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A Business Transformation in Ethiopia

Have you ever wondered about why an increasing number of Chinese and Turkish firms are investing in manufacturing in Ethiopia?  What opportunities might you derive from this trend?  Did you think who are these investors and how can I create a business relationship with them?  What were your thoughts when H.E Prime Minister Hailemariam Dessalegne linked an agreement with his Kenyan counterpart on a special status agreement?  Did you think possible opportunity or see a threat to your business? Are you worried about the currently somewhat difficult financing environment and how your company might continue to grow by engaging banks or the increasingly aggressive private equity firms?

Running a business is never easy.  It takes CEOs that are multi-talented and continuously learning to adapt to new situations.  In Ethiopia, we’re entering a new era.  One in which, we are increasingly required to be competitive at the global level in order to survive and thrive. We are entering a new era where Government regulations increasingly require modern management practices, and meticulous record keeping.  New policy directives and trade agreements with neighboring countries are coming out rather quickly.   These agreements are likely to create new opportunities for local business but also introduce elements of strong competition.  On the other hand, Ethiopia is likely in a unique position in history in which it has the potential to attract billions of dollars of investment in manufacturing that can provide a boost to all types of businesses.

Unfortunately, it has not been easy for CEOs to clearly understand the business environment and its likely evolution for the coming years.  There has not been a forum that regularly brought together leading CEOs from different sectors of business to share their experiences.  That is until now.  Precise Consult International (PCI), in partnership with ACCA Ethiopia is organizing The CEOs Breakfast Forum at the Sheraton Addis. The CEOs Breakfast Forum is a quarterly event that brings together a small number of leading CEOs, government officials, donors, and international agencies on issues of doing business in Ethiopia. The goal of the forum is to serve as a platform to inform leaders on current business trends and management practices as well as afford them a rare opportunity to network over breakfast.

We at Precise are happy to announce the first of what we hope to be regular quarterly networking events over breakfast on Thursday, March 28, 2013 from 7:30-9:00a.m at the Sheraton Addis.  The focus of this forum is on Investment Prospecting: understanding the opportunities and risks in Ethiopia.

More information about the event and how to participate can be found at www.ethiopiainvestor.com.

Henok Assefa

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Labor, Capital and Fundamental Contradictions at the New York Times

Krugman Discovers Marx…and Misses the Point

by ANN ROBERTSON and BILL LEUMER

In his recent New York Times op-ed piece, Princeton professor and regular columnist for The New York Times Paul Krugman observed:

“The American economy is still, by most measures, deeply depressed. But corporate profits are at record high. It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should – but capital is doing fine by grabbing an ever-larger slice, at labor’s expense.”

And then he adds with almost shocked incredulity: “Wait – are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy?”

This is exactly the conflict that Marx identified as the fundamental, inescapable contradiction of the capitalist system that would eventually create the conditions of its downfall: there is a tendency for the owners of businesses, the capitalists, to accumulate ever-vaster wealth while the people who work for them experience a declining standard of living.

Marx supported this conclusion by offering a description of the fundamental operating mechanism of capitalism. Capitalism is based on the principle of private ownership and competition.  Private businesses compete with one another for customers, and those who fail to attract a sufficient number eventually perish. But in order to attract customers, businesses must maximize the quality of their product while minimizing its price. If two products embody the same quality but one is cheaper, customers, in pursuit of their self-interest, will purchase the cheaper version, all other factors being equal.

This means that capitalists must constantly attempt to minimize the price of their product simply for the sake of their own survival. If a business devises a way to lower costs, it can capture the market. But, as Marx pointed out, labor costs are a huge factor in determining the price of a product. So those businesses that minimize labor costs can prevail in the dog-eat-dog world of capitalism. For this reason, a downward pressure on wages and benefits is always operating to one degree or another.

But Krugman made no reference to this aspect of Marx’s analysis and instead identified two other factors that contribute to the growing inequality in wealth between capitalists and workers, both of which are discussed by Marx.

The first factor involves the introduction of technology into the labor process, i.e. “labor-saving” technology. In other words, machines replace workers or reduce the amount of skill required in the labor process. To give a current example, software has been developed that analyzes legal documents at a fraction of the time it takes lawyers while costing much less.  Accordingly, many well-paid lawyers lose their jobs to such software. Living during the industrial age, Marx supplied many such examples.

Krugman referred to his second explanatory factor that increases inequality between capitalists and labor as the “monopoly power” of large corporations where “increasing business concentration could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.” Here Krugman is approaching the heart of Marxist theory.

Krugman is basically arguing that large corporations use their power to override purely economic trends and simply demand that their employees work for less. But this is precisely the point of Marxism, although from the other direction. Marx persistently argued that capitalism could not function without the willingness of the working class to perform the work. When workers organize and engage in collective action by withholding their labor, the balance of power shifts in favor of the workers who can then demand higher wages as a condition for their return to work, as the ILWU (International Longshore and Warehouse Union) recently did on the West Coast and the teachers did in Chicago.

Amazingly, Krugman never mentions the decline of organized labor as a huge factor explaining the decline of the standard of living of working people, adding that there has been so little discussion of these developments. But others, especially former Secretary of Labor Robert Reich, have discussed these trends and identified the decline of labor as a major factor.

In the 1930s when labor unions were tenaciously fighting for working people, huge gains were made in terms of salaries and benefits. They conducted militant sit-down strikes and mobilized tens of thousands of people from the community to support labor’s struggles. Their successes were to a large degree responsible for the emergence of the so-called middle class that thrived in the 1950s and 1960s.

Workers who are organized, acting both collectively and forcefully, can change the economic landscape. But once organized labor becomes complacent and relaxes its guard and ceases to struggle, the laws of capitalism ineluctably grind down their gains and the growing inequality returns until workers again rise up.

Marx argued that eventually workers would see the futility of this repeating cycle, reject capitalism altogether, and begin to construct a socialist society built on entirely humanistic and democratic principles.

In a recent New York Times article on unionizing workers at the bottom of the pay scale, a union organizer was quoted as saying, “We must go back to the strategies of nonviolent disruption of the 1930s.” Currently organized labor is all but dying out. Strikes are like an endangered species. Rather than engaging in militant struggles, union members are urged to elect Democrats who then call on workers to accept sacrifices.

AFL-CIO President Richard Trumka has called on working people “to fight like hell” to resist cuts to Social Security and Medicare. But these are just words. To this date, the unions have failed to mobilize their members to stage massive demonstrations across the country against cuts to these popular social programs – demonstrations that could culminate in hundreds of thousands of working people descending on Washington, D.C. to make their demands clear to the Obama administration and the rest of the politicians. Without the unions taking the lead in this struggle, there is little individual workers will be able to accomplish. And if the unions refuse to return to their more militant roots but remain invisible, economists like Paul Krugman will continue to ignore their existence and overlook their current historic failure to defend working people.

Ann Robertson is a Lecturer at San Francisco State University and a member of the California Faculty Association.

Bill Leumer is a member of the International Brotherhood of Teamsters, Local 853 (ret.). Both are writers for Workers Action and may be reached atsanfrancisco@workerscompass.org.

 

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The coming age of austerity.

Capitalism’s Two-Step Survival Plan

The Coming Age of Austerity

The coast is clear, the media tells us; economic disaster has been averted. The Euro Zone is finally stable and the U.S. economy is recovering. Whew!

Why, then, are government policies internationally still pursuing extremist measures? In the U.S., a third round of excess money printing —called Quantitative Easing — began recently in which banks are directly profiting by unloading their toxic mortgages on the Federal Reserve’s balance sheet (another backdoor bailout paid by taxpayers).

After the U.S. presidential election, both Democrats and Republicans are committed to different versions of historic cuts to social services, education, Medicare, unemployment benefits, and very likely Social Security. This bi-partisan plan is often referred to as a “grand bargain,” the details of which both parties are still haggling over.

In Europe things are no better. After the Euro Zone central bank promised investors its full backing to bailout all Euro Zone members — by printing money — the world economy sighed a heavy relief. But still the Euro Zone — along with the U.S. — is pursuing a two-pronged solution for an extreme economic crisis: austerity measures and the less-discussed “structural reforms.”

What are these policies? Austerity is simple enough: government cuts to social spending, health care, education, pensions, etc. — to balance heavily indebted public budgets (at the expense of working people, rather than taxing the rich and corporations). Austerity can also be achieved through privatization, where once publicly run programs/facilities are sold cheaply to private firms to make a profit, thus taking the cost off the government’s budget.

Structural reforms on the other hand are meant to boost economic (corporate) growth, by government intervention in commodity markets — most commonly the labor market. It’s called structural reform because markets are usually relatively stable. For example, the labor market is deep-rooted in powerful social forces — wages, benefits, and working conditions are heavily influenced by unions, who use their organization and strike threat to pressure corporations and governments to pay living wages. Non-union workers benefit directly by the unions’ ability to alter the national labor market, since non-union companies have to compete with union companies for workers, who naturally go where wages are higher. Professional, higher-paid workers benefit too, since society expects them to get higher wages than, say a carpenter.

In Europe, structural reforms targeting the labor market — alongside austerity measures — are rousing the unions and broader community into the streets with massive demonstrations: Spain, Portugal, Greece, and other countries are fighting reforms that politicians are euphemistically calling “labor market flexibility.” This simply means that unions will be undermined by their inability to protect workers’ jobs, making firing easier (“flexibility”), which results in compelling workers into accepting lower wages and benefits.

The pro-corporate Economist magazine reports about Portugal:

“With his decision to finance a reduction in company [corporate] costs through a sharp cut in workers’ take-home pay, Pedro Passos Coelho, Portugal’s prime minister, appears to have taken reform past the limit of what is deemed acceptable by large sections of the electorate.”

And France:

“… [President] Hollande has given union leaders and bosses until December to negotiate [anti-union] labor-market changes. On the table are various options, including making it possible for firms [corporations] to reduce hours and salaries in a downturn against a guarantee of job security, along the lines introduced by [Germany’s prime minister]… in 2003.”

And Spain:

“… the new [labor] law makes it easier and cheaper to lay off workers. For most firms, maximum lay-off payments [unemployment benefits] will be reduced from 42 months’ pay to 12 months… it will hugely boost business confidence.”

Reducing unemployment benefits is a very popular labor market structural reform for the 1%, since it makes workers more desperate for work, and thus more accepting of low-wage jobs — consequently lowering workers’ power in the labor market overall, as wages are lowered nationally.

And while Europe’s austerity and structural reforms are on the front page of international media — due to the giant protests and general strikes against them —  the exact same policies have been pursued by the U.S. with barely a murmur. Were it not for the labor upsurges in Wisconsin and more recently Chicago, these policies would be completely off the public’s radar.

The Wisconsin uprising was in response to a labor-market structural reform pursued by Republicans, denying unions bargaining rights — effectively destroying the union.  Democrats, however, are pursuing anti-labor structural reforms — weakening unions — as national policy also, though less directly, by demanding that unions across the country take massive concessions in wages and benefits — a slower, yet more effective form of labor market restructuring.

The teachers in Chicago went on strike against another form of anti-labor structural reform pursued by both Democrats and Republicans. The media-hype around “firing bad teachers” is really a labor-market reform in disguise; the real intention is to bust unions, who are only able to stay strong by their ability to protect the jobs of their members (of course there already exists ways to fire bad teachers).

Teacher merit pay is yet another labor reform measure aimed to weaken unions, since it effectively lowers wages by preventing raises (there is zero evidence that merit pay raises education standards, or that charter schools outperform public schools). It means that every teacher’s salary is negotiated individually, and it allows management to punish its critics by denying them merit pay raises.

The teachers are especially targeted in the U.S. because they are the strongest union in the country, due to their numbers, organization, and connections to the community. If they are forced to give “structural” concessions, other unions will be heavily pressured to do so, and thus the labor market will be altered to the benefit of the corporations.

The labor reform attacks — combined with austerity budget cuts — are happening in different forms on a city, state, and federal level with the full backing of the Democrats and Republicans (there is no “debate” in the presidential election about education policy). Thus, if not for the Wisconsin and Chicago struggles, there would be little social consciousness around these issues.

The reasons that austerity and structural adjustment have not produced a Europe-like movement yet is because most labor unions have increasingly accepted these concessions without putting up a real fight. Many labor leaders would simply rather accept these policies, since fighting them would put them in conflict with their “friends,” the Democratic politicians pursuing these anti-labor policies.

Hopefully, the post-Occupy movement can show the labor movement the way forward. On November 3rd there will be  protest demonstrations against austerity in a number of cities across the country. These protests are targeting the ongoing state by state cuts — and federal post-election cuts — to education, transportation, health care, social programs, and public-sector workers. The protests are challenging the very concept of austerity, as working people refuse to pay for the crisis created by the rich and corporations. There is a potential for these protest demonstrations to teach the American public the word “austerity,” assuming they are large enough and connect with the broader community that directly experiences these policies.

Regardless of the results of November 3, demonstrations about the austerity issue in the U.S. will inevitably continue, since even mainstream economists mostly agree that there will be no return to the pre-recession economy. The policies of austerity and structural reform — along with war — are long-term survival strategies of capitalism, which is evolving to survive a global-wide crisis of corporate growth rates by creating a “new normal” of social expectations: lower wages and fewer social programs.

The first step in fighting these measures is mobilizing working people and the broader community in massive Europe-like demonstrations. This tactic educates the whole nation about the issues, which would otherwise remain in the dark. Once the 99% is in the streets together screaming collective demands with a united voice, the movement will decide how best to act, whether it be the general strikes or new political parties that have emerged in Europe.

The U.S. post-election austerity surprises will give new opportunities for millions of people to get into the streets. They will no longer be able or willing to remain ignorant about the nation’s new normal.

Shamus Cooke

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Corporations Run the Economy.

Corporations Run the Economy

by RALPH NADER

Here is an open letter that Barack Obama should write to Mitt Romney – pronto!

Dear Mr. Romney:

Not a day goes by without you blaming me for every slumping or stagnant economic indicator. Unemployment, increases in the number of food stamp recipients, government borrowing, and spending, home foreclosures, economic uncertainty for businesses, trade deficits – you name it. Only for droughts and hurricanes have you absolved me from responsibility.

I won’t go into what was inherited from your Republican party’s years in office. Deregulation, non-enforcement, non-disclosure by the financial industry, and subsidies and bailouts were that period’s hallmarks. But if I were to be held responsible for the state of the American economy, there would have to be a “command and control” economy enforced by the White House. You know full well that is not the case for several reasons.

First, our economy is dominated by corporations that make their own investment and hiring decisions. Two-thirds of the tens of millions of low-wage workers are employed by fifty large corporations, such as Walmart and McDonald’s. Thirty million American workers are laboring between the federal minimum wage of $7.25 per hour and what the minimum wage, adjusted for inflation from 1968, should be now – about $10 per hour. These companies are successfully opposing in Congress any increase in the minimum wage to such catch up with 1968. By the way, you favored an inflation-adjusted minimum wage for years. During the Republican primaries earlier this year, you changed your long-standing position and now oppose raising the minimum wage.

Moreover, many companies are sitting on more than $2 trillion in inactive cash reserves. I have no power to get more of that capital invested, other than to appeal to their USA corporate patriotism. I could also use that patriotic appeal to urge them to increase their dividends to shareholders which would pump tens of billions of dollars into our consumer economy to encourage much-needed spending. Some of these successful companies like Google, EMC and others offer no dividends at all to their owners. Those exhortations are just exhortations. CEOs can do what they want.

Second, I am not the Federal Reserve. The Fed has kept interest rates very low which has limited the return on savings. Tens of millions of middle and lower income people could spend those interest payments on the necessities of life. But the Fed is its own ruler, and its catering to the capital investment community don’t seem to be boosting the economy.

Third, there is the Congress and the oppositional unanimity by Republicans to block any economic, job-producing measures due to their priority of using a recessionary economy to help you defeat me in November. Remember Senate Republican leader, Senator Mitch McConnell’s oft-repeated words about that being their number-one priority?

I tried to promote a major public works construction and repair program in Congress. The Republicans in the House blocked it under the aegis of Representatives John Boehner and Eric Cantor. This program would have produced well-paying jobs, with multiplier effects, that could not be exported to China. Our communities have trillions of dollars in deferred maintenance afflicting schools, clinics, public transit systems, highways, bridges, dams, and water and sewage systems. I cannot make this happen without the Republicans in Congress. You and your running mate, Paul Ryan, have not exactly urged them to take up this jobs initiative.

You have declared that “Washington has become an impediment to economic growth.” Why then don’t you be specific, name and support an end to the vast array of corporate subsidies, handouts, bailouts and inflated government contracts, especially from the defense industry? Imagine what your friends on Wall Street and in Houston would think of you after that burst of candor.

See how many jobs disappear with the end of what conservatives call crony capitalism, the end of the huge, historic outpourings of government research and development monies that substantially built and help maintain innovations in the aerospace, biotech, pharmaceutical, computer, telecommunications and containerization industries – to name a few. And if you think taxpayer investment in public works all over the country is an “impediment to economic growth,” say so forthrightly, as you campaign battleground states.

I look forward to our first debate on October 3 in Denver and shall observe your struggle with consistency. While you’re at it, kindly bring your pre-2010 tax returns, so we can learn more about what you mean when you talk about your policy of tax cuts.

In solidarity for America,

Barack Obama, President

By greedily  running the economy the corporations are creating a hopeless citizenry. A wonderful article. Thanks, Mr. Nader.

Professor Mekonen Haddis

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McKinsey Global Institute report

In its Aug. 2012 quarterly report the following fact based information which might contribute to decision making on critical policy issues are included.

  • The two leading emerging economies of China and India are experiencing roughly ten times the economic acceleration of the Industrial Revolution.
  • By 2025, for the first time in world history, the number of people in the consuming class will exceed the number still struggling to meet their most basic needs.
  • By 2025 MGI estimates annual consumption in emerging markets will rise to $30 trillion, up from $12 trillion in 2010.
  • Even under the most pessimistic scenarios for global growth, emerging markets are likely to outperform developed economies significantly for decades.
  • Consumers in the emerging markets are shaping, not just participating in the digital revolution and are leapfrogging developed-market norms.
  • Companies failing to pursue consumers in these new markets will squander crucial opportunities.
  • On average, emerging consumers are younger and more optimistic than their counterparts in the developed world.
  • In China, more than half the urban population is online. In India, consumers are avoiding traditional media and PC to embrace mobile devices.
  • Unskilled workers may be plentiful in emerging societies, but skilled managers are scarce and hard to retain.
  • No matter where successful businesses operate, they need the support of key stakeholders in government, civil society, and the local media.
  • As emerging markets contribute a greater proportion of the global savings pool, investors there could offer a crucial new source of funding.
  • The rise of the emerging world’s new consumer class is the greatest competition of our age for business. Emerging markets offer the best hope for future prosperity.

Professor Mekonen Haddis

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Raising Taxes on the Rich Seen as Good for the Economy, Fairness

According to Pew Research Center, by two-to-one (44% to 22%), the public says that raising taxes on incomes above $250,00o would help the economy rather than hurt it, while 24% say this would not make a difference. Moreover, an identical percentage (44%) says a tax increase on higher incomes would make the tax system more fair, while just 21% say it would make the system less fair.

Professor Mekonen Haddis

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Stop Working All Those Hours

Stop Working All Those Hours

“He’s one of my best employees. He always puts in ten-hour days, sometimes much more.”
Is this how your boss judges you and your colleagues? Probably yes, according to a 2010 study published in Human Relations. In the study, a group of researchers led by business professor Kimberly Elsbach conducted extensive interviews of 39 corporate managers. They found that these managers generally considered their employees who spent more time in the office to be more dedicated, more hardworking, and more responsible.

At first glance, this seems perfectly reasonable. Hourly wages and the classic 40-hour work week have trained us to measure our labor by the number of hours we log. However, this mindset is dead wrong when applied to today’s professionals. The value of lawyers, consultants, and analysts isn’t the time they spend, but the value they create through their knowledge.

Even worse, when managers judge their employees’ work by the time they spend at the office, they impede the development of productive habits. By focusing on hours worked instead of results produced, they let professionals avoid answering the most critical question: “Am I currently using my time in the best possible way?” As a result, professionals often use their time inefficiently.

Business meetings are a perfect illustration. Very few professionals would say that attending meetings is the best use of their time. In one survey, white-collar workers estimated that two thirds of meeting time is pure waste. I agree: all too often, information is repeated or the discussion goes off-topic.

Yet, many meetings are too long, too large, and too unfocused. Why? Consider one manager’s description of an employee, as reported in Elsbach’s study:

“So this one guy, he’s in the room at every meeting. Lots of times he doesn’t say anything, but he’s there on time and people notice that. He definitely is seen as a hardworking and dependable guy.”

In other words, this manager praised his or her employee not for the value that he added to the meetings that he attended, but merely for his physical presence. Given this structure of rewards, it is no surprise that we keep seeing unnecessary and unproductive meetings.

More broadly, many professionals use their time inefficiently because their firm’s hour-oriented culture hasn’t forced them to think rigorously about what’s really important. Sometimes, this leads professionals to spend an inordinate amount of time perfecting one particular task — say, the formatting of an internal presentation — instead of spending time where it might be more useful.

Worst of all, if you measure your productivity by time spent, your only way to get ahead is to spend more hours in the office — to the detriment of the rest of your life. In research published in HBR in 2006, Sylvia Ann Hewlett and Carolyn Buck Luce reported that 62 percent of high-earning individuals in America (whom they define as the top 6% of earners) work 50 hours or more per week; 35 percent work 60 hours or more per week.

That fits my observation of New York law firms, where associates routinely bill 3,000 hours each year. That equates to 60 hours per week during a 50 week year; including non-billable hours, these 3,000-hour lawyers generally worked 12 hour days, six days a week. They barely had enough time for sleeping — let alone caring for their families, or just having fun.

What You Can Do About It

How can you remove yourself from this treadmill of long, wasted hours at work? Start by constantly evaluating your use of time — even if your organization’s culture doesn’t force you to.

That means knowing what’s important to you, your organization, and your boss — and, vitally, what’s not important. So think critically and rigorously about your priorities.
Then, be prepared to say “no” to requests that don’t matter:

  • Decline meetings, whenever you can. To be polite, you can explain your workload and request to see the meeting’s minutes instead.
  • Don’t be afraid to use the “delete” button when reviewing your inbox.
  • If you can’t say “no” to a certain request, recognize that it may only require a B+ effort. Don’t spend hours bumping it up to an A+ unless you really need to.

While individual employees can change their own habits, organizations need strong-willed leaders to make more radical changes. These leaders must thoroughly reform their organization’s implicit and explicit reward structure. Are employees praised for coming in on Saturday — even if only to finish work that could have been completed during regular hours? Are employees suspicious of others who leave early for the day in order to watch their child’s Little League games?

Of course, this change won’t come easily. It’s easy to count hours. It’s much harder to set project metrics or make subjective evaluations. But smart leaders realize that the only way they can succeed is by getting the most out of their employees. And the only way they can get the best out of their employees is to focus on results, not hours.

 

Robert C. Pozen

Robert C. Pozen is a Senior Lecturer of Business Administration at Harvard Business School. His forthcoming book, Extreme Productivity: Boost Your Results, Reduce Your Hours, will be available in October

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