Interpretation Allocation of the Economist Material for Mar. 1st week
작성자Statesman작성시간09.03.03조회수19 목록 댓글 0
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Economist Material for Mar. 1st week : Mar. 7 (Interpretation), Mar. 8 (Discussion) with number
Economist Reading-Discussion Cafe : http://cafe.daum.net/econimist
| 1번: 신숙진 | 11번: 정재희 | 21번: 최재웅 | 31번: 이경숙 | 41번: 공윤환 | 51번:윤석건 | 61번:류방한 | 71번: 정은실 |
| 2번: 신숙진 | 12번: 정재희 | 22번: 박정현 | 32번: 이경숙 | 42번: 공윤환 | 52번:윤석건 | 62번:류방한 | 72번:정은실 |
| 3번:김지은 | 13번: 전귀연 | 23번: 박정현 | 33번: 김은정 | 43번: 노호림 | 53번: 이창현 | 63번: 황현성 | 73번:김지언 |
| 4번:김지은 | 14번: 전귀연 | 24번: 정명아 | 34번: 예민정 | 44번: 임미영 | 54번: 이창현 | 64번:황현성 | 74번:김지언 |
| 5번: 유여진 | 15번: 이가람 | 25번: 서미정 | 35번: 전혜경 | 45번: 황유리 | 55번: 유수경 | 65번: 노정현 | 75번: 강승우 |
| 6번: 유여진 | 16번: 이가람 | 26번: 김수연 | 36번: 정지숙 | 46번: 임진영 | 56번: 유수경 | 66번: 노정현 | 76번: 강승우 |
| 7번: 서경민 | 17번:유선영 | 27번: 김수연 | 37번: 노호림 | 47번: 구혜영 | 57번: 이현주 | 67번: 서지영 | 77번: 송연진 |
| 8번: 서경민 | 18번:유선영 | 28번: 정명아 | 38번: 김미자 | 48번: 최혜진 | 58번: 이현주 | 68번: 서지영 | 78번: 송연진 |
| 9번: 오아영 | 19번: 김은정 | 29번: 김유일 | 39번: 김미자 | 49번: 전진희 | 59번: 장혁진 | 69번: 이순희 | 79번: 정현석 |
| 10번: 오아영 | 20번: 최재웅 | 30번: 최혜진 | 40번: 구혜영 | 50번:전진희 | 60번: 장혁진 | 70번: 이순희 | 80번: 정현석 |
| 1번: 신숙진 | 81번:이시영 | 91번: 노정준 | 101번:원영재 | 111번: 반정우 | 121번:최지안 | ||
| 2번: 신숙진 | 82번:이시영 | 92번: 노정준 | 102번:원영재 | 112번: 반정우 | 122번:최지안 | ||
| 3번:김지은 | 83번: 손윤경 | 93번: 이승진 | 103번:구모아 | 113번: 이상우 | 123번:정호석 | ||
| 4번:김지은 | 84번: 손윤경 | 94번: 이승진 | 104번:구모아 | 114번:이상우 | 124번:정호석 | ||
| 5번: 유여진 | 85번: 채윤미 | 95번:이병일 | 105번: 김입지 | 115번:이선봉 | 125번:하상준 | ||
| 6번: 유여진 | 86번:채윤미 | 96번: 이병일 | 106번: 김입지 | 116번:이선봉 | 126번:하상준 | ||
| 7번: 서경민 | 87번: 김나현 | 97번:안슬기 | 107번:김설미 | 117번: | 127번:남유경 | ||
| 8번: 서경민 | 88번:김나현 | 98번:안슬기 | 108번: 김설미 | 118번: | 128번:남유경 | ||
| 9번: 오아영 | 89번:이민후 | 99번: 정연아 | 109번:정경혜 | 119번:최시내 | 129번:배석주 | ||
| 10번: 오아영 | 90번:이민후 | 100번: 정연아 | 110번:정경혜 | 120번:최시내 | 130번:배석주 |
1,11,21,31,41,51,61,71,81,91,101,111,121
Eastern Europe's woes
The bill that could break up Europe
From The Economist print edition
If eastern Europe goes down, it may take the European Union with it
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TUMBLING exchange rates, gaping current-account deficits, fearsome foreign-currency borrowings and nasty recessions: these sound like the ingredients of a distant third-world-debt crisis from the 1980s and 1990s. Yet in Europe the mess has been cooked up closer to home, in east European countries, many of them now members of the European Union. One consequence is that older EU countries will find themselves footing the bill for clearing it up.
Many west Europeans, faced with severe recession at home, will see this as outrageously unfair. The east Europeans have been on a binge fuelled by foreign investment, the desire for western living standards and the hope that most would soon be able to adopt Europe’s single currency, the euro. Critics argue, with some justice, that some east European countries were ill-prepared for EU membership; that they have botched or sidestepped reforms; and that they have wasted their borrowed billions on construction and consumption booms. Surely they should pay the price for their own folly?
Yet if a country such as Hungary or one of the Baltic three went under, west Europeans would be among the first to suffer (see article). Banks from Austria, Italy and Sweden, which have invested and lent heavily in eastern Europe, would see catastrophic losses if the value of their assets shrivelled. The strain of default, combined with atavistic protectionist instincts coming to the fore all over Europe, could easily unravel the EU’s proudest achievement, its single market.
Indeed, collapse in the east would quickly raise questions about the future of the EU itself. It would destabilise the euro—for some euro members, such as Ireland and Greece, are not in much better shape than eastern Europe. And it would spell doom for any chance of further enlarging the EU, raising new doubts about the future prospects of the western Balkans, Turkey and several countries from the former Soviet Union.
The political consequences of letting eastern Europe go could be graver still. One of Europe’s greatest feats in the past 20 years was peacefully to reunify the continent after the end of the Soviet empire. Russia is itself in serious economic trouble, but its leaders remain keen to exploit any chance to reassert their influence in the region. Moreover, if the people of eastern Europe felt they had been cut adrift by western Europe, they could fall for populists or nationalists of a kind who have come to power far too often in Europe’s history.
The question for western Europe’s leaders is how best to avert such a disaster. Although markets often treat eastern Europe as one economic unit, every country in the region is different. Three broad groups stand out. The first includes countries that are a long way from joining the EU, such as Ukraine. Here European institutions may help financially or with advice, but the main burden should fall on the International Monetary Fund. These countries will have to take the IMF medicine of debt restructuring and fiscal tightening that was meted out so often in previous emerging-market crises.
Things are different for the countries farther west, all EU members for which the union must take prime responsibility. One much-touted remedy is to accelerate their path to the euro, or even let them adopt it immediately. It might make sense for the four countries with exchange rates pegged to the euro: the Baltic trio of Estonia, Latvia and Lithuania, plus Bulgaria. (Slovenia and Slovakia have joined the euro already.) None of these will meet the Maastricht treaty’s criteria for euro entry any time soon. But they are tiny (the Baltics have a population of barely 7m), so letting them adopt the euro ought not to set an unwelcome precedent for others nor should it damage confidence in the single currency. Yet the European Central Bank and the European Commission firmly oppose this form of “euroisation”, even though two Balkan countries, Montenegro and Kosovo, use the euro already.
Unilateral or accelerated adoption of the euro would make far less sense for a third group of bigger countries with floating exchange rates: the Czech Republic, Hungary, Poland and Romania. None of these is ready for the tough discipline of a single currency that rules out any future deval!!uation. Their premature entry could fatally weaken the euro. But as their currencies slide, the big vulnerability for the Poles, Hungarians and Romanians, especially, arises from the debt taken on by firms and households in foreign currency, mainly from foreign-owned banks. What once seemed a canny convergence play now looks like a barmy risk, for both the borrowers and the banks, chiefly Italian and Austrian, that lent to them.
The first priority for these four must be to stop further currency collapse. The second is to prop up the banks responsible for the foreign-currency loans that are going bad. The pain of this should be shared four ways: between the banks and their debtors, and between governments of both lending and borrowing countries. From outside, these two tasks will necessitate help from several sources: the European Central Bank as well as the IMF, the commission’s structural funds, the European Bank for Reconstruction and Development and perhaps the European Investment Bank. Given the scale of the problem, the lack of co-ordination between these outfits has been scandalous. A third aim must be to get eastern European countries to restart the structural reforms they have evaded thus far.
Bailing out the same mythical Polish plumbers who just stole everybody’s jobs will be hard for Europe’s leaders to sell on the doorsteps of Berlin, Bradford and Bordeaux, especially with the xenophobic right in full cry. German taxpayers are already worried that others are after their hard-earned cash (see article). The bill will indeed be huge, but in truth western Europe cannot afford not to pay it. The meltdown of any EU country in the region, let alone the break-up of the euro or the single market, would be catastrophic for all of Europe; and on this issue there is little prospect of much help from America, China or elsewhere. It is certainly not too late to rescue the east; but politicians need to start making the case for it now.
2,12,22,32,42,52,62,72,82,92,102,112,122
Public order
The kindness of crowds
From The Economist print edition
Crowds of people are often seen as bad for public order. But they have ways of policing themselves that the police might do well to understand
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ACCORDING to a much-reported survey carried out in 2002, Britain then had 4.3m closed-circuit television (CCTV) cameras—one for every 14 people in the country. That figure has since been questioned, but few doubt that Britons are closely scrutinised when they walk the streets. This scrutiny is supposed to deter and detect crime. Even the government’s statistics, though, suggest that the cameras have done little to reduce the worst sort of criminal activity, violence.
That may, however, be about to change, and in an unexpected way. It is not that the cameras and their operators will become any more effective. Rather, they have accidentally gathered a huge body of data on how people behave, and particularly on how they behave in situations where violence is in the air. This means that hypotheses about violent behaviour which could not be tested experimentally for practical or ethical reasons, can now be examined in a scientific way. And it is that which may help violence to be controlled.
One researcher who is interested in this approach is Mark Levine, a social psychologist at Lancaster University in Britain who studies crowds. Crowds have a bad press. They have been blamed for antisocial behaviour through mechanisms that include peer pressure, mass hysteria and the diffusion of responsibility—the idea that “someone else will do something, so I don’t have to”. But Dr Levine thinks that crowds can also diffuse potentially violent situations and that crime would be much higher if it were not for crowds. As he told a symposium called “Understanding Violence”, which was organised by the Ecole Polytechnique Fédérale de Lausanne in Switzerland earlier this month, he has been using CCTV data to examine the bystander effect, an alleged phenomenon whereby people who would help a stranger in distress if they were alone, fail to do so in the presence of others. His conclusion is that it ain’t so. In fact, he thinks, having a crowd around often makes things better.
The dynamics of crowd behaviour are hard to study, not least because people are not reliable witnesses of their own behaviour. But Dr Levine persuaded the authorities in one British city to allow him to look at their CCTV footage of alcohol-fuelled conflict in public places, suitably anonymised to comply with privacy and data-protection laws. He analysed 42 clips of incidents that operators in a control room had judged had the potential to turn violent, though only 30 of them actually did so. He recorded gestures he labelled either “escalating”, such as pointing and prodding, or “de-escalating”, such as conciliatory open-handedness.
His first observation was that bystanders frequently intervene in incipient fights. The number of escalating gestures did not rise significantly as the size of the group increased, contrary to what the bystander effect would predict. Instead, it was the number of de-escalating gestures that grew. A bigger crowd, in other words, was more likely to suppress a fight.
Some incidents did end in violence, of course. To try to work out why, Dr Levine and his colleagues constructed probability trees to help them calculate the likelihood that a violent incident such as a punch being thrown would occur with each successive intervention by a bystander. Using these trees, they were generally able to identify a flashpoint at which the crowd determined which way the fight would go.
Judging the fight to begin with the aggressor’s first pointing gesture towards his target, the researchers found that the first intervention usually involved a bystander trying to calm the protagonist down. Next, another would advise the target not to respond. If a third intervention reinforced crowd solidarity, sending the same peaceful message, then a violent outcome became unlikely. But if it did not—if the third bystander vocally took sides, say—then violence was much more likely.
Dr Levine talks of a “collective choreography” of violence, in which the crowd determines the outcome as much as the protagonist and the target do, and he is now taking his ideas into the laboratory. In collaboration with Mel Slater, a computer scientist at University College, London, he is looking at the responses of bystanders to violence recreated in virtual reality.
Dr Slater has pioneered this approach, since people seem to react to virtual reality as they do to real life, but no one gets hurt and conditions can be controlled precisely. Because the participants know it is not real, many of the ethical obstacles to placing them in such situations are removed. But Dr Slater proved the tool’s usefulness in 2006, when he used it to recreate a famous experiment conducted in the 1960s by Stanley Milgram, an American psychologist. Milgram showed that ordinary people would obey orders to the point of delivering potentially lethal electric shocks to strangers—an experiment that, even though nobody really received any shocks, would be ruled out today, on ethical grounds. Dr Slater’s volunteers behaved similarly to Milgram’s.
Virtual reality may thus allow Dr Levine to understand the collective choreography of violence better than he does now, but he is already convinced that, despite the moral panic over violence in Britain today, the influence of groups is largely benign. His work could have practical consequences, since police generally aim to break crowds up. If he is right, that approach may unintentionally lead to more fights. It sounds counter-intuitive, but many of the best ideas are. And if it is true, then perhaps Big Brother could give up the CCTV habit and go and do something more useful instead.
3,13,23,33,43,53,63,73,83,93,103,113,123,
Psychology
Sunny side up
From The Economist print edition
Optimism, it seems, is in the genes
FOR some people in this world, the glass always seems to be half-full. For others it is half-empty. But how someone comes to have a sunny disposition in the first place is an interesting question.
It has been known for a long time that optimists see the world selectively, mentally processing positive things while ignoring negative ones, and that this outlook helps determine their health and well-being. In recent years, it has also become clear that carriers of a particular version of a particular gene are at higher risk than others of depression and attempted suicide when they face traumatic events. The gene in question lies in a region of the genome that promotes the activity of a second gene, which encodes a protein called the serotonin transporter. Serotonin is a messenger molecule that carries signals between nerve cells, and it is known to modulate many aspects of human behaviour, although the details are complex and controversial. The transporter protein recycles serotonin back into the cell that produced it, making it available for reuse, but also reducing the amount in the junctions between cells and thus, it is presumed, the strength of the signal.
It has looked increasingly likely, therefore, that genes—particularly those connected with serotonin—have a role to play in shaping a person’s outlook. So Elaine Fox and her colleagues at the University of Essex, in Britain, wondered whether genes play a part in the selective attention to positive or negative material, with consequent effects on outlook.
To find out, they took samples of DNA from about 100 people and then subjected these people to what is known as the dot-probe paradigm test to see how they reacted to different stimuli. In this test participants are briefly shown photographs that may be positive, negative or neutral in tone. They then have to press a keypad to indicate when a dot has appeared on the screen. It has been found by experience that the more distracting an image is, the longer a person takes to respond when the dot appears. That allowed Dr Fox and her team to discover how distracting particular people found particular images.
In a paper just published in the Proceedings of the Royal Society B they report that, sure enough, gene-related variation caused a bias in attention towards positive and negative material. Some people had two “long” versions of the promoter gene (one inherited from each parent), a combination that reduces the amount of serotonin in the junctions between nerve cells. These individuals were biased towards positive images and away from negative ones. By contrast, those who had either a long and a short version of the gene, or two short versions (and thus, presumably, more serotonin in the junctions), did not have such protective biases. In other words, the optimists really did see the world differently.
Rose-tinted spectacles may be good for one’s health, as these results fit in with wider ideas about how a tendency to look on the bright side of life is part of being resilient to stress. Those with short variants of this gene are expected to have an increased susceptibility to mood disorders following such stress. It is not all good news, though, for optimists. Because these results suggest that a person’s attitude to life is inherited, they serve as a stark warning to all buoyant optimists that trying to cheer the rest of the world up with nothing more than a smile and an effortlessly sunny disposition is doomed to failure.
4,14,24,34,44,54,64,74,84,94,104,114,124
Social networks
Primates on Facebook
From The Economist print edition
Even online, the neocortex is the limit
THAT Facebook, Twitter and other online social networks will increase the size of human social groups is an obvious hypothesis, given that they reduce a lot of the friction and cost involved in keeping in touch with other people. Once you join and gather your “friends” online, you can share in their lives as recorded by photographs, “status updates” and other titbits, and, with your permission, they can share in yours. Additional friends are free, so why not say the more the merrier?
But perhaps additional friends are not free. Primatologists call at least some of the things that happen on social networks “grooming”. In the wild, grooming is time-consuming and here computerisation certainly helps. But keeping track of who to groom—and why—demands quite a bit of mental computation. You need to remember who is allied with, hostile to, or lusts after whom, and act accordingly. Several years ago, therefore, Robin Dunbar, an anthropologist who now works at Oxford University, concluded that the cognitive power of the brain limits the size of the social network that an individual of any given species can develop. Extrapolating from the brain sizes and social networks of apes, Dr Dunbar suggested that the size of the human brain allows stable networks of about 148. Rounded to 150, this has become famous as “the Dunbar number”.
Many institutions, from neolithic villages to the maniples of the Roman army, seem to be organised around the Dunbar number. Because everybody knows everybody else, such groups can run with a minimum of bureaucracy. But that does not prove Dr Dunbar’s hypothesis is correct, and other anthropologists, such as Russell Bernard and Peter Killworth, have come up with estimates of almost double the Dunbar number for the upper limit of human groups. Moreover, sociologists also distinguish between a person’s wider network, as described by the Dunbar number or something similar, and his social “core”. Peter Marsden, of Harvard University, found that Americans, even if they socialise a lot, tend to have only a handful of individuals with whom they “can discuss important matters”. A subsequent study found, to widespread concern, that this number is on a downward trend.
The rise of online social networks, with their troves of data, might shed some light on these matters. So The Economist asked Cameron Marlow, the “in-house sociologist” at Facebook, to crunch some numbers. Dr Marlow found that the average number of “friends” in a Facebook network is 120, consistent with Dr Dunbar’s hypothesis, and that women tend to have somewhat more than men. But the range is large, and some people have networks numbering more than 500, so the hypothesis cannot yet be regarded as proven.
What also struck Dr Marlow, however, was that the number of people on an individual’s friend list with whom he (or she) frequently interacts is remarkably small and stable. The more “active” or intimate the interaction, the smaller and more stable the group.
Thus an average man—one with 120 friends—generally responds to the postings of only seven of those friends by leaving comments on the posting individual’s photos, status messages or “wall”. An average woman is slightly more sociable, responding to ten. When it comes to two-way communication such as e-mails or chats, the average man interacts with only four people and the average woman with six. Among those Facebook users with 500 friends, these numbers are somewhat higher, but not hugely so. Men leave comments for 17 friends, women for 26. Men communicate with ten, women with 16.
What mainly goes up, therefore, is not the core network but the number of casual contacts that people track more passively. This corroborates Dr Marsden’s ideas about core networks, since even those Facebook users with the most friends communicate only with a relatively small number of them.
Put differently, people who are members of online social networks are not so much “networking” as they are “broadcasting their lives to an outer tier of acquaintances who aren’t necessarily inside the Dunbar circle,” says Lee Rainie, the director of the Pew Internet & American Life Project, a polling organisation. Humans may be advertising themselves more efficiently. But they still have the same small circles of intimacy as ever.
5,15,25,35,45,55,65,75,85,95,105,115,125
Economics focus
Domino theory
From The Economist print edition
Where could emerging-market contagion spread next?
THE drought of foreign capital is beginning to wreck many economies in central and eastern Europe. Currencies, shares and bonds are tumbling, and some economists fear that one or more of these countries could default on its foreign debts. Emerging-market crises have a nasty habit of spreading as investors flee one country after another. Some Middle Eastern markets, notably Dubai, are already in trouble. But which of the larger emerging economies are most vulnerable?
To answer that question in the past, economists used to pay most attention to the solvency of governments, and hence their debt-to-GDP ratios. But today, the biggest risk in the emerging world comes not from sovereign borrowing, but from the debts of firms and banks. As foreign capital dries up, they will find it harder to refinance maturing debts or to raise new loans.
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Our table (based largely on figures provided by HSBC) uses three indicators to judge how vulnerable economies are to the global credit crunch. The first is the expected current-account balance for this year. Large deficits need to be financed, but banking and portfolio inflows are now scarce, and even foreign direct investment, which used to be seen as less volatile, has fallen sharply this year. Many of the smaller east European economies had double-digit deficits as a share of GDP in 2008, although deep recessions will reduce them this year. Among the countries in the table, Pakistan, South Africa and Poland are tipped to run current-account deficits of 8% or more of GDP this year—the size of Thailand’s deficit before its crisis in 1997.
As well as financing a current-account shortfall, a country has to repay or roll over existing debts. If external finance is not available, it must run down its reserves. Thus a useful measure of financing risk is short-term debt (due within 12 months) as a percentage of foreign-exchange reserves. Anything above 100%, implying that debts exceed foreign exchange, should ring alarm bells. (At the start of 1997 Thailand’s short-term debt was 130% of its reserves.) The ratio is estimated at over 250% in both Latvia and Estonia, but in all the larger emerging economies it is below 100%. However, HSBC forecasts that South Korea’s short-term debt will exceed its shrinking reserves before the year is out. The reserve cover in Indonesia, South Africa and Hungary is also looking thin. Russia’s reserves have plunged by more than one-third as the central bank has tried to prop up the rouble, but it still has a comfortable cushion.
The third indicator, the ratio of banks’ loans to their deposits, is one measure of the vulnerability of banking systems. When the ratio is over 1.0 (as in, say, Russia, Brazil, South Korea and Hungary), it means that the banks depend on borrowing, often from abroad, to finance domestic lending and so will be squeezed by the global credit crunch.
To get an overall sense of financial vulnerability we have ranked all the countries on each of the three measures and then taken their average score. If all emerging economies were included, the smaller east Europeans, such as Latvia, Ukraine and Romania, would dominate the top of the risk league. Among the 17 larger economies shown in the table, South Africa and Hungary look the most risky; China the least. Hungary has already had to go cap in hand to the IMF for a loan. South Africa may yet have to. Despite higher gold prices, weaker mineral exports are causing its current-account deficit to swell, possibly to more than 10% of GDP this year, at the same time as net foreign direct investment is expected to slump, so the country needs to borrow even more. The rand, which has already fallen sharply, remains one of the most vulnerable emerging-market currencies.
In contrast, the Asian emerging markets generally look the safest, taking all six slots at the bottom of the table. The main exception is South Korea, which, thanks to its large short-term foreign debts and highly leveraged banks, is deemed to be as risky as Poland. (Vietnam, though not included in the table, also scores high on the risk rating). South Korea is in much healthier shape than during the 1997-98 crisis. For example, it is expected to move back to a small current-account surplus this year and its reserves are much larger. But its banks and its currency still look vulnerable. The won has already fallen by almost 40% against the dollar over the past year, swelling the local-currency value of its foreign debts. Increased financial jitters in east Europe could make it harder for South Korea to roll over the $194 billion debt which falls due this year. But currency-swap agreements with America, Japan and China will give it plenty of firepower to draw on.
The overall score in the table only ranks countries’ relative risks. To assess the absolute risk of a crisis you need to estimate external-financing needs (defined as the sum of the current-account balance and the stock of short-term debt) over the next 12 months. Jonathan Anderson, at UBS, has calculated the gap between this and the stock of foreign-exchange reserves for 45 countries. The good news is that only 16 of them have a financing “gap”; in all the others, reserves are more than sufficient to cover a year’s worth of payments, even if there were no new capital inflows. Virtually all of those 16 countries are in central and eastern Europe. They include only two large emerging economies from outside the region: Pakistan, which already has an IMF programme, and South Africa. By contrast, South Korea should not have a financing gap, thanks to its expected move back into current-account surplus. Most emerging economies’ large reserves will help to keep them out of danger. Unfortunately, the longer that the credit crunch continues, the more those reserves will start to dwindle.
6,16,26,36,46,56,66,76,86,96,106,116,126
Face value
A teacher for the times
From The Economist print edition
Ram Charan’s no-nonsense business advice resonates in a recession
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GROWING up in a small town in the Uttar Pradesh region of India, Ram Charan learnt his most valuable lesson while he was working behind the counter in his family’s modest shoe shop. Watching his elders as they advanced credit to customers, who had little money until the next harvest came in, and then juggled the shop’s finances to make ends meet, he developed a respect for the import!!ance of carefully managing cashflow. Now a successful consultant, the 69-year-old Mr Charan is using that experience to help his clients in turbulent times.
Although big consulting firms such as Accenture and McKinsey (which this week named Dominic Barton as its new managing director) like to claim that their services are fairly immune to downturns, there are already signs that demand for consultancy is waning. Siemens, a German industrial giant, recently said it would scrap all external advisers to save hundreds of millions of euros. Other firms are likely to follow its lead.
Mr Charan, however, says he is still as busy as ever. That may be because he is something of an oddity in the consulting world. Tom Davenport, a professor at Babson College in Massachusetts who has studied the consulting industry, says it is typically divided between individual gurus who come up with big ideas, publish books, give speeches and undertake the occasional consulting job on the one hand, and the giant consulting firms that take these big ideas and apply them inside corporations using armies of consultants on the other.
The division is not quite so clear-cut in practice. The consultancies, for example, also like to think of themselves as “thought leaders”, publishing reams of often-tedious research. Mr Charan bridges both worlds as well, producing plenty of management tomes—his 16th book, “Leadership in the Era of Economic Uncertainty”, has just been published—and giving lectures, but also acting as a hands-on consultant to leaders of a host of companies, including Wipro, an Indian outsourcing firm, and DuPont, a chemicals company. It is this immersion in the world of business, through his consulting, that distinguishes Mr Charan from most other popular management thinkers, who often come from academic or journalistic backgrounds. And rather than boasting big-picture themes, his lectures and books often focus on practical suggestions to help managers improve their performance.
Another thing that makes Mr Charan unusual is that few people would want to sign up for the punishing life associated with being both a sage-on-stage and a confidant of many chief executives. A one-man band, Mr Charan is constantly on the move, notching up some 500,000 miles (800,000km) on aircraft last year and spending most of his nights in hotel rooms. To minimise the amount of baggage he lugs around, assistants at his office in Dallas send fresh clothes to him via courier and his laundry is returned via the same route. Until a couple of years ago, the peripatetic Mr Charan did not even own a home. He has since bought an apartment in Dallas, he says, but he has barely stayed there since he bought it.
He is unlikely to see much of his apartment this year either, however, as his clients clamour for advice on how to deal with the downturn. Mr Charan’s main recommendation to managers is to act fast to protect cashflow, even at the expense of, say, boosting earnings per share. Too many executives, he says, still underestimate the likelihood of a prolonged slump and have failed to reduce their companies’ “cash break-even points” fast enough. A lack of liquidity has already caused severe headaches for even fundamentally solid companies such as America’s GE, which has had to raise fresh capital at punitive rates.
To get through the downturn, Mr Charan says chief executives also need to step up the “intensity” with which they manage. For instance, they should shred annual budgets and instead set targets on a quarterly or monthly basis while the crisis lasts. They also need to develop more “ground-level intelligence”—rapid feedback about what is really happening to their customers and suppliers. No fan of Detroit’s leadership over the years, he nevertheless praises Ford for moving quickly to add an extra shift to truck production last November, when the American company spotted that a swift fall in the oil price had led some buyers to consider gas-guzzling vehicles again.
Mr Charan’s critics charge that some of his prescriptions border on the simplistic, laced with occasional folksy references to the lessons that he learnt at the shoe shop in India. Yet his clients say that they appreciate his straightforwardness and the fact that, unlike many advisers, he has neither a gargantuan ego nor a pre-cooked framework that he trots out as the solution to every problem. And they appreciate his talent for getting to the nub of a problem quickly. “He’s one of the best question-askers I’ve ever been around,” says Tom Lynch, the boss of Tyco Electronics, which counts Mr Charan as one of its board members. Noel Tichy, a professor at the University of Michigan’s Ross School of Business who has worked alongside Mr Charan on many projects, describes him as a “wonderful clinician” who can quickly form a diagnosis of what ails a company.
That can include its most senior managers. In his most recent book, Mr Charan warns that there will be many casualties from the recession, including more than a few chief executives. Although he urges boards not to be trigger-happy when bosses miss targets, Mr Charan believes that the skills needed to steer a firm through a deep recession are often different from the ones needed to expand it when the economy is humming. Hence his recommendation that firms brush up their succession plans, if they have not done so already. As his experience in the shoe shop no doubt taught him, there are times when you just have to give somebody the boot.
7,17,27,37,47,57,67,77,87,97,107,117,127
Google in Asia
Seeking success
From The Economist print edition
Google is not having much luck in South Korea, but it may be advancing in China
IN SOUTH KOREA people who want to look something up on the internet don’t “Google it”. Instead they “ask Naver”. Among the 35m South Koreans who use the internet every day, the nine-year-old search engine is wildly popular, accounting for 76% of internet searches, compared with less than 3% each for Yahoo! and Google. Naver owes its popularity, in part, to the fact that it is not just a search engine. Like Yahoo!, it is also a portal, drawing together news, e-mail, discussion groups, stockmarket information, videos, restaurant reviews and so on. Some 17m people visit its home-page every day and since January they have been able to customise it according to their own tastes.
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But Naver is also dominant—too dominant, say some—because it caters to the interests of South Koreans. “Yahoo! and Google have a very American, English-based search engine,” says Chae Hwi-Young, the chief executive of NHN, Naver’s parent company. If you go to Google and type in “rain”, for example, the result is lots of pages about water falling from the sky. In South Korea, however, it makes more sense to return pages, as Naver does, about a popular singer and actor called Rain.
Naver pioneered the idea of presenting search results from several categories—web pages, images, videos, books—on the same page, something that Google later adopted. Another popular feature is Naver’s “Knowledge Search” service, launched in 2002. It enables people to ask questions, the answers to which are served up from a database provided by other users. If an answer is incomplete or inaccurate, it can be easily changed, Wikipedia-style, for the benefit of others who ask the same question in future. A points system rewards users who submit questions, provide answers or rate the answers provided by other people.
On February 4th NHN announced record sales and profits for 2008, becoming the first South Korean internet company to record sales of more than 1 trillion won ($660m). Such is Naver’s grip on the market that Yahoo! and Google have just agreed to combine some of their services in South Korea, in order to give them greater clout against the local giant.
Although Google is having trouble making any headway in South Korea, it may have more of a chance in China, where the market leader, Baidu, has been hit by a series of scandals. Last September, at the height of the scandal over melamine-tainted milk, rumours began to spread that Baidu had accepted payment to expunge stories on the subject from its search results. Baidu denied any wrongdoing. A few weeks later the firm was accused of giving prominence in its search results, in return for payment, to unlicensed drugs companies.
This led to speculation in the local media that web users might be turning against Baidu. Whether or not this is true, it does not help that unlike Google and other rivals, Baidu does not distinguish in search results between paid links (ie, advertisements) and unpaid ones—a practice that was criticised in a report by CCTV, a state-run broadcaster, in November.
As Chinese web users become more sophisticated, they may be gaining a preference for search results that are separate from advertising, which could benefit Google. Advertisers, at least, seem to be switching: the most recent figures suggest that Google increased its market share of internet advertising by 4.4 percentage points during 2008, compared with Baidu’s 2.9 percentage points. Baidu has announced plans to delineate more clearly between paid and unpaid links, and has removed links to unlicensed providers of drugs and medical care from its index.
In the Japanese market, meanwhile, Google plays second fiddle to Yahoo! Japan, despite frantic efforts to catch up by launching more Japan-specific services. It will soon face a new rival, in the form of Naver, which has decided to enter the Japanese market on the basis that Japan, like South Korea, has a unique and distinctive culture and language. After eight years studying and collecting data on Japanese tastes, Mr Chae is confident that Naver can become the leading search engine in Japan—despite the failure of his firm’s previous foray into the country, selling search services to companies.
After that, Mr Chae says he plans to launch several more culturally specific search engines, such as “Naver California”, “Naver Korean-American” or “Naver Chinese-American”. That would be attacking Google on its home turf. Is this too ambitious? Naver say never.
8,18,28,38,48,58,67,78,88,98,108,118,128
How to play chicken and lose
From The Economist print edition
Finance suffers from reverse natural selection
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THE great American economist Irving Fisher was never able to live down his remark, just before the 1929 crash, that share prices had reached what seemed “a permanently high plateau”. Fisher’s shoes have been filled by Chuck Prince. “As long as the music is playing,” the then head of Citigroup told the Financial Times just weeks before the credit markets seized up in August 2007, “you’ve got to get up and dance.” Then he uttered his fatal coda: “We’re still dancing.”
It was a silly thing to say. Before the year was out Mr Prince had resigned over Citi’s losses. But it was not a silly thing to believe. In financial services, wallflowers are losers. A bank of Citi’s size cannot sit out the boom without confronting commentators and investors alike. The winner is more likely to be the bank that dances in the hope that it can scramble to a seat when the music stops (even if, as in this crisis, there are virtually no seats).
Financial services will always be a tug-of-war between two contradictory promises: “Your money is safe with us” and “We will earn you higher returns.” The disturbing truth behind Mr Prince’s words is that bit by bit a boom kills off those who tend towards safety. The survivors, meanwhile, go for returns, because as long as the sky is clear financial-services companies grow by earning money.
Since the 1970s Wall Street’s tug-of-war has grown fiercer. The industry in America—and hence in the City of London, Frankfurt and Paris—has evolved from a guild of small partnerships trading in semi-rigged markets into a joust of giant multinationals and clashing egos. Competition has led to innovation and lower charges. It has increased the supply of credit, which boosts economic growth. But the job of managing financial-services powerhouses—keeping people’s money safe as well as making a good return—has become harder than ever.
In 1970 Goldman Sachs had about 1,300 people. At the end of last year it had roughly 30,000. In 1971 Morgan Stanley had about 3,500 people; at the peak, in 2006, it had 55,000. Although boutiques such as Perella Weinberg have sprung up in the intervening period, the story of commercial and investment banking has been broadly one of consolidation.
Roy Smith, a finance professor at NYU Stern School of Business in Manhattan, has counted no fewer than 28 takeovers of once-important commercial and investment banks since 1977. Kuhn Loeb, White Weld and Donaldson, Lufkin & Jenrette have all disappeared, as have Solomon Brothers, First Boston and Kidder Peabody. Firms also built up their capacity to trade in the secondary market, at first so they could make markets and later to earn profits on their own account. As the demand for capital grew, the partnerships were tempted to list their shares. The old Wall Street was lost.
It would be a mistake to idealise the partnerships. Samuel Hayes, of Harvard Business School, points out that after the second world war the fees for many operations were fixed. Underwriting syndicates for raising capital were predetermined for each client. If a minor but ambitious firm like Salomon Brothers tried to by-pass the managing underwriter and go direct to a client, the underwriter would ostracise it and give it a bad name on Wall Street. Managed competition gave the firms an incentive to regulate themselves. Future profits depended on the status quo, which had to be protected. That produced stability, but at what cost to clients?
On the other hand, partnerships really were easier to run, because the firms were small and their business was straightforward. To the critics of modern-day investment banking, their virtue lay in the fact that their senior managers were also their owners. They were not gambling with shareholders’ money.
The argument is that managers in recent times took excessive risks because they did not own their firms. Moreover, their pay gave them huge incentives to gamble with the business. In “Liar’s Poker”, his tale of Salomon Brothers in the 1980s, Michael Lewis records the words of a senior trader who worked for Lew Ranieri, the creator of mortgage-backed securities: “At other places management says, ‘Well, gee, fellas, do we really want to bet the ranch on this deal?’ Lewie was not only willing to bet the ranch, he was willing to hire people and let them bet the ranch too. His attitude was: ‘Sure, what the fuck, it’s only a ranch’.”
In fact, the argument about ownership and pay is not entirely convincing. It is true that pay was large—far too large, it is clear, now that so many of the profits bankers earned in the bountiful years have turned out to be illusory. But a bubble that inflated revenues, share prices, fees, profits and employment was bound to inflate pay too. By the same logic, today’s bust will lower it.
The incentives were more complex than to bilk shareholders by betting the ranch every time. Managers at Bear Stearns and Lehman Brothers were not partners, but they still owned large slugs of the business. Jimmy Cayne, Bear’s chief executive, personally lost more than $1 billion in its collapse; Dick Fuld, his counterpart at Lehman, is believed to have lost a similar amount. Although traders are overwhelmingly paid in cash, the managers who are supposed to oversee them take about half their bonuses in share options and shares that they are not allowed to sell for three to four years. Many outfits frowned on employees selling shares even when they were formally allowed to do so. After only a few years at a bank, most managers would have a large part of their wealth tied up in the firm’s survival.
The end of partnerships turned private rivalries into a public tournament. The senior managers’ wealth, careers and status were completely wrapped up in their firms’ pre-eminence. League tables, quarterly results, daily share-price movements, total shareholder returns, all are ways of keeping score of who is up and who is down. If you did not compete, you were a dullard. If you pulled back, your career might be cut short. Not for nothing did they call the conservative Brown Brothers Harriman, the grandest remaining partnership, “the cemetery with the lights on”.
Rather than being victims, shareholders may well have driven managers on. Hans-Werner Sinn, the head of Ifo, an economic research institute in Munich, argues that limited liability gives them a reason to flirt with disaster. The creditors of a failed firm have no claim on the personal assets of its shareholders. So if the bank takes big risks that promise big profits, its shareholders stand to enjoy the full gains but to bear only part of the losses. By contrast the shareholders of low-risk, low-return banks that never collapse have to bear all the losses.
George Gilbert Williams, long-time head of Chemical Bank in New York in the 19th century, once explained that his success was founded on “the fear of God”. But as a boom takes its course, fear is supplanted in what a senior quant at an American bank calls the “Cassandra effect”. The more you warn your colleagues about the tail risks—the rare but devastating events that can bring the bank down—the more they roll their eyes, give a yawn and change the subject. This eventually leads to self-censorship. “The system”, he says, “filters out the thoughtful and replaces them with the faithful.”
Models might look objective, but each has its own context—to make a sale, bear down on an impulsive trader and so forth. Andrew Lo, a professor at the MIT Sloan School of Management, imagines a confrontation in 2004 between the head of Lehman and its chief risk officer. Foreseeing a catastrophe ahead, the risk officer proposes shutting down the mortgage business, but his boss threatens to sack him on the spot. He suggests cutting back, but the boss counters that his competitors are expanding and his best people would be poached. He mentions hedging the risk, but his boss retorts that in the next two years that will cost hundreds of millions of dollars in lost profits.
The risk officer’s analysis would be hard for all but partnerships, private companies and Warren Buffett to follow (and even the veteran investor’s reputation was tarnished when he sat out the dotcom boom). To paraphrase Keynes, if you work in finance the market can stay irrational longer than you can stay in your job.
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As managers built financial conglomerates and sought to push them ever harder, the quality of earnings in their industry was deteriorating (see chart 5). Most of the large outfits have struggled to create an esprit de corps. Alan Johnson, a pay consultant who specialises in finance, describes a trading room of, say, 1,000 people. Fifty of them might be over 40 years old and just ten over 50. Their typical career might peak after five to seven years. Charles Ellis, author of the recent book on Goldman, thinks traders’ focus has narrowed as rewards have gradually shifted from the team and the year to the trader and the individual trade. People may well not know, understand or care about the business of the traders on the next desk. Mr Ellis thinks that the sorts of people who go into finance these days are different from their predecessors—more transactional, cleverer and less strategic.
Sometimes the top brass mismanaged the detail. According to Mr Derman, rivals copied innovations within months, so the arms race in modelling tended to lead to complexity, because you could charge more for it and because complexity is harder to reverse-engineer. Yet complexity can be dangerous. Citigroup came a cropper when it sold “liquidity puts” along with its CDOs. These gave the buyers the right to hand the CDO back at the original price if the market collapsed. They looked like a tweak that would enable the bank to extract a slightly higher return, and Citi’s most senior managers knew nothing about them. The liquidity puts ended up costing the bank a king’s ransom when $25 billion-worth of CDOs came back on to the balance sheet.
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But the strategy too was sometimes poorly handled. It started perfectly well in the 1970s with Walter Wriston at First National City Bank, later renamed Citicorp. Wriston trained an entire generation of bankers who wanted to make better use of their capital and to grow faster. More recently, commercial and investment bankers have contracted a bad case of Goldman envy. As a result, senior managers have demanded double-digit increases in sales and profits year in, year out (rather as investors, stricken with Yale envy, sought to match the returns of the university’s endowment fund by pouring money into private-equity and hedge funds). Stern’s Mr Smith points out that the growth imperative required volumes for each product to be big, as they were in mortgage-backed securities and leveraged loans. Some of the worst mistakes befell banks like Citi, UBS and Merrill Lynch which were told from on high to catch up in mortgage finance. Woe betide any banker who fell behind.
An internal investigation into $38 billion of mortgage losses at UBS, ordered by the Swiss Federal Banking Commission, blamed the disaster on a push for growth in the bank’s fixed-income business. The CDO desk piled into “mezzanine” tranches of the securities, which paid more but ultimately lost more too. At its peak the CDO desk had only 35-40 people, but it amassed around $12 billion of write-downs in 2007, two-thirds of that year’s total.
Over the past 35 years it has seemed as if everyone in finance has wanted to be someone else. Hedge funds and private equity wanted to be as cool as a dotcom. Goldman Sachs wanted to be as smart as a hedge fund. The other investment banks wanted to be as profitable as Goldman Sachs. America’s retail banks wanted to be as cutting-edge as investment banks. And European banks wanted to be as aggressive as American banks. They all ended up wishing they could be back precisely where they started.
9,19,29,39,43,59,69,79,89,99,109,119,129
Prediction markets
An uncertain future
From The Economist print edition
A novel way of generating forecasts has yet to take off
NOT SO long ago, prediction markets were being tipped as a fantastic new way to forecast everything from the completion date of a vital project to a firm’s annual sales. But although they have spread beyond early-adopting companies in the technology industry, they have still not become mainstream management tools. Even fervent advocates admit much remains to be done to convince sceptical managers of their value. “It’s still a pretty evangelical business,” says Leslie Fine of CrowdCast, one of the firms that provide trading platforms for companies keen to pool the collective wisdom of their employees.
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Prediction markets work by giving people virtual trading accounts that allow them to buy and sell “shares” that correspond to a particular outcome. Shares in an outcome that is considered more likely to occur then trade at a higher price than those that represent a less likely outcome. This provides a way to tap into the tacit knowledge that exists in companies, especially ones that have many different divisions or offices.
Koch Industries, an American conglomerate in a range of businesses including chemicals, fertilisers and commodity trading, has been running prediction markets for the past nine months involving about 200 of its staff from different areas. The group, which has revenues of some $100 billion, has launched contracts on, among other things, the future prices of raw materials used in its chemicals division and the likelihood of bank nationalisations. Koch says the results so far have been pretty accurate compared to actual outcomes, but stresses that markets are complementary to other forecasting techniques, not a substitute for them.
A big hurdle facing managers using prediction markets is getting enough people to keep trading after the novelty has worn off. Many firms use gaming-style leader boards to encourage internal rivalry, or offer modest prizes to the most successful traders. Lloyds TSB, a bank, launched a market in which participants identify the best new ideas by trading in a currency called Bank Beanz, which can then be exchanged for cash—a scheme the bank’s head of innovation calls “an exceptional motivator”.
Another reason prediction markets flop is that employees cannot see how the results are used, so they lose interest. Wells Fargo, a big bank that has been running internal markets for over a year to identify ways to improve service to some corporate customers, says its most effective trials took place in areas where managers could do something with their findings, making staff feel that trading was worthwhile.
Bosses may also be wary of relying on the judgments of non-experts. Yet many pilot projects run so far have shown that junior staff can often be surprisingly good forecasters. Perhaps the best way to find out when prediction markets will finally take off is to ask your employees—using a prediction market.
10,11,21,31,41,51,61,71,81,91,101,120,130
The yakuza
Feeling the heat
From The Economist print edition
The cops are squeezing the robbers
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“IN THE old days,” laments the retired mobster, with a broad smile, slicked hair and a heavily tattooed body, “the yakuza served a useful purpose in society to solve civil disputes and keep the streets clean.” He draws on his cigarette, the stub of an amputated little finger visible in his beefy hand. “Now”, he goes on, “it has lost its samurai spirit to moneymaking.”
Or perhaps, the yakuza—Japan’s organised-crime groups that date from the 17th century—are getting squeezed. For most of the post-war period they operated openly: tolerated by the public, used by politicians and protected by police. Crime will happen anyway, went the argument, so better to know whom to call when it crosses the line. In the 1950s ministers and industrialists relied on the mobsters and nationalist groups to quash unions and socialists. The gangs upheld classic Japanese virtues of manliness and loyalty—and paid for mistakes by slicing off one of their fingers in atonement.
But this orderly way of life is fraying. The floundering economy has eaten into revenue from traditional activities that required muscle, such as gambling, prostitution and loan-sharking. To compensate, the groups have ploughed into financial fraud, stock manipulation and cybercrime, giving rise to a new generation of gangster-nerds, more interested in business than blackmail. Still, the yakuza boasts 84,000 members (of whom half are “part-timers”) and is estimated to haul in as much as ¥2 trillion (around $21 billion) annually.
Moreover, the public has become slightly less accepting after bouts of mob violence, traditionally hidden, that claimed innocent lives. On February 20th around 160 people from Tokyo’s Akasaka district sought a court injunction to bar Inagawa-kai, a big crime syndicate, from occupying an office building, arguing that it might bring violence to the area. In August residents of the city of Kurume sought a similar injunction against a local gang.
A 1992 anti-mob law clearly defined illegal behaviour and penalised companies with yakuza ties. It also established a non-profit group called the National Centre for the Elimination of Boryokudan (crime syndicates), to advise companies on avoiding the yakuza and rally citizens to complain, as in the recent suits. But the law is not all that it seems. The nationwide centres it created, grumble both senior police and racketeers, provide lucrative sinecures for retired police officers. This recalls amakudari, or “descent from heaven”—the practice of rewarding government officials with cushy, post-retirement jobs in the area of their official responsibility.
Companies are “encouraged” to donate to the centres, and to hire retired officers to help them comply with the law. Owners of pachinko-parlours (venues for a popular sort of pinball) and others now hire security firms using former policemen. Having yakuza at the door invites trouble with the law. So companies are, in effect, paying off the cops rather than the mob.
Many bars and restaurants still prefer the yakuza to the police for handling troublesome customers. The service is better. Still, the breakdown of the traditional order irks the former crime boss. Pondering the changes, he uses the word natsukashii (nostalgia), as the smoke from his cigarette wafts into nothingness.
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인제 빵먹으면 성을 간다. 갈아.
쌀통을 보니 쌀이 하나도 없다.
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