Is the US Turning Japanese?

Is the U.S. sliding into a long-running Japanese-style deflation?
After two decades Japan still struggles to deal with the deflationary effects of the sustained collapse of its real estate and financial markets in the early-1990s. So much so that China recently bumped Japan as the world’s second-largest economy in GDP terms.
To add to these persistent ongoing worries the yen has been showing unwelcome latest strength against the U.S. dollar. As a result, the once-mighty Tokyo Nikkei stock market index has again pulled back steeply and remains mired far below its peak levels of way back then. Prosperity without growth is not a pretty prospect.
Another mounting worry is of America’s ever-growing reliance on foreign debt to finance a federal deficit currently in the order of $1.5 trillion, or 10% of GDP, and counting.
In March, when I last walked past the National Debt Clock in midtown Manhattan, some one-third of the $12 trillion-plus U.S. Treasury debt (equivalent to almost 80% of GDP) was owned by China ($900 billion), Japan ($800 billion) and other foreign creditors. These holdings might well have been reduced since then. And what if this were the beginning of enough being enough? When do troublesome trends like these stop, and how should they be reversed?

The US and UK Approach to the Economy - which is right?

Worries of a “double dip” recession are not to be taken lightly. And neither the risks associated with unprecedented levels of debt sparked by lifesaving, over-the-top government stimulus and deficits and debts of all types (including household and consumer) that could well have reached dangerous tipping points.
Whereas two years ago the worries centred around the bail-out of banks, financial institutions and enterprises judged too big to be allowed to fail (e.g. “Government Motors”), this year’s focus shifted to the public sector as sovereign debt risk (epitomized by Greece, maybe also Ireland) came to occupy centre stage. And, with it, how the G8 and OECD nations, in other words the developed world, tackle disorders that could have reached explosive proportions.
The dichotomy between the fiscal approaches being taken by the governments of the U.K. and the U.S. couldn’t be greater, the one resolving to tackle its formidable deficit and debt problems head on, the other to keep the spigots open in order not to risk jeopardizing a fragile economic recovery.
Symbolically, David Cameron, the youthful new British Prime Minister, flew commercially on trips to Toronto for the G8/G20 meetings, and to New York to address the UN. From New York he took the train to Washington to meet President Obama. In between, his “accidental” coalition government (The Economist) brought down the harshest kill-or-cure budget in generations. Its aim – to eliminate a record deficit within five years through a combination of severe fiscal tightening (public service cutbacks and pay freezes, et al), higher consumer taxes (e.g. VAT to be raised to 20% from 17.5%), levies on banks, an increased capital gains tax and other private sector measures.
“When we say that we are all in this together, we mean it”, said George Osborne, Britain’s youngest-ever Chancellor of the Exchequer. Echoes of the Thatcher years are unmistakable. Times and circumstances may be different today, but a British “disease” of a different type could be taking hold as a wave of austerity begins rolling across a debt and deficit-heavy Europe. (Mr. Cameron and EU leaders might also like to note how Stephen Harper of Canada has managed to govern effectively for four difficult years with a minority government.)

Business owners need to feel they are in a dynamic market place

Castro says that his economic model is not working too well. He confessed this to an astounded journalist who probed deeper. Castro clarified further that the government took up too big a role. (Trudeau - what did you think when you were swimming in his pool as a guest?)
Business owners definitely need to feel that they are in an exciting economy, not squeezed out by government. Sometimes Canada can slide over to the Castro approach and the UK has been at it for decades, forcing my parents to immigrate.
Although everyone thinks of the UK as Europe's free market laissez-faire poster child, nothing could be further from the truth. Britain is in fact the only major democracy to have flirted with full-scale Soviet communism. 
It is often forgotten that after the war the British government confiscated the assets of most of Britain's industrialists. In 1946 the government nationalised the entire coal industry; that was quickly followed by the State confiscation of the railways, the electricity generating companies, all the country's hospitals, the telephone company, the gas companies, the entire iron and steel industry and all the shipbuilding yards. My grandfather was head of one of the ship building unions that crippled the industry and he was always telling us the business would return. It never did and the skills were lost for ever.
And then in a final coup de theatre the bulk of the country's car industry was also brought into State ownership. 
No other country in Europe embarked on anything like the scale of Britain's experiment with communism, and none experienced such disastrous results. All of the nationalised industries, without exception, fell into a death spiral of inefficient operations, militant unionism, high costs, poor quality, rubbish customer service, abysmal design, zero innovation and and ever greater reliance on subsidies from the taxpayer and protectionism. 
When Margaret Thatcher quite rightly decided to turn off the subsidy tap in the 1980s the industries crumbled. Leftists blame her for destroying British industry but the truth is that it was destroyed by decades of Labour's Clause 4 in action. All Margaret Thatcher did was administer the last rites. 
It's an interesting diversion to wonder what might have happened if the great magnates of British industry had been allowed to keep their businesses in the private sector. Would the exposure to competition and the drive for innovation, efficiency and quality that competition necessitates, have taken British industry in a different direction? Would the Brits today have a million more jobs in manufacturing and be recognised as world leaders in some industries? Would Britain still be mass producing Austins, Triumphs, MGs and Rovers? 
Worrying trends are appearing in the Obama administration's policy discussions and Canada's too. Business owners are telling me they do not want to move their work to China but how can they compete with cheap Chinese products flooding our country? 

Do You Really Want a Job with Private Equity?

Why job hunting at a company partnered with private equity is nothing like you have

experienced before.

Looking for a new job this year?

There are interesting career opportunities being created by owners of

companies who are partnered with private equity. I hire for these unique

businesses and have come to see a huge difference compared to corporate

recruiting.

It may seem choke on your chai tea rude to say businesses with private

equity on board do not care about your career. If you grasp this difference

though, you are more likely to get the job and make them care.

These businesses have owners. The private equity partners are also owners.

Can you put yourself in their shoes and realize how you will impact directly on their personal bank balances?

These owners are self made, ego driven characters. They have been beaten

up; it's no longer business as usual, rules have changed big time. Owners

take risks at major cost to them and their families. Now they are risking it all

again to make the leap to the global market.

Take Guy Ritchie--Madonna's ex-husband or play thing--he knew to leap out

of England, into the international movie scene. (Nothing like scorned love to

make you be creative.) Guy came to terms with losing some control and

partnered with private equity. Even though he managed to pocket a 50

million pound settlement from his missus, his private equity partners raised

$80M to film his meandering, but wryly amusing Sherlock Holmes movie.

With this partnership, Guy was able to bring in talent to appeal to a crowd

not familiar with Stephen Fry, Baker Street or high tea. The scenes between

Robert Downey Jr. and Jude Law were the best part of the movie for me,

although I am also rather fond of Rachel McAdams, but preferred her in The

Time Traveller's Wife. Did you know Brad Pitt was the executive producer?

I digress.

And that is exactly what I am talking about - when speaking to private

equity companies, do not go off on tangents, no matter how delightful

and deliciously amusing these may seem. You will appear off target and

plain wasteful.

Keep all conversations (phone calls especially) razor focused on the actions

required on the job within the first six months; why you are the one to do

this urgent and purpose-filled work. The information to get across is your 3

step plan to make the business more money than Brad Pitt could hold above

his head.

Working for owner managed companies is not like the 100 Top Companies

with toaster oven prizes at the monthly beer bash. Owners are anxious for

results, for action, for hefty pushing the wheel up the hill. Leave out

indulgent chats about your recent ski trip, why you can not make a five

o'clock appointment because you have to pick up the kids, how your child

won a scholarship to Ivey, is visiting Nepal, is on drugs or whatever. You

think you are bonding, they are hyper-judging.

If you are from a corporate environment, you will be suspected of having soft hands,

soft soaping your seniors rather than telling the harsh truth and comfortable

calling in consultants rather than rolling up your own sleeves.

Understand that about 150 other people applied, and there are 5 who are a

better fit. Realize that you can leap frog them by knowing this one tip: it is

not about your stupid career, it is about how you would help the company

bring in cash flow.

Companies where private equity is a part owner really, really care. Have

you made a company performance oriented? How did you contribute to the

top line, not the bottom line (and if you don't understand that - call your

favourite business coach.)

Private equity partnered companies work lean but give opportunity to use

brains and skills. Former armed forces people can be found in private equity firms probably because they are used to jumping out of helicopters with people screaming "Go, go, go!" That is the environment. If that does not appeal, go to the Post Office. I hear they have terrific careers.

Jacoline Loewen is a financial consultant to business owners, raises capital to grow the business and is the author of Money Magnet: How to Attract Investors to Your Business. 

 

The City Needs to Get out of the Way of Business

Ford for Mayor! Last night, at the Mayors' debate, he said the most profound statement about the City's role.
Ford said, "We need government to get out of the way of business." 
He went on to explain that government needs to let the business people get on with what they are trying to create and get on their side instead of against them.
Pretty profound.
I would like to see Ford get a big vision articulated of Toronto as a City for Entrepreneurs to come and set up as there is smart university talent here for employees, etc.Miller had his Green City, we have heard about being a Creative City, what about being a City that supports business operators?
Another point is that the mayors seem to think that all businesses are stores or cafes. There are high intellect businesses too and we also want the City to help us.
If there is funding to going to parades, what about an engineering competition and forum. Instead of just parties and drinking, what about intellectual business events? 
I am grateful though that most of the candidates realize it's time to downsize and help business do what they do best. 

Smackdown at the Gladstone

Grocery Gateway and Real Programming for Kids founders and owners are my guests to the 6 Mayors' discussion tonight on "what can Toronto do for business?"
It will be interesting as Ford, Thomson and Rossi have all had the pain of running their own businesses and know the rock face it can be.
When I listen to Stephen Tallevei, founder of Grocery Gateway, talk about his uphill struggles with getting his online grocery store to succeed, you know why being invited in as a private equity partner is a privileged partnership. Elliott Knox, RP4K, runs thousands of programming courses for teens each year and he describes his last year as similar to climbing to the top of Hamburger Hill and sent me the link to the movie.
We will be at The Gladstone Hotel, redone by the architect firm,  Zeidlers, and it is unbelievably glamourous. Anyone can attend the talk and we must thank Globe & Mail for hosting such a worthy event.

Is China ending its relationship with Capitalism?

I am listening to the head of GE speak in Toronto at an off-the-record speech to my secret handshake club.
His remarks on China at a private function were disclosed last month and have continued to stir up debate about China and America's relationship. Here is a terrific comment in response to an article on China:

I've spoken with executives at American companies that tell me they have "their own factories" in China, and they seem proud of it. But then when I ask, "Doesn't the Chinese government own 51% of your factory?" they'll then say "Yes, well, err, that's the way they do things over there, but it's our factory!"  

Not really. Since we began on this road to globalization, that is, free and mostly unregulated trade, just about the same time that Chairman Deng was opening China to Western capitalism, China has played us for fools. We've taught them how to make everything we know how to make, from steel to computers, iPods to cell phones, giftware to American-style furniture, and all the fittings and components and add-on's as well.When we decided to invade Iraq, Congress and the Bush Administration decided to keep the costs off the books and out of the budget, so we borrowed as much as $200 billion each year from China and Saudi Arabia, and a few other countries here and there. This, at the same time we were running a trade deficit with both countries and had to borrow from them to be able to afford importing all those great things we buy from China and all that Saudi oil. So while we were forcing American businesses to set up factories in China that brought in labor from the countryside at a whopping $5/day for 60 hours/week (no labor unions in Communist China, I suppose), we were exporting our manufacturing base and all of our manufacturing technology to that country and in the process enriching the Chinese government with virtually every dollar we spent. Now we're in a so-called Great Recession in which we're having to face the fact that we've lost literally tens of millions of good-paying manufacturing jobs, and China is doing great, up 10% a year, raising its general wage to another whopping $6.50/day and building what will become the second strongest naval, air and armed forces in the world. Not to mention their advanced missile technology, which they'll sell to anyone with money to buy it.

We've been such chumps.
Of course, Obama says he has a plan to create great jobs that can't be outsourced. Nonsense. The Chinese are way ahead of us in wind and solar technology. They've taken their riches and put it into vast new infrastructure projects and research, and when we finally have the resolve to build those new highways or create that new electric grid it will be with Chinese machinery and technology.
The Republicans are no help either, as they don't seem to have a clue about how to create jobs. They just want to protect the banks and Wall Street so they have the money to win elections and make it easier for the rich to get richer while denying any help at all to everyone else.
I see no future for this country unless and until we confront the outsourcing of jobs to China head-on. Globalization doesn't work for us when overseas labor is so cheap. China doesn't play by the same WTO rules in any case. It's time to establish bilateral trade agreements with key trading partners under which they can't export to us very much more that we export to them. At the same time, we need to protect key industries that are vital to our national security, like steel, metal fabrication of all kinds, shipbuilding, electronics with military uses, on and on.
There's no other way out of the downward spiral of cheap goods forcing Americans out of work, so they have less money and have to buy cheap Chinese goods, which leads to more layoff's, and down we go to being a third world country. It's time someone in Washington, and in the media, had the courage to call a spade a spade. The loss of our manufacturing base is what's killing America and unemployment won't go down until we begin to restore it.

4 Worries for Owner Operators According to Private Equity

Private equity fund managers are in touch with the business operator/owners and report that the top issues keeping these business leaders up at night are:
1) Key employee retention
2)  Management Succession in the C and V suites
3) Customer retention
4) Operational efficiency

What do you think?

Entrepreneurial Businesses Drive Job Growth, says Harvard

Politicians are too likely to guess wrong about which industries are worth attracting. With job growth worrying politicians, Toronto City Hall may be tempted to chase big companies to take a tax break and set up shop.
"That's a misguided approach," says Ed Glaeser and Bill Kerr, Harvard.
Job growth and the big economic development coming from these new work roles is now proven to come from the successful incubation of "small, entrepreneurial employees--not a few big companies." Even adjusting for variables such as tax or industry, Glaeser and Kerr say, "the relationship between small firms and job growth rate stands."
Industries with smaller firms and more start-ups had faster job growth than an industry an industry in the city without a cluster of start-ups. So a gnat like cloud of small companies buzzing around larger companies will be far better suited to job growth.
According to Glaeser and Kerr, apparently large companies generate less job growth than these "gnat" sized businesses. Also, once a city establishes itself as entrepreneurial, it tends to be self perpetuating.
So Toronto needs to market itself as a City for Entrepreneurs.
A big thank you to The Globe & Mail for organizing a 6 Mayor Candidate Town hall on what to do for business.
Give your views on Facebook to:
Sarah Thomson
Rocco Rossi

4 Reasons Governments want to help Business

Business owners will be able to attend a town hall on how Toronto can help business. Thanks to the Globe & Mail for sponsoring the Sept 9th discussion with the 6 mayor candidates.

The economy has changed business as usual approach by government from city to country levels and encouraging a return to government involvement from puppet master to financial supporters of business. 

Four main forces are driving this revival of industrial policy. 

First is the weak state of the world economy. Governments are under pressure to reduce unemployment and stimulate growth: support for chosen industries is a way of saving jobs and helping local firms fight foreign competitors. 

Second, some countries, such as America and Britain, want to rebalance their economies away from finance and property. Along with older manufacturing, clean technology is emerging as a favourite direction. Nearly every large economy has plans to win global market share and create green jobs.

Third, emergency use of industrial-policy tools leads to demands for more. Mr Obama has responded to complaints that only big companies such as General Motors and AIG, an insurer, have enjoyed the state’s largesse by setting up a $30 billion small-business lending fund. 

Fourth, rich countries are responding to the apparently successful policies of fast-growing economies, notably China and South Korea.

Industrial policy remains controversial. Defined as the attempt by government to promote the growth of particular industrial sectors and companies, there have been successes, but also many expensive failures. Policy may be designed to support or restructure old, struggling sectors, such as steel or textiles, or to try to construct new industries, such as robotics or nanotechnology.