I read in the NY Times that Bill Frist, the former Senate Majority Leader, is apparently being considered as the next World Bank President to replace Paul Wolfowitz. This sounds like a false trail, at least I hope so. Frist has shown on at least one occasion that he is perfectly willing to suspend rational thought and ignore evidence in order to advance his political priorities. For example, I find it hard to believe that Frist would be neutral on sensitive development issues such as family planning. Equally importantly, Frist has no experience managing an organization like the Bank. He would be regarded exactly as Wolfowitz’s was: a politically-motivated appointment with no expertise or background in development or a track record in any comparable position.
Bill Frist as World Bank President – another disastrous idea Saturday, May 26 2007
Politics 12:25 pm
Revaluation of the Renminbi – why it won’t happen Saturday, May 26 2007
Economics 5:02 am
The recent meeting between China and the US was used as an opportunity to put pressure on China to allow their currency to revalue upwards. The theory is that this will lower the US-China trade deficit, and reduce the US political pressure to impose trade sanctions against China. This is mostly incorrect, and this pressure will not be effective. Indeed, the trade surplus with the US is a by-product of the Chinese currency policy.
If the renminbi were to float upwards there would be some reduction in demand for Chinese-manufactured products, but the cost differential between the US and China is so large that I doubt that this would be significant. Certainly, US goods imported in China would become relatively less expensive. However, the flood of Chinese imports into the US would continue, since there would still be nowhere else that produces a comparable range of products. Since prices would now be higher the deficit could potentially go up.
The Chinese government wants to keep the renminbi low for other reasons. The exchange rate has a big impact on the return on foreign direct investment into China. If a company has made an investment at one currency rate, an uptick in that rate reduces the return. More importantly to the Chinese government the number of companies willing to invest in China may fall if the return on future investments goes down. It’s hard to know what proportion of companies investing in China is making money. Given the flood of investment this is surely the majority, but there some definite losers, and a great many may be profitable but marginally so. If the cost of operating a transplanted facility in China increased significantly then the investment cost in dollars or euros would rise and the return would fall. Given that China has 25 million new entrants to the labor force every year, maintaining direct foreign investment is a huge priority, because indigenous industry is probably still incapable of absorbing this number of new employees. Keeping the flow foreign investment intact is much more important to the Chinese government than keeping Washington happy.
Independent research on airline quality Saturday, May 26 2007
Business Travel 4:49 am
The 2007 Airline Quality Rating, an independent performance analysis of all domestic airlines published since 1991, is interesting reading. It provides a little objective insight into my complaints about United. The data show that United Airlines tied for the highest level of complaints per 100,000 passengers, and that they have fallen from being the best carrier in 2002 to ranking number 13 out of 18 in 2006. Moreover, the trend is firmly downwards.
United Airlines – the worst international carrier? Saturday, May 26 2007
Business Travel and Corporate Life 4:35 am
As every traveler knows, flying internationally with a major western airline isn’t remotely like the experience on a top Asian carrier such as Cathay Pacific or Singapore Airlines. Granted, many Asian airlines are basically sexist, and in their advertising Singapore Airlines exploits the fact that they employ young, good-looking flight attendants. In contrast, the major US carriers obviously have what can charitably be called a seniority policy on the long-haul routes. However, this isn’t the real issue. Most travelers prefer excellent service, and flight attendants on most western carriers have completely given up the effort to provide that.
When I boarded yesterday, I started up the stairs on the 747 to my seat and was told by the attendant to put my suitcase in an overhead bin downstairs. No big deal, other than the sense of being ordered around. It was doubtless also annoying for the people sitting in the last row in business class to discover that their overhead space was mysteriously full.
The impression you get from the attendants on United is that we are all in this unpleasant process of flying together. They read out the ridiculous announcements about how we must stay in our designated areas, comply with all instructions and obey the fasten seat belt sign, with the weary relish of a schoolteacher with a new class. The message: “You do exactly what is expected of you, and this whole experience won’t be too difficult for any of us”.
Before takeoff I was asked to select two out of the three meal choices. There is no pretense that your first choice will be available. I firmly said I would have the fish. By the time it arrived I had dozed off and was roused by a sharp poke. The last thing she wanted was to have to go through this process again. The food is terrible but this is a 14 hours flight and you have to eat something. Even the way they speak is revealing. “Something to drink?”, “vinaigrette or creamy Italian?” are comprehensible provided you aren’t struggling with English, but would it be too much trouble to say “for your salad we have a choice of dressings, etc. etc”?
The seats don’t adjust very well because the springs are old and tired. They have no 115V power outlets for PCs, other than the special connector that requires you to carry a completely new power supply that usually only holds the charge in a computer. If you accidentally disconnect you are toast.
Before landing I was asked if I wanted the second meal service. I asked what it was, and the attendant said she didn’t know, but there was a choice between something hot and something cold, “probably be a fruit plate.” I said “You know, I think I’ll pass, thank you”
Even in business class it is pretty much impossible to get out of a window seat without having to clamber over the person in the aisle row, a process that will wake all but the deepest sleeper.
When we arrived, I now had to retrieve my bag from where I had been told to put it, which meant waiting until the front section of business and first class was all clear or pushing against the traffic coming in the opposite direction.
This miserable experience costs around $7500, most of which is fuel and employee costs. Presumably for airlines like United, employee costs are much higher than a comparable Asian one. Now, I have a little sympathy for the flight attendants on United. They have been pushed around by the management, their pensions have disappeared, they have to implement continuous niggling costs cuts and then listen to passengers complain about them. But surely, they and their management must realize that making the process of flying as unpleasant as this will ultimately affect the survival of the airline.
A postscript: one of the attendants who was serving my section was also on my second flight. She was obviously off-duty, but I heard her complaining to her colleague about the international travel and how she had only three days off: “You know, it’s not healthy.” No doubt about it. For all of us.
Asian Hotels – better than anywhere else? Thursday, May 24 2007
Corporate Life 4:18 pm
Returning to my hotel in Kowloon at 7:30 in the evening I found that I had mistakenly left the Do Not Disturb sign on the door all day, so my room had not been made up. A printed note under the asked me to call housekeeping any time I needed. I apologized for the error on my part and asked them if they could fix the room while I went out for dinner. No problem at all, I was told, and so it proved. I should point out that this is a good hotel – The Royal Garden – but not absolutely top shelf, or overly expensive by the standards of Hong Kong. Would I get the same service at an equivalent establishment in Europe or the US? I’m not so sure.
Nicholas Kristof’s Factory of the World Thursday, May 24 2007
Business and Economics 9:38 am
See Nicholas Kristof’s video on the New York Times site today for an interesting slant on manufacturing conditions in Guangzhou province. He makes a point, related to myone below, that we can no longer even view the garment factories in SE China as being sweatshops. Conditions, pay and the level of opportunity have risen dramatically. Much of the concern in the US about worker’s conditions in these places does not rest on entirely pure motives…
Travel segments – Shenzhen Thursday, May 24 2007
Economics 6:01 am
I have just walked across the bridge in Shenzhen that separates China from the Hong Kong Special Administrative Region, and boarded a train going south.
The level of formality required to enter the SAR from China remains surprising. The crossing is no longer manned by the military and the officials on both sides are friendlier than in the past, but this place remains very much a national border. The formalities include arrival and departure cards, passport and customs inspection on both sides and a change of currency. By comparison borders in Europe are invisible.
On my first trip to Shenzhen in 1994 I visited a plant manufacturing outboard motors. The assembly area was a series of stark, connected rooms. Bare concrete walls streamed with moisture. Workers in rough overalls hunched over tables assembling the motors using simple tools. Labor was obviously so cheap that any investment in productivity was clearly pointless. The factory worker accommodation outside in the courtyard was equally unappetizing. Back in the city, massive road-building projects were underway, again with an almost total absence of equipment. Rows of laborers with the iconic straw sun hats, stripped to the waist, were building highways using shovels and manual labor.
Today I was with a medical equipment supplier headquartered in Shenzhen. This local company produces its own line of high-technology equipment for the global market. The showroom displayed products clearly designed to modern aesthetic and ergonomic standards. The operation was indistinguishable from any similar enterprise in a western economy. Revenue per employee was just under €100,000, low by western standards, but this is clearly as far from being a sweatshop as you can get. I suspect a low profile partnership with a major western player in the industry, but the current organization is entirely Chinese. The customer is buying custom components wanted to talk about quality and technical partnership as well as cost.
The city is now utterly different. It has a modern road system, plentiful parks and a crowded skyline. There is something of a sense that everything went up yesterday, perhaps accounted for by generic modern architecture but it is nonetheless impressive. The change in infrastructure and the quantity and diversity of new buildings is remarkable enough, but the real achievement is to have developed a globally competitive indigenous industrial base in such a short period of time. This isn’t another gloom and doom whine about China’s rise – concerns that are greatly overblown – more a respectful raising of the hat to a society developing at an almost unimaginable pace.
China’s Blackstone Investment Monday, May 21 2007
Business and Economics 6:52 pm
See Jonathan Stempel on Blackstone’s IPO. It is hard to say which part of this deal is the most brilliant. Obviously the IPO is very strongly anticipated but selling a $3bn to China’s state investment company helps the process along. The deal also indicates to Blackstone’s rivals that the firm has tapped into a new source of funds to continue the private equity spree. (A condition of the deal is that China is prevented from making a similar investment in Blackstone’s rivals for a year). For China, this gets them into investments in the global stock markets without having to front deals, a process that has been shown to generate significant backlash. It also recognizes that for China the global markets are now the most attractive investment avenue. Currencies are going to offer a lot of risk, and the bond market is looking at interest rate upticks. This message, that the Chinese trade surplus is going into stocks, is good for the market, which is good for IPOs, which is good for Blackstone’s IPO in particular….
The Last Word on Wolfowitz Monday, May 21 2007
Corporate Life and Politics 6:41 pm
The Economist, in an excellent article, An Outsider’s Fate, on the dismissal of Wolfowitz, reiterates the point that many people seem forget, that the real reason that Wolfowitz failed was that he was ineffective at his job. Commenting on the president’s attempts to change the culture of the bank:
“…a president cannot change those rhythms and routines until he has first mastered them”.
I go back to my posting, An open letter…. which attracted a fair amount of interest. It’s never about what it’s about… Christopher Hitchens, who wrote an article on Slate Sliming Wolfowitz, seems not to understand this.
How often do you think about your personal finances? Sunday, May 20 2007
Corporate Life and Economics 3:45 pm
Here is a little question to ask yourself. How often do you think about your personal finances, income, investments and expenditures?
I have a colleague who admits to calculating his net worth daily using Quicken, which seems not only a little unhealthy, but frustrating since presumably the daily changes are very small. On the internet we frequently see short money management articles and it is tempting to click on these either in the hope of either learning something useful or demonstrating to oneself that one is now beyond needing this kind of advice. In other times, unless one is a Buddhist monk, (and maybe even then), I suspect that we think about our own wealth, or lack thereof, pretty often during the day, if only in a glancing way. It’s a little materialist stream of consciousness in the background: “Wonder what the raise pool will be this year. Payday tomorrow, FICA deductions should be over soon. There’s Jerry – wonder how much he makes? Can we afford to go to Europe again this year? Be nice. Pity about the dollar, though. Should probably do it again before the kids leave home. That last Visa bill was a nasty one – time for another family conference – I’m not made of money (although I do ok, probably a good deal better than Jerry if the truth were told. I think.) If the kids get into Cornell it will be another story, though. Belt-tightening all round. The Beemer goes past 50k miles soon, no more free services. Maybe I should get a new one before tuition starts. Probably a bad idea, though. Market’s up today, should look at my portfolio again or did I do that yesterday? Oh, here’s another article on getting to your first million. Wonder what the raise pool will be this year…”
