Yotta Point

Emerging Africa

Just came across this interesting piece at the Center for Global Development: "Emerging Africa: How 17 Countries Are Leading the Way". Radelet's view is summarized below:

Since 1995, seventeen African countries have defied expectations and launched a remarkable, if little-noticed, turnaround. These countries are putting behind them the conflict, stagnation, and dictatorships of the past and replacing them with steady economic growth, deepening democracy, improved governance, and decreased poverty. Five fundamental changes are at work: (1) more democratic and accountable governments; (2) more sensible economic policies; (3) the end of the debt crisis and changing relationships with donors; (4) the spread of new technologies; and (5) the emergence of a new generation of policymakers, activists, and business leaders.

Not entirely clear to me to what extent this is true of all the countries surveyed, but worth a look.

The Future of the US Economy

Martin Neil Baily of the Brookings Institute has a detailed and engaging analysis of the US economy in "The Next Economy and the Growth Challenge for the United States" (PDF of full report). It is long but worth reading in full. One of the important contributions of this paper, in my view, is his review of US employment changes by sector in the last two decades to assess where future employment growth is likely to be and his attempt to understand the link between productivity growth in the U.S. and employment. I have excerpted some sections and emphasized some portions in bold.

The first chart below is from his paper and his observation [page 29] is that:

...the big-time job creators since 1990 have been professional and business services, education and health, leisure and hospitality, government, and retail trade and most of the job growth going forward is likely to come from these sectors also.

 

However, even if we do get job growth in these sectors, look at his prognosis overall for these sectors:

CGI: Notes on Panels on Women and Girls, Market Based Solutions, Environment, Haiti

In my two previous posts, I discussed comments on the American job market by former President Clinton at the Clinton Global Initiative. In this post, I'd like to briefly comment on some of the panel discussions on other topics.

Women and Girls

President Clinton's remark that it is amazing that we even need panels discussing the protection and empowerment of women and girls in the year 2010 set the stage for CGI's focus on this topic. The panel discussion on Empowering Girls and Women (see Michelle Kraus' piece at the Huffington Post and Ken Houghton's notes at Angry Bear) was one of the better ones in my view. A superb video worth watching and sharing - The Girl Effect - was aired during this session. Joan Walsh at Salon.com wrote more about this and about Secretary of State Hillary Clinton's announcement on a new initiative:

I'm attending the first day of the Clinton Global Initiative, where Secretary of State Hillary Clinton just announced the launch of the Global Alliance for Clean Cookstoves, a public-private partnership. Before you shake your head at the former president's powerful wife being confined to the kitchen, the toxins released by open fires and inefficient stoves create one of the five most serious health risks to people in developing countries, putting them at risk for pneumonia and lung cancer.

The participants on the main panel were Queen Rania Al Abdullah from Jordan, President Ellen Johnson Sirleaf of Liberia and Muhtar Kent, CEO of the Coca Cola Company, with Katie Couric of CBS moderating. I was particularly impressed by Queen Rania Al Abdullah (her outspokenness and willingness to take strong positions), although President Sirleaf was engaging as well.

The breakout session on Securing the Heath and Safety of Girls and Women, moderated by The Daily Beast's Tina Brown, was interesting as well (see Ken Houghton's notes at Angry Bear). The panelists were Gary Cohen, EVP of BD, Geeta Rao Gupta, Senior Fellow at the Gates Foundation, Richard Holbrooke, Special Representative for Afghanistan and Pakistan (US State Department), and actress Ashley Judd, Board Member of Population Services International (PSI). Holbrooke was vocal about what he felt were some shortcomings in traditional approaches to deal with women's rights and security in countries where women face suppression or sexual violence. He said that we also have to address the men in order to fix the problem of violence against women, that he rarely sees programs where men are the target of appropriate outreach - he gave an example of police training (not sure if he was referring to Pakistan) where he said there was nothing in the training really about how women need to be shown respect. He mentioned that both he and Secretary of State Hillary Clinton see eye to eye on this topic. Gupta countered this by stating that there are programs that target men and boys - not just women - and with a broader community-level focus these programs aim to show how the men and the community can benefit (especially in terms of growing their income or wealth) if women are allowed more freedom to pursue their goals and are respected. Holbrooke also spent some time discussing the recent devastating floods in Pakistan and what he thought it would take to help Pakistan recover from this unprecedented calamity. He cautioned that any aid given to Pakistan should not be linked to any commitments on social re-engineering because it would be counter-productive - he said, aid should be provided to save lives and livelihoods, not just for security alone. Judd spoke passionately about her travels and experiences in Africa.

(NOTE: I was unable to attend the session on Profiting From The Poor? A Discussion on Microfinance IPOs - where Muhammad Yunus (Nobel-Prize winning Founder of Grameen Bank) and Vikram Akula (Founder of SKS Microfinance) evidently had an energetic debate. Megha Bahree of Forbes has a brief write-up on the debate in her blog and Rina Chandran has more at Reuters).

CGI: Discussion with President Clinton on Robust Job Creation in the United States

This is a follow-up to my previous post on a Q&A/discussion with former President Bill Clinton at the Clinton Global Initiative last week. On the night of Sep 20th, during a meeting/Q&A with some bloggers and journalists, President Clinton spoke about his views on where we need to focus on to rebuild the jobs market in the US: small businesses, manufacturing and clean energy. He has made this point in other contemporaneous interviews as well. I'd like to explore these areas a bit because there are some challenges that I don't believe we are adequately addressing today.

Small Businesses

The conventional wisdom generally is that small businesses create the majority of new jobs. However, several recent studies make it clear that the picture is more nuanced and the age of a business is more predictive of its potential to create net jobs than its size. The Kauffman Foundation has published a number of recent research papers on job creation. Their inference is that net job creation in the US is dominated by very young firms - in particular startups - in part because they demographically constitute the largest percentage of businesses in the U.S. They have found that over the last few decades, startups created the most net jobs in the US and that net job creation tends to occur primarily in firms less than 2 years of age, although "survivors" or "gazelle" firms that are on a growth path are also good at net job creation. A separate study published in Aug 2010 by Haltiwanger et al. also emphasizes that it is not the size of the business per se but its age that is a strong determinant of its potential to create net jobs. In addition, it is worth referring to some prior research by Acs et al. that found both small and large businesses add net jobs based on their growth level and to the work of Neumark et al. The key takeaway here is that a constant reference to small businesses as being generators of new jobs might result in defocused public policy that treats all small businesses as the same and de-emphasizes the role of startups that hold the greatest potential within the small business community. This OECD paper lays out five areas where new firms and startups could be helped by good public policy - Financing, Business Environment and Regulations, Technology Diffusion, Management Training and Access to Markets.

There is a separate issue of how governments should deal with larger employers, whether or not they are "high-impact" or high growth firms, because large corporations often employ disproportionate numbers of employees at certain geographic locations and larger companies could also face declines due to successful competitive entries by new or existing smaller firms (also see comments by Vivek Wadhwa). Another dynamic that some of the aforementioned studies are probably not accounting for in any significant manner is the impact of modern globalization and the dramatically increased availability of key technology and skillsets outside the U.S. in recent years. Former Intel CEO Andy Grove's recent article - "How to Make an American Job Before It's Too Late" discussed this in part, although it is not clear some of the solutions he offered are the right ones. The reality is that countries like India and China, among others, now have much of the skillsets and knowhow to compete directly with Western nations including the U.S. and will in the near future largely be on par with the U.S. This imposes two constraints on U.S. companies, including startups. Owing to the fact that the dollar is much stronger than their currencies and that their labor markets are less expensive, even innovative companies - who are forced to achieve good earnings growth to remain competitive - will generally tend to hire more and more employees in those countries rather than in the United States. Even companies and business leaders who might genuinely wish to grow employment in the US will be challenged both by US competitors and increasingly by small and large competitors in countries like China and India who hire aggressively outside the US and can deliver innovation at lower overall cost. This is not just a phenomenon in the high-technology industry but in the service and manufacturing sectors overall. So, any enlightened US jobs policy must take this reality into account. When asked about this, President Clinton suggested that it is likely that some of these jobs will not return to the US but that there is yet significant potential for new job creation in the US. He is probably right - but his view doesn't overtly take into account the impact of exchange rates (e.g., what if the dollar were to weaken against foreign currencies in the coming years?) and labor markets in high-growth geographies (e.g., what if non-US labor costs even in emerging Asia grow to very high levels?).

Manufacturing

The second category mentioned by Pres. Clinton - US manufacturing - is in worse shape than the US service sector. The U.S. has been losing technology and product leadership in manufacturing to countries like China (in part due to capital and labor cost differences) and for this secular trend to be reversed, policy prescriptions have to be substantial and workable. What I believe is sorely missing in the US today is any kind of broad strategic thinking or position on the type of manufacturing leadership that we believe the U.S. should continue to have in order to preserve our leadership and security over the next 50 years - and - a vision on how we should concomitantly engage with governments and private enterprises to make that strategy a reality. In the absence of a strategic long-term view and any substantive broad-based dialog with the U.S. business community (not in the vein of political talking points, but in the spirit of driving American leadership through enlightened policy and deep engagement), dreams of re-building US manufacturing leadership will remain out of reach.

Clean Energy

This area definitely has more potential for US jobs growth than many others but even here, we are in danger of losing a great opportunity. In areas like solar power and wind, US companies are making strides but companies outside the US are making big strides as well. For the reasons discussed above (capital costs, labor costs), clean energy firms will and do face similar kinds of competitive pressures, especially with firms outside the US located in countries like China. Government sponsored US R&D and initiatives in clean energy are occurring and this is welcome but it is unlikely that these 'point' solutions will provide sustainable long-term jobs growth.

What CGI Should Do

I'm not going to be shy here and would go so far as to suggest that President Clinton should use CGI as a platform to initiate and drive a sustained, long-term collaboration with the US government, State governments and American business, labor and community leaders to:

• Establish a strategic framework for areas and functions where the U.S. should seek to have strong private sector leadership and American jobs for decades - in order to preserve long-term American security
• Define short-, medium- and long-term solutions that governments and the private sector will commit to over the next 2-20 years to lay the foundation for American leadership - which in turn will translate to a more robust American jobs market (NOTE: Even when we come out of the current weak economic situation, the long-term prospects for US economic and jobs growth looks pessimistic, as can be seen in this analysis from the Economic Cycle Research Institute)
• Continue an annual strategic dialogue at CGI, accompanied by CGI action networks and progress reports on commitments, such that there is persistent focus on this topic, outside of the traditional political realm

President Clinton's legacy of balancing the budget and creating millions of American jobs is something that I believe he ought to leverage in helping drive this much needed discussion and an action plan for American jobs.

CGI: Discussion with President Clinton on the Root Causes for the High US Unemployment Rate

I'd like to kick off this new blog with some observations from the Clinton Global Initiative last week. This was my first time at the annual CGI meeting - so my goals were to mainly observe and understand how CGI works and what are some of the pressing topics on focus this year. At its core, the CGI is tackling problems on large scales - so it is of particular interest to me. (About two years ago, Dave Johnson wrote a bit about the evolution of the CGI that is worth reading).

On the night of Sep 20th, I got an opportunity to meet former U.S. President Bill Clinton as part of a Meeting/Q&A with some bloggers and journalists. The discussion was free-ranging and covered several topics. The topic that consumed much of the time was the US economy and American jobs. President Clinton spoke at length about his views and consistent with other contemporaneous interviews, emphasized three major areas that he believed should be our focus to rebuild the jobs market in the US: small businesses, manufacturing and clean energy. At face value, this appears to makes sense. Upon deeper inspection though, there is more to it than meets the eye. I will return to these three areas in a future post.

President Clinton also said that we must address what he felt were barriers for prospective employees to find jobs - limited mobility of a portion of the US workforce due to the fact that they are tied to homes they cannot move out of because they are financially underwater, and some level of skills mismatch (he cited a statistic in a recent employment report that he suggested was an indication that skills mismatches might have at least some role in explaining why some job openings are not getting filled). To address these two barriers, he talked about the need for the government to provide workable solutions for underwater homeowners (see Calculated Risk's charts showing stats on negative equity of US homeowners) and facilitate/enable more worker training. In some respects, Pres. Clinton's comments are consistent with observations in a recent IMF paper (by Nicoletta Batini et al.) on the US economy and jobs market. Data from 2009 suggests mobility of Americans was at a five decade low as of the year ending March 2009 due to the terrible housing market and underwater mortgages:

“In the past, people tended to move to where the jobs are,” said Assistant Treasury Secretary Alan B. Krueger, who oversees economic policy for the department. “Now it is necessary to have more of a strategy to move the jobs — and create new jobs — in areas where the people are.”

However, Mike Konczal at Rortybomb observes that:

[The IMF paper authors] find that structural unemployment is 1%-1.75%, with skills being 0.5%. That means housing hurdles run from 0.5% to 1.25% of unemployment. So that means the large majority of structural unemployment is housing related.

In my defense, we already did this test at the blog here. We ran a regression on deeply underwater homes against unemployment, similar as the IMF but with what I think is a superior instrument but felt uncomfortable including the numbers in my paper (more on that in a second).

Importantly, the IMF paper also states that "skill mismatches have been more acute in states with depressed housing markets—an interaction that is associated with even higher unemployment rates". The paper goes on to argue that the change in "structural unemployment" (as they define it) might be reversible with the right policies that increase mobility and training (I would argue that we need to act sooner rather than later though to prevent people from being out of work for years, making it much more difficult for them to re-enter the jobs market). Mike basically argues that much of this "structural unemployment" can be addressed by addressing the housing market's problems. More recently, an Economic Policy Institute (EPI) team published an analysis of whether there is a "structural unemployment" problem in the US. In "Debunking the theory of structural unemployment", EPI argues that:

Unemployment has remained at 9.5% or above for the past year and is likely to remain elevated or inch even higher through the end of 2011. The reason for this prolonged jobs crisis is fairly simple: The bursting of the housing and stock bubbles and the financial crisis lead to a severe cutback in household consumption and business investment. The policy conclusion drawn from this narrative is that we need faster growth to increase the demand for workers and reduce unemployment.

But many are promoting a different, misguided narrative, that a large share of unemployment is "structural,” meaning that there is a mismatch between unemployed workers and the jobs becoming available. Structural unemployment would result from workers having inadequate skills, or not living in the places where there are jobs. Some have postulated that employers have substantially revamped their production processes in this downturn, thereby eliminating the need for many of the types of workers who are currently unemployed. Still others suggest that the housing bubble lead to a bloated construction sector and many of those jobs will never come back, leaving many construction workers needing to seek employment in different professions for which they may not be qualified.

Why does the cause of our high unemployment rate matter? Because it will dictate the policy prescription. The policy implications of structural unemployment would be that (1) it would be foolhardy to pursue policies that increase the demand side of the equation (fiscal stimulus, either tax cuts or increased spending, or monetary policy) to lower unemployment; and (2) the appropriate policy is to offer education and training to the unemployed to help them make a transition to new occupations and sectors.

EPI’s new paper, Reasons for Skepticism About Structural Unemployment, shows that there has been little evidence to support the claim of extensive structural unemployment and that the pattern of employer behavior regarding job openings, layoffs and hires does not support such a claim.

EPI's entire piece is worth reading and make sure you also review their job seeker ratio chart showing the high ratio of unemployed workers to job openings. Mike's and EPI's concerns are reasonable since the root causes of any perceived "structural unemployment" will inevitably dictate US government policy. That said, there is no denying that even if the unemployment rate is largely demand driven and not technically "structural" or "permanent", better worker mobility and training (especially for workers who cannot move) is likely to help, not hurt, in this time. In other words, worker training should not be considered a policy prescription merely for perceived structural unemployment as EPI appears to suggest.

A final clarification - in the CGI discussion, I don't believe President Clinton ever used the term structural unemployment and he did not suggest that mobility and skillset gaps alone would lead to a permanent structural increase in unemployment in the US. Interestingly, he also indicated that CGI will start increasing its focus on US issues this year.

P.S. All use of bold text in this post is my own.

Why Yotta Point?

As Wikipedia states:

Yotta is the largest unit prefix in the International System of Units (SI) denoting a factor of 10²⁴ or 1000000000000000000000000. It has the unit symbol Y.

The prefix name is derived from the Greek ὀκτώ (októ), meaning eight, because it is equal to 10008. It was added to the SI in 1991. [1]

I started this blog because of my interest in challenges of immense scale and designing and implementing solutions to such challenges. For example:

• How do Governments devise solid policies to address a problem impacting tens to hundreds of millions to billions of people?
• How do non-governmental organizations (NGOs) and non-profits take solutions that might work within small populations and scale them to address much larger populations?
• How do businesses that are growing (either organically or inorganically) scale everything they do successfully to meet the demands of growth?

...and so on.

I consider these challenges ones of scaling. As the world grows, the challenges of scaling get more pronounced. Solving real-life problems of scaling excites me. Hence, the use of the term Yotta Point to denote a place where issues tied to scale will be discussed.

Welcome!