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A Past of Brilliance and 21st Century Hopes: Should You Invest in Russia?

By Walter C. Clemens, Jr.

The decline in Russia’s cultural creativity under post-Communist as well as Soviet rule belongs to a larger syndrome that emits warning signals to outside investors. Why do nations fail? Top down exploitation of people and resources tends to backfire. The whims of autocrats throttle not only cultural development but also the prospects for mutual gain in business.

 

For centuries investors in the West have been tempted to invest in Russia, largest country in the world and rich in resources both human and material. For more than a thousand years, however, authoritarian rule has prevailed over law in Russia. Conditions have improved since Stalin, but have slid backward in the 21st century under Vladimir Putin.

This essay traces a sharp decline in the level of cultural creativity in Russia – a trend that parallels low levels of public health, societal trust, and respect for law. The UN Human Development Index (based on education, health, and income) rates Russia 49th in the world (from Norway, 1st, to the Central African Republic, 188th). Freedom House deems Russia “not free”, with a score just slightly higher than Saudi Arabia, Sudan, and North Korea. On a scale of corruption that includes 176 countries (with Denmark the least corrupt), Transparency International places Putin’s Russia at 131st. This situation depresses the quality of life for most Russians and helps foster dangers to regional and world peace. It also presents serious risks to outsiders hoping to do business in Putin’s Russia.

This situation depresses the quality of life for most Russians and helps foster dangers to regional and world peace. It also presents serious risks to outsiders hoping to do business in Putin’s Russia.

Part of the old Russia remains, as we see in Ukraine, an imperial bully intent on dominating any neighbour unable to repulse the world’s largest power. But Tsarist Russia, for all its negative traits, had redeeming features. Nineteenth and early twentieth century Russia gave rise to some of the greatest music, dance, and literature in human history – a flowering not spawned by Vladimir Putin’s petrostate.

Great civilisations can whither – even when built on the material and human foundations of a potential superpower. China, the West, and the world of Islam are all in jeopardy. But what happened to Russian civilisation? What has happened to deep creativity that for more than a century broke through the shackles of tsarist autocracy? Its sparks continued to glow on occasion in Soviet times but have now, despite the nominal end of Communist dictatorship, nearly burned out.

What happened to the literary scene that gave the world some of its greatest ever poets and novelists – Pushkin, Lermontov, Tolstoy, and Dostoevsky? Where is today’s Gogol, whose somewhat crazy stories lampooned Russian life, including the tsarist bureaucracy? (One descendant inhabits New York City, where Gary Shteyngart carries on the surrealist tradition.)

What has happened to deep creativity that for more than a century broke through the shackles of tsarist autocracy?

Several major Russian poets continued working in Soviet times. Vladimir Mayakovsky begged, “Make me a part of the Five-Year Plan!” When controls tightened, however, he committed suicide, as did his more romantic comrade, Esenin (spouse for a time to Isadora Duncan). One of Stalin’s favourite writers, Mikhail Sholokov won the Nobel Prize in literature in 1965 for his novels about the Russian Civil War and collectisation of agriculture. Three years later in 1958 Boris Pasternak also won a Nobel prize for Dr. Pasternak, but the Khrushchev regime kept him from accepting it. Solzhenitsyn also won a Nobel in 1970 for his novels exposing life in the gulag. Expelled from the USSR in 1974, he moved to Vermont. (He returned to post-Communist Russia in 1994 and died there in 2008.)

One of the leading dissident poets from the Khrushchev era, Yevgeny Yevtushenko, departed post-Soviet Russia to teach and recite in the USA. He told me that Russian audiences no longer appreciated poetry and – in the 1990s – could not afford books. His best known poem was Babi Yar, about the mass murder of Jews in Nazi-occupied Ukraine. The poem begins:

 No monument stands over Babi Yar.
A steep cliff only, like the rudest headstone.
I am afraid.
Today, I am as old
As the entire Jewish race itself.

Yevtushenko passed away in Tulsa, Oklahoma in April 2017, having given one of his last public presentations at a synagogue in Boston.

Where is the musical scene that gave humanity some of its greatest music, dance, and theatre? The symphonies and operas of Glinka. Mussorgsky, Tchaikovsky, and Rimsky-Korsakov are still played – often by Russian masters with superb technical skills. Stalin smothered two giant composers, Prokofiev and Shostakovich. Risking censure for degenerate modernism, Prokofiev wrote Romeo and Juliet in 1935 and got it produced in 1940. Defying official and popular anti-Semitism, however, Shostakovich managed in 1962 to play his Symphony No. 13 to accompany the Yevtushenko poem, Babi Yar.

One of the world’s greatest cellists, Mstislav Rostropovich, provided refuge to Solzhenitsyn in his dacha after Communist officials criticised him for Gulag Archipelago (not published in Russia until much later). Rostropovich was then banned from performing except in provincial towns. Like Solzhenitsyn, the cellist and his singer wife eventually took exile in the West.

Similar tales abound in all the arts and sciences. Stalin and his successors suppressed, killed, or drove into exile many of the Soviet Union’s best and brightest. Yevtushenko was the most vital – most alive – person I have known. Edward Kuznetsov, jailed for attempting to hijack a plane to take Jewish dissidents to Israel, is the bravest man I have met. Andrei Sakharov, a father of the Soviet H-bomb but also the country’s leading campaigner for human rights, was probably the greatest Russian of all time. (I missed a meeting with him a year or so before his death in 1989 because my driver’s car ran out of gas on a rainy night.)

Other Russians – Balanchine, Nureyev, and Baryshnikov – transformed ballet from Paris to New York. When I look at the Met’s production of Boris Godunov or Eugene Onegin, I weep for the civilisation that gave rise to their birth but is no more. When I visited Moscow’s Tretyakov Art Gallery in 1958, the works of Chagall, Kandinsky, and other avant-garde painters were kept in a dark storage room. One needed a lantern to see them. Now, of course, they are displayed – in part to draw tourists. So are works by the dissident artist, Oskar Rabin, who took exile in Paris. Asculpture by the lateErnst Neizvestny still graces the tomb ofNikita Khrushchev,but the artist moved toNew York.

Borodin’s opera Prince Igor revived at the Met in 2014 recalls not only the glory of Russian musical genius but also a leitmotif of Russian and Ukrainian politics. Prince Igor leads his forces against invaders from Central Asia but is defeated. He and his fellow princes in today’s Ukraine quarrel among themselves and cannot unite to repel the attackers. Here is an old story: chaotic infighting at the top makes what remains of “Rus” unable to cope with determined challenges. The opposite of chaos is rigid order – imposed in later centuries by autocrats in Moscow, St. Petersburg, and, for a time, in Kyiv. Many people may demonstrate, but the outcome is uncertain. Even apparent victories may be short-lived.

Strangled by top-down rule for a millennium, many bright shoots burst forth in the century before the Bolshevik revolution.

What happened to Russia? Strangled by top-down rule for a millennium, many bright shoots burst forth in the century before the Bolshevik revolution. Tsarist rule was incomparably milder than Soviet. Exiled to Siberia for a time, the anarchist prince Petr Kropotkin and Communist V. I. Lenin could receive books, walk, and enjoy nature. Soviet rule, 1917-1991, chocked the creative breath from Slavic and other civilisations subdued by tsars and then by commissars. Since 1991 these peoples have struggled first under near anarchy and then under a dictatorship – neither conducive to cultural or societal fitness, as shown in death tolls from alcoholism and suicide. Unlike the United States, mainstream Russia has found no way to integrate other cultures that could enrich its way of life except by conquest.

What does this mean for Westerners trying to do business in Russia? Caveat emptor! 

This article expands and updates an essay posted in Global Asia Forum, March 10, 2014 at http://www.globalasia.org/Forum/Detail/37/what-happened-to-russia.html

Featured Image: Landmarks of Moscow Kremlin © Getty Images

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About the Author

Walter Clemens is Professor Emeritus of Political Science, Boston University, and an Associate of Harvard University’s Davis Center for Russian and Eurasian Studies. He has written many books including Can Russia Change? (Abingdon, Oxon: Routledge, 2011). His most recent book is North Korea and the World: Human Rights, Arms Control, and Strategies for Negotiation (University Press of Kentucky, 2016). He can be reached at [email protected]

The Costs of Mass Deportations

By Mark Humphery-Jenner

The Trump administration has committed to deport millions of undocumented immigrants. However, such wide-reaching deportations are costly. Deportations carry significant direct costs. Wholescale deportations undermine the US labour market, put loan repayments at risk, and harm immigrants’ US citizen dependents. The administration should weigh these costs when designing an efficient immigration policy.

 

Introduction

The United States government has sought to curb illegal immigration. The administration claims that this is to ensure citizens’ safety and security. Nevertheless, the government should find the most economically efficient solution. Mass deportations are not it. 

Recent legislation has targetted undocumented immigrants. The House has passed legislation has addressed sanctuary cities1 and people who repeatedly enter the US illegally.2 The Department of Homeland Security (DHS) has issued memos,3 which potentially place most4 of the 11 million undocumented immigrants at risk of deportation. These cement the approach in President Trump’s executive orders5. The deportations are potentially wide-reaching.

These deportations can have economic consequences. These involve shocks to labour supply, lending, and to US citizen dependents. This is in addition to the significant cost of deportation itself. These costs should be considered when pursuing any deportation plan.

 

Labour

Undocumented immigrants are a useful source of labour in some sectors. Undocumented immigrants constituted around 8 million, or 5%, of the workforce in the United States according to the Pew Research Center.6 This has remained relatively stable7 since 2009. This labour spikes in several key states,8 such as Nevada, California, Texas, and Florida.

 

Figure 1: Unauthorised Immigrant Labour Force Participation, By State

This graph contains unauthorised immigrant labour participation by state in 2014. Data is from the Pew Research Center.9

Undocumented immigrants are unlikely to be “stealing” citizens’ jobs. Undocumented immigrants often work in less desirable jobs that citizens often shun, and will often do so at lower cost. This manifests in unauthorised labour concentrating in specific industries. US businesses might not be able to directly replace undocumented immigrants, and if they did, would face lower profits. This, in turn, undermines corporate growth and future job creation.

 

Figure 2: Unauthorised Immigrant Participation in Certain Industries

This figure contains the percent of the labour force comprised of unauthorised immigrants, by industry, in 2014. The data is from the Pew Research Center.10

Recent estimates highlight the significant cost to growth of mass deportations. Deporting all 11 million undocumented immigrants is estimated11 to reduce the US GDP by $1.6 trillion. This should be a major deterrent to wholescale deportations.

Loans

Deporting all 11 million undocumented immigrants is estimated11 to reduce the US GDP by $1.6 trillion.

Illegal immigrants can take out loans, and indiscriminate deportations put those at risk. Illegal immigrants can borrow money to buy property,12 and cars, for example. Such loans can be to people who were originally lawful residents, but who overstayed their visas. It can also arise because some lenders will lend if the borrower provides an Individual Taxpayer Identification Number (ITIN), which an undocumented immigrant could obtain, rather than requiring a Social Security Number (SSN). 

Deported immigrants remain liable for that debt. However, deported immigrants are unlikely to have the income to service the debt. This is significant: 35% of all undocumented immigrant households are homeowners, rising to 45% in those households that have been in the US for at least a decade.13 Many of these homeowners will own their properties outright. However, at least some will have incurred debt, which would be put at risk under mass deportations.

 

Dependents

Illegal immigrants can have dependents who are US citizens. As a general rule, people born in the United States are automatically citizens. Around 8% of all births in the United States are to illegal immigrants.14 Around 4 million undocumented adults live with their US born children, a number that is only increasing as heretofore undocumented immigrants start families.15

Illegal immigrants can have dependents who are US citizens. As a general rule, people born in the United States are automatically citizens. Around 8% of all births in the United States are to illegal immigrants.

Deporting productive members of society with dependents risks those dependents’ future education and career outcomes. Children have better career and education outcomes when they live in a stable family environment. Deporting undocumented parents leaves those children reliant on other family members, if they exist, or the state-based childcare system.

Deportations thus impose future costs. These costs arise from increased welfare payments, reduced future productivity, and reduced tax revenue. Disrupting families also jeopardises future entrepreneurship, which is ordinarily a key benefit of allowing immigration.

 

Deportation Costs

Mass deportations will further encumber the already overburdened immigration system. The immigration department faces a backlog of at least 500,000 cases,16 which take around two years to resolve, on average.17

Increased deportations with exacerbate these problems. Several cities have sought to raise funds to help fight deportation cases. These include a $10 million fund sought in Los Angeles,18 a $1 million fund sought in in Seattle,19 and the allocation of $10 million to undocumented immigrants’ cases in New York.20 These resources would further prolong deportation cases, and add to the cost and backlog already inherent in the system.

The deportations themselves are also costly. ICE indicates that the cost of deporting one undocumented immigrant is $10,854. ICE spent $3.2 billion deporting undocumented immigrants in 2016.21 ICE removed nearly 250,000 undocumented immigrants in 2016.22 Even deporting an additional one million immigrants over President Trump’s four-year term would more than double ICE’s existing workload. The American Action Forum argues that deporting all 11 million undocumented immigrants would cost $400-600 billion, so even deporting one million such immigrants would cost at least $35-55 billion.23

 

Where To From Here

Mass deportations will hurt the economy. Undoubtedly, some undocumented immigrants do drain the United States economy. However, mass deportations risk further economic costs. Indeed, immigration brings myriad economic benefits.24 Immigrants also are especially prone to establish new businesses,25 which, in turn, drive economic growth. A more productive approach would seek to leverage these economic benefits. The government should further weigh the costs of deportations when considering whether to embrace such a policy. 

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About the Author

Mark Humphery-Jenner is an Associate Professor of Finance at UNSW Business School. His research spans Corporate Finance, Venture Capital, and Law. He has published and forthcoming papers in finance journals including the Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Review of Finance, Journal of Financial Intermediation, and Journal of Corporate Finance.

 

References

1. No Sanctuary for Criminals Act 2017. Available from: https://judiciary.house.gov/wp-content/uploads/2017/06/GOODLA_028_xml.pdf

2. Kates Law 2017. Available from: https://judiciary.house.gov/wp-content/uploads/2017/06/GOODLA_029_xml.pdf

3. United States Department of Homeland Security. 2017. Memorandum “implementing the President’s Border Security and Immigration Enforcement Improvements Policies.” Available from: https://www.dhs.gov/sites/default/files/publications/17_0220_S1_Implementing-the-Presidents-Border-Security-Immigration-Enforcement-Improvement-Policies.pdf

4. Casselman, Ben and Bacon, Perry. FiveThirtyEight. 2017. “How Trump’s New Plan Affects The 11 Million Undocumented Immigrants In The U.S.” Available from: https://fivethirtyeight.com/features/how-trumps-new-plan-affects-the-11-million-undocumented-immigrants-in-the-u-s/

5. Executive Order: Enhancing Public Safety in the Interior of the United States. 2017. Available from: https://www.whitehouse.gov/the-press-office/2017/01/25/presidential-executive-order-enhancing-public-safety-interior-united

6. Krogstad, Jens Manuel and Passel, Jeffrey S and Cohn, D’Vera. 2017. “5 facts about illegal immigration in the U.S.” . Available from: http://www.pewresearch.org/fact-tank/2017/04/27/5-facts-about-illegal-immigration-in-the-u-s/

7. Passel, Jeffrey S and Cohn, D’Vera. 2016. “Size of U.S. Unauthorized Immigrant Workforce Stable After the Great Recession”. Available from: http://www.pewhispanic.org/2016/11/03/size-of-u-s-unauthorized-immigrant-workforce-stable-after-the-great-recession/

8. Pew Research Center. 2016. “U.S. unauthorized immigration population estimates”. Available from: http://www.pewhispanic.org/interactives/unauthorized-immigrants/

9. Pew Research Center. 2016. “Estimated unauthorized immigrant population, by state, 2014.” Pew Research Center. Available from: http://www.pewhispanic.org/interactives/unauthorized-immigrants/

10. Passel, Jeffrey S. and D’Vera Cohn. 2016. “Size of U.S. Unauthorized Immigrant Workforce Stable After the Great Recession.” Pew Research Center. Page 27.

11. American Action Forum. 2015. “The true cost of Trump’s immigration plan”. Available from: https://www.americanactionforum.org/oped/true-cost-trumps-immigration-plan/

12. Huseman, Jessica. 2014. National Mortgage News.“Setting the Record Straight on Mortgages for Undocumented Immigrants”. Available from: https://www.nationalmortgagenews.com/news/setting-the-record-straight-on-mortgages-for-undocumented-immigrants

13. Passel, Jeffrey S and Cohn, D’Vera. 2009. Pew Research Center. “A portrait of unauthorized immigrants in the United States: Social and Economic Characteristics”. Available from: http://www.pewhispanic.org/2009/04/14/iv-social-and-economic-characteristics/

14. Passel, Jeffrey S and Cohn, D’Vera. 2015. Pew Research Center. “Number of babies born in U.S. to unauthorized immigrants declines”. Available from: http://www.pewresearch.org/fact-tank/2015/09/11/number-of-babies-born-in-u-s-to-unauthorized-immigrants-declines/

15. Passel, Jeffrey S and Cohn, D’Vera and Krogstad, Jens Manuel and Gonzalez-Barrera, Ana. 2014. Pew Research Center. “As Growth Stalls, Unauthorized Immigrant Population Becomes More Settled”. Available from: http://www.pewhispanic.org/2014/09/03/as-growth-stalls-unauthorized-immigrant-population-becomes-more-settled/#parents-of-u-s-born-children

16. The Economist. 2017. “Congress and the courts will poke holes in the president’s deportation plans”. Available from: http://www.economist.com/news/united-states/21717387-barack-obamas-administration-deported-hundreds-thousands-people-every-year-donald

17. Blitzer, Jonathan. 2017. The New Yorker. “What Will Trump Do with Half a Million Backlogged Immigration Cases?”. Available from: http://www.newyorker.com/news/news-desk/what-will-trump-do-with-half-a-million-backlogged-immigration-cases

18. Smith, Dakota. 2017. Los Angeles Times. “A $10-million fund will help immigrants fight deportations. But should it help those with violent criminal convictions?”. Available from: http://www.latimes.com/local/lanow/la-me-ln-la-justice-fund-20170417-story.html

19. Beekman, Daniel. 2017. The Seattle Times. “Seattle wants $1M legal-defense fund for immigrants facing deportation”. Available from: http://www.seattletimes.com/seattle-news/politics/seattle-wants-1m-legal-defense-fund-for-immigrants-facing-deportation/

20. Blanco, Octavio. 2017. CNN Money. “New York to provide lawyers for immigrants facing deportation”. Available from: http://money.cnn.com/2017/04/13/news/economy/new-york-immigrant-legal-defense-fund/index.html

21. Blanco, Octavio. 2017. CNN Money. “How much it costs ICE to deport an undocumented immigrant”. Available from: http://money.cnn.com/2017/04/13/news/economy/deportation-costs-undocumented-immigrant/index.html

22. S. Immigration and Customs Enforcement. “FY 2016 ICE Immigration Removals”. Available from: https://www.ice.gov/removal-statistics/2016

23. American Action Forum. 2015. “The true cost of Trump’s immigration plan”. Available from: https://www.americanactionforum.org/oped/true-cost-trumps-immigration-plan/

24. The National Academies of Science, Engineering, and Medicine. 2017. “The Economic and Fiscal Consequences of Immigration”. Available from: https://www.nap.edu/catalog/23550/the-economic-and-fiscal-consequences-of-immigration

25. Kerr, Sari Pekkala and Kerr, William R. 2016. Harvard Business Review. “Immigrants Play a Disproportionate Role in American Entrepreneurship”. Available from: https://hbr.org/2016/10/immigrants-play-a-disproportionate-role-in-american-entrepreneurship

 

Using Employee Trophies as Non-Monetary Incentives

By David De Cremer

Employee appreciation can go a long way. In this article, the author elaborates on giant telecom Huawei’s strategy of using “trophies” as incentives and motivation for its employees and teams and how these contribute to Huawei’s global success.

 

In the aftermath of the financial crisis, economic growth in advanced economies slowed down considerably. According to the IMF this slower rate may be here to stay for quite some time. At the same time, growth rates in emerging economies are also slowing down, with the decision of China to let go of double digit growth and adjust to more achievable targets as maybe the prime example of this development. An important consequence of this global slow-down in growth is that living standards will not improve for the next few years. This also means that organisations expect their employees to work harder and longer without any increase in remuneration. From the perspective of motivating employees – and especially so the most talented ones – to keep putting the work in and staying loyal to the organisation, such an economic downturn is extremely challenging. The lack of resources holds that financial incentives are less easy to use in talent management. As such, organisations are looking for non-financial incentives that recognise the work of the employee in such a way that they feel they belong to the organisation and remain motivated to put in the hours.

When financial resources are lacking, psychology dictates that people will consider money as a less diagnostic cue to assess how they are evaluated by the organisation and how they compare to their co-workers. Rather, because all employees have a desire to have their hard work recognised, they will compare themselves with others on more social and relational dimensions. In other words, in situations of economic turndown, employees will achieve their sense of pride and confidence from social feedback that signals what their status within the organisation is. Status is defined as an index of social worth that include the prestige and esteem that others ascribe to an individual.1 One way to recognise the work of employees in a relational manner concerns the use of employee awards or trophies. Using trophies to reward your employees can take place at all levels in the organisation and represent a symbolic message of how much you value your employees. Because of its clear relational value, employees are positively affected in their sense of esteem, pride and loyalty to the organisation.

Broadly speaking two types of relational awards can be distinguished. The first one involves the individual award in which the personal performance of the employee is used as criteria to award a trophy. The second type involves the team award in which performance based on cooperation is rewarded. Important to note is that these trophies are not new ways of motivating employees, but because of the economic slow-down more cost-effective incentives are necessary, and therefore the use of trophies have gained attention from companies again. In addition, it is also interesting to see that the use of symbolic labels and trophies are actually popular tools among millennials or also called the generation Y. Millennials are born between 1980 and 2000, and considered more self-focussed and savvy in putting their profiles out there in the public. This latter aspect makes that this generation is sometimes also referred to as a “trophy generation”, motivated to share any status recognition enthusiastically on social media.2 The group of millennials count around 80 million people and are currently coming to age in the workforce.3 Because this large group will be the future leadership in our organisations, a closer look to effective use of trophies is warranted.

Another reason that warrants a focus on the use of trophies concerns the fact that the economic downturn is a global one. This makes that it is necessary to zoom in closer as well on possible cultural differences in the use of trophies as motivation tools. It is known that motivational factors can vary a lot across cultures, and when it comes down to being recognised by the company as a valuable employee, differences do exist between the East and West. For example, until now, scholars and business consultants assume that individual trophies and symbolic awards indicating your status within the organisation are more likely to be accepted and reveal effects in more individualistic cultures rather than relational and collective cultures like China and Japan, respectively. In these latter countries, rewarding a specific individual may undermine team cohesion as in Asian cultures employees prefer to be recognised for their collective rather than individual efforts. As a result, if a specific individual is recognised by the company it may even lead to a loss of face for this employee. In China, for example, the respect and dignity they receive from others contributes to their face, but because of the relational nature of their culture, their identity is more a social identity rather than a personal identity.4 Hence, being recognised as a team player and contributing to the collective rather than an individual doing well is more important.

In situations of economic turndown, employees will achieve their sense of pride and confidence from social feedback that signals what their status within the organisation is.

As these symbolic recognitions are embraced by the future workforce that will come into charge (millennials) and it needs to work at a global level, I analysed the approach of a multinational company where East and West meets. This company is Huawei. Huawei was founded in 1987 by Ren Zhengfei and over the years this company has become a global leader in the telecom industry. In 2012, surpassed Ericsson as the world leader in terms of sales revenue and net profit. Ever since then, revenue has only increased each year. In the fiscal year of 2016 Huawei’s revenue reached CNY521,574 billion (US$75,103 billion) and CNY37,052 billion (US$5,335 billion) in net profit. The company is hailed as the only truly global company with Chinese roots as the largest part of its revenue is earned outside of the Chinese market (67%), which no other Chinese company has achieved so far, and out of its 170,000 employees over more than 40,000 are international employees. As this company represents a mix between East and West management practices and philosophies, to what extent is recognition trophies used and in what way?

In light of this question, it is necessary to first emphasise the importance that Huawei assigns to experimenting with Human Resource practices. Specifically, inspired by the passion of its founder Ren Zhengfei to understand more deeply the workings and psychology of human nature, the company has adopted an approach where it uses human desires to inspire new HR practices.5 This is also the case when it comes down to motivating employees. One important means to motivate is to respect and reward employees showing a transformation at the job that indicates loyalty and high level of morale. Huawei uses different types of trophies to reward employees. No distinction is made between Chinese and international employees; all are eligible to participate for the same trophies.

Some aspects with regard to the award process of these trophies are important to mention. First of all, the decision-making process is a bottom-up one. Contrary to traditional Chinese work cultures where decision-making takes the form of a top-down approach, Huawei’s first selection process to identify potential recipients of the trophies takes place within the departments these employees work. The departments coordinate and execute this selection process by means of their own criteria. A second characteristic concerns the level of trophy, that is, whether it is an award for the individual or team. By making this distinction Huawei shows that it integrates both Western and Eastern approaches by reflecting both individual and collective identities of its employees. A third characteristic concerns the selection dimension used to select employees for these trophies. Some trophies reflect people’s actual performance levels whereas other trophies go beyond the performance of the employee and look more at his or her citizenship behaviour. Based on these dimensions, Huawei allocates three different types of trophies (see Table 1).

 

 

The first two trophies are included in the category called “Golden Trophy” and these are allocated to both an outstanding individual and team. The Golden Trophy is the company’s most important award and only the team and individual with the best performance level can win this award. The departments within Huawei decide on the Golden individuals and teams when they have their administration meeting. When each department has decided on their individual and team, the names move up to the Huawei leadership level where it is decided which individual and team wins the Golden Trophy. The winners are admitted to the hall of honour in Huawei’s headquarter office.

The third type of award is the trophy for future star and is different from the Golden trophies in the sense that it is an award that is not based on the performance of the individual employee. The future star is someone who is considered active and passionate in helping others and being a good citizen. Huawei takes the perspective that not every employee can perform in outstanding ways but that it is important to keep all employees motivated and that in this process it needs to be communicated that not only performing matters to make a company successful. Each department selects its future stars and because it is rewarding citizenship behaviour the criteria are less rigid and more open to interpretation than those used for the Golden trophies (which solely depend on the actual performance ratings). Once each department has decided on their future stars, the trophies will be given by the Huawei leadership.

One important means to motivate is to respect and reward employees showing a transformation at the job that indicates loyalty and high level of morale.

Non-monetary incentives like trophies can be powerful motivation tools to make employees loyal to the company and adhere to higher morals. These employee attitudes are important for companies to perform better, especially so on the long-term. In fact, companies populated by loyal and committed employees who are value-driven are increasingly recognised more as the ones likely to survive on the long term in today’s unstable economy. An additional challenge is that business has become a global issue and therefore the use of trophies needs to represent traditions of both individualistic and collective cultures. As our Huawei examples demonstrates, these awards also should be based on both performance and non-performance dimensions, if its symbolic value of respecting and valuing employees is to be salient to the recipients. Only if this symbolic message is clear to employees will they be motivated.

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About the Author

David De Cremer is the KPMG Professor of Management Studies at the Judge Business School, University of Cambridge, UK, where he heads the Department of Organisational Leadership and Decision-Making. He is the author of the book Pro-active Leadership: How to overcome procrastination and be a bold decision-maker (2013) and co-author of “Huawei: Leadership, culture and connectivity” (2017).

 

References

1. Blader, S. L., & Chen, Y.-R. (2012). Differentiating the effects of status and power: A justice perspective. Journal of Personality and Social Psychology, 102, 994–1014.
2. Ethics Resource Center (2013). Generational differences in work-place ethics. Washington, DC: Ethics Resource Center.
3. Weber, J. (2017). Discovering the millennials’ personal value orientation: A comparison to two managerial populations. Journal of Business Ethics,143, 517-529.
4. Leung, T. K. P., & Chan, R. Y. K. 2003. Face, favour and positioning – A Chinese power game. European Journal of Marketing, 37, 1575-1598.
5. De Cremer & Tao, 2016

Oscillating Nationalism in an Era of Trump and Putin

By Glen Duerr

At odds with each other for half a century, American and Russian nationalist animosity thawed with the end of the Cold War. Oscillating between baited friendship and menacing animosity, successive US presidents have tried different tactics with President Putin. President Trump’s approach certainly differs from his predecessors – the key question is whether the nationalistic relationship with Russia will change in the long term?

 

For almost half a century between 1945 and 1990, the United States and the Soviet Union grappled for global supremacy. Years passed with fever pitched tensions between the superpowers threatening to bring the world into a third global conflagration in the 20th century, likely with the use of nuclear weapons. Then, with the fall of the Berlin Wall in November 1989 and the dissolution of the Soviet Union in December 1991, the Cold War thawed dramatically. In the aftermath, relations between the US and the reconstituted Russia became much friendlier. For example, when Russian President Boris Yeltsin met with US President Bill Clinton for a joint press conference in New York in October 1995, Yeltsin told jokes to the media rendering Clinton in paroxysms of laughter with the adjacent body language depicting two fraternity brothers rather than historic enemies.

In the time since the Clinton/Yeltsin meeting, the US-Russia relationship has been through its vicissitudes. President George W. Bush and President Vladimir Putin entered their respective roles in short succession to one another. Throughout Bush’s first term, he and Putin maintained a good working relationship – Putin was the first foreign leader to call Bush in the aftermath of 9/11 pledging his support in fighting terrorism. The relationship soured, though, as Bush entered his second term given his nascent plans to expand NATO to Georgia and Ukraine, and, from the Russian side, a sense that Moscow was not being given a high enough profile in world affairs. Putin wanted a change on both counts. Russia was preoccupied during this time with quashing its restive republic in the Second Chechen War – a scorched earth policy, which stopped terrorism, but also every other conceivable human right in the region. However, in August 2008, when Russia invaded Georgia effectively annexing Abkhazia and South Ossetia, the lame duck Bush presidency could do little to fend off Putin’s land grab.

When President Barack Obama entered the Oval Office in January 2009, he pledged a “reset” with Russia under newly minted Russia President, Dmitri Medvedev – a marionette of “Prime Minister” Putin, who castled places with Medvedev in a façade of constitutional legality. For a short period, the reset worked well with Obama and Medvedev signing the New START treaty further reducing American and Russian nuclear weapons stockpiles.

When Putin returned to the presidency in 2012, the US-Russia relationship had already soured again. Russia annexed Crimea in March 2014 and then engaged in semi-formal military action in the Donetsk and Luhansk regions of eastern Ukraine creating a “frozen conflict” in the region that has left the sovereignty of the area unknown, and contested in the international arena. Russia then began an intervention in the Syrian Civil War in September 2015 as a means of maintaining the position of its last ally in the Middle East, President Bashar al-Assad, and usage of its last warm water naval port at Tartus on the Mediterranean coast.

The candidacy of (now) President Trump re-envisioned longstanding Republican positions on a vast array of foreign policy platforms. Chief among them the changes was the position of Russia. Trade between the US and Russia tends to be limited as Russia is only the United States’ 28th largest trading partner. Broader foreign policy, of course, is another matter. Trump presented a position much closer to Moscow, and much more affectionate to Putin. Part of the thinking behind this strategy is that in order to boost domestic American workers by restoring jobs – a key plank in the Trump campaign – requires a more peaceful international environment that does not take away from the issues of jobs and the economy.

In the aftermath of Trump’s victory, a longstanding issue has been whether Russia meddled, or tampered, or worse, in the US election. Recent news indicates a meeting between Donald Trump Jr. and Russian lawyer, Natalia V. Veselnitskaya, in June 2016 over a range of potential issues such as punitive information on the Clinton campaign, as well as defanging the Magnitsky Act – US legislation signed into law in December 2012 – to sanction 18 high-ranking Russian officials for killing the human rights lawyer. The full details and outcomes of this meeting is still unknown.

Some level of interference on the part of the Russian government to sway the outcome of the election away from Democratic Party candidate, Hillary Clinton and towards Mr. Trump remains a major point of contention.

In the aftermath of the 2016 Presidential election, Russia has also become very controversial in the US. Some level of interference on the part of the Russian government to sway the outcome of the election away from Democratic Party candidate, Hillary Clinton and towards Mr. Trump remains a major point of contention. From Putin’s perspective, then-Secretary of State Clinton attempted to oust him with her statements decrying the results of the fraudulent 2011 parliamentary election in Russia. These statements had the effect of rallying of anti-Putin protesters, which could have dovetailed with the ongoing Arab Spring protests at the time. Of course, Russian interference is likely to have had little impact on voters in key Trump-victory swing states like Ohio, Florida, Iowa, and North Carolina, as well as states like Pennsylvania, Michigan, and Wisconsin that moved from their historically Democratic Party Blue moorings to the Republican Party Red for Trump. Nonetheless, foreign interference in an American election is a very serious issue. The full details of what happened and where seem to be released on a monthly basis with new elements adding to the conversation. Major Republican lawmakers like Senator John McCain has called for a formal investigation of what happened.

Writ large, Russian nationalism is still largely viewed with significant suspicion in the US heartland and well as the beltway of Washington D.C. However, with the campaign of Donald Trump, overtures towards Russia became part of the campaign. Mr. Trump saw an opportunity for a proper reset of relations.

In Russia, animosity towards US still looms large over several issues. First, US intervention in the Yugoslav conflicts on behalf of Kosovo in 1998 rankled the Russian establishment given Moscow’s historic old ties with Serbia. Second, the US-led invasions of Afghanistan and Iraq, in the Russian view, further encircled Moscow. Third, in the perception of Russian leaders, the US never gave Russia a large enough profile in the aftermath of the Cold War relegating the country to middle power status – a position unacceptable to many in Russian foreign policy circles. Finally, in the aftermath of the aforementioned Magnitsky Act was followed up with the Dima Yakovlev Act – named after the young Russian born boy who died under the care of his US adoptive parents at the age of three. All of these issues, in the Russian view, have caused Moscow to lash out to protect its core interests.

Nationalistic overtones on both sides revolve around the strategic space in Eastern Europe. For Americans, the large-scale fear is that Russia will continue its Cold War era policy of maintaining a buffer zone in Eastern Europe with control – whether overt or covert – over its near neighbours. Military action in Georgia and Ukraine could be followed up with incursions in the Baltics, or other portions of the former Soviet Union or Warsaw Pact. For Russians, the large-scale fear is an erosion of the Cold War era buffer area with NATO membership further extended to countries along Russia’s western border.

For President Putin, the expectation is to maintain Russian security. Russia’s history is littered with cases of foreign invasions and incursions that ultimately weakened the state and stifling economic and cultural advancement. For example, in 1237, the Mongols invaded occupying for almost 250 years, in 1610 the Commonwealth of Poland-Lithuania invaded and sacked Moscow, the Great Northern War of the early 1700s saw several neighbours rally together to confront Peter the Great, in 1812 Napoleon invaded Russia as part of the Sixth Coalition in the Napoleonic Wars, in 1917 numerous foreign forces sent troops to support the Whites in the Russian Civil War, and in 1941, Hitler invaded the Soviet Union. All of these markers present Russia with its Cold War era core interest: security through a buffer zone in Eastern Europe.

Coupled with diminution fears of Russia’s declining population, which shrunk from 148.7 million in 1992 to just 142.7 million in 2008, Putin is trying to use pragmatic realist calculations to maintain security whilst also annexing territories considered historically part of Russia – the addition of Crimea’s almost two million people has raised Russia’s population. Although birth rates have declined dramatically and life expectancy for men remains low, the population increase by force temporarily offsets a vision of a declining Russia.

American core interests have historically revolved around the advancement of democracy and human rights. While Cold War calculations were often more pragmatic, post-Cold War president like President George W. Bush advanced the “freedom agenda”, which could have brought numerous former Soviet republics into NATO as a mechanism of entrenching democracy in those countries. President Barack Obama sought to advance human rights in different parts of the world, including Eastern Europe.

In the perception of Russian leaders, the US never gave Russia a large enough profile in the aftermath of the Cold War relegating the country to middle power status – a position unacceptable to many in Russian foreign policy circles.

Under President Trump, neither democracy or human rights seem at the forefront of his foreign policy agenda. For Trump, his mantra to “Make America Great Again (MAGA)” stems from his desire to focus on economic matters, and to create a circumstance where business can thrive. This involves avoiding foreign entanglements where possible; on the campaign trail, Candidate Trump repeatedly voiced his opposition to the 2003 invasion of Iraq and the ensuing war. MAGA necessitates peace in the international arena in order to allow a focus on domestic issues and growing higher paying jobs, especially in some of the aforementioned states that were key to Trump’s victory.

Part of Trump’s view of Russia is to revisit the idea of Moscow as a baited friend since true friendship is difficult between recent enemies. Yet, pragmatic politics and domestic forces make it difficult for an American President to cozy up to an authoritarian Russian President. As a result, nationalist contentions will oscillate frequently during the Trump administration as he attempts to create a peaceful, business-friendly international environment whilst simultaneously having to watch for the erosion of American power around the world. Accomplishing both of these interests will be nearly impossible, which is why nationalist forces in both countries will ebb and flow throughout the duration of the Trump and Putin presidencies.

The biggest danger is swinging nationalism towards heightened tensions, which could result in some form of skirmish – any time great powers become entangled, there is a major concern for conflagration. There is also a danger, however, in not supporting democratic reforms because it sets a norm of accepting dictatorial rule instead of promoting constitutional rights for all people. Ironically, if President Trump does not promote democratic tenets, he could find that the very conditions to MAGA could be eroded because institutional protections for freedom are necessary for developed economies to thrive. Maintaining a friendly relationship with Russia, then, is the most useful stance, provided that a) there is a review of Russian actions in the 2016 election, b) a push for democratic reforms in Moscow, and c) Russia stops annexing the sovereign territory of its neighbours, whilst also returning stolen lands to Georgia and Ukraine. Negating any of these tenets will swing the nationalist pendulum back towards menacing animosity – a position that neither country wants.

Featured Image: Russia’s President Vladimir Putin shakes hands with US President Donald Trump during their bilateral meeting at the G20 summit in, Germany July 2017 © Carlos Barria / Reuters

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About the Author

Dr. Glen M.E. Duerr is Associate Professor of International Studies at Cedarville University in Ohio, USA. He currently resides in Washington D.C. as part of the university’s “DC semester”. He is the author of Secessionism and the European Union, which was published by Lexington Books in 2015, and numerous other journal articles and book chapters on issues related to nationalism primarily in Europe and North America.

 

Can Sustainable Peace and Co-operation Be Achieved in the South China Sea Region?

By Li Jianwei and Ramses Amer

Since mid-2016, positive improvements have been made in the South China Sea region. However, more efforts are needed to sustain such peaceful and co-operative trend.

2016 was a dramatic year in the development of the South China Sea disputes. Before 12 July when the award was issued relating to the South China Sea (SCS) Arbitration Case unilaterally initiated by the Philippines’ previous administration against China, tension had been increasing and prediction was high that the Case could be an event triggering further damage of regional security or even lead to military confrontation. However what happened afterwards proved to be the opposite. The relevant parties have exercised restraint and efforts have been made towards functional co-operation.

 

Background Briefing

Asia is the most vibrant region in global economy and China is considered the engine, expected to contribute over 30% of world annual economic growth rate up till 2020.1 At the same time maritime disputes exist from the Sea of Japan in the north down to the marginal seas in Southeast Asia. Conflicts which might be sparkled by the sensitive issue of territorial disputes have haunted the region. The SCS disputes are most complicated in regard to parties involved and nature of disputes.

Since 2009, two divergent trends co-exist and have developed in parallel in the SCS region. On the one hand, tension and danger of conflicts has been increasing due to various moves from claimants to consolidate their maritime interests. On the other hand, attempts have been made to create mechanisms at bilateral and regional levels to not only manage the tension and reduce mistrust but also to build confidence and promote functional co-operation. The highlighted event was the Arbitration case, which had brought the relations between China and the Philippines to the lowest and the risk was that negative impacts could spill over in the region. Furthermore, with external powers like the US and its allies involved, big power rivalry further complicated the regional security situation. The concerns were that the disputes might reduce the economic vitality of the Asian countries, the Southeast Asian countries in particular.

 

 

Economic relations between China and ASEAN countries have kept on growing, seemingly not affected by the existence of maritime disputes. Trade has been increasing steadily (see Table 1 and Figure 1), with a peak in 2014 of 480.12 billion USD, 2.3 times of that in 2009. Bilateral trade between China and the Southeast Asian claimants in the SCS has also been expanding during the same period, which indicates that tensions relating to maritime disputes have not impacted negatively on overall bilateral economic relations. However it can be noted that the year-on-year growth rate fluctuates in some cases, which may imply that bilateral economic interaction could be influenced at certain specific time when relations deteriorate due to maritime disputes, e.g. in the case of China-Philippines. Another possible impact of maritime disputes is on bilateral tourism. The number of tourists to the Philippines from China dropped by 7.4% on the year-on-year basis in 2014, one year after the Philippines initiated the Arbitration case, an obvious decline from a growth rate of 69.9% in 2013.2

Developments After the Arbitration

After the Arbitration case, the dominant trend in the SCS region is towards co-operation. Efforts at both regional and bilateral levels increased aiming at promoting dispute management and functional co-operation.

At the regional level, on 25 July 2016 the Foreign Ministers of ten ASEAN States and China met in Laos, committing to “the full and effective implementation of the Declaration on the Conduct of Parties in the South China Sea (DOC)” and to achieve the early adoption of a Code of Conduct in the South China Sea (COC). Their Joint Statement emphasised the resolution of the SCS disputes through friendly consultations and negotiations by countries directly concerned and that parties were to explore or undertake co-operative activities in areas of navigation safety, search and rescue, marine scientific research, environmental protection, and combatting transnational crimes at sea. In August the 13th Senior Officials’ Meeting for the implementation of the DOC (SOM) and the 18th Joint Working Group (JWG) meeting were held concurrently in China at which two outcome documents were adopted, i.e. Guidelines for Hotline Communications among Senior Officials of the Ministers of Foreign Affairs of ASEAN Member States and China in Response to Maritime Emergencies at Sea and Joint Statement on the Application of the Code for Unplanned Encounters at Sea in the South China Sea and they were approved at the 19th China-ASEAN Summit in September 2016. In May 2017 at the 14th SOM and 21th JWG Meeting the COC framework was adopted which lay a solid foundation for the next stage of consultation on the final COC. On 6 August the framework was formally adopted at the China-ASEAN foreign ministerial meeting in Manila.

At the regional level, on 25 July 2016 the Foreign Ministers of ten ASEAN States and China met in Laos, committing to “the full and effective implementation of the Declaration on the Conduct of Parties in the South China Sea (DOC)”.

At the bilateral level, top leaders of Vietnam (September 2016, January and May 2017), the Philippines (October 2016 and May 2017) and Malaysia (November 2016 and May 2017) visited China. At the meetings between leaders of China and the three main SCS claimants emphasis were put on managing the SCS issues and expanding cooperation areas. For example, the China-Malaysia Joint Press Release stressed the importance of “incremental engagement and close rapport” of defence establishments of both countries and welcomed the signing of the “Framework of Cooperation on Joint Development and Construction of the Littoral Mission Ship for the Royal Malaysian Navy (RMN)”.3 What China and the Philippines have done to mend their relations have positive impacts on not only their SCS relations but also to a significant extent on consolidating the co-operative trend in the SCS region.

 

China-Philippine Efforts to Manage Their Sea Issues

Since President Rodrigo Duterte took office in June 2016, China and the Philippines have taken pragmatic policies in handling their SCS issues. Duterte intentionally shelved the Arbitration and both countries are committed to address their territorial and jurisdictional disputes by peaceful means through friendly consultations and negotiations.

Efforts of confidence-building have been carried out at different levels. During Duterte’s milestone visit to China last October, top leaders from both countries affirmed that contentious issues are not the whole picture of the China-Philippines relationship and agreed to continue discussions on confidence-building measures to increase mutual trust and confidence. In May 2017 President Xi held telephone communication with Duterte pointing out the importance of “continuously deepening political mutual trust and comprehensively carrying out cooperation in various fields” and later in the same month both leaders met again in Beijing at China’s Belt & Road Forum and exchanged views on issues of mutual concern.

To implement the agreements listed in the October 2016 Joint Statement, exchanges of visits followed between different ministries from both countries. The Philippine Finance Minister headed a delegation to China in January 2017 and then his Chinese counterpart visited the Philippines in March. Chinese Vice Premier Wang Yang visited the Philippines in March to attend the opening ceremony of the China-ASEAN Tourist Cooperation Year.

 

 

Confidence-building on the SCS issues is one of the main priorities in China-Philippine relations. The 20th Philippines-China Foreign Ministry Consultations (FMC) was held in Manila on 18 January 2017. Both sides reaffirmed their commitment to uphold peace and stability in the SCS and agreed to establish a bilateral consultation mechanism. On 19 May, the first meeting of the China-Philippines Bilateral Consultation Mechanism on the South China Sea (BCM) was held in China. Regular meetings will be arranged to discuss current and other issues of concern relating to the SCS and to explore areas of co-operation.

Bilateral interactions in two new areas have positive impact on bilateral relations. One is between coast guards of both countries. In October 2016, a memorandum of understanding (MOU) was signed on the establishment of a joint coast guard committee on maritime co-operation, which signified that bilateral co-operation on maritime affairs was underway. On 15-16 December, the first organisational meeting was held in Manila to discuss the formation of a Joint Coast Guard Committee on Maritime Cooperation. On 20-22 February 2017, the Second Organizational Meeting and Inaugural Meeting of the Joint Coast Guard Committee (JCGC) took place in Subic Bay. The JCGC adopted the Implementing Guidelines of the MOU and the Terms of Reference (TOR) of the Working Groups. It was intended to promote co-operation in the sectors of preventing and combatting drug trafficking and other transnational crimes, search and rescue (SAR), environment protection and emergency response through, among other modalities, information exchange and pragmatic empowerment activities unique for coast guards and enforcement agencies. In May, officers from the Philippine Coast Guards participated in a training course organised by China Maritime Police Academy for capacity building and promotion of understanding.

The other is between the two defence forces. On 1 May 2017 two Chinese warships and one support vessel docked in Davao City. Duterte boarded a Chinese naval ship during its stay. It was the first visit by Chinese warships to the Philippines in the past seven years, and for the first time a Philippine president boarded a Chinese naval ship.

Mechanisms were also explored and identified to encourage cooperation on marine resource development. After Duterte’s visit to China in October 2016 and by some tacit arrangements the Filipino fishermen were back fishing in the sea area near the Scarborough Shoal where a bilateral standoff occurred in 2012. China also offered financial and technical assistance to Filipino fishermen in Masinloc to enable them to initiate near-shore fish farming along the coast. Another important step forward in promoting bilateral functional co-operation at sea is that both sides have agreed to restart negotiation on joint development of oil and gas in the SCS. This was announced during Chinese Foreign Minister Wang Yi’s visit to Manila in July 2017.

 

Future Prospects

The claimant States are the key actors in shaping the future developments of the SCS disputes. There is no doubt that China should play an important, if not vital, role in maintaining the current peaceful and co-operative trend in the SCS region. Since the Arbitration case, pro-active interaction between China and ASEAN as well as between China and other claimant countries, in particular China and the Philippines have created a favourable environment for the SCS claimants to manage their disputes. The spill-over impact, if sustained, is conducive to enhancing peace and co-operation in the region.

However, factors exist which may disturb the positive developments. Maritime disputes have not been resolved, which may turn into a trigger leading to confrontation again. Actions by any claimant to consolidate its own interests, such as the unilateral action in an area of overlapping claims, could negatively impact on the situation. This makes it an urgent need to effectively constrain activities of claimant countries. The framework of the COC has laid a good foundation, but to make it effective will be a challenge to the ASEAN countries and to China.

Featured Image: Philippines President Rodrigo Duterte, right, receives a hat from captain Hu Jie of the Chinese navy’s missile destroyer Changchun during the ship’s goodwill visit in Davao city, Philippines. May 2017 © Yu Wei/Xinhua via AP

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About the Authors

Li Jianwei is Director of Research Center for Maritime, National Institute for the South China Sea Studies, China ([email protected]). Her research interests include a) legal perspectives and state practice in maritime dispute resolution and b) Illegal, Unregulated and Unreported (IUU) fishing issue in the South China Sea.

Ramses Amer is Associate Professor and PhD in Peace and Conflict Research, Associated Fellow, Institute for Security & Development Policy, Sweden ([email protected]). His major areas of research include a) security issues and conflict resolution in Southeast Asia and the wider Pacific Asia and b) the role of the United Nations in the international system.

 

References

1. “In what aspects China influence world economy? [in Chinese]”,www.chinairn.com/news/20160823/16455678.shtml, viewed on 31 July 2017.
2. Sources are from statistics of the Ministry of Tourism of the People’s Republic of China, www.cnta.gov.cn/ and the website of ASEAN Secretary, www.aseanstats.org/publication/tourism-dashboard/?portfolioCats=58.
3. The Joint Press Release, www.kln.gov.my/web/guest/press-release/-/asset_publisher/FCk0/content/joint-press-statement?redirect=%2Fweb%2Fguest%2Fpress-release, viewed on 1 August 2017.

It’s Time for UK Businesses to Sell Big, Sell Global and Stay Relevant

By Ben Laker and Claire Edmunds

Selling is becoming harder than ever write Ben Laker and Claire Edmunds, CEO & Founder of Clarify, a specialist business development firm operating globally. In this article, the authors elaborate on three key messages that sales leaders must use to support their boards.

 

Buying decisions of large enterprise now around six months to go from “Hi” to “Buy”.1 Thirty-three percent of sales leaders expect this to lengthen as risk-averse decision-makers take more purchasing decisions by committee, and 27 percent of the time the decision is “no decision”.

When communicating with a buyer, sales people should promote change, create new patterns of thinking and to offer challenging insights. When buyers refrain from making a decision and continue in their current state, they are either unconvinced to enter a different end state, or have not been equipped by the salesperson to make the case for change within their organisation. The “no decision” demonstrates the “least worst option”, but this simply kicks the can down the road. The total value of “no decision” opportunities are US$20.4 trillion, up 13 percent in five years.2

So why are executives making less decisions? The world is becoming increasingly uncertain. Debt-laden governments, risk averse and banks businesses are applying a stranglehold on growth. The consequences of which are stark. Findings from Clarify’s latest research suggest that 68 percent of businesses across Britain are falling behind their European counterparts, and 23 percent of these businesses will die within the next 24 months. Growth is required, and it is required now.

The only solution, according to Clarify, is to leverage cutting edge innovations and technology. In effect, every business should behave like a software business.

To help these businesses, the UK must create an environment in which innovation is prioritised, particularly as its economy is now the worst performer in the European Union. With Q1 2017 growth of just 0.2%, the UK is already falling behind and given that big City banks are set to move 9,000 jobs to Frankfurt and Dublin,3 the future looks bleaker. The only solution, according to Clarify, is to leverage cutting edge innovations and technology. In effect, every business should behave like a software business. The challenge however is that board members of these businesses are not technology experts, and therefore need help to understand where to place their big bets, what will assist them on this journey and what will simply be a distraction. Clarify’s research suggest that sales leaders must support their boards by articulating three key messages.

New Ways to Win New Customers

Many technology businesses with high value complex sales engagements find themselves getting 80% or more of their revenues from a tiny proportion of their market. As legacy propositions commoditise and margins are eroded, growth stagnates. Businesses know they need to find ways to win new customers, take new propositions into existing customers and increase the strategic value they deliver; but the strategies deployed to achieve this are often failing. Why? It is the newer value propositions that are the route to increasing wallet share in existing customers and winning new customers; however, these propositions are also the hardest to sell. New concepts are harder to articulate, clients do not already recognise how they will get a return on their investment, so salespeople must access different buying centres – usually engaging with more senior individuals as organisations will view these investments as higher risk.

 

 This Quarter, Next Quarter

Whilst enterprise field sales teams may have the knowledge and skills to handle these challenges, they are focussed on opportunities that will close this quarter and next, often don’t have the bandwidth and are too expensive a resource to concentrate on building new pipeline. Sales Leaders’ may have invested in creating a demand centre which meets the needs of a run-rate business but doesn’t work for newer or more complex propositions.

 

A Wise Investment

Sales Leaders’ are increasingly realising the need for a dedicated best-in-class Business Development function. This function should be able to articulate complex messages to senior Executives, utilise the same advanced sales skills and methodologies that enterprise field sales teams are deploying, build and execute target account plans in conjunction with Account Managers and work collaboratively to develop the opportunities they find beyond the first engagement with field sales to maximise the pipeline generated, reduce funnel leakage and ensure that sale expenditure is invested wisely.

They key takeaway is that sales leaders must challenge and transform the structure of sales’ to generate scalable and predicable pipelines, improve win rates and drive profitable growth. Given that salespeople are the canary in the economic coal mine,4 now is the time to step up and sell big, sell global and stay relevant.

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About the Authors

Ben Laker is Leader of the Analytics Practice at Transform Performance International. Ben helps Fortune 500 firms including Apple, American Express, Cisco, Dow Chemical and Liberty Global to do more, more quickly with more certainty using machine learning and big data derived from world-class research. A Harvard Business Review contributor and prolific author of thought-leadership, his insights are published by Forbes, The New York Times and The Economist among others.

Claire Edmunds set up Clarify in 2003, a specialist business development company, offering a fundamentally different operating model for enterprise sales; one that delivers predictable pipeline and revenue but also creates long-term transformational change. In 2014 Claire was awarded “Woman of the Year” (SME) and in June 2015 Claire was recognised by Real Business Magazine and the CBI as “First Woman of Business Services” at the national First Women in Business awards.

 

References

1. www.europeanfinancialreview.com/?p=14106
2. http://blogs.lse.ac.uk/businessreview/2017/01/25/how-salespeople-can-stimulate-the-global-economy/
3. http://uk.reuters.com/article/us-britain-eu-banks-frankfurt-idUKKBN1811GA
4. www.europeanfinancialreview.com/?p=14106

Almsgiving for Bolstering SDGs

By Randi Swandaru and Ebi Junaidi

Almsgiving in Islam is not only encouraged but also obligatory under certain circumstances. The article aims to find answers on how the trend of philantrophy, together with Muslim traditions of almsgiving, can be a source of solution to the existence of sustainable development.

 

The latest report by the World Bank on The Atlas of Sustainable Development Goals 20171 shows that Muslim countries are those who suffer in achieving sustainable developments. In terms of poverty alleviation for instance, there are still millions of Muslims who live under poverty line in Indonesia (25 millon), Bangladesh (45 million), Nigeria (51 million) and Pakistan (62 million). In addition, South Asia and Sub-Saharan Africa where many Muslims live, are recorded as the regions that significantly suffer from malaria, tuberculosis and extreme hunger. To moderate this situation Muslim countries need to find a conceivable source of funding from their internal source since the global effort to achieving this goal faces $2.5 trillion investment gap.2

Almsgiving could be an alternative source of fund to bolster Sustainable Development Goals (SDGs) in Muslim countries. Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention. Zakat is not levied from the wealth that related to consumption or production investment but levied from idle wealth so that it creates disincentive to hoarding wealth and induces economic redistribution from the rich to the poor. Reknown Islamic Economics founder father, Umer Chapra, argues that zakat can help the poorest of the poor through economic empowerment as well as provide social safety net.3 This model is considered to be more effective than conventional finance as the Islamic social finance instrument such as zakat and waqf promote social justice and welfare inclusion whereas conventional finance may expropriate assets through perpetual debt-based operation.4

Alms or zakat is an annual obligatory practice for Muslims to give 2.5% of their wealth or a certain percentage of their income for mustahiq (zakat recipients). It is one of five pillars in Islam that could have direct implication through a socio-economic intervention.

Almsgiving and sustainable development goals in essence share a huge portion of profound commonalities. The first and foremost of zakat recipients is al fuqara wal masakin (poor and needy) which aligns with the first two goals of SDGs to eliminate poverty and achieve zero hunger. Moreover, zakat reflects the spirit of SDGs such as reducing inequality and supporting economic growth by transferring the idle wealth to the less fortunate that empower them as well as encourage them to have socio-economic opportunity to grow. Besides, zakat can be utilised to provide health service, education, access to clean water and sanitation for the poor which aligns with some other goals in SDGs.

There are several best practices in utilising zakat as a social intervention. Akhuwat in Pakistan is a prolific example of Islamic microfinance that funded by alms and charity donation with 99.9% of recovery rate.5 This institution was established in 2001 with a single donation of 10.000 Pakistani Rupee or $95 but now it serves nearly 1 million beneficiaries through 350 branches in 250 cities across the country. Akhuwat has successfully mobilised sustainable zakat and sadaqat (voluntary donation) fund from public to provide a revolving benevolent loan for the poor. It maintains the operational cost low by emphasising volunteerism and utilising places of worship for credit delivery.

Another example is zakat as a community-driven development programme that has been widely used in Indonesia. The National Zakat Board of Indonesia (BAZNAS) has run this type of programme, namely Zakat Community Development (ZCD) since 2012 in 8 provinces with more than 5.000 households as its recipient.6 Unlike other programmes, this grant-based intervention treats the poor as partners rather than merely the object of the programme whereby the beneficiaries are emancipated and empowered to collectively decide kind of economic activity that they want to build under village institutions such as cooperatives, farmer, or women groups. In this regard, ZCD emphasises the Islamic moral economy features such us reciprocity and neighbourhood as the underlying operation.

A hybrid model that combines zakat and waqf (Islamic endowment fund) is also conceivable. Under this model, zakat acts as a consumption buffer to prevent fund diversion while the return from waqf and charitable fund can be channelled to finance productive microenterprise project. Moreover, waqf as a sustainable social enterprise7 could be capitalised by cash waqf to provide microfinance for the poor.8

An empirical evidence shows that 20 out of 39 OIC member countries could relieve from extreme poverty by mobilising zakat from domestic sources and disbursing them to the poor that earns less than $1.25 per day.9 Another study indicates that the average annual zakat collection in OIC countries is between 1.8% and 4.3% of their GDP which is a significant amount of resources.10 In Indonesia – the world’s largest Muslim country, $385 million of zakat funds were collected in 2016 and has impacted 6 million poor and needy through five main groups of programmes of economy, health, humanity, social, and education.11 Nonetheless, this amount is still far behind the full potential of Indonesia zakat collection of $16.7 billion.12

There are at least four key factors to increase the zakat collection and its impact on SDGs, namely human resources capacity building, a robust zakat information system, a standard of global zakat management system and regulative support from the government.

Human resource capacity is indeed very crucial in an effort to bolster SDGs by utilising zakat funds. The cooperation between zakat administrators and other institutions that has congruent commitment in achieving SDGs demands two competencies i.e. the law (fiqh) of zakat and Islamic finance practice in one hand; and a comprehension SDGs principle and best practice, on another hand.13 This step would equip both organisation to create the socio-economic intervention programme that permeates the Islamic spirit and objectives while attaining the goals of sustainable development. An initiative has already taken by BAZNAS as the general secretary of World Zakat Forum to create a global fiqh zakat discourse on SDGs.14 The fiqh of zakat on SDGs will be used as a reference among Muslim countries to mobilise zakat and utilise it in alignment with effort to achieve SDGs targets in respective countries. In addition, a cooperation with global institution such as UNDP will be strategic movement to enlarge human resource capacity of zakat administrator especially in transferring knowledge and experience in managing SDGs programme.

Secondly, zakat administrator needs a robust zakat information system as the public is now more demanding and eager to get involved and engaged in knowing how their donation is utilised in improving the wellbeing of the poor. This information system will enhance the transparency and efficiency of zakat operation which in the end, will increase public trust to zakat administrator and enlarge zakat collection. Having said that, BAZNAS has developed and launched a national zakat information system called SiMBA in 2012. This is a unified zakat information system platform that eases the donation and reporting activities. On the donator’s side, SiMBA co-operates with banks, e commerce, crowdfunding, and other institutions to create a comfortable and secure ambience for giving donation. On the operator’s side, this information system ease the recording and reporting process of zakat collection and disbursement by providing real time – online nation-wide data management.

Thirdly, it is necessary to have a global standard to measure the zakat administrator’s performance. A first step has been taken by IDB, Bank Indonesia, and BAZNAS that come up with Zakat Core Principle document. This document consists of eighteen principles about legal foundations, zakat supervision, zakat governance, intermediary function, risk management, and shariah governance that each zakat institution should pay attention in their zakat operation in order to have a good zakat management and governance. This document also provides a zakat institution performance indicator based on the disbursement holding period and disbursement to collection ratio. This framework will increase transparency and induce zakat administrator to enhance their performance. Furthermore, this guideline can tackle transnational issues such as transferring zakat from a zakat surplus country to other country and clearing misleading stigma that zakat related to terrorism.

If this model can be replicated in other Muslims countries together with efforts in increasing the zakat collection and better zakat management, the successful achievement of SDGs is possible on our sight.

Lastly, regulation support from the government will significantly increase the zakat collection. Current zakat practice in Muslim countries can be categorised in two big groups which are compulsory and voluntary basis. Countries such as Saudi Arabia, Sudan and Libya are those who oblige their citizen to pay zakat to the government. Some other Muslim countries like Indonesia, Bangladesh, and Bahrain manage zakat under voluntary basis. Regardless if compulsory or voluntary, regulation from government is necessary to provide a legal umbrella whereby zakat institutions can operate legally. Effective zakat institutions will help the government to raise fund in combatting poverty and achieving SDGs.

Aligning zakat for SDGs achievements has been started in Indonesia under a cooperation between BAZNAS, UNDP and Financial Service Authority. These organisations signed a mutual agreement to implement several projects on SDGs using zakat fund.15 One of the exemplary programme is to provide clean water facility in Nusa Tenggara. If this model can be replicated in other Muslims countries together with efforts in increasing the zakat collection and better zakat management, the successful achievement of SDGs is possible on our sight.

Photo Courtesy: © fatherbroom.com

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About the Authors

Randi Swandaru is an MIS & Reporting Manager at BAZNAS, Indonesia. He is currently pursuing his MSc degree in Islamic Finance and Management at Durham University Business School. His research areas are Zakat, Waqf, and Islamic Moral Economy. He is now the General Secretary of Islamic Economics Society-United Kingdom Representative.

Ebi Junaidi is School of Economics Lecturer at Universitas Indonesia. He is currently pursuing his PhD in Islamic Finance at Durham University Business School. His research areas are Waqf, Trust, Venture Capital, Risk Attitude and Financial Decision. He is now the Chairman for Indonesia Islamic Economics Society-United Kingdom Representative.

 

References

1. Atlas of Sustainable Development Goals 2017 From World Development Indicators. Source: https://openknowledge.worldbank.org/handle/10986/26306
2. There’s a $2.5 trillion development investment gap. Blended finance could plug it. Source: www.weforum.org/agenda/2016/07/blended-finance-sustainable-development-goals/
3. Chapra, M. U. (2008). The Islamic Vision of Development in the Light of Maqasid al-Shari`ah. Jeddah: IRTI-IDB.
4. Obaidullah, M., & Khan, T. (2007). Islamic Microfinance Development: Challenges and Initiatives. Jeddah: Islamic Research and Training Institute, Islamic Development Bank
5. IDB. (2016). Global Report on Islamic Finance: A Catalyst for Shared Prosperity? Jeddah: Islamic Development Bank
6. BAZNAS. (2017). Buku Statistik Zakat Nasional 2016. Jakarta: BAZNAS
7. Ahmed, H. (2011b). Waqf as Sustainable Social Entreprise: Organisational Architecture and Prospects. Global Islamic Finance: Innovative 21st Century Technology Spurring The Islamic Finance Industry Forward, 32-39.
8. Cizakca, M. (2004). Incorporated Cash Waqfs and Mudaraba, Islamic Non-Bank Financial Instruments from the Past to the Future. Munich Personal RePEc Archive No. 25336, 1- 13. doi:http://mpra.ub.uni-muenchen.de/25336/
9. Moheildin, M., Z. Iqbal, A. Rostom, and X. Fu. 2012. “The Role of Islamic Finance in Enhancing Financial Inclusion in OIC Member Countries.” Islamic Economic Studies 20 (2): 55–120.
10. Shirazi, N. S., & Amin, M. F. (2009). Poverty Elimination Through Potential Zakat Collection in the OIC-member Countries: Revisited. The Pakistan Development Review, 739-754.
11. BAZNAS. (2017). Buku Statistik Zakat Nasional 2016. Jakarta: BAZNAS.
12. Firdaus, M., Beik, I. S., Irawan, T., & Juanda, B. (2012). Economic Estimation and Determinations. IRTI Working Paper Series (WP# 1433-07)
13. Zainulbahar Noor and Francine Pickup (2017). The role of zakat in supporting the Sustainable Development Goals. Jakarta: BAZNAS & UNDP
14. http://khazanah.republika.co.id/berita/dunia-islam/islam-nusantara/17/07/26/otp7c1396-fiqih-zakat-on-sdgs-bisa-dipakai-negaranegara-islam
15. UNDP Collaborates with Baznas and Financial Institutions to Achieve the Sustainable Development Goals (SDGs). Source: www.id.undp.org/content/indonesia/en/home/presscenter/pressreleases/2017/04/20/undp-collaborates-with-baznas-and-financial-institutions-to-achieve-the-sustainable-development-goals-sdgs-.html

 

Trump’s Fall                      

By Dan Steinbock                                        

As violent demonstrations linger domestically and nuclear risks loom abroad, the White House has flamed new domestic divisions, while paving the way for international trade wars. The coming fall will be the hottest – and potentially most violent – in decades in America.

 

America is amid a great unease. While Charlottesville’s white supremacists and violent riots brought forward old race divisions and seemingly new hate groups, North Korea’s nuclear threats prevail.

In the fall, the White House and the Congress must also cope with a set of political time bombs, including the impending fight for the nation’s debt ceiling (US debt amounts to $20 trillion, or 105% of GDP), the 2018 federal budget, polarising tax reforms, infrastructure spending and possibly another effort to overthrow Obamacare (i.e. The Patient Protection and Affordable Care Act, ACA).

Internationally, these huge challenges will be coupled by the Trump administration’s ongoing attempt to confront China in intellectual property, re-negotiate the North American Free Trade Agreement (NAFTA) and re-define US relationship with its European NATO allies through deficit-targeting trade surpluses.

Meanwhile, special counsel Robert Mueller’s Russia investigation has zoomed on Trump’s businesses, while calls for Trump’s impeachment, resignation and assassination are escalating. Not surprisingly, economic prospects are now more uncertain and markets more volatile, as evidenced by light trading volumes after two weeks of losses in equities. Still, the cyclically-adjusted price-earning (Shiller CAPE) ratio remains close to 30 – as in October 1929 but higher than before the 2008 crisis.

 

Domestic Divisions

During the 2016 presidential campaign, Trump promised to increase real economic growth to 4 percent. At the time, I predicted that would never happen and, due to political destabilisation, economic growth could take a hit. That’s now the case.

Growth will remain about 2-2.2 percent in 2017-18, although further destabilisation could reduce it by 0.2-0.4 percent. The economy’s long-term potential growth rate is 1.8 percent, due to aging demographics and retiring big boomers. But if Trump will cut immigration by 50 percent in a decade, as he plans, growth and productivity will take another hit. According to a new Wharton School report, the immigration plan, dubbed the RAISE Act, would result in 4.6 million lost jobs by the year 2040.

Due to political destabilisation, economic growth could take a hit. That’s now the case.

In turn, Trump’s tax reform plans would require the support of the Congress, which is highly unlikely. In effect, any effort by the White House to rely on congressional support is currently compromised, due to the ongoing Special Counsel Robert Mueller’s Russia investigation. In the absence of a repealed Obamacare, the Trump tax plan would raise federal government debt to 115-140 percent of GDP by 2027, and double it by 2047.

While bipartisan support prevails for corporate tax reforms (US rate is the highest among major advanced economies) and the simplification of personal-income taxes, Democrats will not tolerate a 15-percent corporate tax rate or huge personal-income tax reductions for the rich. So Trump is likely to resort to moderate tax cuts that could amount to $500 billion in early 2018 – conveniently before the approaching mid-term elections.

One of Trump’s key initiatives has been the plan to address America’s crumbling infrastructure by spurring $1 trillion in investment over time. But thanks to the Mueller investigation, the plan is on hold. Initially, the multiplier effect of the investment was still expected to be substantial but lessen over time as the economy strengthens. But time is money. According to projections, a $1 investment in the infrastructure in 2015 could have added $1.70 to US GDP in just a few years. But as the economy has continued to strengthen, the multiple is now estimated at $1.30.

Since the expected fiscal expansion is late, even in the most benign scenario it will amount and achieve less than anticipated. As Trump dreams turn to realities, the glitter is fading and only rust remains.

 

International Nightmares

After the Trump-Xi Florida Summit in early April, US and China announced a 100-day Action Plan to improve strained trade ties. Yet, just two weeks later, Trump issued a Presidential Memorandum, which directed Commerce Secretary Wilbur Ross to investigate the effects of steel imports on national security grounds.

By June, Europe’s NATO leaders launched an extraordinary lobbying campaign against an anticipated US crackdown on steel imports, which, they said, would hit US allies more than China. Instead of a long legal battle at the WTO, European trade chiefs are considering more immediate and consequential measures, such as punitive tariffs on agricultural products like corn, soy or rice. The goal is to turn US farmers, many of whom voted for Trump, against the White House.

As the G20 Summit ended, Washington was left isolated on climate change. While the G20 vowed to continue to fight protectionism, the US managed to include in the final communique terms, such as “all unfair trade practices” and “legitimate trade defence instruments” – which could serve as pretext for protectionist measures in the future.

In late June, amid a contentious internal debate on trade and tariffs in the Roosevelt Room, Trump overruled his own Cabinet, even at a risk of a global trade war. Supported by two hawks, trade policy director Peter Navarro, senior policy adviser Stephen Miller (and then-chief adviser Steve Bannon who was not in the meeting), the plan was opposed by 22 top White House officials who spoke for moderation.

More followed soon. When the Trump administration’s first US-Sino Comprehensive Economic Dialogue (CED) ended in Washington in July, it could agree on nothing; not even on a joint statement. Then, the Trump administration seized steel as “a national security threat”, moving spotlight to its NAFTA partners. China produces almost half of the world’s steel, but its US market share is less than 2%. In America, the largest steel importers are Canada (17%) and Mexico (9%).

NAFTA matters. Ever since it was implemented, the value of US agricultural exports alone to its NAFTA partners has risen from $8.7 billion in 1992 to $38.1 billion in 2016. NAFTA has also contributed to a large increase in trade in vehicles and auto parts within North America. Since 1994, the vehicle supply chain has become fully integrated, with parts manufacturing and assembly in all three countries.

Whatever happens to the NAFTA is not just the concern of North America. As a legacy agreement, it has served as a template for the new generation of free trade agreements (FTAs) that the United States has later negotiated, and as a template for certain provisions in multilateral trade negotiations as part of the Uruguay Round. Consequently, whatever the NAFTA will ultimately become will overshadow Washington’s future FTAs with the rest of the world.

Moreover, as new trade conflicts will extend to imported aluminum, semiconductors, paper, and household appliances, trade friction will spread to China and other major importers – as evidenced by the new debate on intellectual property and technology.

As new trade conflicts will extend to imported aluminum, semiconductors, paper, and household appliances, trade friction will spread to China and other major importers.

After mid-August, Trump directed the US Trade Representative Robert Lighthizer, a veteran Reagan administration trade hawk, to open an investigation into China’s intellectual property (IP) practices, including forced IP transfers and theft. The linkage between the investigation and the US intelligence community – and new meaning of the term “trade war” – was highlighted by the role of Admiral Dennis Blair, co-chair of the US IP Commission – and former Director of National Intelligence and a retired admiral who served as the commander of US Pacific forces.

As Lighthizer’s investigation will proceed under Section 301 of the Trade Act of 1974, some 40-year old legislation that was seized in the 1980s to deter the rise of Japan, the investigation could lead to steep tariffs on Chinese goods.

“This is just the beginning”, Trump told reporters after he signed the executive memorandum. Days later, the White House set a tough tone in the NAFTA talks with Canada and Mexico.

And so the Pandora’s Box of trade wars has been opened.

 

Incumbency, Impeachment, Resignation, Assassination

Meanwhile, special counsel Robert Mueller has impanelled a grand jury in the investigation of Russia’s alleged interference in the 2016 US election. In practice, it means that Mueller has the power to issue subpoenas and to put witnesses under oath, while the investigation is reaching to Trump campaign’s contact with Russians, and the real estate deals by him and his son-in-law Jared Kushner.

The ultimate objective, which is supported by both Republican neoconservatives and Democratic internationalists, seems to be to impeach Trump. Ultimately, the “Russiagate” is likely to be legitimised on the basis of alleged evidence, which will not be released in public on “national security” grounds. And while grand jury testimony officially takes place in secret, leaks are guaranteed to keep the story in headlines, especially by media that is strongly opposed to the Trump presidency. However, due to the broader-than-expected investigation, its results are not likely to be available anytime soon.

The more benign scenario, which was recently presented by Tony Schwartz, the ghost-writer of Trump’s 1987 bestseller Art of the Deal, is that if the Mueller investigation corners the incumbent president, he would resign to avoid public humiliation, thus trying to turn a failure in the White House into a political victory – in such conversions Trump does have a long track-record.

Veteran Republican Ron Paul predicted a darker scenario in January: the assassination of Trump by the US “deep state” (i.e. the US industrial-military complex and intelligence community). Recently, the threat was seconded by Mueller’s former deputy, Philip Mudd, the ex-deputy director of the CIA’s Counterterrorist Center and the FBI’s National Security Branch, who currently serves as CNN counter-terrorism analyst. “The government is going to kill this guy because he doesn’t support them” he said recently; on air.

In turn, some Democratic senators and representatives have openly advocated Trump’s execution. As Democratic Senator Maria Chappelle-Nadal recently wrote in Facebook: “I hope Trump is assassinated!” Afterwards, she apologised for her hope but only to deter an impending US Secret Service investigation of the incident.

And yet, recently, US Secret Service affirmed that it can no longer pay hundreds of agents it needs to protect the incumbent president – in large part due to Trump´s multiple travel destination, the sheer size of his extended family, and efforts to secure multiple residences.

In this extraordinarily heated political environment, the Democrats could capitalise on the Trump debacles, if they were not amid a meltdown of their own.

After the 2016 elections, the Clinton Foundation shut down the Clinton Global Initiative (CGI), which critics openly called a “crime syndicate”, since it funded mainly the Clintons’ personal ventures rather than Haiti or other destinations of abject need. The political force behind Senator Hillary Clinton, the Democratic Leadership Council (DNC), has been plagued by a series of scandals, including collusion with mainstream media (e.g. CNN, New York Times, Washington Post), corrupt Ukrainian officials, alleged fraud to subdue Bernie Sanders’ campaign, manufactured allegations about Russian interference, controversial liquidation of millions of dollars in real estate assets, the crimes of former DNC chair Debbie Wasserman-Schultz, the indictment of her IT aide Imran Awan in a huge bank-fraud scheme and so on.

Moreover, a dozen Democrats that have leaked emails to the Wikileaks and those Republicans who have sought to disclose the Clintons’ fraud have died in suspicious circumstances in the past year. Not surprisingly, conspiracy stories continue to proliferate from the left to the right.

 

Presidency at the Crossroads

According to US mainstream media, Trump has lost all support in America and now governs without the consent of the governed. However, that’s fake news, as evidenced by longitudinal Gallup polls.

President Trump’s job approval was relatively highest when he arrived in the White House last January, when 45 percent of Americans still believed he would do a good job, and another 45 percent did not. Thereafter, Trump’s performance has eroded. Today, almost 40 percent of Americans approve his performance but nearly 60 percent do not (Figure 1). These results are actually more moderate than those of President Obama. When he arrived in the White House in 2009, most Americans had faith in him; when he left, he had lost almost half of his political capital.

 

Figure 1: President Trump’s Performance

Source: Gallup Poll. Rolling average. N=approx. 1,500 adults nationwide. Margin of error ± 3.

America’s deep polarisation originates from the neoconservative wars against Iraq, Afghanistan and the War on Terror, which have divided the nation ever since. It peaked in the end of the George W. Bush era and the beginning of the Obama rule, when nine of ten Americans disapproved the direction of the nation. Even in mid-2016, toward the end of the Obama era, more than 80 percent of Americans disapproved that course. Today, a year later, more than 70 percent of Americans disapprove the course of the nation (Figure 2).

 

Figure 2: Direction of the Country, 1997-2017

Source: Gallup Poll. July 5-9, 2017. N=1,021 adults nationwide. Margin of error ± 4.

Now the White House is at the crossroads. “The Trump presidency that we fought for, and won, is over”, said Steve Bannon, Trump’s highly controversial chief strategist who had a critical role in his presidential triumph and as the chairman of the far-right Breitbart News, in a recent interview.

Today, critics of the Trump administration argue that it is a “Goldman Sachs” presidency since the bank’s senior executives control the key economic posts, such as Secretary of Treasury (Steven Mnuchin) and Chief of the National Economic Council (Gary Cohn). But the administration still has a fair number of trade hawks, including Peter Navarro, Robert Lightheizer and Dan DiMiccio, former CEO of steel giant Nucor, plus a group of senior advisers.

“We’re at economic war with China,” Bannon claims, “one of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path. Korea… is just a sideshow.” After that interview with the centre-to-left American Prospect, he resigned from the Trump administration to avoid being fired.

Now Bannon has pledged to support the Trump administration against the “globalists” through Breitbart. But in the White House, he did have enough time to contribute to the new deficit-targeting trade policies. Bannon’s plan of attack included the complaint under Section 301 of the 1974 Trade Act against the alleged Chinese coercion of technology transfers from US companies in China, and follow-up complaints against steel and aluminum dumping.

America’s deep polarisation originates from the neoconservative wars against Iraq, Afghanistan and the War on Terror, which have divided the nation ever since.

In America, the coming fall will be the most challenging – and possibly most violent – in decades, perhaps since the early 1970s. That’s when the United States coped with the withdrawal from the gold standard, soaring deficits, the oil crisis and Vietnam’s aftermath, economic threats to dollar hegemony, student demonstrations and inner-city riots, resurgence of terrorism, a highly polarised nation, Watergate and, ultimately, the resignation of Richard Nixon.

At the time, the rest of the world was not immune to America’s chaos. Today, the heavily indebted and militarily overstretched America seeks to “unilateralise” the world trading system and its security alliances that it helped to multilateralise after the devastation of World War II. In the process, America is challenging its allies in Europe and Asia, even its own NATO partners.

But economically, America’s new policies threaten most those nations that now fuel global growth prospects, including China and the emerging economies. Ironically, America is now the greatest global risk.

Photo credit: http://occupydemocrats.com/

 

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About the Author

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. In summer 2016, he forecast that the struggle for the US presidency would intensify after the election and that America was morphing into a global risk. Dr. Steinbock is the founder of DifferenceGroup. He has served as Research Director of International Business at India China and America Institute (USA) and Visiting Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, please see www.differencegroup.net

Reading Keynes Correctly for Economic Success

By Milton Ezrati

Obama’s economy faltered because he destroyed what the great economist John Maynard Keynes called “animal spirits” and that he identified as essential to sustain any expansion. Trump, though hardly a reader of Keynes, has nonetheless offered plans to rejuvenate those critical “spirits”. It remains an open question whether Washington can implement it.

 

Had Barack Obama read his Keynes thoroughly, the American economy would look stronger today. He did embrace some of what Keynes said.  His turn to public works spending to counter recession in 2009 was, for instance, typically Keynesian, as was his general preference for government management in things economic. But his economy underperformed anyway, not because Keynes erred, but because Obama seems to have missed the great economist’s emphasis on “animal spirits”. Keynes used this quaint and somewhat condescending phrase to describe the drive among businesses to hire and invest aggressively whenever they anticipate profits.1 This impulse, he made clear, is essential to multiply and extend the effects of government stimulus. Obama, by ignoring it, indeed actively quashing it, undermined his own economic programme and has made Trump’s job much more difficult.

Trump, who doubtless has neither read Keynes nor intends to do so, has nonetheless talked up these crucial spirits. Signs of the change emerged almost immediately after the election. To get lasting results, however, and secure this economy’s health, this new administration will need to do more than talk. It will have to push for a raft of policy changes, to lift regulatory burdens; to refurbish the nation’s infrastructure; to reform the tax code, most especially the corporate code; and to devise well-conceived replacements for the Affordable Care Act (ACA) and the Dodd-Frank financial reform legislation.

Most destructive perhaps was the Obama administration’s aggressive regulatory agenda. However justified in other terms, the active rule writing and enforcement imposed increased costs on business and, worse, gave it the sense that government would behave in seemingly arbitrary ways.

Though these circumstances offer opportunity, for the moment the economy still labours under the Obama administration’s sad legacy. Almost everything Obama did worked against growth, so much so that his policies could offer a tutorial of what not to do. He began by trumpeting his hostility to business in general and profit making in particular. If this was hardly a way to prompt business to take the risks necessary to expand, he drove that point home in the nature of his 2009 public works programme. Its $819 billion in spending went less to roads, ports, and the other things that would benefit production than to bolstering state and local budgets in order to keep teachers and other civil servants employed.2 That may be a worthy goal in itself, but it hardly inspired managers to take risks. He further depressed any such urge by raising taxes. Into the bargain, his government also passed massive and complex pieces of legislation, most notably the ACA and the Dodd-Frank financial reform. However otherwise valuable, each turned business off risk taking further, the former by rendering it impossible for planners to calculate the cost of a new employee, the latter by raising uncertainties about the future costs and availability of credit. 

Most destructive perhaps was the administration’s aggressive regulatory agenda. However justified in other terms, the active rule writing and enforcement imposed increased costs on business and, worse, gave it the sense that government would behave in seemingly arbitrary ways. Whether that was a correct interpretation or not, either development nonetheless discouraged business expansion as well as hiring. The fate of the Keystone oil pipeline is indicative. The boom in US and Canadian energy production in what were previously unlikely places demanded new pipeline facilities to get the crude oil to refineries and get the natural gas to where utilities could use it. Obama regulatory bodies held approval in doubt for an unconscionable time, so long in fact that the Canadians gave up, decided to bypass the United States, and turned to a pipeline that would carry the tar-sands oil from the Rockies to refineries in the Atlantic coast provinces.3

The combined impact of these policies shows clearly in the data. Hiring proceeded slowly by just about any standard. Though eventually this long recovery has managed to bring the US economy back to full employment, at least by some measures, the unemployed had to wait a lot longer than in the past to find a position. On average the first three years of this recovery saw job growth of 83,000 a month, compared with 163,000 a month on average in comparable periods during past recoveries.4 The overall real economy throughout this entire recovery to date has expanded a mere 2.0 percent a year, barely over half its long-term pace and far short of the 4.3 percent averaged during past cyclical recoveries.5

Speaking directly to the depressed nature of these Keynesian “spirits” are the spending statistics for new equipment, facilities, and technology. In the entire recovery from mid-2009 through 2016, such spending increased at a yearly pace of only 4.0 percent, well short of the 7.1 percent yearly rate averaged in past recoveries or even the 6.1 percent yearly rate average after the 2001-02 recession. Had such spending matched its historic record, the overall economy would have grown 1.0 percentage point faster a year than it did and come much closer to its historic pace. More telling still, business during this time seldom exceeded by more than 30 percent its need to replace depreciated and obsolete facilities, well short of the 40-50 percent it has typically spent in past economic expansions.6

This lack of expansionary zeal not only has kept current growth rates slow, but it has also threatened the economy’s long-term productive capacity and efficiency. Only by spending on new equipment and systems can business bring the most effective technologies to bear on productive process, foster increased labour productivity, and so enhance profitability even as it lays the groundwork for wage increases. Such fundamental damage takes time to have effect, but government statistics indicate that it may already have begun to assert itself. Output per hour has risen at only 1.0 percent a year during this disappointing recovery, barely half the rate measured over the prior 40 years.7

Now Donald Trump, if he wants a healthier, more dynamic economy, needs to rectify this unfortunate situation. He certainly has made promises that enthuse business and industry. It would overstate to say that “animal spirits” have returned, but signs of change have emerged, even in just the few months since his election. Surveys show an uptick in optimism. More convincing is the acceleration in orders for new capital equipment. After falling 5.9 percent over the 12 months to last November, orders for non-defence capital goods grew 33.1 percent from last November to this June, the most recent period for which data are available. That amounts to an annual growth pace of 63.7 percent and is quite a vote of confidence.8

A similar picture emerges in figures on the first half’s gross domestic product (GDP).  Though GDP growth as a whole disappointed, showing only a 1.9 percent annual rate of expansion, the business sector reported a marked pickup. Capital spending by business overall, after remaining flat during the previous year, rose at a 6.2 percent annual rate during the first half. Spending on new structures, after growing a mere 1.9 percent during the previous four quarters, jumped at a 9.7 percent annual rate. Spending on equipment, where so much new technology is embodied, after falling 3.8 percent during in the prior four quarters, rose at a 6.3 percent annual rate during the first half.9

Such positive trends, though welcome, will nonetheless falter, unless this White House goes beyond promises and acts. It has begun, but the picture is far from compelling. Trump has ordered the various administrative agencies to review all rules, weighing the benefits of regulation against the cost to business, especially the impact on employment. In some cases, civil servants have re-interpreted existing rules to make them less burdensome and less constraining. More, however, is required to reverse the damage of the last eight years. The White House has hardly mentioned its campaign promise to serve the needs of business by refurbishing the nation’s basic economic infrastructure. Whatever it does in this realm must proceed in a way that protects public finances from excessive amounts of debt. Otherwise, business will simply exchange one depressing concern for another. The administration has put forward proposals for business tax reform and relief that, should they pass into law, would provide a considerable inducement for business to expand. Given the divisive nature of politics in Washington, however, progress on such tax reforms, or anything like them, is far from assured. 

What is clear is that Trump, however much people like or despise him, holds the key to sustaining this new favourable trend.

Meanwhile, the administration is a long way from relieving the uncertainties that still attach themselves to the ACA and Dodd-Frank. Quite aside from the complex moral/political questions involved, this effort must balance a number of contradictory elements even where only business incentives are concerned. Any replacement for either piece of legislation must take care to avoid imposing new uncertainties on business planners. On the ACA, in particular, any replacement will also have to offer something actuarially convincing. If it fails that test, business would not only hesitate over future strains on public finances but it would also anticipate the need for future, unknowable, and potentially disruptive adjustments.

The jury, as the expression goes, is still out. It will remain so for some time to come. What is clear is that Trump, however much people like or despise him, holds the key to sustaining this new favourable trend. Required changes need not cater to business to get a positive result. They need only remove the policies that so discouraged expansion in the past. If such efforts fail, the recovery will likely continue but at the slow pace, which some have characterised as a “new normal”, and that carries a longer-term risk to productivity, wages, and the economy’s overall production capacity. If, however, this White House succeeds to one degree or another in reversing the growth-squelching postures of the recent past, then the pace of hiring and overall growth should accelerate. Those who have dropped out of the workforce will return to gainful employment with more of the up-to-date equipment and technologies they need to enhance their productivity and the earnings potentials of their firms. The disappointing “new normal” of which people complain today will become a thing of the past.

 

Featured Image: Former President of America Barrack Obama and President of America Donald Trump © http://www.backgroundhdwallpapers.com; http://www.businessinsider.com/donald-trump

 

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About the Author

Milton Ezrati is Vested’s Chief Economist, a contributing editor to The National Interest, and an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY).  His most recent book, Thirty Tomorrows, explains how developed economies can cope with both globalisation and aging populations.

 

Notes

1. Keynes first used the expression in his opus, The General Theory of Employment, Interest and Money (London. Macmillan 1936, pp. 161-162.) Strictly speaking Keynes used the expression to refer to an irrational optimism that drives people to act positively beyond the guides of calculation or optimisation. The text makes clear, however, that should any policy or experience contrive to render such spirits “dimmed”, to use Keynes’ word, this healthy urge to expand disappears, and the economy suffers accordingly.
2. According to Congressional Budget Office reports (www.cbo.gov) on the impact of the American Recovery and Reinvestment Act, only some 15.2 percent of the spending went to housing, transportation, energy, water, and commerce, while some 44 percent went for direct transfers to individuals and what was called the “State Stabilization Fund”.
3. See New York Times archive of the news on this subject, https://www.nytimes.com/topic/subject/keystone-xl-pipeline.
4. Author’s calculation from data on the Department of Labor, Bureau of Labor Statistics website, www.bls.gov.
5. Author’s calculation from data on the Department of Commerce, Bureau of Economic analysis website, www.bea.gov.
6. Ibid.
7. Author’s calculation from data on the Department of Labor, Bureau of Labor Statistics website, www.bls.gov.
8. Author’s calculation from data on the Department of Commerce, Bureau of the Census website, www.census.gov.
9. Author’s calculation from data on the Department of Commerce, Bureau of Economic Analysis website, www.bea.gov.

 

Why Are Americans Renouncing Citizenship?

By Robert W. Wood

Every three months, the US Treasury Department publishes a list of people who have renounced their US citizenship. Trump or no-Trump, the list of Americans giving up US citizenship keeps growing.

 

Every three months, the US Treasury Department publishes a list of people who have renounced their US citizenship. The published list also includes long term (8 year or more) green card holders who are relinquishing their permanent US residency. The publication of these names in the Federal Register is a decades-old practice, but the numbers in recent years have increased significantly.

The latest list is for the first three months of 2017. The published list is meant to include all those who expatriated within the specified three-month period. Yet there has long been debate about how complete these numbers are. In fact, it is widely known that those who do not go through the formal IRS process are not on the list. Despite the official list, many leavers are not counted. Both the IRS and FBI track Americans who renounce.

The number of this quarter’s list was 1,313. The total for calendar 2016 was 5,411, up 26 percent from 2015, when the annual total was 4,279 published expatriates. The 2015 total was 58 percent more than 2014. These numbers may seem small, particularly compared to the influx of immigrants.

But expatriations have historically been much lower than these figures. There is no single explanation for the increase. No stated reason must be provided, but some renouncers write why they gave up their US citizenship. 

At one time, US tax law distinguished between expatriations that were tax-motivated and those that were not. As you might predict, the intent was to make it more difficult and more expensive for a person expatriating who was doing it to avoid US taxes. But in practice, it was difficult for the IRS to prove intent, and the law was eventually changed.

Non-US banks and financial institutions around the world must reveal American account details or risk big penalties. America’s global income tax compliance and disclosure laws can be a burden, especially for US persons living abroad
.

Now, it is not relevant why someone expatriates. The reasons for renouncing can be family, tax and legal complications. Dual citizenship is not always possible. Expatriating is rarely about politics, unless you call worldwide tax reporting politics. Add to that FATCA, the Foreign Account Tax Compliance Act.

Some renounce because of global tax reporting and FATCA. FATCA was enacted in 2010, and took years to implement. And it is having a bigger impact than these expat numbers reveal. FATCA has been painstakingly implemented worldwide by President Obama’s Treasury Department. It now spans the globe with an unparalleled network of reporting.

America requires foreign banks and governments to hand over secret bank data about depositors. Non-US banks and financial institutions around the world must reveal American account details or risk big penalties. America’s global income tax compliance and disclosure laws can be a burden, especially for US persons living abroad.

Like pariahs, they may be shunned because of their American status by banks abroad. Many foreign banks are sufficiently worried about their own positions viz. the IRS and the US government that they do not want American account holders. Americans living and working in foreign countries must generally report and pay tax where they live.

But they must also continue to file taxes in the US, where reporting is based on their worldwide income. Many claim a foreign tax credit on their US tax returns. In theory, this means they will be credited for US tax purposes with the taxes they are paying to the country where they live.

Yet the US foreign tax credit often does not entirely eliminate double taxes. There have been famous examples, including Boris Johnson, now Britain’s Foreign Minister and the former Mayor of London. Johnson was born in the US and moved to England as a young boy. His American birth made him a dual citizen, and as an adult, that gave him continuing obligations to the IRS.

He finally renounced his US citizenship, but not before a big tax problem with the IRS over the sale of his London home. Under UK income tax law, there was no tax on the sale of his first home. But under US tax law, it was fully taxable even though the sale was in the UK and Johnson resided in the UK The IRS wanted its cut of the sale proceeds. After much public discussion, Johnson evidently resolved the issues with the IRS in the only way he could: he paid.

There are many examples of a lack of symmetry with tax systems that make for big tax problems. In Canada, lottery winnings are tax-exempt. In the US, they are fully taxable. So, a dual citizen who wins the Canadian lottery may still have to fork over up to 39.6 percent to the IRS. A foreign tax credit will not help.

The tax reasons for expatriations are not even all about taxes. Quite apart from an American’s duty to file US tax returns with the IRS, there are additional disclosure forms to file. In particular, the annual foreign bank account reports commonly called FBARs carry big civil and even criminal penalties.

The exit when you make it can be expensive. If you have a net worth greater than $2 million, or have average annual net income tax for the 5 previous years of $162,000 or more, you can pay an exit tax.

Even civil penalties can quickly consume the balance of an account, so enforcement fears are palpable. FATCA, too, has ramped up worldwide. FATCA requires an annual Form 8938 filing if one’s foreign assets meet a threshold.

All of these problems might suggest that giving up a US passport or green card may make financial sense, even though it can be a big and consequential step in many ways. Yet there can be taxes on exit too. From a tax viewpoint, leaving America can be costly. To exit, you generally must prove 5 years of IRS tax compliance.

And getting into IRS compliance – to exit or for any other reason – can be expensive and worrisome. Again, recall Britain’s Foreign Minister Boris Johnson. For many more ordinary taxpayers in this circumstance, it makes it all the more frustrating if the reason you are getting into compliance is so you can renounce! Kafka might well appreciate this irony, but many people do not.

The exit when you make it can be expensive. If you have a net worth greater than $2 million, or have average annual net income tax for the 5 previous years of $162,000 or more, you can pay an exit tax. It is a capital gain tax, calculated as if you sold your property when you left. A long-term resident giving up a Green Card can be required to pay the exit tax too. 

Sometimes, planning and valuations can reduce or eliminate the tax, but taxed or not, many are headed for the exits. Fees may add to the annoyance. America charges $2,350 to hand in your passport, a fee that is more than twenty times the average of other high-income countries. The US hiked the fee to renounce by 422 percent.

Previously, there was a $450 fee to renounce, and no fee to relinquish. Now, there is a $2,350 fee either way. The State Department said raising the fee was about demand and paperwork, but the number of American expatriations still increased after the fees went up. With all of these costs and taxes, some leavers figure that they will not file anything with the IRS.

As a technical matter, it is possible to hand in a passport or green card and even get the appropriate paperwork from the US State Department proving that you have left. But if you do not settle your affairs with the IRS too, the IRS statute of limitations (usually three or six years depending on the taxes at stake) will never even commence to run.

There are a few famous examples of this too, where the IRS has succeeded in claiming many years’ worth of income taxes. It can be a sobering reminder that the memory of the IRS can be long, as can its global reach.  

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About the Author

Robert W. Wood is a tax lawyer representing clients worldwide from offices at Wood LLP, in San Francisco (www.WoodLLP.com). He is the author of numerous tax books, and writes frequently about taxes for Forbes.com, Tax Notes, and other publications. This discussion is not intended as legal advice.

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