(Photo by Olivier Douliery-Pool/Getty Images)
There is a lot of excitement about President Donald Trump’s planned new executive order on immigration. Before the order is even public, the press has been grilling White House Press Secretary Sean Spicer about its contents. People are preparing to object before the document is even read.
Given that we know the order deals only with immigrants from seven countries, and that people from those countries do not constitute anywhere near a meaningful minority of immigrants (or tourists), one could make a case that in and of itself the executive order should not receive anywhere near this much attention.
But simultaneously, President Trump’s secretary of state and secretary of homeland security are visiting Mexico on Thursday — which is creating its own a firestorm of media coverage. The Mexican government leadership has already come out swinging, before the meeting, saying that the Trump administration policies are unacceptable. Not only is the wall construction unacceptable, but plans to deport illegal immigrants to Mexico — including illegal immigrants that are not Mexican — will not be tolerated. They want to know why should Mexico be forced to take Guatemalans, Hondurans and other non-Mexicans?
All of this controversy is being driven by the U.S. leadership, the president and his cabinet, failing to offer a clear policy on immigration. These executive orders, impending demands and vitriolic statements from the administration are like rifle shots aimed at something. But because nobody has a clue what the administrations real immigration policy is, it is impossible to understand the context from which these shots are fired. Nobody really knows what these shots are aimed at achieving.
So everyone, including the media, is left guessing, “what is the target of these actions? What is the overall goal? What is the administration’s immigration policy into which these actions fit?”
The administration says these actions are driven by “national security.” But it is impossible to understand that claim lacking any context. How are these specific actions supposed to improve national security, when every day people come to the U.S. from Europe and Asia with Muslim backgrounds and training? People cross the Canadian border daily who started in another country, yet they are not seen as the same threats as those who cross the southern border — why not?
Thus, each rifle shot looks an awful lot like an attack against the narrow interest being targeted — specifically middle eastern Muslims and Mexicans. And a lot of people are left scratching their heads as to why these folks are being attacked, other than they are simply easy targets for a part of the U.S. population that is horribly xenophobic.
Everyone — and I literally mean everyone — knows that America is a nation of immigrants. Last Labor Day I wrote about the benefits America has enjoyed by opening its doors to immigration. Recently Ryan McCready of Venngage put together a detailed infographic describing how over half of America’s billion dollar start-ups were founded by immigrants, how 33,000 permanent jobs were created by immigrants, how 76% of patents from top universities were filed by immigrants, and how 100% of America’s 2016 Nobel Prize recipients were immigrants. Nobody really doubts that immigrants have been good for America.
But, everyone also knows all immigrants are not the target of the Trump administration rhetoric, travel restrictions or executive orders. On January 28, in an editor’s pick column, I detailed how the border wall does not even address the problem of illegal immigrants that might be stealing jobs or committing crimes. If it was easy for me to produce the data that it is not illegal Mexican immigrants stealing jobs or creating crime, no doubt the people atop our government have even better data.
Another, possibly more obscure, example of an unaddressed immigration issue was brought to my attention in a recent BBC column (thanks to my cousin Susan Froebel from Austin, TX). Developers are planning for a large migration of retired Chinese to the U.S. These Chinese will enter America with no income, and no job prospects. They are escaping China, where the aged population is growing so fast there is great concern the workforce cannot care for them. They will increase the aged population in American, putting greater strains on all social services — housing, food, medicine. This will increase demands on the remaining American workers, as the U.S.’s own baby boomer generation retires, creating the worst imbalance of non-workers to workers in American history.
If there is any demographic you do not want immigrating to the U.S. it is a bunch of retired people. As I pointed out in my September 16 column, as any country’s population ages it creates a demand for more young immigrants to create economic productivity, growth and the resources to take care of the non-productive retirees. Rather than retirees, what America needs are young, productive immigrants who create and fill jobs — growing the economic base and paying taxes to support the rising retiree class.
But, I’d bet almost nobody who reads this column even knows about the impending explosion of retired Chinese planning to permanently enter the U.S. Even though the economic impact could be disastrous — far, far worse than a few million undocumented workers from Mexico or the middle east. Instead the focus is on two very targeted groups — Muslims and Mexicans.
The Elephant In The Room
Unfortunately, we all remember the infamous voter who attended a John McCain rally in 2007 and said that then-candidate Barack Obama was a Muslim born in Africa. In that moment that woman put forward the fears of so many Americans — that you cannot trust a dark skinned person. You cannot trust anyone who is not Christian. You cannot trust anyone who is not born within the U.S. Everyone else is someone to fear.
Lacking a well drafted, and at least somewhat comprehensive immigration policy, the immediate actions of the U.S. president sound a lot like, Stop the Muslims. Stop the Mexicans. After all, everyone knows they cannot be trusted. They are bad hombres.
Does the U.S. need more border protection? Does the U.S. need to crack down on illegal immigrants?Does the U.S. need to limit immigration? Perhaps yes — perhaps no. And if so, by how much? Right now nobody knows what the Trump administration immigration policy is. All the administration has put forward are rifle shots that appear to be pointed at the easiest targets of hatred in America today — Muslims and Mexicans. Whether these groups deserve to be targeted, or not.
Good leaders develop their vision first. The leadership team puts together the vision, mission and goals for the organization. Then this is developed into a strategy which guides investment and decision-making. The policy platform provides the context so the leaders, and all constituents, can identify the goals of the organization and the planned route to achieve those goals. After that is in place independent actions (decisions) can be evaluated as to their fit with the vision, mission and overall strategy.
As business leaders, President Trump and Secretary Tillerson (former ExxonMobile CEO) should know these first principles of leadership. Yet, they have failed to provide this vision. They have failed to describe their strategy to accomplish their mission. They have failed to tie their words and actions to a plan for achieving their goals (goals which are also still quite vague — such as “a safer America” or “a greater America”). So their actions are being interpreted by their constituents from each constituent’s perspective.
No wonder everyone has an opinion about what’s happening — and no wonder so many people are full of angst. There is a reason leaders take time in their early days to put develop their platform, and discuss it with constituents. Successful leaders make sure the people they depend upon know their vision, goals and strategy (in this case not only voters but Senators, members of Congress, the judiciary, law enforcement, military and regulators). Only after this do they take action — action clearly aligned with their vision, supported in the strategy and directed at achieving their goals.
For now, lacking the proper context, most Americans are interpreting short-term immigration actions as attacks on Muslims and Mexicans. Those who like these actions do so thinking it is proper, and those who dislike these actions think it is unfair targeting. But people will continue to make their own interpretations until a comprehensive policy is offered that explains a different context. As long as that policy is unclear, these poorly explained actions are examples of bad leadership.
(Photo: NICHOLAS KAMM/AFP/Getty Images)
“Get the assumptions wrong and nothing else matters” – Peter F. Drucker
President Donald Trump made it very clear last week that his administration intends to build a border wall between the U.S. and Mexico. And he intends to make Mexico pay for it. He is so adamant he is willing to risk U.S./Mexican relations, canceling a meeting with the Mexican president.
Unfortunately, this tempest is all because of a really bad idea. The wall is a bad idea because the assumptions behind this project are entirely false. Like far too many executives, President Trump is building a plan based on bad assumptions rather than obtaining the facts – even if they belie his assumptions – and developing a good solution. Making decisions, and investing, on bad assumptions is simply bad leadership.
The stated claim is Mexico is sending illegal immigrants across the border in droves. These illegal immigrants are Mexican ne’er do wells who are coming to America to live off government subsidies and/or commit criminal activity. The others are coming to steal higher paying jobs from American workers. America will create a h
Unfortunately, almost everything in that line of logic is untrue. And thus the purported conclusion will not happen.
1. Although it cannot be proven, analysts believe the majority (possibly vast majority) of illegal immigrants enter America by air. There are two kinds of illegal immigration. President Trump’s rhetoric focuses on “entries without inspection.” But most illegal immigrants actually arrive in America with a visa – and then simply don’t leave. These are called “overstays.” They come from Mexico, India, Canada, Europe, Asia, South America, Africa – all over the world. If you want to identify and reduce illegal immigration, you need to focus on identifying likely overstays and making sure they return. The wall does not address this.
3. More non-Mexicans than Mexicans were apprehended at the U.S. border – and the the number of Mexicans has been declining. From 1.6 million in 2000, by 2014 the number dwindled to 229,000 (a decline of 85%). If you want to stop illegal border immigrants into the U.S., the best (and least costly) policy would be to cooperate with Mexico to capture these immigrants as they flee Central America and find a solution for either housing them in Mexico or returning them to their country of origin. It is ridiculous to expect Mexico to pay for a wall when it is not Mexico’s citizens creating the purported illegal immigration problem on the border.
4. In 2015 over 43,000 Cubans illegally immigrated to the U.S. – about 20% as many as from Mexico. The cost of a wall is rather dramatically high given the weighted number of illegal immigrants from other countries.
5. The number of illegal immigrants living in the U.S. is actually declining. There are more Mexicans returning to live in Mexico than are illegally entering the U.S. Between 2009 and 2014 over 1 million illegal Mexican immigrants willingly returned to Mexico where working conditions had improved and they could be with family. In other words, there were more American jobs created by Mexicans returning to Mexico than “stolen” by new illegal immigrants entering the country. If the administration would like to stop illegal immigration the best way is to help Mexico create more high-paying jobs (say with a trade deal like NAFTA) so they don’t come to America, and those in America simply choose to go to Mexico.
6. Illegal immigrants are not “stealing” more jobs every year. Since 2006, the number of illegal immigrants working in the U.S. has stabilized at about 8 million. All the new job growth over the last decade has gone to legitimate American workers or legal immigrants working with proper papers. Illegal immigration is not the reason some Americans do not have jobs, and blaming illegal immigrants is a ruse for people who simply don’t want to work – or refuse to upgrade their skills to make themselves employable.
7. Illegal immigrants in the U.S. is not a rising group – in fact most illegal immigrants have been in the U.S. for over 10 years. In 2014, over 66% of all illegal immigrants had been in the U.S. for 10 years or more. Only 14% have been in the U.S. for 5 years or less. We don’t have a problem needing to stop new illegal immigrants (the ostensible reason for a wall). Rather, we have a need to reform immigration so all these long-term immigrants already in the workforce can be normalized and make sure they pay the necessary taxes.
8. The states where illegal immigration is growing are not on the Mexican border. The states with rising illegal immigration are Washington, Pennsylvania, New Jersey, Virginia, Massachusetts and Louisiana. Texas, New Mexico and Arizona have seen no significant, measurable increase in illegal immigrants. And California, Nevada, Illinois, Alabama, Georgia and South Carolina have seen their illegal immigrant population decline. A border wall does not address the growth of illegal immigrants, as to the extent illegal immigrants are working in the U.S. they are clearly not in the border states.
Good leaders get all the facts. They sift through the facts to determine problems, and develop solutions which address the problem.
Bad leaders jump to conclusions. They base their actions on outdated assumptions. They invest in the wrong places because they think they know everything, rather than making sure they know the situation as it really exists.
America’s “flood of illegal immigrants” problem is wildly overblown. Most illegal immigrants are people from advanced countries, often with an education, who overstay their visa limits. But few Americans seem to think they are a problem.
Most border crossing illegal immigrants today are minors from Central America simply trying to stay alive. They aren’t Mexican criminals, stealing jobs, or creating a crime spree. They are mostly starving.
President Trump has “whipped up” a lot of popular anxiety with his claims about illegal Mexican immigrants and the need to build a border wall. Interestingly, the state with the longest Mexican border is Texas – and of its 38 congressional members (36 in Congress, 2 in the Senate and 25 Republican) not one (not one) supports building the wall. The district with the longest border (800 miles) is represented by Republican Will Hurd, who said “building a wall is the most expensive and least effective way to secure the border.”
Good leaders do not make decisions on bad assumptions. Good leaders don’t rely on “alternative facts.” Good leaders carefully study, dig deeply to find facts, analyze those facts to determine if there is a problem – and then understand that problem deeply. Only after all that do they invest resources on plans that address problems most effectively for the greatest return.
(Photo by Shawn Thew-Pool/Getty Images)
Professor John Kotter (Konosuke Matsushita Professor of Leadership HBS) penned Power and Influence (1985, Free Press) after teaching his course of the same name at the Harvard Business School. The one thing he found clear, as did his students (of which I was one), was that a person can be powerful and have influence, but that does not make them a leader. Leaders understand how to create and use both power and influence. But merely having access to either, or both, does not make a person a leader.
One of my mentors, Colonel Carl Bernard, famed leader of U.S. Special Forces in Laos and Vietnam during the 1960s, met an executive at DuPont in the mid-1980s who had been given a large organization but was struggling. Col. Bernard was asked to review this fellow and offer his leadership insights so this fellow’s peers could help him be a better corporate leader. After a few meetings with this exec, alone and in groups, Col. Bernard concluded, “DuPont can give him resources, and access to the CEO, but that man could not lead a Boy Scout troop. Best they close the business now before he causes too much trouble. There’s nothing I can do for him.” Two years later, and tremendous turmoil later, DuPont did close that business, fired him and wrote off everything the company had invested.
Last Friday, Donald Trump was sworn in as president of the United States. He now has the most powerful job in the free world and unparalleled influence. But, he’s not yet proven himself a leader. His accomplishments to date have all been executive orders – issued unilaterally. To achieve the title “leader,” he has to prove people will follow him.
President Trump did not win the popular vote, and he assumes his new job with the lowest approval rating of any first-term president ever elected. Numbers alone do not imply that the country is ready to call him its leader.
Historically, a president has had to screw up in office to have such low popularity. But on Saturday millions of demonstrators took to the streets of Washington, Los Angeles, Chicago, Minneapolis and other cities to protest a president who had yet to do anything in his new role. Far more demonstrated than attended the inauguration, which had about half the attendees as Barack Obama’s first inauguration. It took Lyndon Johnson years to create the animosity which lead to demonstrators chanting, “Hey, hey LBJ, how many kids did you kill today?” (referencing his escalation of the Vietnam War).
Business school thought leaders, and business executives, have been studying leadership for at least six decades, and they have discovered there are consistencies in how to encourage followership. Roger Ferguson, CEO of TIAA-CREF, said leadership is about inspiring people
. He teaches that this is done by
• demonstrating expertise – which Trump has yet to do as a politician,
• making yourself appealing – which Trump has missed by deriding those who speak out against him,
• showing empathy for others – a trait so far missing in Trump’s tweets, or comments about detractors
• and showing the fortitude of being the calm in the storm – the opposite of Trump, who’s fiery rhetoric creates more storms than it calms.
In 2013, fellow Forbes contributor Mike Myatt offered his insights into how one should lead those who don’t want to follow, tips that should be very interesting to the unpopular President Trump:
• Be consistent. This seems the antithesis of Trump, who favors inconsistency and campaigned that as President he intended to be inconsistent.
• Focus on what’s important. Reading Trump’s tweets, it is clear he struggles to separate the important from the meaningless
• Make respect a priority. Should we talk about Trump’s references to women? Or his comments about war heroes like John McCain?
• Know what’s in it for the other guy. Trump likes to brag about taking advantage of others in his business dealings, and showing blatant disregard for the concerns of others. Recommending African-Americans vote for him because “what have you got to lose” does not demonstrate knowledge of that constituency’s needs.
• Demonstrate clarity of purpose. Firstly, what does it mean to “make America great again?” It would be nice to know what that slogan even means. Second, if Trump is the President for “those of you left behind,” as he referenced in his inauguration speech, can he tell us who is in that group? Am I included? Are you? How do you know who’s in this group he now represents? And who’s not?
Americans frequently confuse position with leadership. Many CEOs are treated laudably, even after they have destroyed shareholder value, destroyed thousands of jobs, stripped suppliers of money and resources, doomed local economies with shuttered facilities and left their positions with millions of dollars despite a terrible performance. These CEOs demonstrated they had power and influence. But many are despised by their former employees, investors, bankers, suppliers and community connections. They did not demonstrate they were leaders.
Despite his great wealth, which has bought him substantial power and influence, Americans have yet to see if President Trump can lead. He has never been a commissioned or non-commissioned officer in a military organization. He has never led a substantial corporation with large employment. He has never led a substantial non-profit or religious organization. Contrarily, he has largely been the head of hundreds of small businesses (by employee standards) many of which he has closed or bankrupted, often leaving people unemployed, his investors losing money and communities (such as Atlantic City) worse off from his real estate dealings.
I prefer to write about corporate leaders and market leaders. But for a while now, almost all the news has been about Mr. Trump. Now President Trump, who has not previously led even a Boy Scout troop. One wonders of Col. Bernard would think he could.
“The greatest leader is not necessarily the one who does the greatest things. He is the one that gets the people to do the greatest things” – Ronald Reagan
Trend analysis is the most critical part of planning.
Some trends are hard to spot, because people think they are just a fad. Many folks think electric cars fit that category.
Other trends are hard to accept because they imply a big shift in how we live or work – or how we run our business. Scores of IT people who have written me over the years saying mobile devices on common networks (telecom to AWS) will never replace PCs connected to server farms. The implications of this trend are severely negative related to demand for their skills, so they ignore it.
But every plan should be built on trends, because these forecasts are critical for decision-making. It’s the future that matters, not the past. Too often plans are built on history, when trends clearly indicate that things are going to change, and old assumptions are outdated.
Demographic trends are easy to forecast, and important.
While some trends are hard to forecast, some trends are really easy to spot and forecast. And the easiest trend to understand is demographics. If you don’t use any other trends in your planning, you should have demographic trends at the core of your assumptions.
Take for example the movement of people across the United States. Ever since the wagon train people have been moving west. And, like my friend Buckley Brinkman (executive director and CEO of the Wisconsin Center for Manufacturing and Productivity) likes to say, “ever since the invention of air conditioning people have been moving south.” Yet, I’m startled how few organizations plan for this shift and adjust their strategies and tactics to be more successful.
From July 1, 2015 to July 1, 2016 the seven fastest growing states were western. And of 50 states, only eight lost population.
Growth is sublime, decline is disastrous.
Bruce Henderson, founder of the Boston Consulting Group, used to say that if you want to hunt or farm you’re far better off in the Amazon than you are in the Arctic. Basically, where there are resources, and lots of growth, it’s a lot easier to succeed.
For business, this means that if you want to grow your business – whether you’re installing HVAC systems or building a state-of-the-art battery manufacturing plant – you’ll find it relatively easier in faster growing states. It doesn’t mean there is no competition, but it does mean that growth makes it easier for competitors to succeed.
Contrastingly, there were eight states that lost population in this same 12 months.
This means that competition is intensifying in these states. As people move out there are fewer customers to buy what each business sells, so these companies have to fight harder, and price lower, to grow – or even maintain. As the population declines taxes have to go up because there are fewer taxpayers to cover government costs. These states become less desirable places for business.
The businesses in Illinois, for example, are in the middle of a bare-knuckle brawl over the state budget that has gone on for two years. The Governor and the legislature cannot agree on how to manage costs, or revenues. Bond ratings have been slashed as costs to borrow have gone up. Several services have been shut down, and student costs at universities have gone up while programs have been gutted or discontinued.
Governor Rauner (R – IL) has repeatedly said he wants Illinois to be more like Indiana, its neighbor to the east. Perversely people apparently are listening, because Illinois is shrinking, while Indiana grew a healthy 0.31%. For residents remaining in Illinois this worsens a host of maladies:
• the state’s jobs situation struggles as the number of paying jobs declines, making it harder to recruit new talent, or even keep its own university graduates;
• Illinois’ pension problems worsen, as there are fewer people paying into the pension funds while those drawing out funds keep increasing;
• Illinois is unable to fund schools properly, especially Chicago, due to less income – forcing up property taxes;
• taxes keep rising due to fewer people and businesses (when adding property taxes, sales taxes and income taxes Illinois is now the highest tax state in the country);
• new highways are being built with federal funds, but other infrastructure is in trouble, as city, county and state roads are pothole ridden. Trains and subways become outdated and fall into disrepair. And one-time budget Hail Mary’s, like Chicago selling its parking structures and meters in order to balance the budget for one year, strip citizens of future revenues while they watch parking (and other) service costs skyrocket;
• and Chicago has suffered the lowest real estate recovery rate of the top 30 major U.S. cities –not even returning to prices in 2008.
Growth solves a multitude of sins.
Just like a rising tide raises all boats, growth creates more growth. More people increases demand for everything, which increases business sales, which increases jobs and wages, which increases the value of real estate and household wealth, which increases tax revenue, which allows offering more services to make a state even more appealing.
On the other hand, shrinking can become like the whirlpool over a drain. As the problems increase more people decide to leave, making the problems worsen. As more people go, there are fewer people left behind to make things better. Jobs go away, wages fall, demand drops, real estate prices drop, infrastructure projects stop, services stop and yet taxes have to be raised on the fewer remaining residents.
Few trends are more important for planning than understanding demographics. Demographics affect demand for everything, and planning for changes offers businesses the opportunity to be in the right place, at the right time, to be more successful. And, demographic trends are some of the easiest to predict:
• population size
• average age, and sizes of age groups
• average income, and sizes of income groups
Plans should be based on trends, not history. Understanding trends, and their trajectory, can help you be in the right market, at the right time, with the right product in order to succeed. There are lots of trends, but one that is fairly obvious, and incredibly important, is simply understanding demographics. Is this built into your planning system?
Traders work on the floor of the NYSE the morning after Donald Trump
won a major upset in the presidential election. (Photo by Spencer Platt/Getty Images)
Since election day there has been an enormous shift in the U.S. stock market. The Dow (Dow Jones Industrial Average – DJIA) has hit new highs. But simultaneously the NASDAQ 100 is falling. In short, most tech stocks have been creamed, while out-of-favor laggards have been bid up.
I 100% favor long-term investing. Anyone who tries to be a trader, or otherwise time the markets, is most likely going to get burned. If you want to share in the growth of America’s economy the best way is to buy stocks in good, growing companies and hold them a long time. As Warren Buffett said after the election, the American economy will be bigger, and stocks will be worth more, in 10, 20, 30 years regardless who is president.
Traders make decisions on the smallest bit of information. Often information that is nothing more than an unproven thought. Looking into the future they try to have a crystal ball, but they rarely use trend information and often use guesses.
So, after the election, the trader theory goes that tech companies will be burned
. Trump apparently doesn’t use a computer, so he doesn’t use the Internet
. And he doesn’t actually tweet, or use social media, he just blurts things out and someone else enters the blurts. So his lack of interest in technology is bad for tech companies. Further, his trade policies will create havoc with tech company supply chains that rely on manufacturing across Asia, and much on China, dramatically raising costs. Additionally these policies will cause foreign markets to purchase less tech products, damaging tech sales.
As a result, rapidly, big, successful tech stocks have been massacred:
Apple from $118 to $107, a drop of 9%
Facebook from $133 to $116, a drop of 13%
Netflix from $128 to $115, a drop of 10%
Google from $815 to $755, a drop of 7%
Amazon from $840 to $730, a drop of 13%
Yet, nothing has happened. These companies are still doing exactly the same thing they did a month ago. Apple is still the no. 1 maker and seller of mobile devices. Facebook still dominates social media, has a huge lead in social media advertising, and continues to launch additional functionality to make its site sticky for users. Netflix is still the leader in streaming and developing new original content outside of networks. Google is still the king of search and no. 1 in search advertising. And Amazon still leads all competitors in online commerce, and will have another great holiday season the next six weeks.
None of these businesses have been destroyed by the election. And the trends that drove their long-term growth remain in place. People will continue to use mobile devices for more applications, turn to social media for communicating with friends and finding information, download movies and other shows via the web, search for answers to most of their questions via search engines and buy more and more stuff online. These trends will not change, as there is pretty much no way Donald Trump or Congress can stop them.
Meanwhile, valuations of long-time laggard companies are suddenly hitting new highs. Somehow the trend to globalization will be ended, budget problems will be immediately resolved leading to greater spending capability by Congress and concerns about long-term debt build-up will disappear encouraging massive new investments in traditional infrastructure like roads and bridges. New trends will suddenly emerge that will return the basics of the U.S. economy, the sector balances, to something akin to 1984.
Thus, traders have bid up prices of old-line manufacturers. Despite exiting financial services as well as its oil and gas business, making GE much smaller than it was a decade ago, GE has jumped from $28.25 to $30.50, a gain of 8%. Caterpillar Tractor has had five straight years of revenue declines, yet it also rose from $28.25 to $30.50 for a similar 8% gain.
Remarkably GE’s P/E (price/earnings multiple) is now 24! Cat’s is an even more remarkable 53! Companies that rely on manufacturing are being priced like tech stocks – or even greater! Apple’s P/E has fallento 13, Google’s is 27 (about the same as GE) and Facebook’s P/E of 46 is lower than Caterpillar’s.
Really? In one day major, global trends have reversed course, steering the economy back to the days when Jack Welch ran GE, and Caterpillar was selling gear to a booming U.S. forestry business as well as massive volumes to China and India for building their fledgling infrastructures? People will stop buying smartphones and give up their reliance on the internet for a vast array of daily tasks? And droves of young workers trained for tech jobs are going to staff up a massive rebuilding of U.S. manufacturing plants? Displaced workers, trained on equipment now wildly antiquated and uneconomic, will be retrained overnight to operate plants with far fewer employees and lots more high-tech equipment? And boomers will quit retiring and undertake retraining – not for tech jobs but for manufacturing or equipment operator jobs?
Don’t diminish the power of a president. And don’t diminish how structural changes in tax codes, military spending and international relations can alter course. But, simultaneously, don’t diminish the power of trends.
Trends propel forward, and take people to greater productivity and a higher quality of life. All those people who voted for Donald Trump are not tech avoiders. They are mobile, socially active people who are as linked to the trends as everyone who voted for Hillary Clinton. They don’t want to return to a pre-information economy lacking in technology that has made their lives better. They still want technology in their lives, and they want that technology to become better, faster and cheaper.
And no manufacturer is going to go back to labor-intensive manufacturing. Whether they make things in the U.S. or offshore, state-of-the-art equipment means manufacturing simply uses fewer people. And the growth of e-commerce will not stop, thus continuing the trend of declining demand for retail workers. These trends may alter slightly due to tax and trade policies, but they won’t reverse.
Smart investors don’t lose sight of long-term trends. They invest in companies where the opportunity exists to grow revenues and profits because demand for those company’s products and innovations are growing. With shares of the technology leaders beaten down, one should really consider if this is a time to sell, or buy. And with shares of companies that have terrible growth records, and stagnated earnings, bid up to extraordinarily high P/E multiples one should consider if this is the time to buy or sell.
(AP Photo/Wilfredo Lee, File)
November 9, 2016 – Donald Trump is the president-elect of the United States. It is a stunning upset. What are the lessons for marketers?
First, notice that candidate Hillary Clinton actually won the popular vote. With just under 120 million votes cast, Clinton gathered about 160,000 more votes than candidate Trump. A victory of just over .1%. So it is fair to say that on this metric, number of votes, there was a win for Clinton.
But, of course, the complexity of America’s electoral college means that Trump won more electoral votes, and thus the election. Non-Americans struggle to understand the electoral college – heck, a lot of American’s don’t understand it. Put simply, it was the founding father’s method of making sure different geographies achieved representation so that more dense population areas would not control an election.
Given that everyone knew that in the end it was these votes – electoral votes – that mattered, it is important to think through the marketing implications.
Monday, pre-election, I wrote that it appeared the marketing campaign of candidate Clinton was superior to that of candidate Trump. And, given that it achieved more popular votes, it may have been a superior campaign. But since it did not achieve the goal, its worth revisiting to see where that analysis erred, and what can be learned.
Product: Candidate Trump was very, very negative. He had nothing good to say about anything the incumbent president had done, nor anything good to say about candidate Clinton. He was the epitome of negative. Although the Clinton campaign claimed it would “go high” as the Trump campaign “went low” this really did not happen. Clinton’s campaign tried to duke it out toe-to-toe on who was worst.
In the end, this hurt both candidates. Neither had great appeal to voters, and both had extremely high negatives. But by succumbing to a bruising bad-on-bad punching match the Clinton campaign missed an opportunity to present the candidate as very favorable. The candidate that punched the hardest – and no doubt with his constant attacks, including threats to indict candidate Clinton this gave candidate Trump a bit of an edge – was going to win.
Lesson -Firstly, make your product favorable. Make it something people really want. Don’t say bad things about the competition until you’ve staked your favorable position. Clinton never really achieved a favorable position with enough voters.
Second, if you’re going to get into a dirty fight, don’t bring a knife – bring a gun. In a competition of negatives, you have to be every bit as negative as the competition. No holds barred. The meanest, ugliest, hardest hitting competitor will win.
Price: Candidate Clinton absolutely failed to make the case that the incumbent’s economic policies had favored most Americans. Despite tremendous job growth, declining unemployment, record low layoffs and record high equity values there persisted a notion that the American economy was in the tank. The campaign completely failed to make the case that the policies enacted previously, and anticipated to continue with Clinton, would be good for people’s pocketbooks.
Meanwhile, candidate Trump hammered away saying that the American economy was a wreck. His appeals to reducing international trade and limiting immigration in order to create more higher paying jobs in America convinced a large number of voters that these policies would be better for the economy and most workers.
Concerns about potential debt increases and an extension of income inequality were poorly made, and did not counter the overriding sense that more jobs would come from Trump’s policies. Thus, a lot of people were swayed to Trump’s xenophobic view of how to improve America’s economy. They remain convinced that Mexico will pay for an immigration limiting wall, and scaling back (or eliminating) trading pacts like NAFTA will somehow cause an inspired growth in American manufacturing jobs, and higher levels of good paying employment.
Lesson – you have to make the economic case for your product. You have to deliver a winning value proposition. Don’t expect customers to figure it out on their own, or assume they believe in your value proposition.
Place: This is where the breakdown was greatest for Clinton, and most beneficial for Trump. On Monday I noted several indicators that the Clinton campaign would do far better at getting out the vote than Trump. And, one could say they did given that Clinton won the popular vote.
But the Clinton error was relying too heavily on dense population states. New York, Illinois, California – states with very big cities that dramatically overwhelm the rural population produced landslide votes for Clinton. But in states with a more balanced population density, such as Ohio, Florida and Pennsylvania there was an insufficient effort at making sure non-city counties turned out for Clinton.
Contrarily, the Trump campaign won the battle for place by realizing they could win the rural states with limited effort. Large geographic swaths with low population density allowed Trump to pile up electoral votes (the ones that matter) almost unchallenged. Kansas, Oklahoma, Wyoming, Nebraska, South Dakota, North Dakota – all states benefiting precisely from the electoral system the founding fathers created – were key states that the Clinton campaign ignored in its distribution strategy.
What appeared to be a Clinton campaign advantage, largely strong support by the Democratic party, overly-relied on winning population dense counties. This was effectively countered by a very good job by the Trump campaign of acquiring votes in more rural, less dense, counties. This ground game, of making sure the votes were captured county-by-county, was decisive for Trump.
Lesson – distribution matters. It may seem boring. It’s a lot less sexy than writing ad copy or focusing on PR. But it really, really matters.
Promotion: It turns out money, and extreme messaging, still matters.
The Obama campaign was masterful at using modern marketing techniques, including internet marketing, mobile and social media, to obtain support. The Bernie Sanders primary campaign also proved adept at using these tools for gaining a good following. While the Clinton campaign lifted this part of the playbook, their implementation was not as integrated, nor effective, as either Obama or Sanders. The pieces were there, but the appeal was not as targeted to specific groups and therefore not nearly as effective. Clinton’s team used these tools, but they did not invest in them with the skills exhibited by Obama or Sanders, and they failed at bringing enough minorities, youth and women to the polls.
Meanwhile, Trump’s campaign once again made the case that money matters. Large advertising programs still make a difference. Marketing is changing, but in a winner-take-all, and you only get one chance, campaign classic advertising and PR used since the 1960s really matters. Things are changing, but they have not fully changed. If you are willing to spend enough money on traditional promotional tools, they still reach most of the people. It may not be efficient, but they are still effective.
Simultaneously, the old adage “any press is good press” proved valuable once again. Tapes of Trump saying outrageous things, and outrageous tweets, served to provide ample free promotion for the candidate. While many people complained about the message content, in the end simply being constantly in the news helped people get used to a very unusual campaign style. An unorthodox approach, letting outrageous behavior become so common that customers were able to look past the negatives, allowed the constant access to become an advantage.
There are great lessons here to be learned by marketers today.
- Distribution really matters. In the internet, Amazon.com age it is easy to think that if you build it they will come. But success still requires a lot of effort to make sure your product is in the right place when people are ready to buy. And that means on the web, on social media and eventually physical location.
- The trend is toward micro-marketing with targeted messages to targeted segments. But during the evolution old, brute force tools still make a difference. To make a trend work for you, you have to work hard at building on that trend. You cannot expect success merely by adopting the trend, you have to master highlighting the trend, and making it useful for your campaign to reach customers.
- Even messages built on myth cannot be ignored, and in fact must be fought extremely hard. Chipotle’s has struggled to convince customers its food won’t make them sick, because the message was not effectively countered. Similarly, despite ample evidence of a strong economy Clinton failed to convince customers that claims of a weak economy were unfounded. The message may be mythical, but it remains important if not addressed and countered.
- Make sure customers know how they benefit from your product. Don’t be “good enough” or “comparable.” Make sure the real benefits to customers of your product are front-and-center. As Clayton Christensen says, make sure you know what job the customer wants from your product and clearly fulfill that job better than alternatives. Don’t rely on the customer to figure out why your product is superior, make the case quite clearly for them.
- Don’t expect customers to understand your pricing. Make clear your value proposition. Regardless how you price, the value proposition must be immediately understood. Link how you will get the job done for the customer to the value you provide.
Republican presidential nominee Donald Trump debates Democratic presidential nominee Hillary Clinton during the third presidential debate. (Mark Ralston/Pool via AP)
Whoever wins tomorrow’s election, their success will have a lot to do with how they marketed their campaign. And in many ways, selling a candidate is not different from selling anything else.
Do you remember the “four Ps of marketing” from Marketing 101? They are product, price, place and promotion. Every newbie is taught not to overly rely on any one, and greatest success comes from a well planned use of all four.
Product: The candidates are about the same age and health. And while they represent very different parties, both have spent less time talking about what a great president they would be, and a lot more on what a terrible product the other candidate is. Message after message has denigrated the other, to the point where we hear most of the electorate is now less than happy with both.
Most marketers know that negative marketing is risky, because it tends to tar all products with similar negatives. Greatest sales happen when you convince people your product is superior in its own right – not just compared to alternatives. Barack Obama figured this out in both previous elections, and he was able to convince the majority of people he would be a good president. Unfortunately, in this election the competitive attacks have cancelled each other out, and neither candidate has a majority of people liking them. An opportunity lost by both candidates to make their product more appealing, and thus bringing out more people to vote for them based on policies and the core of how their presidency would make voters happy.
Price: One could say that the tax policies of Hillary Clinton make her a more expensive candidate than Donald Trump. However, the long-term cost of the debt increase from Trump means that the price of his presidency will be costlier than Clinton. Let’s just be practical and say that neither candidate has positioned themselves as the candidate better for everyone’s pocketbook.
Again, an opportunity lost. Ronald Reagan did a superb job of positioning himself as being good for people’s pocketbooks, and it helped him unseat Jimmy Carter. Barack Obama made hay out of the economic crisis as Republican George Bush left office, helping him convince voters that he would be far better for their pocketbooks – via job creation – than his opponent.
Place: This is all about “get out the vote.” Here the advantage clearly goes to Clinton. Candidate Clinton has done a superb job of building a “machine” that has turned out a record number of Democrats to early vote. And she has worked diligently with her party to make sure local support exists across the country to help take people to the polls, and encourage voting on election day. By making sure her constituents make it to vote, she will likely do far better at collecting votes than her opponent.
Additionally, candidate Clinton is not only campaigning, but she has a two former presidents campaigning for her, a sitting first lady, a sitting vice president and her key opponent from the primaries. This breadth of support, canvasing across multiple states, further puts her message into voters ears right before the election, and encourages people to go vote for her tomorrow. Her large fundraising, and ability to offer funds to down-ticket candidates, has helped make sure her message was clear at the local level.
On the other hand, candidate Trump is walking a nearly singular path, with precious little party support. While he swept the primaries, he has not built a strong machine to make sure that those beyond the party faithful – those who are undecided or independent – are going to make it to the voting booth to help him be elected. It is one thing to excite people about your product, it is another to make sure people actually invest the resources to obtain it.
In Trump’s case the advertising has been relentless, but the local machine support to turn out registered party voters, and everyone else who might enjoy his candidacy, is quite weak. One reason candidate Trump keeps saying the election is “rigged” is because he’s now realizing he failed to put in place the distribution system to get his voters to the ballot box.
Further, those who are helping candidate Trump secure his message are few and far between. Outside of family members there are few making the case to get out the vote. Despite two living former Republican presidents and one vice president available, none is helping him be elected. Likewise, despite a large number of primary opponents, most of which pledged their support for whoever won the primary, there is only one (Chris Christie) that has been a notable advocate for candidate Trump.
And the party itself has not been mobilized to get out the vote for candidate Trump. His personal wealth has allowed Trump to implement a credible campaign. But his inability, or unwillingness, to raise lots of money to invest in down-ticket races has meant he has not garnered support from other candidates running for Congress, Senate, governorships, etc. to promote his message at a more local level.
For months we have been inundated with polls. But on election day it is not someone calling your house to hear for whom you might vote. Rather, people have to leave their houses, make time in their busy days and go to the election booth – then stand in line and vote. Mr. Trump has not done the sort of job one would expect for building the support necessary to make sure voters turn out for him.
Promotion: This might be where the two marketing programs most differ.
Candidate Trump has relied on advertising. Years ago marketing programs often relied on huge ad budgets to build a brand. Companies quickly learned that if you spent a lot on advertising you could drown out a competitive message, and bring your brand to the forefront. Simply on the basis of a big ad spend, heavily reliant on television, success was once possible. And the Trump campaign has used advertising like a soap company launching a new brand. Lots and lots and lots of advertising.
Notably, there has been little use of digital, internet and mobile advertising. Little use of social media to build trends and increase brand effectiveness. The candidate himself has gone almost entirely against modern thinking about social, mobile and internet marketing by unleashing tweets which have been simultaneously shocking, and often opposed to the brand message the advertising set out to create. While entertaining, this has not met even the minimum standards of modern marketing.
Candidate Clinton has matched candidate Trump in television and other traditional media advertising. Thus, her candidacy has not been overwhelmed by competitive spending While most people are likely tired of the ads from both candidates, it is clear that when it comes to traditional ad programs Clinton’s marketing has met the competitive level necessary to neutralize any possible Trump advantage.
But internet, mobile and social marketing has been much more successful for Clinton. Barack Obama did a splendid job of using these tools to mobilize young and minority voters in previous elections. This sort of marketing often touches people much closer, and has a greater “one-on-one” appeal, even if it is a modified “one-to-many.” And the Clinton campaign has lifted those guidelines, perhaps not as effectively as the Obama campaigns, to convert Sanders constituents to her as well as independents and undecideds.
The Trump campaign relied almost wholly on advertising, and an effort at achieving greater public relations via outrageous messaging. This has kept the candidate squarely in the public eye. But every marketer will tell you that it is not possible to build high commitment for your product with advertising alone. It takes an ability to touch people on a more personal, closer to home basis. It is critical now, more than for many years, to create identification with local issues within the home and workplace, and often reinforce social relationships.
At this, the Trump campaign has been out of step with modern marketing, and overly reliant on tools that were more effective in the ’80s and ’90s. Thus his appeal outside of European heritage, Christian, white and mostly male voter groups has struggled.
The Clinton campaign’s use of these tools has spread her base considerably wider. She has been able to connect with minorities, women, people of color, people of different religions and other groups much more effectively. In tune with demographic trends in America, this greatly enhances her opportunity to obtain the largest share of market. Tied to a superior placement campaign (to get out the vote,) this use of modern tools gives her a significant advantage.
These two campaigns have lessons for all business leaders. Too often we rely on product alone to think we will succeed. But product is only part of successfully luring buyers. You also have to make sure your product is in the right place, accessible to the most people, at time of purchase.
And today budget is only a part of good promotion, because effective use of social, mobile and internet marketing tools can help you connect with your targets more closely, and more personally. New promotion tools can expand your base, identify new target markets, develop strengths in niche groups and achieve greater loyalty at lower cost.
In history, there are almost no great campaigns that were won just because a product was superior. Nor because a product was cheaper. And despite some great ad lines (“Where’s the beef?” or “Plop, plop, fizz, fizz oh what a relief it is”) advertising has limited ability to actually make a product successful. Those that win build a marketing program using all four Ps most effectively to build on trends and excite customers.
I write about trends. Technology trends are exciting, because they can come and go fast – making big winners of some companies (Apple, Facebook, Tesla, Amazon) and big losers out of others (Blackberry, Motorola, Saab, Sears.) Leaders that predict technology trends can make lots of money, in a hurry, while those who miss these trends can fail faster than anyone expected.
But unlike technology, one of the most important trends is also the most predictable trend. That is demographics. Quite simply, it is easy to predict the population of most countries, and most states. And predict the demographic composition of countries by age, gender, ancestry, even religion. And while demographic trends are remarkably easy to predict very accurately, it is amazing how few people actually plan for them. Yet, increasingly, ignoring demographic trends is a bad idea.
Take for example the aging world population. Quite simply, in most of the world there have not been enough births to keep up with those who ar\e getting older. Fewer babies, across decades, and you end up with a population that is skewed to older age. And, eventually, a population decline. And that has a lot of implications, almost all of which are bad.
Look at Japan. Every September 19 the Japanese honor Respect for the Aged Day by awarding silver sake dishes to those who are 100 or older. In 1966, they gave out a few hundred. But after 46 straight years of adding centenarians to the population, including adding 32,000 in just the last year, there are over 65,000 people in Japan over 100 years old. While this is a small percentage, it is a marker for serious economic problems.
Over 25% of all Japanese are over 65. For decades Japan has had only 1.4 births per woman, a full third less than the necessary 2.1 to keep a population from shrinking. That means today there are only 3 people in Japan for every “retiree.” So a very large percentage of the population are no longer economically productive. They no longer are creating income, spending and growing the economy. With only 3 people to maintain every retiree, the national cost to maintain the ageds’ health and well being soon starts becoming an enormous tax, and economic strain.
What’s worse, by 2060 demographers expect that 40% of Japanese will be 65+. Think about that – there will be almost as many over 65 as under 65. Who will cover the costs of maintaining this population? The country’s infrastructure? Japan’s defense from potentially being overtaken by neighbors, such as China? How does an economy grow when every citizen is supporting a retiree in addition to themselves?
Government policies had a lot to do with creating this aging trend. For example in China there was a 1 child per family policy from 1978 to 2015 – 37 years. The result is a massive population of people born prior to 1978 (their own “baby boom”) who are ready to retire. But there are now far fewer people available to replace this workforce. Worse, the 1 child policy also caused young families to abort – or even kill – baby girls, thus causing the population to skew heavily male, and reduce the available women to reproduce.
This means that China’s aging population problem will not recover for several more decades. Today there are 5 workers for every retiree in China. But there are already more people exiting China’s workforce than entering it each year. We can easily predict there will be both an aging, and a declining, population in China for another 40 years. Thus, by 2040 (just 24 years away) there will be only 1.6 workers for each retiree. The median age will shift from 30 to 46, making China one of the planet’s oldest populations. There will be more people over age 65 in China than the entire populations of Germany, Japan, France and Britain combined!
While it is popular to discuss an emerging Chinese middle class, that phenomenon will be short-lived as the country faces questions like – who will take care of these aging people? Who will be available to work, and grow the economy? To cover health care costs? Continued infrastructure investment? Lacking immigration, how will China maintain its own population?
“OK,” American readers are asking, “that’s them, but what about us?” In 1970 there were about 20M age 65+ in the USA. Today, 50M. By 2050, 90M. In 1980 this was 11% of the population. But 2040 it will be over 20% (stats from Population Reference Bureau.)
While this is a worrisome trend, one could ask why the U.S. problem isn’t as bad as other countries? The answer is simply immigration. While Japan and China have almost no immigration, the U.S. immigrant population is adding younger people who maintain the workforce, and add new babies. If it were not for immigration, the U.S. statistics would look far more like Asian countries.
Think about that the next time it seems appealing to reduce the number of existing immigrants, or slow the number of entering immigrants. Without immigrants the U.S. would be unable to care for its own aging population, and simultaneously unable to maintain sufficient economic growth to maintain a competitive lead globally. While the impact is a big shift in the population from European ancestry toward Latino, Indian and Asian, without a flood of immigrants America would crush (like Japan and China) under the weight of its own aging demographics.
Like many issues, what looks obvious in the short-term can be completely at odds with a long-term solution. In this case, the desire to remove and restrict immigration sounds like a good idea to improve employment and wages for American citizens. And shutting down trade with China sounds like a positive step toward the same goals. But if we look at trends, it is clear that demographic shifts indicate that the countries that maximize their immigration will actually do better for their indigenous population, while improving international competitiveness.
Demographic trends are incredibly accurately predictable. And they have enormous implications for not only countries (and their policies,) but companies. Do your forward looking plans use demographic trends to plan for:
- maintaining a trained workforce?
- sourcing products from a stable, competitive country?
- having a workplace conducive to employees who speak English as a second language?
- a workplace conducive to religions beyond Christianity?
- investing in more capital to produce more with fewer workers?
- products that appeal to people not born in the USA?
- selling products in countries with growing populations, and economies?
- paying higher costs for more retirees who live longer?
Most planning systems, unfortunately, are backward-looking. They bring forward lots of data about what happened yesterday, but precious few projections about trends. Yet, we live in an ever changing world where trends create important, large shifts – often faster than anticipated. And these trends can have significant implications. To prepare everyone should use trends in their planning, and you can start with the basics. No trend is more basic than understanding demographics.
I’m amazed about Americans’ debate regarding immigration. And all the rhetoric from candidate Trump about the need to close America’s borders.
I was raised in Oklahoma, which prior to statehood was called The Indian Territory. I was raised around the only real Native Americans. All the rest of us are immigrants. Some voluntarily, some as slaves. But the fact that people want to debate whether we allow people to become Americans seems to me somewhat ridiculous, since 98% of Americans are immigrants. The majority within two generations.
Throughout America’s history, being an immigrant has been tough. The first ones had to deal with bad weather, difficult farming techniques, hostile terrain, wild animals – it was very difficult. As time passed immigrants continued to face these issues, expanding westward. But they also faced horrible living conditions in major cities, poor food, bad pay, minimal medical care and often abuse by the people already that previously immigrated.
And almost since the beginning, immigrants have been not only abused but scammed. Those who have resources frequently took advantage of the newcomers that did not. And this persists. Immigrants that lack a social security card are unable to obtain a driver’s license, unable to open bank accounts, unable to apply for credit cards, unable to even sign up for phone service. Thus they remain at the will of others to help them, which creates the opportunity for scamming.
Take for example an immigrant trying to make a phone call to his relatives back home. For most immigrants this means using a calling card. Only these cards are often a maze of fees, charges and complex rules that result in much of the card’s value being lost. A 10-minute call to Ghana can range from $2.86 to $8.19 depending on which card you use. This problem is so bad that the FCC has fined six of the largest card companies for misleading consumers about calling cards. They continue to advise consumers about fraud. And even Congress has held hearings on the problem.
One outcome of immigrants’ difficulties has been the ingenuity and innovativeness of Americans. To this day around the world people marvel at how clever Americans are, and how often America leads the world in developing new things. As a young country, and due to the combination of resources and immigrants’ tough situation, America frequently is first at developing new solutions to solve problems – many of which are problems that clearly affect the immigrant population.
So, back to that phone call. Some immigrants can use Microsoft Skype to talk with their relatives, using the Internet rather than a phone. But this requires the people back home have a PC and an internet connection. Both of which could be dicey. Another option would be to use something like Facebook’s WhatsApp, but this requires the person back home have either a PC or mobile device, and either a wireless connection or mobile coverage. And, again, this is problematic.
But once again, ingenuity prevails. A Romanian immigrant named Daniel Popa saw this problem, and set out to make communications better for immigrants and their families back home. In 2014 he founded QuickCall.com to allow users to make a call over wireless technology, but which can then interface with the old-fashioned wired (or wireless) telecom systems around the world. No easy task, since telephone systems are a complex environment of different international, national and state players that use a raft of different technologies and have an even greater set of complicated charging systems.
But this new virtual phone network, which links the internet to the traditional telecom system, is a blessing for any immigrant who needs to contact someone in a rural, or poor, location that still depends on phone service. If the person on the other end can access a WiFi system, then the calls are free. If the connection is to a phone system then the WiFi interface on the American end makes the call much cheaper – and performs far, far better than any other technology. QuickCall has built the carrier relationships around the world to make the connections far more seamless, and the quality far higher.
But like all disruptive innovations, the initial market (immigrants) is just the early adopter with a huge need. Being able to lace together an internet call to a phone system is pretty powerful for a lot of other users. Travelers heading to a remote location, like Micronesia, Africa or much of South America — and even Eastern Europe – can lower the cost of planning their trip and connect with locals by using QuickCall.com. And for most Americans traveling in non-European locations their cell phone service from Sprint, Verizon, AT&T or another carrier simply does not work well (if at all) and is very expensive when they arrive. QuickCall.com solves that problem for these travelers.
Small businesspeople who have suppliers, or customers, in these locations can use QuickCall.com to connect with their business partners at far lower cost. Businesses can even have their local partners obtain a local phone number via QuickCall.com and they can drive the cost down further (potentially to zero). This makes it affordable to expand the offshore business, possibly even establishing small scale customer support centers at the local supplier, or distributor, location.
In The Innovator’s Dilemma Clayton Christensen makes the case that disruptive innovations develop by targeting a customer with an unmet need. Usually the innovation isn’t as good as the current “standard,” and is also more costly. Today, making an international call through the phone system is the standard, and it is fairly cheap. But this solution is often unavailable to immigrants, and thus QuickCall.com fills their unmet need, and at a cost substantially lower than the infamous calling cards, and with higher quality than a pure WiFi option.
But now that it is established, and expanding to more countries – including developed markets like the U.K. – the technology behind QuickCall.com is becoming more mainstream. And its uses are expanding. And it is reducing the need for people to have international calling service on their wired or wireless phone because the available market is expanding, the quality is going up, and the cost is going down. Exactly the way all disruptive innovations grow, and thus threaten the entrenched competition.
The end-game may be some form of Facebook in-app solution. But that depends on Facebook or one of its competitors seizing this opportunity quickly, and learning all QuickCall.com already knows about the technology and customers, and building out that network of carrier relationships. Notice that Skype was founded in 2003, and acquired by Microsoft in 2011, and it still doesn’t have a major presence as a telecom replacement. Will a social media company choose to make the investment and undertake developing this new solution?
As small as QuickCall.com is – and even though you may have never heard of it – it is an example of a disruptive innovation that has been successfully launched, and is successfully expanding. It may seem like an impossibility that this company, founded by an immigrant to solve an unmet need of immigrants, could actually change the way everyone makes international calls. But, then again, few of us thought the iPhone and its apps would cause us to give up Blackberries and quit carrying our PCs around.
America is known for its ingenuity and innovations. We can thank our heritage as immigrants for this, as well as the immigrant marketplace that spurs new innovation. America’s immigrants have the need to succeed, and the unmet needs that create new markets for launching new solutions. For all those conservatives who fear “European socialism,” they would be wise to realize the tremendous benefits we receive from our immigrant population. Perhaps these naysayers should use QuickCall.com to connect with a few more immigrants and understand the benefits they bring to America.
(Photo: AP Photo/Andrew Harnik, File)
Last weekend, the Federal Reserve Board’s leadership met to discuss the future of America’s monetary policy. Reports out of that meeting, like reports from all Fed meetings, are long, tedious, and pretty much say nothing. Every analyst tries to interpret from the governors’ statements what might happen next. And because the Fed leadership is so vague, and so academic, the analysts inevitably never guess right.
This bothers a lot of people. There are those who want a lot more “transparency” from the Fed – meaning they want much clearer signals as to what is intended, and usually specifics as to intended actions and a timeline. Because the Fed’s meetings are so cloaked and opaque, some congress members actually want to do away with the Fed, or regulate it a lot more closely.
But for most of us, most of the time, the Fed is pretty much immaterial. When the Fed matters is when there are big swings in the economy, which happen quickly. Then their action is crucial.
Why Small Changes In Interest Rates Don’t Really Matter To Most Of Us
Take the debate right now over a quarter point rise in interest rates. How does this affect most people? Not much. If you have credit card debt, or a car loan, your interest rate is set by the financial institution. And you may hear people talk about zero interest rates, but you know your rate is a whopping amount higher than that. And you know that a quarter point change in the Federal Funds rate will not affect the interest on those loans.
Where you’ll see a difference is in a mortgage. But here, is a quarter point really important?
When I graduated business school in 1982 and wanted to buy my first home the interest rate on an annual, variable rate loan was 18.5%. My first house cost just about $100,000 so the interest was $18,500/year. Today, mortgages are around 3.5%, fixed for anywhere from 3 to 7 years. $18,500 in interest now funds a $525,000 mortgage! If interest rates go to 3.75% – which has many analysts so concerned for the economy – the home value associated with interest of $18,500 is $500,000. Probably within the negotiating range of the buyer.
So you have to borrow a LOT of money for this quarter point to matter. And it does matter to CEOs and CFOs of companies that lead corporations on the S&P 500, or those running huge REITs (Real Estate Investment Trusts) that have enormous debts. But that is not most of us. For most of us, that quarter point difference will not have any impact on our lives.
So Why Do People Pay So Much Attention To The Fed?
The Fed was originally created barely 100 years ago (1913) to try to create a more stable monetary system. But this didn’t work too well in the beginning, which led to the Great Depression. And then, to make matters worse, the conservative bent of the Fed coupled with its fixation on stable interest rates led it to actually cut the money supply as the economy was tanking. This led to a collapse in the value of goods and services, particularly real estate, and the loss of millions of jobs greatly worsening the Great Depression.
It was the depression which really caused economists to focus on studying Fed actions and the economic repercussions. A group of economists, most notably Milton Friedman at the University of Chicago, started saying that the Fed shouldn’t focus on interest rates, but rather on the supply of money. These folks were called “monetarists” and they said interest rates should float, and economists should focus on stable prices.
The 1970s – “Easy Money” Inflation
As we moved into the 1970s, and as Fed Governors kept trying to control interest rates, they found themselves creating more and more money to keep rates low, and in return prices skyrocketed. “Easy money” as they called it allowed ratcheting upward incomes, big pay raises, higher prices for commodities and inflation. Another monetarist leader, Paul Volcker, was named head of the Fed. He rapidly moved to contract the money supply, allowing those 18.5% mortgage rates to develop. Yet, this did stabilize prices and eventually rates lowered, moving down constantly from 1980 to the near zero rates of today for Treasury Bonds and other very large, low risk borrowers.
When the Great Recession hit the Fed leadership, led by Ben Bernanke, remembered the lessons of the Great Depression. As they saw real estate values tumble they were aware of the domino effect this would have on bank failures, and then business failures, just as they had occurred in the 1930s. So they flooded the market with additional currency to keep failures to a minimum, and ease the real estate collapse. This sent interest rates plummeting to the record low levels of the last few years.
Policy Must Address The Current Situation, Not Be Biased By Historical Memories
Yet, people keep worrying about inflation. Those who lived through the 1970s and saw the damage done by inflation are still fearful of it. So they scream loudly about their fear that the last 8 years of monetary ease will create massive future inflation. They want the Fed to be much tighter with money saying that all this cash will someday create inflation down the road. Their view of history is guiding their analysis. Their bias is a fear that “easy money” once caused a problem, so surely it will cause a problem again.
But economists who study prices keep saying that there are currently no signs of price escalation – that wages have not moved up appreciably in a decade, home values are barely where they were a decade ago. Commodity prices are not escalating, in fact many (like oil) are at historically low prices. The dollar is stronger because, relatively speaking, the USA economy is doing better than the rest of the developed world. As long as prices and wages remain without high gains, there is little reason to tighten money, and little reason to feel a higher interest rate is needed.
Further, past monetary increases will not cause future inflation, because monetary policy only affects what is happening now. “Easy money” today can only create inflation today, not in 3 years. And inflation is almost nowhere to be seen.
Ignore Fed “Fine Tuning.” Pay Attention When A Crisis Hits. Otherwise, It’s Up To The Politicians
The big thing to remember is that small changes in policy, such as those that might affect a quarter point change in rates, is “fine tuning” the money supply. And that has pretty nearly no affect on most of us. Where as citizens we should care about the Fed is when big changes happen. We don’t want mistakes like happened in the 1930s, because that hurt everyone. But we do want fast action to deal with a crisis like the falling real estate values and bank collapses that were happening a decade ago.
Remember, it was when the Fed targeted interest rates that the USA economy got into so much trouble. First in the Great Depression, and then in the inflationary 1970s. But when the Fed targeted prices, such as in the 1980s and the mid-2000s, it did exactly what it was created to do, maintain a stable money supply.
So don’t worry about whether analysts think interest rates are going to change a quarter point, or even a half point, in the next year. The big economic question facing us is not a Fed question, but rather “what will it take to increase investment so that we can create more jobs, and provide higher wages leading to a higher standard of living for everyone?” And that is not a question for the Fed to answer. That is up to the economic policy makers in the legislature and the White House.