For those that know me personally, you're probably aware that I've been working on a major project that's going live in Jan 2011. It's great fun, but fairly all-encompassing and kinda getting in the way of other things in my life like family / exercise / eating / sleeping. So to try retain some semblance of order in my world, I've put site updates here to bed until the end of January 2011. If you're a subscriber I'll be back in touch then; if you follow me on Twitter I will be keeping that at least a little active. I'm also still posting pretty regular pics on my photo blog at Blogus Picturas.

In the meantime, thanks for stopping by and I look forward to connecting with you again shortly - Todd.

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Image © Todd Wheatland - Blogus Picturas

At the heart of shifting work production to another location is a concept known as 'labor arbitrage.'  Basically, that it's cheaper to employ someone somewhere else. Workers in the new country are pulled into opportunities greater than what they previously had, and redundant workers in the home country are rapidly re-absorbed by a flexible labor market - hopefully up-skilled along the way.

Just as the reality for both new and displaced workers lacks the starry romanticism of such a simple model, there is another reality at play here.  A country's relative attractiveness as a source of cheap labor is not a fixed thing.  The cost savings for relocated work are not forever, but what comes next?

In recent months there's been a lot of coverage of the rising labor unrest in China, and the resulting - and often dramatic - increases in salaries for manufacturing roles in the factories in the south of the country that have benefited so much from labor arbitrage.

Here's a great graphic from the Economist Intelligence Unit which puts that increase into some perspective relative to south-east Asian competitors for low-skilled manufacturing work.

Vietnam - currently the 'cheapest' on the list - employs over 1.7million people in the textile industry, at a starting salary of about $84 a month. Little wonder they're reigniting the 'China Plus One' talk for spreading risk in manufacturing and sourcing locations.

The official word from China is that the time has come for salaries to increase, a position that has been taken proactively to the foreign owners of manufacturing facilities on the mainland.  What's less clear is what's next.

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Image © Todd Wheatland - Blogus Picturas

I read an exceptional article this week.

Andy Grove, one of the most famous and successful businessmen of the post-war era (CEO of Intel for 18 years; Time magazine’s man of the year, too many awards to mention), penned a thought-provoking challenge to traditional globalization thinking. 

At the core of Grove’s malaise is that the much-referred-to engine of US jobs growth – the start-up company – does not in fact generate a broad range of technical jobs.

Some interesting points from the article:
-       There is a rough 1:10 law with US technology companies, meaning their China (manufacturing) workforces are about 10 times larger than their US employee base.  Apple has 25,000 in the US; 250,000 in China.  Similar numbers for Dell, Seagate Technology, etc.
-       The ability to export low-value jobs and retain the majority of the profits in-country may be true – but what about the long-term societal impact?  In his words: “…what kind of a society are we going to have if it consists of highly paid people doing high-value-added work -- and masses of unemployed?”

For me, Grove’s most unique point is regarding the connection between ‘low-value’ jobs and future industry innovation and domination.  He puts it far more eloquently than me: “…abandoning today’s “commodity” manufacturing can lock you out of tomorrow’s emerging industry. Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best economic system -- the freer, the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief, largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.”

Remember - this isn’t in Socialist Worker’s Weekly, it’s the coverstory of a leading magazine, written by one of the sages of the modern business age.  A very well-written article, full of moments to make you pause. 

Full article here

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Image © Todd Wheatland - Blogus Picturas

A couple of weeks ago Gary Becker – a Nobel-prize winning economist –made a speech at the Institute of Economic Affairs in London, proposing a pretty radical solution to the rich world’s immigration woes.

His core proposition is, there is currently no price that matches supply and demand of work visas.  Vet out criminals and terrorists, and visas can be assigned to those willing to pay the most for them.  In theory, someone who has the most to gain from immigrating (say, a younger person, with more years to recoup the expense; a well-educated person whose income is most likely to significantly increase) would be willing to pay the most. 

The US currently receives about 1million legal immigrants a year.  Charging them $50,000 each for the right to immigrate would provide an additional $50 billion to the government coffers.  Not enough to save the banking industry, but about enough to bail-out AIG or GM.  And probably enough to make people take notice, especially in the current times.

Any radical position on immigration policy is going to attract a lot of criticism, and many people have been poking holes in the idea.  There are serious question marks and potential undesirable outcomes.  Does it really provide a better market mechanism than a points-based system (as already used in Australia, NZ, Canada)?  What skills alignment is there (ie wealthy retirees may like the idea of sitting out their years in Florida, but how does that benefit the US workforce)?  What about talented people who are not able to front up the cash?  Becker suggests a government-loan scheme, or even a form of indentured servitude to employers until loans are paid off. 

Regardless of the applicability of the scheme, I think it's healthy that there can be some intelligent public debate around such an emotional issue.  Here's to Mr Becker for putting his neck on the line.

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Image © Kazuhiko Yoshino

Everywhere I go, I see them.

Next-door to the 5* hotel I stayed at in Moscow last week, dozens of migrant workers from former socialist states, living in tiny airless boxes alongside the building they were constructing.

On the way back from the airport in Paris, small towns of cardboard and canvas shanties squeezed in besides the highway.

In the fields surrounding the rustic villages of Sicily, hundreds of young African men hiding in ruins and trying to find work.

In California and Florida, tourists on their way to happy Disney adventures tearing past thousands of illegal migrants picking fruit in the sweltering heat.

In Southampton, Long Island, maybe the richest village in the world, dozens of Latinos standing by the side of the streets seeking day-work.

Thousands of Africans hiding in the hills in the south of Spain, fighting with newly-unemployed locals, all desperate for work, any work.  Thousands of Afghanis holed-up outside Calais, risking their lives for a smuggled crossing of the English Channel.

Walls, trenches, borders, patrols, helicopters, drones, night-vision, heat-sensors.  Legal, semi-legal, grey-state, illegal.  Documented, undocumented, contracted, uncontracted, temporary, short-term, immigrant, asylum-seeker.  No end of terms to help us pigeonhole these people.

I don't mean emergency-relief tents in Haiti.  Not civil-war displaced persons UN camps in Darfur.

I mean everyday, where you live.   Maybe you see the fringe-dwellers too.

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Image © Peeter Viisimaa

In late October 2006, someone packed some polonium-210 into their hand luggage and took a British Airways flight from Moscow, murdered Alexander Litvinenko with it in London, then hopped back on another BA flight, oozing radiation wherever then went.

A few weeks later I was contacted by BA letting me know that I had travelled on one of those same planes on a trip to Russia, before the radiation had been detected.  Not to worry though, just letting me know.

I’m in Russia this week, at the Outsourcing Strategy conference in Moscow.  I always get to hang out with strong characters here, in fact I find it hard not to read everything that happens in Russia through a prism of power-play.

At the airport as I arrived yesterday I walked past a man who was spread face-first on the ground with plastic ties around his wrists.  He was shouting aggressively at an incredible volume, piles of spit pooling under his face as he struggled to lift his head off the ground.  Two guards held his legs down, a few others stood around yelling into walkie-talkies.  Teenage girls the other side of a glass wall took photos with their phones.  As I stood in the passport queue ten minutes later, the same man was carried, still screaming, through the middle of the public customs area, borne like a battering ram on the shoulders of 6 guards.

Here’s the first three pages from this morning’s paper:

-       A $16bn ski resort complex has just been announced by the Kremlin.  It’s to be built in the Caucasus, currently in the middle of a low-level civil war.

-       Gazprom, the state gas monopoly, has started cutting off gas supplies to Belarus.  They say they’re owed $192m; Belarus say they’ll pay it when they receive the $217m they are already owed by Gazprom. Everyone thinks it has nothing to do with gas and a lot to do with leverage for an upcoming trade agreement and upcoming elections in Belarus.

-       The mother of Yevgeny Chichvarkin, a high-profile expat businessman charged with kidnapping and extortion, was not murdered, according to the Investigative Committee.  But she was severely beaten several hours before she died. 

-       Ultranationalists, often charged under Russia’s ethnic minority protection laws, are trying to have those laws overturned by manipulating the case of an artist who is charged with inciting hatred against Russians with her paintings.

-       The Yukos saga continues to play out in court.  This is Russia’s OJ trial, with a string of high profile witnesses (Mikhail Kasyanov, former Prime Minister, said he considered the whole case politically motivated; the former head of the Central Bank testified that the charges were ‘utter crap’).

-       Ramzan Kadyrov, the Chechen President, is on a state visit to the United Arab Emirates, a little over a year after his main political rival was murdered in Dubai.  The Dubai police happen to have ‘strong evidence’ that Kadyrov’s cousin – who is also deputy of the Chechen State Duma – masterminded the killing, and have asked Interpol to issue an arrest warrant. Kadyrov’s horse trainer has already been sentenced to life for the murder.

Isn’t that an extraordinary 3 pages from a newspaper?  In many countries - especially during the World Cup - one would struggle to find anything of more significance discussed than local car crashes, a new tax, a sex scandal perhaps.  Here everything has a life-or-death tinge, big struggles for power, a raw immediacy.

To an outsider it seems extraordinary in its lack of subtlety.  In the ‘west’ power is exercised with more subterfuge, more concern for appearances; the end result may be the same, but it’s a less overt struggle, topped with the veneer of respectability that we need to reassure us that all is right with our world.

My Russian friends argue that here in Russia it’s actually more honest.  People still make up stories about why certain things are happening – but no-one is really expected to believe them.

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Image © Todd Wheatland - Blogus Picturas

We see it, we feel it, we hear it.  Waves of job-cutting have left companies' internal resources stretched like a piano wire.  The economic news has been so sustainably bad, and signs of recovery so weak, that employees have put up with pay freezes and additional work pressures because they feel privileged just to have someone writing them a regular paycheck.

If things are so bad that their very employer may be likely to go under, people have an extra incentive to suspend their short-term focus on sane working hours and expectations of 'fair' compensation as their survival instinct kicks in.

No surprise then that after more than 2 years of doomspeak in the US, the piano wire is fraying.  The Corporate Leadership Council's 1100-company quarterly survey has found that the average work required of an employee has grown by an additional third since the beginning of the recession.  Isn't that an incredible number? 

On the employee side, survey after survey confirm that people believe they are working much harder, and do not feel that their extra effort is appreciated by their employers.  In one recent survey of 1,000 people in the UK, over half believe that their current level of work is unsustaibanle, and that they are treated as dispensible commodities.

How is this demonstrating itself within organizations?  As summarised succinctly in the Economist recently, "Absenteeism is on the rise. Low-level corporate crime is growing.  Corporate loyalty is on the wane."  According to the earlier CLC research, the level of disengaged workers may have doubled, and the number of people willing to put in additional discretionary effort may have halved. 

Something tells me that may not be a good thing for employers.

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Image © Todd Wheatland - Blogus Picturas

Those looking for signs of a sustained economic turnaround in the US - or just any sign from Europe other than a graceful slide into summer - were somewhat disappointed last week.

The US Labor Department's Bureau of Labor Statistics released their May report.  On a rough-read basis, 431,000 new jobs for the month sounds impressive; unfortunately nearly all of those were temporary hires by the US Census Department.  The whole private sector only accounted for 41,000 new jobs.  This begs the question, surely the US Census Department could conduct annual or even bi-monthly surveys?  A single temporary spurt once every 10 years is nowhere near enough to turn the unemployment situation around.

At the same time, there was some exciting news from Hungary's week-old new government.  We all know what happens when someone new comes into a senior role.  They dramatically emphasise the failings of their predecessor, the situation is far worse than anyone thought, anything that seemed positive in fact is neutral at best, etc. This is standard operating procedure to be able to get some breathing space to operate, and claim credit for any good results coming in the future. 

Unfortunately when Viktor Orban's government took this approach last week, suggesting that the 2010 Hungarian public debt could actually be double current estimates (7.5% vs 3.6%), and drawing parallels between themselves and - gasp! Greece! - the markets went ballistic.  In what one can surmise was a weekend of phone activity sufficient to make a material impact on Magyar Telecom's quarterly earnings, Orban's government has now basically made a 180 degree turnaround.  Don't worry, it was all a big mistake. We're new at this. Sorry everyone.

Too late though.  Combined with the rosy news of the Euro-zone's slug-like economic growth, this was enough to send global markets into a spin, with the Dow dipping below 10,000 (again), a pattern repeated across the timezones.  Another lively week seems imminent.

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Image © Todd Wheatland - Blogus Picturas