is designed to make union organizing at a workplace easier and that has created intense opposition from many in the business community. The assumption the NLRB makes is that the current system places too much of a burden on the unions and allows too many delays. They seek to streamline the process so that workers can decide if they want a union to represent them in a more expedited manner. The objection is that this attempt to streamline is really just giving the unions an unfair opportunity to influence the workforce.
Analysis: The rationale for a union in most settings is that there is a dispute that has not been settled between the employer and the employee. It may have to do with pay or benefits or working conditions but there is generally a sense of exploitation and hard feelings sufficient to provoke a desire to get a third party engaged. The employer is obviously not thrilled by the introduction of a union as there will be very clear lines of demarcation between the managers and the workforce. Many of the employees are ambivalent about the union as well. Some are fearful that union engagement will mean they will subject to reprisal from the employers and others simply do not want to pay the additional dues that are required by the union and question whether they are getting much for they pay for. There are vast differences between unions as well. Some become protective of the companies and the industry they are part of and recognize that the threats to their workforce are the same threats the company faces. Other unions are overtly hostile to the employers and seem willing to take actions that destroy the competitiveness of the company regardless of what this means to the future of the employees. Some unions are highly political and ideological and others are very focused on making the life of the worker better now and in retirement.
The two most consistent points of contention today surround work rules and pensions. The majority of business critics assert that they have far less issue with the pay demands than with the other two. The objection when it comes to work rules is usually that these are designed to protect jobs at all costs and prohibit the company from making adjustments to the competitive environment. This often means that it is harder for a company to replace people with machines or to replace US workers with workers in other nations through outsourcing. Then there are the make work rules that drive many people crazy. This has become a less common problem but still exists as unions strive to control the workload of the employees. In a very competitive global marketplace that moves at blinding speed the employer has to be able to react and stay ahead of those that would gobble up market share but the employees are worried that this race to be competitive will mean they will be fired or required to do more work than they can really handle.
The major issue before many employers is the pension system. For decades both public and private sector employers have elected to buy short term labor peace with expansive promises regarding retirement and other benefits. Today the battle between the public sector workers in many states and the various political leaders in these states stems from the fact the pensions granted years ago are no longer financially sustainable. In far too many cases the pensioners are making more money in retirement than they did as employees. The unions themselves are struggling with the fact that they are spending more of their time and energy dealing with those who have left the workforce than with those who are current members.
Given the inevitable battles that will take place once the workforce is unionized, the employers seek to keep the organization from taking place in the first place. This is generally a matter of making it clear to the workers what the disadvantages of unions are and that often focuses on the inhibition on growth, the expense of union membership and the impact this will have on business decisions. This creates a very delicate situation as it is illegal for business to threaten reprisal for union engagement. That is clear enough when it is a case of a union organizer being harassed or fired but if the company decides that fighting the unions is too much trouble and therefore closes the plant to move production overseas or to another state it is harder to make the case that this intimidation or simply reacting to the business realities.
The NLRB has become far more aggressive in the last few years and now there are two major issues before it. The first is the proposal to streamline union organizing and elections. This is something of a revision of the Card Check process that was shot down in Congress. It is now back as more of an administrative procedure. The other issue is whether Boeing’s decision to move production from Washington to South Carolina was done to punish the unions in Washington or was done as a simple business decision.
There are generally two rationales at work when considering regulation of business and industry. The first is that there is a genuine desire to promote uniformity and efficiency in a given industry. There are always legitimate companies that comport themselves appropriately with concerns for workers safety and consumer protection. They compete against companies that seek to make money by being slipshod and by committing what amounts to fraud. There are few who would argue that regulation is not needed to eliminate the unscrupulous from a given industry. Unfortunately there is another rationale for regulation that comes into play far too often. This is a desire for punishment and revenge of some kind. The perception is that a given sector has been engaged in patterns of unethical behavior and this must never be tolerated again. The latter kind of regulation is hostile from the start and very often goes too far.
The Comptroller of the Currency John Walsh has become the main critic of efforts designed to constrain the financial system. His chief opponent in the US has been the head of the FDIC – Sheila Bair. They have diametrically opposed goals as far as regulation is concerned. Walsh is primarily interested in getting the banking sector reengaged in the business of growth and warns against rules that are too draconian as these will keep the banks from getting back in the game. Bair is interested in making certain that banks never engage in the high risk activity that brought the credit system to a halt in 2008. Walsh wants to improve performance and efficient and Bair is oriented towards punishment.
Analysis: The battle will rage all this year and into next. At the moment the forces of anger and punishment are in the forefront but slowly the positions of those like Walsh are taking root as more and more people recognize that the slow pace of economic recovery is related to the fact that banks are still nearly catatonic. The rules and regulations are far from clear and until there is some clarification the banks are sidelined and that means industry is slowed as well.
The good news for George Papandreou is that his government survived a vote of no confidence. The bad news is that his government survived the vote of no confidence and he now has to tackle the next two enormous tasks. He shows no signs of wanting to ditch this whole mess and flee to some Greek island but it has to be a temptation given what lies before him. The first step towards getting additional support from the global financial community was his ability to get his own party to back him and in the end he won with some room to spare as all his party members supported him and even some of the opposition voted to keep his regime intact – at least for the moment.
The second step is passing the very strict set of austerity measures through a fractured and worried parliament. The plans that have been revealed thus far will change the lives of many in Greece forever. There are plans to slash the pensions that people have been receiving for years. There will be drastic cuts in the government payroll and many services will be curtailed or abandoned altogether. Cuts will be as deep as 25% in some departments and there will be drastic reductions in the amount of cash distributed to cities and other entities. One of the most controversial measures will be the creation of a privatization agency that will be charged with selling off vast amounts of state controlled activity. Greek unions have fiercely opposed this plan as many of the members currently work for these state entities and they are well aware that a private owner will almost immediately cut the number of employees. It is estimated that almost 20% of the state workforce is redundant and this would be a logical place for a new owner to start.
Another area of some controversy will be the tax system. The Greek population is adept at avoiding tax obligations and this will be addressed by the government in a variety of ways. There will be more enforcement efforts and more punishment for those who do not comply but the problem is that there is little funding for the tax authorities to work with and this will limit what they can do. Given that most Greeks will be losing money from the cuts proposed in spending they will be far less enthusiastic about paying taxes than ever. Unless the Greeks get better at collecting revenue, the rescue and bail out will only provide temporary relief.
Assuming that the austerity legislation is passed the Papandreou government faces another serious hurdle. The EU and the Germans and the IMF have not been entirely enthusiastic about assisting the Greeks and they will remain skeptical about the reform efforts until they have taken hold. They are acutely aware that the Papandreou government is weak and subject to wrenching shifts if things go awry in the streets of Athens and elsewhere. They know the stakes are high but they will still be prepared to cut the Greeks loose if the process starts to unravel. The Greek government needs to keep moving at a pace that satisfies the creditors but without provoking a set of violent reactions from a frustrated population that appears ready to boil over.
Analysis: Thus far the global markets are acting hopeful but that is a mood that can change at a moment’s notice. The part that still baffles the analysts and those in the financial community is that they really have no idea what a real unraveling looks like. Does Greece get booted from the EU or do they decide to split on their own? Does the exit of Greece start a stampede that will include Portugal and Spain and perhaps some of the new members from East Europe? Do the financial markets decide that Greece is really not worth the angst or does this propel the system into a crisis along the lines of what append in 2008-2009? The problem is that a case can be made for all of these scenarios. For the time being the sense is that there is a chance that Greece exits the crisis and can start a slow rebuild. We’ll see what people are thinking two or three weeks from now.
The speculation has been intense but the majority of analysts expected the announcement would come eventually. Cristina Fernandez will run for a second term and at the moment the opposition to her is highly fractured and unlikely to coalesce into support for an alternative. The plan originally was for her to give way to her husband and they would essentially run as a team. Nestor Kirchner had stepped aside to support her four years ago and he was to resume office. His untimely death threw these plans into chaos and for several months it looked as if she was too distraught to seek another term. She has recovered and has been buoyed by the fact that Argentina has been growing at close to a 9% pace. Unfortunately that growth has been accompanied by very high rates of inflation and that will be her main weakness in the election.
Analysis: The opposition in Argentina is significant but there is no consensus on who should contest the Fernandez regime and on what grounds. There are at least a dozen candidates in the running to oppose her but no one polls more than single digits. As in past years these contenders will savage one another and in the end Fernandez will walk pretty easily to her second term. The interesting decisions will be her choice of running mate. Her second term will be her last and that makes the VP a President in waiting.
First the correction. Yesterday I wrote a piece about the controversy over women driving in Saudi Arabia and stated that there had been an incident involving an Imam in disguise and an execution. It turns out that this was a story that was entirely fabricated. A normally reliable contact relayed this information to me from Saudi Arabia but it seems that his enthusiasm for change in his country made him far more gullible than normal and when he was told this occurred he did not exercise much skepticism. Neither did I and for that I deeply apologize. It is an old adage that extraordinary assertions deserve extraordinary verification. The Middle East has been a region of chaos and rumor for months and in this environment it is easy to get careless and sloppy – I will endeavor to be far more skeptical in the future.
There are those among us whom we envy. At the top of that list is the couple that has been together for decades and still seems to have that spark. It is a source of endless curiosity for most of us. There has to be some secret or technique that allows such wedded bliss to last for so long. I have had some conversations about this of late and the first thing one learns is that there is no one secret and that much seems to depend on the personalities involved. There are two observations that seem universal though.
The first is that couples need to set priorities as far as what they care to argue about. I see many people willing to fight to the death over what radio station to have on in the car, what TV show to watch or what movie to see. They fight over what yard work should consist of and where to go eat on a Friday night. The happy couples seem to have determined a division of preference by deciding that they really could not care less on a whole variety of topics. Unless it really matters to you it is not worth fighting over. Those things that are important are to be respected by the other member of the pair. The secret seems to be interested in most everything to some degree so that you can get something out of whatever you do.
The second observation is that happy couples seem to have a preference for companionship. The fact is that being with another person requires compromise and adjustment. One can’t do exactly as one chooses all the time as that will annoy the other person from time to time. If there is a preference for having somebody around to share with, the adjustments are made but if being alone is really preferred it is harder to accommodate.
Beyond all that I think fun is at the hearty of all this. It is important to make your partner laugh often. This is my secret as I manage to do something to make a fool of myself about 80 times a day and that is endless fodder for making my wife laugh.Tweet