Autonomy

I believe that we are beginning to experience a fundamental change in the workplace. Historical management strategies suggest that management treat every employee as an equal, keep running business hours between 8am and 5pm and work a 5 days a week. Some of the most successful companies today are throwing those management ideas out the window and formulating management upon a foundation of autonomy.

Autonomy is the idea that every person is self governing and should be free to make their own decisions. In basic entry level positions, autonomy has not been a highly integrated management strategy until recently. In the past, management would assign menial tasks and the workers would do them within normal business hours and leave it at that. This can pose as a problem because every worker is not the same. Some people work better at different hours and others work better with various incentives. Wouldn't it be more productive to allow people to work in their ideal environment?

If I were a manager or a consultant I would advocate a system where autonomy is a very integrated part of the workplace. I would begin with a "new employee probation" period in which new employees for the first six months would work within normal business hours on various projects that give them empowerment. After the six month probation period, I would then allow the workers to work on their projects at their on schedule so long as they were available within the hours of 9AM and 1PM if any meetings or other needs were to arise. The workers would then be able to keep this system running so long as their performance was at the expected level. I believe the key benefit of this system would be the employee happiness and employee empowerment. With happy employees you are more likely to have greater production and better results. In addition, I feel that this company would have a very high employee retention rate. This would be very cost effective for the company because staffing and training is a very expensive task.

The major risk of the system above is that the employees can abuse the system and the business could suffer. If this were the case and if a specific employee was not performing to their optimal level, there would obviously be repercussions. I feel that many people would enjoy working for a company like this, and if an employee would need to be replaced it would be somewhat easy to do so; however, I do not advocate the idea of "interchangeable employees." The employees, especially the entry level employees, are the foundation of the company and without a sturdy foundation disaster is imminent.

Constitutional Government as a Stakeholder

I would like to preface this writing by giving full disclosure and stating that work in the financial industry and I believe in an extremely limited government with the minimal services and entitlement programs to keep the country moving.  I am not typically a cynical person, but when it comes to entitlement programs I feel that you are doing a person/organization a disservice by providing them with a fall back due to fiscal irresponsibility. With extensive entitlement programs, the government is essentially telling citizens/organizations that it is okay to take a risk because if you fail, then the government will aid you in recovery.

Now, I’d like you to think back to the fall of 2008. What were some common terms and phrases that the media used in this time to describe what was occurring in the financial industry? For me, the two that come to mind are “Bailout” and “Too BIG to fail.”  Leading up to, what is now coined to be, the worst financial crisis since the depression of the 1930’s, large financial corporations were increasing their exposure to risk and taking on an enormous amount of “bad debt.” When mega-corporations such as AIG, Citi Group, Bank of America, Wells Fargo, etc. realized they would soon be in the red without assistance, the government determined those banks were “too big to fail” and granted financial assistance totaling around $200B of taxpayer money. A list of all “bailout banks” can be found here: http://money.cnn.com/news/specials/storysupplement/bankbailout/

One understated effect of the government granting assistance with anticipation of future repayment is that the government actually became a stakeholder in each of these companies that it assisted. As a stakeholder, the government now has an interest in the success of the company and future profits that are to come. Now, I understand that times have changed since the constitution was written but I don’t believe it states that the government should hold stake in any private corporation. According to John Locke, the sole purpose of government is to protect the rights of its constituent’s ability to secure life, liberty, and property. I do understand that the failure of these banks would have resulted in financial catastrophe;  but the act itself is unprecedented and creates many new opportunities for government intervention. This act really worries me as a citizen because it makes me wonder where they will draw the line as to what is deemed necessary of assistance.

In addition to a limited government, I am a firm believer that (relative) perfect competition is the best economic system because it creates the lowest price for the consumer due to competition. When the government took stake in these companies they essentially owned a portion of that company until the funds were repaid. First, notice that the government became a stakeholder in competing banks. The financial support was not equal among all banks. This deviates from the idea of perfect competition because a bank that receives more funds than another now has a competitive advantage and the government may favor the success of the bank it lent the most money towards.

A second observation worth noting is that additional unnecessary regulations and statutes may be written to favor the success of a specific bank.  

Consider this hypothetical situation:

The Federal Government lends Wells Fargo (a national bank with a great deal of customers) $25B and also lends Texas Capital Bank (a local bank with very few customers and assets) $2M.  Now that the government “owns stock” in each of these banks, the bank’s books must be opened up to the federal government.  In all likelihood, the federal government would be more likely to propose legislation that favors the success of the $25B they lent to Wells while overlooking the $2M they lent to Texas Capital. This is a very vague example but it does bring about the idea that with the government as a stakeholder, they might be more interested in the success of one company over another.

Overall, I do not believe our government was created to become a stakeholder in any private corporation or organization. When the government takes stake in a certain company, it is then tied to the success of that company.  I feel that the government should be as limited as possible to fully protect life, liberty, and property of each citizen. When the Federal government branches out into new industries(in the case lending), it sets a precident that makes me wonder where it all will end.

Globalization: Whatever can be done, will be done

Throughout the years, many innovations have taken place in society. These innovations often lead to changes in the way people within a society go about their every day lives. One critical change that we have, and continue to experience in today's society, is Globalization. There have been many things that led up to the idea of globalization but I believe it is in its most critical stage of development in present times.

A few years back I came across a lecture video on the MIT open-courseware system entitled "The World is Flat." This, by nature, caught my eye and I had to watch. In this video (http://www.academicearth.org/lectures/the-world-is-flat), a man by the name of Thomas Friedman discusses his story, observations, and findings on the topic of globalization. Friedman is a journalist and as many journalists do, posed the following question: "Why does everyone hate Americans?" In his attempt to answer the question, Friedman realized he needed to view Americans from a different perspective. Following this realization, Friedman traveled to Bangalore India to conduct fieldwork. While in India, Friedman met with a very prominent Indian engineer and conducted an interview.  Friedman was told "The global economic playing field is being leveled, and you Americans are not ready." This led Friedman to develop his theory that "The World is Flat" and individual globalization.

Friedman presents the idea that Globalization has occurred in 3 steps through time. The first step of the globalization process began with countries globalizing. This has been around for some time now and lasted until about the 19^th or 20^th century. Counties have always had some form of relation with each other. Regardless of whether the relations are good or bad, counties have and will always have an impact on each other. The next step in the globalization process began with companies and industries globalizing. Examples of this include outsourcing and off-shoring of jobs for cheaper or more efficient labor. Another example is when companies decide to operate internationally and have offices in multiple countries to reach a larger target market. The final step, and the step I find most important and prevalent in today’s society, is individual globalization. When individuals can share their ideas through mediums such as the internet for a relatively cost free method, It creates this idea of individual globalization.

I define Individual Globalization to mean an individual’s ability to reach all ends of the earth to conduct business and share ideas. This has been created by the dot.com boom which led to the overinvestment in digital infrastructure. This overinvestment essentially “wired the world” and made it relatively free to publish ones ideas and conduct business with a connection to the internet.

So what?

The idea of individual globalization should be a high priority to everyone in society. To begin, individual globalization has created a substantial amount of competition that was not there before. As you may know, people in less developed countries work for a much cheaper wage compared to those in the United States. If those countries have the technology to perform tasks that are normally performed here, what is stopping businesses from outsourcing the work to save costs? Examples of outsourced work can range from menial tasks such as answering a telephone to tasks that require high levels of education such as analyzing x-rays or giving advice on medical treatment. This will, if it has not already, affect many American’s ability to get jobs and may negatively impact the compensation they receive. This makes me wonder if there is any correlation between the unemployment rate and the change in amount of jobs sent offshore.

Another result of the “overinvestment of digital infrastructure” is now every person who is connected to the internet has the ability to publish their ideas for everyone else to see. This has many positive contributions to society in the sense that new innovations and inventions are being created and now the creator can seek funding/support for those ideas that may not have been possible prior to the “digital overinvestment.” This brings about my challenge to you. In our current stage of individual globalization, whatever can be done will be done. The important question that I encourage you to consider is: If whatever can be done will be done, will it be done by you, or to you?

            

Economic Uncertainty in the External Environment

Uncertainty. What comes to mind when you hear this word?  Your Future? The Stock market? A test score for a major exam? Your bi-weekly paycheck? Your Financial goals?

I interpret the word uncertainty to mean any outcome or event that is not what is to be expected. Uncertainty lies in many aspects of the business world and plays a critical role on decision making in business. The word uncertainty is typically in high relation to the word risk.  Some of the most successful businessmen and women are the ones who can analyze the risk and make knowledgeable business decisions based upon the underlying risk.

While many risk's can be interpreted and then avoided, there will always be some uncertainties that are even to complex for formulas and brilliant decision makers to predict. A very prevalent risk in todays economy is what is being referred to as the "Fiscal Cliff." In short, The Fiscal Cliff is a metaphorical edge that the U.S. will face at the end of 2012 when the Bush-era income tax cuts and government spending cuts will expire. This cliff has been created by congress' inability to agree on ways to fix our countries debt crisis. More detailed information on the Fiscal Cliff can be found here.

Fiscal Cliff relation to a Business Owner or Manager
More than just the tax rates and spending cuts issues, the uncertainty brought about by this Fiscal Cliff has caused many managers and business owners to change its business strategy and become more conservative with their actions and spending.  Since business owners are uncertain on the taxes they will have to pay at the beginning of next year, owners and managers mitigate this risk by not hiring new employees, sitting on cash and failing to seek other opportunities for expansion. This is uncertainty is demonstrated by the lack of job growth and low GDP growth we have seen over the previous months and years. This lack of job growth then creates higher unemployment levels, resulting in more citizens dependence on the government. Higher dependence on the government then increases government's spending on assistance programs. It is a very slippery slope, and one decision (in this case deferring the debt crisis resolution) can have monumental financial repercussions directly and indirectly.


What next?
So what happens next on the road to the edge of the fiscal cliff? One major landmark will be in November when the presidential election of 2012 takes place. Although it is not safe to assume the winner of that election will stick to his every word with regards to the tax rates and spending, one can infer that Obama will enact a more progressive tax system then Romney intends to. Whoever it may be and whichever plan is enacted will be positive for our economy in the sense that one can assume it will bring about certainty and lead to job growth.
Other optimist on the subject suggest that a short term "fall off the cliff" might not be such a bad thing. In Neal Lipschutz's blog, he recognizes that a short term hike in tax rates begin taking a "chunk" out of the annual budget deficit. The remainder of Lipschutz insights were much more pessimistic.  Lipschutz describes the economic outlook as "Anemic" even if the fiscal cliff gets resolved.

I, as an actuarial science student, am constantly analyzing risk and finding ways to mitigate it in my every day life. I feel that this topic of the fiscal cliff is playing a major role in many aspects of the financial industry which then trickles down to main street through various ways. Although I am not currently seeking employment, I will be in the spring after graduation and I feel that if this fiscal cliff uncertainty continues, the job market will be much more competitive. This has an effect on everyone wither it be directly or indirectly and everyone should be aware of how this uncertainty plays a role in their life.