John will be posting weekly with his personal analysis of the issues that matter in HR and people management and the external factors that affect them.
I seem to have been humming REM all weekend. “It’s the end of the world as we know it (and I feel fine).” The trigger is this week’s Large Hadron Collider experiment. Some of the best scientific brains on the planet are about to smash proton particles together at great speed inside a specially constructed magnetised tunnel on the French-Swiss border. The resulting bang will mimic be the original Big Bang itself – giving the excited boffins insights into the very origins of the universe. At least that’s what should happen. Sci-Fi types worry that the whole thing could conjure up a Black Hole that swallows the entire Earth. But I’m quite relaxed (these after all are people who believe Star Wars is real, buy Star Trek duvet covers and want David Icke to be the next US President).
If you’re reading this late on or after September 10th you’ll know we’ve survived. By which time prophets of doom will have returned to their usual place – that’s right, the financial pages of our national newspapers. Actually, as you’re doubtless aware, this month’s doom-monger-in-chief has not been an economic commentator but rather the Chancellor of the Exchequer, Alistair Darling (in both appearance and demeanour a kind of negative of Groucho Marx). Mr Darling reckons things haven’t been as rough as now since the days of demob suits and post-war rationing – an admission that caused both the pound and share prices to fall more heavily than the early autumn rains. But fear not Darling – a technical recession doesn’t spell the end of the world either.
By coincidence, the Chancellor’s grim assessment coincided with the latest health check on the state of major economies from the Organisation for Economic Cooperation and Development (OECD). At first glance this looks horrid too – the UK economy has probably already slipped into recession and will remain there until the end of the year. But on closer inspection the outlook isn’t actually that catastrophic. The OECD forecast is that the UK economy will have grown by 1.2% in 2008 as a whole. And while growth is likely to remain minimal in 2009, the consensus amongst economists is that the recent sharp spike in fuel and food inflation will by early next year have subsided sufficiently to enable central banks and governments in the developed world to take more aggressive action in heading off the impact of the credit crunch. As a result the economic downturn in both the UK and elsewhere is set to be sharp and painful but thankfully short.
Moreover, if the International Monetary Fund (IMF) is correct, the global economy as a whole will chalk up growth of about 4% in both 2008 and 2009. Although the current economic downturn is truly global in nature, the fast growing emerging economies (especially the so-called BRIC group comprising Brazil, Russia, India and China) continue to keep the global economy motoring along. These are not immune from the factors depressing the US, the EU, Japan and the UK. But according to the IMF an ‘economic slowdown’ in China in 2008 translates into an annual growth rate of 10% rather than 12%, with increased domestic consumer spending offsetting greater difficulty in exporting to other parts of the world. Similarly, economic growth in India is forecast to slow from 9.3% to 8.0%, in Russia from 8.1% to 7.7% (though the IMF calculation was made before the Georgia conflict) and in Brazil from 5.4% to 4.9%.
The BRIC economies will also keep generating jobs in 2008. Indeed the number of people employed across the globe will increase by up to 40 million this year – raising the global level of employment to 3 billion – which again puts the experience of the developed economies into perspective. Yet even this amount of job creation will not be sufficient to prevent a rise in global unemployment as more people join the global workforce, with an additional 5 million people unemployed and looking for work. For these, including those in our own country joining the dole queue, the next few months might indeed feel like the end of the world. Let’s hope their pain is eased as soon as possible.
It was the event in the sporting calendar we’d been waiting for all summer. That’s right – the return at the weekend of Premier League football. The three month drought since Man Utd did the glorious double is over (in my book England’s absence meant Euro 2008 wasn’t a decent adrenaline boosting footie fix). A pity therefore that most of the media are still obsessed with the Beijing Olympics. I find it difficult to get too excited by the cycling, rowing, and swimming despite the welcome British successes. Why tennis and equestrianism are there at all is beyond me. At least we’ve reached the proper stuff now. The beach volleyball is obviously highly watchable – though I swear on my telly it only features as a 10 minute freeview – but it’s the athletics that the Games is really all about. The thrilling combination of sweat, emotion and the influence of drugs is witnessed nowhere else (thought I admit a Pete Docherty court appearance comes close).
There’s something about the Beijing Games that reminds me of the 1964 Tokyo Olympics. I was only seven years of age at the time and can’t honestly claim to remember the event. But I do recall my primary school joining in a collective interest in all things Japanese. The land of the rising sun was very much the ‘coming nation’ at that time. As with China today, we were mesmerised by exotic Eastern mystique and left feeling somewhat threatened by the seemingly ruthless efficiency of an emerging economic power. Japan’s economy was growing at an average rate of 10 per cent per year in the 1960s, in line with what China has been enjoying recently. And just as China’s human rights record makes us wary of fully embracing the Dragon, Japan was tainted by the still fresh memory of its unspeakably awful wartime atrocities, notwithstanding the horror its own people suffered when the Atom bombs were dropped in August 1945.
As well as parallels, however, there are also key differences in the stories of these two economic powerhouses. Most obviously, Japan quickly established political respectability by joining the world’s group of stable liberal democracies. There is nothing to suggest that China is on the verge of doing likewise anytime soon. But also unlike China, Japan demonstrated a major capacity for organisational development, business techniques and management practice that was to become an international benchmark. The use of lean production, just-in-time processes, continuous improvement and team based working eventually spread west, both as a result of inward Japanese investment to other developed economies and the emulation of these practices by western enterprises.
As yet there is no equivalent sign of a similar degree of Chinese led innovation. China’s economic resurgence has been built mainly on an initial series of market based agricultural reforms and the subsequent encouragement of inward manufacturing investment, with rapid growth in farm productivity enabling millions of people to leave the land to provide a source of very cheap labour for mostly foreign owned businesses. The latter initially produced mainly low cost manufactures to meet the demand of western consumers. But with Chinese universities pumping out millions of highly skilled graduates each year China is now moving rapidly into the production of knowledge intensive, high value added goods, attracting investment from businesses in sectors such as advanced information technology and pharmaceuticals. However, while China therefore seems to be stepping up a gear as it moves ever closer to becoming the world’s biggest economy, the country still remains highly dependent on the import of foreign know-how and management talent to drive things forward.
To use awful economic jargon, China doesn’t display a strong rate of endogenous growth (i.e. that triggered from within as a result of internal dynamism). The current consensus of China watchers is that the economy is hamstrung in particular by home grown managers who are not adept in the flexible, innovative, entrepreneurial styles of leadership needed to thrive in a modern global economy. To some extent this is the legacy of communist state planning which bred a generation of managers who operated on the basis of command and control to meet whatever centralised production targets were set for them. Things will undoubtedly improve as increasing numbers of western educated Chinese managers take the helm or learn from western managers drafted into the country. But it’s unlikely that China will begin to fully display the characteristics of a truly dynamic market economy unless and until it throws off the shackles of authoritarian communism and reforms its political institutions.
We may have marvelled at the sheer scale and sophistication of the opening ceremony of the Beijing Olympics. However, oppressive political regimes have always been good at putting on a great show. Hitler's Nazi Germany did so at the Berlin Games of 1936. And during the cold war the Soviets and Maoists often displayed their military might in parades unrivalled in the free world. Modern China has shown that it can marshal its people to a more positive end. But even the most effective marshalling cannot enable people to reach the heights of economic and social achievement that genuine freedom offers. The true heroes and heroines of this year’s Olympics are those who have protested for human rights and democracy. We should all – the Chinese leadership included – raise the flag for them.
At last some good news to brighten the darkening economic gloom! It’s widely reported that Howard Brown, front man for the Halifax ads since 2000, has been axed from the role. Too chirpy for the current sombre financial mood, it seems. Britain’s biggest mortgage lender reckons house prices fell on average by 8.8% in the year to July. With last Friday’s figures from the Council of Mortgage Lenders showing the number of home repossessions up by 48%, Howard’s cheery persona just doesn’t seem right.
Okay, so Howard’s end isn’t a positive sign after all. It’s just that it cheers me up. The chubby bespectacled bank employee features in the top 20 of my personal Chamber of Horrors (for those interested, he sits at 12th place in the rank of repulsiveness, sandwiched between Kerry Katona and Cilla Black, a prospect so hideous that I find myself breaking into a cold sweat just thinking about it). Howard and his varied mass ensembles of singing and dancing bank clerks spawned so many imitators – the choir of emergency vehicle repairmen being the worst - that I often wondered who was serving customer need when all these staff were off on film shoots.
It may be a coincidence but nonetheless somehow fitting that the curtain falls on Howard’s flirtation with fame exactly a year after the phrase ‘credit crunch’ entered the public consciousness. His constant refrain “we give you eXtra” may have been aimed at attracting savers but the sentiment aptly sums up the universal culture of extravagant lending and borrowing that helped get us into the current mess. How long it takes to get out of it will probably determine whether Prime Minister Gordon Brown goes the same way as his near namesake and exits the public stage too. And a major factor will be what happens to job prospects for the rest of us. As the Halifax also noted last week “the labour market is the key driver of the housing market.”
Last December I forecast that 2008 would be the UK’s worst year for jobs in a decade. I thought there would be some growth in employment - though only a third of that enjoyed in 2006 and 2007 and not enough to present a rise in unemployment – resulting from a squeeze on recruitment and a limited increase in the number of redundancies. Although this forecast was initially considered pessimistic it now looks relatively optimistic in comparison with the prevailing mood of doom and gloom. My initial view was based on the assumption that interest rates would fall in the second half of 2008. But this has been made difficult by a bigger than anticipated spike in food and fuel prices, making the outlook for jobs worse than originally expected.
Portents are not good. CBI Director General Richard Lambert warned yesterday that economic forecasts had been consistently overoptimistic in the wake of the credit crunch and that prospects for 2009 and into 2010 “look no better than anaemic”. Likewise the latest quarterly CIPD/KMPG Labour Market Outlook (LMO) survey of 1,221 employers (conducted by Ipsos MORI and published today 11 August) finds job prospects weaker than at any time since the survey started in 2004. And things could prove worse still – many employers have made contingency plans for redundancies if the economic situation deteriorates. But even if we avoid the scale of jobs fallout suffered in previous downturns the recent era of the candidate’s recruitment market is already over, while people in work are becoming increasingly anxious that their P45 might be about to arrive.
Mounting job insecurity is being compounded by a significant squeeze on real incomes. Average pay deals are running at between 3.5% and 4% - less than the increase in weekly shopping bills and dwarfed by recent sharp hikes in gas and electricity prices. The squeeze does at least mean that it looks as though we won’t be seeing the kind of pay-price spiral that has done so much damage to our economy in the past. This in turn offers greater hope that the Bank of England might soon be able to cut interest rates to head off the threat of a serious recession. But whatever happens the next twelve months are set to be very tough indeed. No wonder Howard’s on his way.