Wednesday, July 30, 2014

Keynesian "Animal Spirits" Poking Out

Keynesian "animal spirits" have tested the outdoors.

Investment in consumer spending and rebuilding inventory overcame the growth in imports to show a 4 percent annualized real growth in U.S. GDP in the second quarter ("advance" estimate).

The growth was significantly above expectations of a 3 percent increase.

This growth occurred even after a revision of the first-quarter estimate that reduced the decline in from an annualized rate of 2.9 percent to 2.1 percent.

Tuesday, July 29, 2014

The More Important Game Where Brazil Was #1 in 2014

Christ the Redeemer Reacts to 7-1 Brazil Loss to Germany.
When I was in São Paolo, Brazil in February, the World Cup was on everyone's mind. The  Brazilians I met were supremely confident that they had a shot at winning, and were mainly interested in who might be #2.

The World Cup in fact didn't turn out so well for Brazil, but the program that indirectly brought me to Brazil was a huge winner.

Beat Grüninger (L) and John Tepper Marlin in São Paolo,
Brazil. This and most other photos by Alice Tepper Marlin.
Brazil in 2014 has the world's 7th-highest gross product by most measures, whether nominal or purchasing power parity. It is growing fast and may soon be #6 or #5, passing by the UK or France.

However, the country's rapid growth has sometimes been at the expense of workplace health and safety.

In February I got to talk with some of the participants in a milestone of the innovative Social Fingerprint - Rapid Results (SFRR) program on worker engagement.

Workers are often aware of safety hazards long before management, and one reason that deadly accidents happen so often is that communication channels have been choked off like hardened arteries.

My overall comment is that I am hugely impressed. In the aftermath of major workplace accidents there has been a lot of finger-pointing by those eager to find culprits to punish. This Brazilian program creates a model for actually doing something about workplace safety from the bottom up. To my mind, Brazil's leading in this area is more important than winning the World Cup.

The 100-Day Program: Team, Goal, Process

The idea behind the experimental program is that the way to address challenging problems like workplace health and safety is to engage both workers and managers in generating and putting in place systems that will sustainably ensure compliance.

Jane Hwang of SAI (L) and Tu Rinsche of the Walt Disney
From those who had been through the 100 days of the program, there was a buzz of excitement from the outcomes. I interviewed the key local organizer, Beat Grüninger, and other participants about it.

Each team chose ambitious, measurable goals that the members believed they can accomplish in 100 days.

The teams that met in February were at three different stages. One was starting off. One was at its 50-day mark. The third was at its 100-day mark.
  • Managers and workers at first met separately in the first stage of team-building.  Each half of the teams did some initial work on their own and began to use the SFRR planning tools.  Then they met the rest of the team to pool their different perspectives, work out details of the problems to be addressed, agree on measurable goals to be met, and begin a process for meeting these goals. 
  • The 50-day meetings focus on overcoming obstacles, modifying goals and adjusting the process. Sometimes the initial goal is achieved in even fewer than 100 days and sights are raised. Others have to redouble efforts and dive into more innovation and engagement to meet their goals.
  • The 100-day meetings are given over to celebration of achievements and giving initial thought to setting a second 100-day goal. At the 100-day meeting, the teams are asked whether they want to (1) Proceed to a higher level of the goal at same location or agree on a different goal OR (2) Help other units in a different part of the company or facility achieve the goal they have accomplished.
At the end of every day of the meetings, the SFRR coaches review how the meetings have gone, to see how they can improve the process for the next iteration.

Program Outcome

The pioneering program is engaging workers in Brazil to address root causes of health and safety issues in factories, using mobile technology, internal team building and change management. The program forms worker/manager social performance teams focused on improving health and safety, and makes measurable improvements in one specific health and safety issue in a 100-day Rapid Results project.

Danny Manitsky of Rapid Results Institute (L) and Jane
Hwang of SAI.
The principle of this worker-engagement program is that teams of workers and managers jointly set goals that can be achieved in 100 days.

At each of 18 factories, the SFRR team first obtained the agreement from the chief executive to participate. The CEO selected five managers and workers elected five representatives to participate.

The significant outcome was that all of the 20 worker-management teams in 18 participating factories attained measurable, ambitious goals within the tight 100-day schedule.

Here is how they did it:

Morning, First Day

On the first morning, workers and managers from each team met separately to begin to decide about their 100-day measurable goal.

Many workers were doubtful that anyone would listen to them. By the end of the morning they were engrossed in identifying hazard risks on the factory floor and rating the degree of danger. Management, on the other hand, got right to work mapping risks in the workplace, and pondering how to obtain resources to make changes.

Some of the Brazil Social Fingerprint Rapid Results project
leaders. Alice Tepper Marlin at left. Front: 100-day project
staff and Tu Rinche of The Walt Disney Company.
Right: Brazil team leaders.
When the two groups met together, they learned some mutual respect. Workers were pleased to be brought into management thinking about the problems, and often had a better understanding of the causes of workplace hazards and a better idea of how best to address them.

Afternoon, First Day

In the afternoon of the first day, all members of each team met together.  They compared their maps of safety risks in the workplace and agreed upon measurable 100-day goals for their team. They set their measurable goals.

Second Day

L to R: Alice Tepper Marlin,
a worker in a São Paolo rubber
factory, and Beat Grüninger. 
On the second day, the teams use SFRR planning tools, developed over many iterations of the program, to figure out how they will reach their goals.

One of the most popular tools in the program is a series of team-building exercises. Often the most important obstacle to workplace safety is a lack of trust between management and workers.

To build trust and commitment to a common objective, and an understanding of the crucial role of innovation, games can be highly effective.

A Sample of Games for Team-Building

Managers and workers meet in groups
with SFRR coaches to set goals.
Between goal-setting sessions for the incoming groups, and reporting sessions for the more mature groups, much of the work of the coaches had to do with the use of games designed to foster teamwork and collective innovation.

Groups were given a choice of lectures or games. Invariably, they preferred the games. The games were designed to get the teams of managers and workers to work together to set goals and follow a process.

The Folding-a-T-Shirt Game - Each team was taught how to fold T shirts very fast. Object: How to teach effectively.

The Folding-a-T-Shirt Game.
Tennis Ball on Sheet Game - The challenge was to keep the ball in motion without it going off the side.

Passing the Tennis Ball Game - Each team passes a ball around among team members. Object: How to do it very, very fast.

Keys to the Worker Engagement Program

The program worked in phases to reach key outcomes. The elements were:
  1. Listen to workers’ voices.
  2. Establish complaint-management and resolution systems and communication channels needed to sustain the improvement process throughout and after the program’s conclusion.
  3. Generate immediate and sustainable measurable improvements in occupational health and safety.
  4. At each facility, form and empower an Internal Social Performance Team, consisting of workers and managers, to manage future improvement projects.
The Tennis Ball on Sheet Game.
Benefits to Managers and Workers

Managers learn that what workers know, and the respectful inclusion of workers from beginning to end, can be vitally important in getting the job done.

Workers learn management tools and many think of themselves differently, seeing themselves doing management work and able to move up in the hierarchy if they are interested. For workers, especially migrant workers, having a channel to communicate unsafe working conditions is hugely important.

Sample comments of participants from two Brazilian companies:
Abengoa Agricola Manager: "We were able to show to our senior management that our efforts as a team were able to achieve the results even in a time of scarce financial resources. This was for me one of the most rewarding moments."
Worker: "The project was great and provided us, through the trainings in São Paulo, a lot of competence to talk about health and safety to our colleagues." 
Bignardi Manager: "The main difference in this project was everybody's great commitment. We had other projects in the factory which sometimes stopped before being completed, as the staff was not involved and committed to the objectives."
Worker: "The physical effort required in the factory was reduced significantly. This was one of the most rewarding results for me." 
Project Support

The SFRR program was supported by a founding grant from the Walt Disney Company.  The development and testing of this highly successful program was provided at no cost to the participating Brazilian companies. These companies contributed in spirit and by allowing substantial employees time off for the project while they were being compensated.

Applications were sent from Brazilian companies to Social Accountability International (SAI) in November and December 2012. Approximately 50 companies were selected. The program ran in waves in 2013 and 2014.

SFRR partners included:
  • The Rapid Results Institute, which contributed its experience in project facilitation and change management and worked jointly with SAI on design of the program.
  • The LaborLink program of Good World Solutions, involving a mobile technology to survey workers and measure the awareness and impact of the program in an efficient and anonymous manner.
  • The Cahn Group LLC. 
For more information about the Brazil Worker Engagement Program visit, or contact Jane Hwang, Director of Training and Corporate Programs, SAI - email

Thursday, July 3, 2014

Post on Merrill Lynch by Peston from 2007 Taken Down by Google

Stan O'Neal
Stan O'Neal 
BBC Commentator Robert Peston complained that his 2007 post about Merrill Lynch, "Merrill's Mess", was severed from Google search results.

This has been tied to the outcome of a European court case on what could/should be forgotten.

The post is below, with the photo from the post moved up at left.

The post is a reminder how early were the warnings of the financial chaos that exploded in September 2008, 11 months later.

I presented a paper at the Eastern Economic Association in early 2006 showing the shakiness of the housing industry because of the subprime lending.

BBC BLOGS - Peston's Picks
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Merrill's mess

Robert Peston | 09:19 UK time, Monday, 29 October 2007
All weekend, wave after wave of schadenfreude has been crashing on the head of Stan O’Neal, the chairman of Merrill Lynch. After Merrill announced those colossal losses on inventories of sub-prime loans reprocessed into noxious collateralised debt obligations, O’Neal could not survive.
The point is that Merrill’s historic strengths have been as an agent, a broker, not a risk-taker. So its veterans launched into the “I-told-you-so” dance when “new Merrill” came a cropper from putting its capital at risk in the manufacture of securities out of loans to US homeowners with poor credit histories.
But it’s the ghost of Christmas yet-to-come that really did for O’Neal. I can be confident of that from the tedious moaning of old mates who work at Merrill. They’re whinging that they are being short-changed on this year’s bonuses because of the humungous losses chalked up on sub-prime. If they’re making a sacrifice for the good of the firm, someone has to pay.
The real power in any investment bank rests with its fee-generators and top traders, rather than with its shareholders or even its board, because it’s curtains for the firm if they’re alienated.
Merrill’s board, in negotiating O’Neal’s departure, has simply been trying to preserve the integrity of a giant, money-making collective.
For the rest of us, the Merrill mess is an occasion to breathe a sigh of relief about what might have been – and cross our fingers about what might yet be to come.
Just imagine the carnage if the credit losses of a Merrill Lynch had been married to the intrinsic funding weakness of a Northern Rock.
A great deal has been made – rightly – about the flaws in the global financial system, in which trillions of dollars of loans have been packaged up into a dizzying number and variety of securities that have then been sold and then resold. What we learned from the panic that ensued in markets this summer is the potential harm that flows when major financial institutions have no idea what has happened to the risks associated with all that lending.
But the differing debacles at Merrill Lynch and Northern Rock point to at least one saving grace, which is that the worst loan losses have not occurred in a major institution with inadequate access to liquid funds.
However that may be due to luck more than anything else. And we cannot assume it won’t run out.
As the Bank of England implied last week, we may be about to enter a second horrible phase of the credit crunch. A general tightening of credit conditions could cause serious difficulties for weaker borrowers, if they’re unable to refinance their debts, and also wider discomfort if there is a slowdown in economic growth.
Which is why all the bankers I meet are still battening down the hatches and are desperately trying to ensure they have access to sufficient cash or liquidity to weather any storm.

Wednesday, July 2, 2014

New York Tops USA on Cigarette Taxes, $4.35 a Pack of 20

New York State cigarette taxes are the highest. Map from
the Tax Foundation.
New York State ranks as the state with the highest cigarette taxes.

This is according to the Washington-based Tax Foundation, which describes itself as non-partisan.

That it may well be. The Tax Foundation, I can confidently assert, is anti-tax, and distaste for taxes is bipartisan.

However, the cigarette tax poses a problem for anti-taxers. It's a Pigou-approved tax. It's a tax on something that is bad for your health, and consequently bad for the productivity and longevity of the public.

The Tax Foundation argues against the tax on the basis that it creates incentives for people in New York State to buy their cigarettes out of state and increases the cost of enforcement.

On the other hand, it still brings in good revenue and cuts down on the cost of health care spending for those affected by smoking by making it harder for teenagers to start smoking.

Meanwhile, more enforcement of the New York cigarette tax laws would more than pay for itself...

Milanovic on Piketty - Glorious and Short

The basic story is that World War II
redistributed wealth, because assets were
wiped out. Inequality is again rising. 
Achilles's mother (the sea-nymph Thetis), prophesied two futures for him. (1) If he took part in the Trojan War, his life would be glorious but short. (2) If he did not, his life would be long but inglorious. Achilles chose glorious but short.

I posted something short about Thomas Piketty's Capital in the Twentieth Century on April 12.

Yesterday I received  the latest (June 2014) issue of the Journal of Economic Literature with a glorious review by Branko Milanovic of Piketty's book. Milanovic's review is the fourth and last featured article in the journal issue.

If you don't subscribe to this journal, a version of it was issued as a working paper by CUNY and is available here.

The review shows the ways in which Piketty's interpretation and message differ from those of many leading economists of the 20th century. The basic data for the United States (see chart upper left) show that World War II redistributed wealth, because assets were wiped out, and the egalitarian effects lasted until the 1970s. The trend toward greater income inequality returned starting with the Thatcher-Reagan years. Piketty has a theory, based largely on historical tax data, that links the level of inequality to  the relationship between return to capital (r) and economic growth (g). Milanovic warns in the last paragraph of his review:
[The] best compliment that the author of an almost 700-page-long economics book can ever expect to get [is - ] Don't take this book on vacation: it will spoil it. 
In other words, Piketty's book is glorious and long. If you take his advice, I suggest that in the meantime, if you haven't read the book, read Milanovic's glorious-and-short (15-page) review. If you accept the premise of Milanovic's last paragraph, the decision facing the vacation reader is unlike that facing Achilles. In this case there is no tradeoff between glorious and short.