The NewCo Daily: Today’s Top Stories
No one ever said that this business of doing business the right way was going to be easy. The “shareholder value uber alles” philosophy of management that took hold in the 1980s remains powerful even as we’ve seen the rise of alternative visions that add other stakeholders’ interests to the equation.
Now there’s a wave of setbacks for idealistic firms like Juno, the ride-hailing platform that scaled back its profit-sharing plans after being acquired, and Etsy, the handmade-goods marketplace that fired its CEO and laid off workers to try to boost its share price.
Share price is a single, simple metric, and if all you want is clarity and a quick return, it might serve you well. But if you have ambitions that involve building great companies and improving customers’ and workers’ lives, the stock-based metric will fail you in the long run (Sheelah Kolhatkar in The New Yorker). The problem isn’t a simple dollars-vs.-values conflict. It’s a pragmatic quandary, too.
Kolhatkar talks with Wharton economist Peter Cappelli about why companies end up sabotaging their own productivity when they view every pay raise and concession to workers as a “wealth transfer to labor.” If owners are all “us against them” with their employees, what binds employees to their jobs?
As Cappelli puts it: “The interesting thing is always to ask them, ‘What’s the value proposition for employees? Why should these people work only for the interest of the shareholders? How are you going to get people to work hard?’”
The answer, of course, is shared ideals. But the sharing has to be two-way or the system will collapse. This is true in the microeconomics of business and, as the Trump administration is in the process of learning, it’s true in the geopolitics of international affairs. If the only world you know how to build is one where you win and everyone else loses, the winner is never going to find safety or stability — all those losers are going to stop playing.
‘Discouraged Workers’ Warp the Unemployment Numbers
The U.S. unemployment rate fell to 4.3 percent in figures released Friday. Economists used to tell us that such a relatively low jobless rate was a surefire driver of higher inflation. But inflation remains tame. What’s going on?
In The Week, Jeff Spross argues that our unemployment metric drastically undercounts the true size of the jobless population because it stops counting you if you aren’t actively looking for a job. That makes you a “discouraged worker.” Given how discouraging the job market has been for so many workers for so long, there are a lot of these discouraged workers out there.
Inflation is supposed to kick in as employers have to raise wages (and prices) to compete for scarce workers. But if those workers aren’t actually scarce — if the unemployment rate is undercounting how many are waiting in the wings for jobs — then we could fill millions more jobs without fear of overheating the economy.
That’s good news (room for growth) wrapped in bad news (the recovery is a lot weaker than we think). It also means that the Federal Reserve could be setting itself up for a big mistake if it raises interest rates too quickly to fight phantom inflation.
Consumption in China is About to Explode
China’s consumers are acquisitive, brand-conscious, and just beginning to flex their purchasing muscles. As the 21st century unfolds, their choices will increasingly govern the shape of the global marketplace, according to historian Karl Gerth of UC-San Diego, author of As China Goes, So Goes the World (Quartz).
As Gerth sees it, the rise of private consumption and wealth in China over the last two generations wasn’t an about-face from the collectivist Maoist ideology that preceded it. Instead, the hunger for goods and brands was right there in China all along — under Mao, it just focused on things like sewing machines and bicycles. When Deng Xiaoping flashed a green light for private business, the floodgates opened.
Gerth says that the speed of China’s transformation means that consumers are more insecure about their choices. Their experience of scarcity drives their eagerness to accumulate stuff. And the demographics resulting from the country’s one-child policy have left the younger generation with extra purchasing power concentrated in relatively fewer hands. Add these up and you get a forecast for a buying spree.
Millennials Are Fleeing Casual Dining Chains
In yet another sign that millennial spending habits mean big changes for business, the younger crowd is shunning the “casual dining” chains like TGI Fridays, Ruby Tuesday, and Applebee’s that grew successful and fat in the ’90s and 2000s (Business Insider). The CEO of Buffalo Wild Wings, another chain that’s hurting, told shareholders that the new generation just doesn’t like to sit down for its meals: “Millennial consumers are more attracted than their elders to cooking at home, ordering delivery from restaurants, and eating quickly, in fast-casual or quick-serve restaurants.”
There’s no doubt some truth in this diagnosis. But the operators of these chains might also consider that the public is getting smarter about eating healthier — and more interested in variety and authenticity than in the reliability and gimmicks that drive success in franchising.