EPWN LISBON AND

IE BUSINESS SCHOOL

3 NOVEMBER 2011

Recession, or renaissance?Thriving in the new era

Gayle AllardIE Business School

WHEN WILL IT END?WHAT WILL THE POST/RECESSION WORLD LOOK LIKE ?

Part I:recession

The financial crisis and recession have taken a heavy toll on developed countries...

…and it isn’t over yet.

Governments (Ireland, Greece, Portugal, Spain, UK, US) are cutting deficits and implementing austerity; others paralyzed by indecision (US, EZ)

Global banking is still dysfunctional

Businesses are finding stiff international competition (hence mini-currency wars)

Consumers are unsure of their jobs, savings, pensions and future incomes and are afraid to spend

All of these factors will continue to dampen employment, incomes and consumer spending and could pull us into a second recession in coming months

Why was the periphery hit so hard?Economies were not prepared for the euro

Average 1982-2010. Source: OECD.

Solving the euro/debt crisis is one of the keys to global growth

The EFSF is too small to protect peripheral borrowers (€440bn); Greece alone may need €444bn, according to a recent study*

Italy and Spain are both too big to fail and too big to be bailed out

The cost of a euro breakup could be 40-50% of GDP for a peripheral country and 20-25% for a core country (UBS estimates); much higher than the cost of a bailout.

Germany: soaring new currency would devastate manufacturing, require bailout of banks with old euro assets

Greece: plummeting new drachma, crippling new debt and collapse of financial system (“mother of all financial crises”)

Some countries, like Portugal, may soon be making a comeback after harsh austerity

Some governments slashed spending, raised taxes and adopted painful reforms

Ireland and Portugal are starting to see a surge in exports, as they have brought costs under control and become more competitive

This is a painful “internal devaluation” which may be the only way out for eurozone countries

The crisis has broken down our growth model, and no one is sure what will replace it

Before, fast growth driven by “big spending” US (as well as overconsuming peripheral countries)What will the new world look like?

More multilateral and more balancedDifferent currencies rather than a hugely dominant reserve currencyMore balance between developed and emerging economiesMore rapid return to automatic adjustment on external accountsNew engine of growth in the new global economy?

Slower global growth, concentrated in emerging economiesContinuing pressure on labor costs in developed nations, as hundreds of millions of workers join the global labor marketCould we see a backlash against globalization and our present capitalist model?

Who will be the G20 in 2050? Some projections

For developed countries: the specter of “Japanization”?

Japan was supposed to be the world´s largest economy by 2010; it was the model for managementThe bursting of the asset bubbles in Japan and elsewhere in Asia in the late 90s sent it into a decade of crisisPoor leadership aggravated the crisisChina is now larger than Japan, and the most likely outlook for Japan is a steady and possibly irreversible economic declineWhat do we have in common with Japan?

Aging populationHeavy government debt burdenSlow growthUncertain political leadership

TRENDS THAT ARE SHAPING OUR WORLD

DEMOGRAPHY

GLOBALIZATION

SUSTAINABILITY

SEARCHING FOR TRUE SATISFACTION

Part II:renaissance

Demography was moving our world to a “new normal” even before the crisis

Portugal´s population pyramids

Fast growing population of workers and consumers stimulates growth

A large dependent population –old and young– harms growth because

They do not work

They make claims on a country´s income without contributing to it

They depress savings, which slows capital growth and productivity growth

Aging will slow growth everywhere

Slow or negative population growth will have some great benefits

We will need major pension reform and an overhaul of our public services, BUT

The pressure on the environment may be alleviated

A scarcity of workers will produce fiercer competition for talent

Unemployment may recede as a problem

How is globalization transforming our future ?

Globalization has brought huge benefits in declining prices, rising efficiency, higher real incomesBut for developed countries, it poses profound issues:

Higher prices for raw materials as demand from emerging economies surgesCompetition in labor markets is generating

Lower real labor costs (and rising structural unemployment)We may have to work harder, longer, for less in the future

Globalization has brought greater wealth equality amongnations, but greater inequality within nations

Rising debt in some nations could be a “cascading” effect to compensate for inequality and stagnant incomes

If we keep globalizingIf we keep globalizing If we stop globalizingIf we stop globalizing

× Pressure on labor costs will continue and jobs in traditional sectors will keep disappearing

Countries that find a competitive niche in high value added sectors will generate excellent jobs for a huge market

Better chance for emerging nations to develop

Higher prices, lower real incomes, lower growth

Preservation of traditional patterns of life and cultural identities

End to treadmill of world competition

More equality at home

There could be benefits both from more globalization AND from an end to globalization

Environmental pressures will change our world

If the world´s GDP expands six- or sevenfold by 2050, the planet will be unimaginably stressed

The earth´s regenerative capacity has already been passed

If China and India used as much energy per capita as the Americans, their total power consumption would be 14x the U.S.

If China, India, other emerging countries reach Western levels of car ownership, the world would have 3bn cars (4x current total)

Asia and West must make growth more sustainable:Carbon and resource taxes that will provide incentives to produce in a much less material- and energy-intensive way

Draconian rules on consumption of fossil fuels, fisheries, forest products

Massive investments in public infrastructure

Different models of production and consumption

A more environmentally friendly world would have huge benefits

Growth would be slower and real incomes lower, BUTWe could avoid the tragedies of destruction of species, wilderness, natural spaces Many new jobs would emerge in low-carbon, alternative energy, recycling, repair, cleaner industries, research and development, organic farming, socially responsible production, etc.Countries that move first to protect the environment will have a competitive edge

But maybe our world needs changing...because it isn’t giving us what we really want

Surveys asking people how happy they are indicate that the average level of happiness has not increased over several decades, despite large increases in income per capita in the United States, Japan, the UK, and continental Europe.

So what DOES make us happier?

Economic research demonstrates that past certain levels, higher income does not lead to greater happiness or life satisfaction

Recent research focuses on spending rather than income and concludes:If money doesn´t make you happy then maybe you aren´t using

it right.

What kind of spending makes people happier?Spending on leisure or experiences with other people (nights at home with family or “staycations”)

Giving money away

What makes us happy/unhappy?happiness

index

Income Family income up 50% relative to average +1

Family income down 33% relative to average -1

Freedom Quality of government improves (Hungary vs Belarus 1995) +2.5

Religion “God is important in my life” (“Yes”, all else constant) +2

Trust “In general, people can be trusted” (“Yes”; all else constant) +1

Morality “Cheating on taxes is never justifiable” (“Yes”; all else constant)

+1

Work Unemployed (rather than employed) -3

Job is insecure (rather than secure) -1.5

Family Divorced (rather than married) -2.5

Widowed (rather than married) -2

Health Subjective health down 1 point on 5-point scale -3

Slower growth in the “new normal” may actually move us in the right direction

The crisis has reawakened many people to the limits of obsessive consumptionThe “100 things challenge” invites people with money NOT to buy everything they can; rather, to limit their possessions to a minimumIf we rearranged our priorities away from consumption, there would be a sea change in behavior in the developed countriesThis could have remarkable results for human satisfaction …and for the environment.

People are finding that their homes are full of stuff, but their lives are littered with unfulfilled promises.

WHAT WILL THE NEW WORLD MEAN FOR WOMEN?WHO ARE WE… AND WHO DO WE WANT TO BE?

Part III:thriving in the new era

Female workers have transformed the postwar world

Expanding economic opportunities for women has drawn many into the work force

Female labor force participation rate has grown dramatically since 1960

Delayed childbearing, better education has accelerated this change

Men´s participation rate has fallen while women´s has soared: the difference is now only 26 percentage points, compared to 32 in 1980

Women have prepared themselves for better careers

Gender equality is an important indication of true democracy

Hillary Clinton, U.S. Secretary of State

Gaps between men and women persist in the workplace

Gender gaps persist in earnings and productivity across the world, at every income level

Women are overrepresented in informal work and in part-time and temporary jobsNumber of female bosses of large firms is still small

No female CEOs on France´s CAC 40 share

index or Germany´s DAX index

US: 15 executives of Fortune 500 companies

are women; in Britain: 5 of FTSE-100

Indra Nooyi, Pepsico

r

Christine Lagarde, IMF

Why does more diversity make good economic sense?

Women are more likely to understand the largest group of consumers in the worldThey represent an “underfished” pool of talentThey bring unique strengths:

More collaborative than menBetter at multitasking

Some evidence that companies with more women in top jobs perform better than those run only by men

McKinsey studied 89 companies in Europe with a high proportion of women in senior management posts, showed higher return on equity, higher operating profits and better share prices than the industry averageClearly, this minority of women is excellent

Patricia Woertz, Archer Daniels Midland

Why do women continue to lag behind?

Women do as well as men in university and are overrepresented in MBA programs

They hold more than half of the entry-level jobs in top companies

But they quickly fall behind:Less aggressive when negotiating salary and raises

In the US, women are 37% of middle managers, 28% of senior managers, 14% of executive committee members

Irene Rosenfeld, Kraft Foods

Why do women continue to lag behind?

Is it discrimination? Are legal, financial systems discriminating against

women?Do men consistently underestimate women?

Patronage does not work in favor of womenWomen may not have as many powerful backers as

menThey may also be reluctant to call in favors

Balancing act: women struggle to balance work and family, where they still have the main responsibility

“ Women look at the top and don’t see anyone they want to emulate… They become weary of what they often describe as game-playing, as they discover a greater level of jockeying and competition.”

Oprah Winfrey, Harper and OWN

How does family responsibility compromise women´s careers?

European women devote at least twice as much time as men to domestic tasks

Nordic: men spend 2.3 hours/day; women 3.4Latin countries are much worse: men spend 1.3; women 5.2

How do women cope with home responsibilities?Choose jobs with flexibility, predictabilityTake time off

In the US in 2009, 31% of women had taken a career break (avg. 2.7 years)66% had switched to part-time or flex-time work

Once on the “mommy track”, they may find it hard to get back on the fast track

Many have decided to avoid family responsibilities by not marrying or not having children

Women are having few or no children and (in Asia)

many flee marriage…

About 1/3 of Japanese women in their early 30s are unmarried

Why? Being both employed and married is tough in Asia:Men do 3 hours of housework a week vs 30 for womenFinancial independence and education contribute to decline of marriage

Can women be helped to balance work and family?

Government responses:Parental leave for both parents, with job guarantees on return

Part-time work

Child care

Holiday scheduling (work and school)

Company responsesChild care on site

Teleworking (nearly 20% of American workers

telecommute)

Understand family demands

Ginny Rometti, IBM

Are quotas the solution to greater equality?

Norway: all publicly listed firms must reserve 40% of seats on boards for womenSpain, France have passed similar laws; Holland will soon; Germany considering itEuropean Parliament passed in 2011 a resolution requiring that 40% of seats on listed companies´ supervisory boards will be reserved for women by 2020But quotas may elevate women who would not otherwise get onto the board

Ann Livermore, Hewlett Packard

Women also need to be creative

New generation of female entrepreneurs starting up business from home during a break from the workforce to have children (Australia: 15% of women with small children are “mumpreneurs”)

Technology helps

Control own destiny

Give high priority to flexibility

Sheryl Sandberg, Facebook

Bottom line: our own priorities and doing what´s important

What is success?What do I want to do with the time I’m given?What will outlive me?Just as our mothers or grandmothers had to buck trends and think outside the box to get

into the working world, we need to do

the same to seek true satisfaction

Melanie Healey, Proctor & Gamble

Don´t be trapped by dogma, which is living with the results of other people´s thinking. Don´t let the

noise of others´ opinions drown out your own inner voice. And most important, have the courage

to follow your heart and intuition. They somehow already know what you truly want to become.

Steve Jobs, 2005

THANK YOU!