Restoring confidence, investing in growth

Or so was nearly the title of the EU presentation Pablo sent to me recently. The exact title is: “Restoring growth. Investing in our future.” (slides in English and in French).

The presentation was done by J.M. Barroso, President of the European Commission, to the European Council of 28-29 June 2012. GDP, the EC measure of growth, was more or less constant since 2011 so restoring that growth is seen as a “pressing priority”. Other indicators are not that good (to say the least): recovery is limited, unemployment reached high levels, performances were already weak before the crisis, there are large current account imbalances, etc. So the future EU budget must be a “growth budget”. Then you have a list of actions that the EU (co-)promoted, sponsored or simply saw as very positive in the EU.

The very nice thing with this type of presentation is that you see in action “things” you may have thought are very theoretical and far from daily practise. This time, we’ll take the Economics class. Remember Economics? It was one of the first classes we had during academic year 2011-2012, with professor Hans Gerooms (by the way Prof. Gerooms was/is also a long-standing financial adviser to Yves Leterme, now at OECD). OK, I see you don’t remember ;-) Anyway … So for example the link between exchange rate and competitiveness … The only country that, each year, had a relative gain in competitiveness is … Germany (what a surprise!). Spain, Portugal, Ireland, Italy are all on the other side of the bar (another surprise!). The only absence in this carefully selected chart is Greece … Is that a Freudian slip from the EC? ;-)

Another interesting slide is the one about the big differences between a European budget and a country budget. On top of the difference in total amount, the EU budget:

  • is multi-annual (7 years),
  • can never be in deficit or run up debts,
  • hasn’t any tax raising power,
  • has only very few own resources (payments come mostly from member states),
  • forecasts less than 5% for administration and 1% for pensions,
  • and has grown much slowly than national budgets (however I wonder if this last item shouldn’t be considered as a consequence of the tight rules before rather than a spec in itself).

Before letting you dive into the presentation, I would just highlight one last slide. French are considered to be chauvinistic – why can’t we be a little bit ouselves? On slide 18 the EC lists the top 20 organisations participating in the 2007-2013 EU FP7. By “top organisations” the EC means the ones that get the most fundings (in hundreds of millions of Euros). The more you get/spend money may be an indirect indicator of the more excellent and competitive you are (at least that is what is implied here – but for having seen the requirements for FP7 in a previous life, that might be the case). Well, I digress again … So, in these top organisations, the first Belgian organisation is the KULeuven: 11th (and 5th top university). Yes! :-)

Competitiveness and the USA

One year ago, HBR gave ways to fix capitalism. Its special report in the coming March 2012 issue will be about restoring US competitiveness. Wikipedia defines competitiveness as “a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market“. Instead of comparing the USA directly against other countries at competitiveness level, Michael Porter (the same one, yes) and Jan Rivkin take it indirectly, re-defining the USA as “a competitive location to the extent that companies operating in the U.S. are able to compete successfully in the global economy while supporting high and rising living standards for the average American“. In their article, they give several examples of what the competitiveness of the USA is and what it is not. Two videos on show interviews from American CEOs on the biggest threat to US competitiveness and potential solutions from businesses. These videos enumerate a list of items that either cause problems or could solve the said issue (sometimes, an issue can also be a solution) and are a light summary of what is written in the paper.

Following Porter and Rivkin, there are a number of economic performance indicators going in the wrong direction: reduced productivity, disappearing job growth, slowly growing wages, unfavorable international trade and investment balance and finally, a lack of confidence of American managers for the future. Unfortunately these indicators are part of what constitutes competitiveness:

  • From a macro perspective, a competitive nation requires sound monetary and fiscal policies (such as manageable government debt levels), strong human development (good health care and K–12 education systems), and effective political institutions.
  • From a micro perspective, a competitive nation exhibits a sound business environment (including modern transport and communications infrastructure, high-quality research institutions, streamlined regulation, sophisticated local consumers, and effective capital markets) as well as strong clusters of firms and supporting institutions in particular fields, such as information technology in Silicon Valley and energy in Houston.

(directly from the article)

Although this comes from interviews with HBS alumni, it goes in the same direction as the last Global Competitiveness Report (2011-2012) from the World Economic Forum. In this report the USA continue to lose its leadership position in competitiveness (they are now 5th behind Switzerland, Singapore, Sweden and Finland). America’s most problematic factors are the tax rates and regulations, its inefficient government bureaucracy and the access to financing. Government debt is also a big issue.

Porter and Rivkin don’t really give any solution. But they conclude that actions should be taken. And in the video interviews, some CEOs seem to have ready-made plans (e.g. thinking more locally, engaging in public-private parnerships, lobbying the US government to make the right changes, promoting continuous self-learning, investing in public goods, etc.).

But in the end, does it matter?

The main “opponent” to the competitiveness concept is Paul Krugman. In a 1994 paper, he argues that countries do not compete with others the way corporations do. And somehow, by defining the competitiveness of a country (here, the USA) by the competitiveness of its companies, Porter and Rivkin aknowledged that Krugman was right on this point. Back to Krugman’s paper, one may use productivity as the main component of a country economic welfare, but not competitiveness. And he finally also highlight the fact that using competitiveness risks distorting the quality of domestic economic policies (with a detailed example of the health care reform undertaken during the Clinton administration).

This reminds me of Prof. Gerooms’ course on Economics where he introduced Ricardo’s law of comparative advantage. Basically this “law” says that every country is gaining from trade (thus introducing a bit more than “just” competition). And when one digs a little bit more, one will find criticisms of this law by Porter (again), in 1985 (Ricardo was from the 19th century), when he introduced the competitive advantage. Everything is interconnected … I’m wondering if professors will address this issue of competitiveness during the trip to the USA …

Stop using Facebook to help our Greek friends

Or so it’s what’s implied by this nice chart found on Bloomberg Businessweek:

Read the full article for more figures (and to see why correlation may not imply causation) ;-)

Second set of results in!

The results for the Economics exam are in! Again I could have done better but I passed :)

We were also blessed to receive the grade distribution. This time, no A+. No C neither. The spread is shorter and the shape is more like an U than a bell. Anyway we did it, congratulations to everyone!

Economics results - Apollo 2011

These results arrived during the same day we had to give the 2 CMR (CSR) reports as well as attend nearly 8 hours of Financial Accounting. We also received a first set of information for the international study trip. And if you add new babies for some of us, you can understand we were not short of work last week! :)

2nd MBA exam: done!

Well I will not continue to write after each exam we take (unless there is something special). But it’s the second one: things are going fast but we are still here :)

This time it was economics. 5 questions: 4 exercises and one multiple choice-type question (-1 in case of a wrong answer). I personally think the questions were more oriented towards current news than on the sample exam, not bad. And there was something special: although it was an open book exam we were not authorized to have the answers to exercises in the book (*) nor the slides (this I don’t understand but I think they would not have helped much – did I miss something?). Now waiting for the results :)

Next step: CSR paper!

(*) this is understandable as one question was ditto one of the exercises :)

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