Tuesday, November 25, 2008

The re-Education of a businessman

What business schools need to do

From The Statesman


Business schools emphasise quantitative analysis and sophisticated computer modelling as if real life in the street could be enclosed in a Gaussian Bell Curve and events could be predicted within margins of error. But modern tools of business and economics cannot capture outliers, for example, the rare and extreme event such as the global financial crisis that is crushing us today.

While one cannot prevent a tsunami from hitting a country, one can certainly imagine such an extreme event occurring and build enough reserve resources to reorganise and restructure.Nor do business schools teach how to resurrect and rebuild the most invaluable human asset: trust and confidence. How do you restore people’s faith in a system that has failed them?

When the CEOs of Detroit’s big three automakers went to Congress for a $25-billion bailout to avoid bankruptcy, member after member asked them why they should trust them for doing the right thing for taxpayers and consumers. Show us your business plans before we give you the money, they said, after scolding them for flying in in their private jets. The best argument the trio could muster was that bankruptcy would put millions of people out of job, which was not only unpersuasive but also a dangerous half-truth.

The foreign automakers ~ Honda, Toyota, Hyundai, BMW and Mercedes ~ who run non-union auto plants in the South are after all doing not that badly in these bad times. No one wants Detroit to disappear as an important auto-manufacturing hub that radiates its energy through every walk of American life and directly and indirectly affects the lives of 2.5 million people.

But Detroit is an exemplar of failure in persuasion. It has failed to persuade the American consumer that its cars are better than those made by Germans, Japanese and South Koreans. It has failed to persuade Congress that it is capable of making better cars ~ fuel-efficient and green. Business schools claim that they create future business leaders but they don’t teach the fine art of how to become influential in a democratic society. They train technocrats who feel more comfortable with their BlackBerrys and talking into Bluetooths rather than sitting across a hostile group of people such as a congressional subcommittee and turning them into friends.

In the ultimate analysis doing business is about persuasion. Therefore, what business schools need to do is to develop a new concentration of courses that prepares MBA students for creating and exercising soft power. For want of a better term, some people call it lobbying, though I believe advocacy is a better word. Mr Richard Hall and Mr Alan Deardorff of the University of Michigan wrote in the American Political Science Review (2006) that, “Professional lobbyists are among the most experienced, knowledgeable, and strategic actors one can find in the everyday practice of politics.” But lobbyists are sometime reviled as unethical because most people think of lobbying as greasing, golfing, wining and dining ~ an unfortunately negative attitude about a socially useful activity.

Lobbying is a multimillion-dollar global service industry. China, India, Israel, the EU and Arab countries, for example, have hired some of the best lobbyists to look after their interests in the US. The US-India nuclear deal would have never been passed by Congress but for the excellent work done by some very talented groups of people who changed perceptions about India even though the country did not sign the Nuclear Non-proliferation Treaty. Chinese lobbyists want to ensure that Americans do not turn protectionist.

American lobbyists abroad (call them by whatever name you like) prowl and trawl throughout the world wherever decision-making power is concentrated. They know how to negotiate with the powers that be and use the news media and other resources to protect their national interest. Lobbying substitutes the power of the gun with the power of the tongue. In the US, lobbying is a legitimate activity protected by the First Amendment. In other democracies too, lobbying is considered a rightful and justifiable activity.

One of the most arduous tasks for anyone is to unravel and understand the labyrinthine activities of the US Congress ~ how it works and wields power through its committees, subcommittees and public hearings. How issues emerge in the public consciousness and how they are transformed into bills that become laws.

It is important for us to understand and appreciate the role of lobbyists in the halls of power and how they facilitate legislative processes both at Capitol Hill and in state capitals. If you take away lobbyists from Washington, Congress might turn into a permanent lame-duck institution. In fact, the failure to help the Detroit automakers is as much a reflection on Congress’s disarray as it is of the big three automaker CEOs’ inability to change the perception that they can do better.

Apart from being extremely knowledgeable and strategic thinkers, lobbyists put to use an indispensable tool of persuasion, which is negotiation. While it is said that most things in life are negotiable, the art of negotiation does not come easy whether one is dealing with friends or foes.Another important aspect of lobbying is to build and manage public campaigns, which include political (presidential), corporate (as the big three are doing now), and global (environmental, human rights) campaigns.

Besides teaching negotiation and campaigning skills, business schools should teach students how to work with the news media and use the Internet and social networking sites for grassroots community building.The learning focus could vary from the outstanding success of Mr Barack Obama’s presidential campaign to the ongoing international bailout efforts to save the international financial system. Advocacy, negotiation and campaigning should be central to every management programme.

(ND Batra is professor of communications at Norwich University)

Tuesday, November 18, 2008

Thanksgiving in downtown America

Downtown America is downturning

Fraom The Statesman
ND Batra

We are heading toward a long weekend of vacation when millions of Americans will travel by trains, planes and automobiles to share with family and friends the joys of a Thanksgiving meal of roasted turkey with stuffing and cranberry sauce, apple cider and wine, and much more.

The day after Thanksgiving, stores will open for early bird door-buster sales, the traditional beginning of the holiday shopping season that lasts through Christmas and beyond, and is a firm indicator of how the economy is doing. But this Thanksgiving Day, as Americans mumble their prayers before the big meal and dig into their grandma pies and exchange neighbourhood gossip, the most pressing concern on their minds will be their jobs, some lost, and others threatened. Some have already lost their homes to foreclosures.

You have heard the cliché that in a market economy like the US’s, the consumer is king with a credit card, but unfortunately during the last two years the ground has been collapsing underneath him. The king feels like a pauper now. In spite of the fact that stores are offering huge discounts, even up to 75 per cent on some goods, it is uncertain whether the consumer will bring his credit card out of his wallet ~ so much is the fear of tomorrow. When your neighbour loses his job, you don’t know what might happen to you.

In some respects, it is the worst of times since 11 September 2001, when the US was attacked by terrorists. The downturn is becoming a recession and it is hitting the entire country. Nest eggs are dwindling and disappearing.

Last week the US Labor Department reported that jobless claims have risen to 516,000, which means more than a half million families, including some with children, won’t be heading to the stores with a smile on their faces. The total unemployment rate of 6.5 per cent is the highest in 14 years, according to the Labor Department. You might say that since the rest of the 93.5 per cent of people do have jobs, why worry? But that’s not how you measure misery. Unemployment of course can never be zero per cent but when it is below 5 per cent it is deemed tolerable, albeit grudgingly.

You might regard national unemployment as a revolving door through which people come and go. While some people get jobs, others lose and file for jobless claims; nonetheless, according to some economists when jobless claims, which provide a few weeks’ financial relief, touch 500,000, the situation is considered a recession. Eventually we will bottom out of the recession, though it is difficult to say when that will happen. Will it get worse? Some fear the coming of a depression. During the 1929-1930 Great Depression, 20 per cent Americans were out of jobs. We are far from that.

So the question is how the massive stimulus package of $700 billion, which was originally meant to buy out bad assets of banks and financial institutions so that they regain health and confidence and start lending again, will help Joe Sixpack who might be on the verge of getting a pink slip. In an about turn from the original plan, Treasury Secretary Henry Paulson recently announced that he would now use a part of the stimulus package to encourage consumer spending via student loans, credit cards and automobile loans so that the wheels of the economy don’t grind to a halt. But the Big Three Detroit automakers ~ Ford, General Motors and Chrysler ~ say they need a cash infusion of $25 billion or more to stay afloat.

If Detroit shuts down, millions of jobs including the entire supply chain from automobile dealers to auto part manufactures will be lost, leading to a deeper recession. The Federal Deposit Insurance Corporation is asking the government to spend $24 billion to back up mortgages so that 1.5 million threatened homeowners can stay in their homes rather than losing them to foreclosures. Many states, towns and cities are clamouring for their share of the pie. University and college endowments have slumped.A few weeks ago, I wrote “recession is worse than terrorism”.

Terrorism is man-made and can be limited and controlled. It can even be eliminated as has been done in Indonesia. But global recession ~ though its genesis indubitably lies in criminally negligent US bank lending practices in the housing market that let Joe Sixpack buy a house when he could not afford to pay the mortgage ~ is out of control and dragging every country down. As Prime Minister Manmohan Singh was heard saying at the G-20 meeting, “Emerging market countries were not the cause of this crisis, but they are amongst its most affected victims.”

It might sound rather flippant, nonetheless, let me ask a question. If Pakistan goes bankrupt, who would you blame: Taliban or Joe Sixpack? Consider this. When terrorists’ attacks hit the US seven years ago, there was no gathering of the G-20 nations (developed and emerging economies that today account for 85per cent of the world economy) to save the world. The Saturday gathering of the G-20 in Washington DC aimed to erect a dynamic global financial system that would reflect the new emerging world order by restructuring the creaky post-war Breton Woods (the World Bank and International Monetary Fund) system.

But on close reading you find that it was primarily meant to unfreeze the global credit pipeline through various national stimulus packages so that Joe Sixpack can go on his buying spree again; and Joe Chan in Guangdong and Joe Slumdog in Bangalore can get back their jobs in the factory and the outsourcing cubicle.And thereby hangs the global tale of miners in Africa, shoe and toy manufacturers in China, chicken feeders in Australia, outsourcers across India, oil sheikhs in the Arab world and diamond merchants in Amsterdam, all in the same boat, the Titanic, with Joe Sixpack. Do you see the iceberg?

(ND Batra is professor of communicationsat Norwich University)

Tuesday, November 11, 2008


The flight of the black swan

From The Statesman
ND Batra

The whole world is waiting for President-elect Barack Obama, one of the most inspiring orators of modern times, to hear what he will say to the American people, now in deep economic distress, as he enters the White House on 20 January 2009. Perhaps no one could have been more gracious than President George W Bush, who said, “It will be a stirring sight to watch President Obama, his wife, Michelle, and their beautiful girls step through the doors of the White House.”

I see him hugging and folding his wife and children in his huge embrace with a broad smile, waving to the milling, swaying crowd, as if to say, “Thanks for the company, we have arrived, at last.”
A generation ago, it would have been unthinkable that the American-born son of an African immigrant married to a White woman would have the courage, “the audacity of hope”, to dream of sitting in the Oval Office. By winning the presidency, Mr Obama has elevated the White House and uplifted the American people. He might transform the US into a moral force, once again a great power for good.From the White House the Obama family will survey the past, from the coming of Kunta Kinte (Arthur Haley’s fictional-historical character from Roots) to the US in a slave ship to work in the cotton fields of the South to his liberation after the Civil War, which soon mutated into the utter degradation of segregation through the Jim Crow laws; his slow march through judicial and legislative processes, for example, the1954 Supreme Court decision in Brown versus Board of Education declaring segregation as inherently wrong and the 1964 Civil Rights Act outlawing racial segregation; and his final assertion as a human being and the dreaming about a new US where one’s character and merit, as the non-violent civil rights movement leader Martin Luther King, Jr. prophesied, would matter more than the pigment of one’s skin.

In a manner of speaking, the history of the US is the history of the Black man rising and being accepted as a fellow American by the White man. Now that Kunta Kinte is entering the White House, it’s the end of history. And a new dawn of possibilities, as Mr Obama said.It is the beginning of new possibilities at home for regenerating the US through innovation, invention and entrepreneurship, of establishing a new system of universal healthcare and financial security, of re-democratising and re-dedicating the American dream so that there will always be a second chance and failure is no stigma, and yes, you can do it.
Mr Obama built a remarkable grassroots Internet-based meta-party political machine to win the hearts and minds of the young and the old, of the entire racial and ideological spectrum, and almost got a mandate to bring about transformation in American society. But as the ravaging global financial crisis shows, Americans are so densely interconnected with the rest of the world that no meaningful change can occur unless the rest of the world is willing to cooperate, a lesson the US should have learned after the 9/11 terrorists attacks. The US cannot go it alone even in its attempt to set its own house in order without help from others, whether it is the Chinese moneylender or the Pakistani badlander.
So the question is how Mr Obama will transform his campaign slogan, “Yes, we can”, into reality.On Friday, Mr Obama, surrounded by some of the best and the brightest economists and financial experts, gave his first post-election press conference. He was cool and measured in his remarks about the state of economy and sounded much less exuberant about the prospects of turning things around than when he was stumping for the election. “I do not underestimate the enormity of the task that lies ahead,” he said. “Some of the choices that we make are going to be difficult. And I have said before and I will repeat again: it is not going to be quick and it is not going to be easy for us to dig ourselves out of the hole that we are in.”
He urged Congress and the Bush administration to pass a stimulus package, which, apart from the $700 bailout already approved for reviving financial markets, would cost anything between $150 billion to $300 billion and would help families with tax-relief, extended unemployment insurance benefits and food stamps. It would also bolster the crumbling budgets of cities and states, without which some of the essential services would be adversely affected.

A similar stimulus package of $107 billion was given in the beginning of the year to mostly lower- and middle-class families but it worked more like a small drink of brandy for a depressed man than an energiser of economic activity.The most sobering lesson a US President has to learn is that he can’t do much about global markets. Being the leader of the free world can create a dangerous delusion. Whether there will be an opportunity for finding a new leadership role for the US in an interdependent world of rapidly emerging economic powers ~ China, Japan, the EU, Russia, and, perhaps, India ~ no one knows.

But when a reporter asked how Mr Obama would respond to Iranian President Mahmoud Ahamdinejad’s letter of congratulations, he said with a determined finality that Iran’s nuclear ambitions were absolutely “unacceptable”. I hope Mr Obama will also have the courage to say, “The decline and fall of the US is utterly ‘unacceptable’.”

But look! What a cornucopia lies in wait for Kunta Kinte in the White House: a global financial meltdown; the Israel-Palestine decades-long deadly dance; Iran’s “peaceful” nuclear ambitions; the Afghanistan-Pakistan implosion; and let’s not forget the dessert: China’s mountain of a $2-trillion foreign exchange reserve. All served up by your favourite waiter, Joe the Plumber.

(ND Batra is professor of communicationat Norwich University)

Tuesday, November 4, 2008

Bailing out Joe the Plumber

Everyman America too needs a bailout


From The Statesman

Joe the Plumber, America’s Everyman fictionalised and popularised by both Senator John McCain and Senator Barack Obama during their fiercely contested presidential elections, cannot pay his credit card bills. After the elections, he will be forgotten but not his problems. American consumers are defaulting enormously on their credit cards and banks are bleeding red ink coast to coast.

The credit card industry and consumer advocates are asking the Federal regulators to let them write off as much as 40 per cent credit card debts for some consumers, according to Associated Press. Cash-only lifestyle in the United States has long been gone.

Barring a minuscule minority of old-fashioned people who still believe and practice what Polonius said in Hamlet, “Neither a borrower nor a lender be,” most Americans have become accustomed to living on credit. It was so wonderful when the going was good. Banks were eager to loan money to anyone who had a minimal threshold of credit-worthiness. Before the financial tsunami hit the country, the industry used to mail billions of solicitations to people offering credit cards.

There are more than 650 million credit cards in circulation in the United States for a total population of 300 million plus. American economy depends on consumer spending. Even today in spite of the credit crunch, when you enter a store a pretty girl would greet you with the solicitation: “If you open the credit card account now, you will get 10 per cent discount on all your sales today.” And then she would whisper: “You can cancel it any time.” With very little background check, instant credit would be issued to the customer and thus would begin the spending spree, for which the whole world is paying the price.

A few years ago it was thought that the American model could work for a growing economy like India; so credit cards were issued as generously and foolishly as they were done in the United States. But as they have pursued the American way of life, the rising middle-class Indians too have been sucked into the consumerism tidal wave with unforeseen consequences for the economy.

A middle class Indian would live in perpetual debt, as would Joe the Plumber for many years to come, making monthly payments for the mortgage, home equity loan, car loan, and his children’s college education. And if Joe the Plumber faces divorce, a highly probable domestic future for Everyman America, or if there is a major medical catastrophe uncovered by his health insurance, he would look for a bailout or bankruptcy. There was a time when American consumers used credit cards mostly during a holiday season. Gradually it became an all season credit addiction. When bills began to pour in and borrowers were unable to pay them, they juggled their debts from one credit card to another.

In spite of the fact that the law in the United States now makes personal bankruptcy rather more difficult, on average about a million people filed for bankruptcy every year. Now it is going to be much worse. Bankruptcy of course is no shame in the United States. From Lehman Brothers to Joe the Plumber, everyone does it. It is only a minor embarrassment. Call it a method of re-inventing oneself; or re-structuring.

Americans routinely use the card to make all kinds of payments: medical bills, gas, groceries at the supermarket, college tuition bills; and even dial-a-porn. It is so convenient. In fact consumers are rewarded for using their charge cards. Many card companies offer cash back, frequent flyer miles, or some other horny corny temptation every time the customer uses the card. Without savings, how can a family balance its budget in tough times, except through more borrowing with the credit card? According to Federal Reserve estimates, the total credit card debt carried by the US households in November 2007 was $900 billion.

As long as the good times rolled on, banks did not feel that credit card delinquencies posed a serious threat to the banking system because most card customers were good, so good that their business covered up not only the losses due to bankruptcies but also due to frauds. The cardholder liability in fraud cases is limited to $50 only. Every year thousands of people become victims of card frauds. There have been several reports from major news media whipping foreign hackers for most of the card frauds in the United States. Credit card thieves come in all shapes, colours and nationalities and they have the same working methods: hack into the data bank of a major retailer and once logged on, download customers’ social security, credit status, and addresses.

With stolen ID they can live the other person’s life for a long time and then move on to another victim. The usurer, the debtor, and the gentleman crook were all doing well in the United States, though it had been a continuous challenge: life in perpetual debt, worry about paying the next month’s bill; or jail for fraud. But in hard times like these, the credit card industry cannot survive if the losses reach a point that the credit card system collapses like a house of cards.

So what should India be doing?

Instead of pursuing the American way, India should consider the French way where most people opt for a debit card. This will allow an aspiring Miss Bollywood to spend as much on her Prada collection as she has in her bank account.

(ND Batra teaches communications and diplomacy at Norwich University. He is working on a new book: This is the American Way, Stranger!)