Harvard Business Review

What Sells When Father Knows Best

Cecille Isidro — Fri, 02 Feb 2007 09:38:00 -0500

The comedian Dick Cavett once quipped, “If your parents never had children, chances are you won’t either.” It’s a funny thought, but it gets at something real.

People who are social, religious, or political conservatives tend to have more children, and that fact has profound implications for culture, for politics, and for business. In the United States, for example, fertility rates are 12% higher in states that voted for George W. Bush in the most recent presidential election than in the more liberal and secular states that supported his opponent. Indeed, if the John Kerry states seceded and formed a new nation, its fertility rate would be just 1.8 children per woman -- 13% below the level needed to replace the population.

This link between fertility and conservatism is found not only in the United States but in Europe, Israel, the rest of the Middle East, and elsewhere. There is a strong correlation between adherence to traditional Christian, Judaic, or Islamic values and high fertility. And as an increasing share of all children is descended from people whose conservative values have led them to raise large families, we see the emergence of societies in which the patriarchal and highly pro-natal values of the Abrahamic religions are dominant...

The full text of this article is available for free on the Harvard Business Review website until Feb. 26, 2007. New America is not able to republish the full HBR text here, but Longman's March 2006 cover story for Foreign Policy, which explores this issue in depth, is available on NewAmerica.net.

What Should USTech's Sourcing Strategy Be?

Cecille Isidro — Wed, 01 Mar 2006 00:00:00 -0500

Greg should consider himself lucky. The cozy relationship between USTech and TaiSource was speeding toward a crisis even before he hired Morris. But thanks to what he learned from that questionable decision, Greg now has an opportunity to fix USTech's sourcing strategy before disaster strikes.

USTech and TaiSource have become so interdependent that USTech must establish either a more formal alliance with the supplier or a more strictly defined arm's-length relationship. Given the distrust on both sides, the only real option is the latter. Greg can now choose to diversify USTech's ODM relationships; source directly in China and Taiwan, which would require quickly mastering certain management and assembly tasks; or combine these approaches, thereby enabling USTech to expand in China at a safe pace. Greg can afford no illusions: Whatever the choice, USTech's costs will increase. The era of free-rider collaboration for a firm this size is over, and the sooner USTech recognizes that fact, the better.

Greg's next step should be to gather the USTech team for an honest postmortem. In retrospect, the degree to which USTech trusted TaiSource will seem shockingly naive. All interdependent relationships are competitive. Absent a clear ownership structure, or the social constraints that exist within certain Asian societies, such competition will eventually destroy even mutually beneficial relationships.

Although the relationship with TaiSource looked great on the bottom line, the result was to empower a new competitor. TaiSource has deep knowledge of USTech's products and the ability to manufacture in both Taiwan and China, and it plans to open a U.S. R&D office -- another name for a sales office.

A review of USTech's sourcing system, if truly complete, will reveal that the company is still hugely vulnerable in at least one area: political conflict. In the event of political turmoil within China, or between China and another industrial nation, the flow of components on which USTech depends would be cut off. Direct entry into China by USTech would do nothing to lessen this risk. And no matter which ODMs Greg links up with in Taiwan, all rely on work done in China.

Sure, Thomas Friedman and other trade utopians insist that industrial interdependence prevents conflict among nations. But this is rank foolishness. The entirely unregulated industrial relationship between the United States and China is analogous to the fuzzy "collaborative" relationship between USTech and TaiSource. Eventually, there will come a struggle for a greater share of the profits, or for control of the system itself.

Unfortunately, Greg's options are few. Suppliers in the United States, Japan, Korea, Malaysia, and Singapore would all cost more. Given that the biggest immediate threat to USTech is posed by direct competitors, all of whom source extensively in China, the executive team has no alternative but to depend on China and hope for the best.

Which means that Greg's next call should be to Washington. When any company discovers a political risk that no firm on its own can afford to address, it is time to sit down with the people who shape the market. After all, if no one company can mitigate the dangers, then the political risk has shifted from the level of the firm to the level of the societies that depend on those firms. At this point, Greg must cease to act as an executive and act instead as a citizen.

When Greg makes his call, he may be tempted to speak in anger. After all, it will seem to him that the politicians have screwed up once again, this time by pretending that incredibly complex global markets could somehow be self-regulating. Greg should use his own mistakes to help politicians understand what must be done. After all, just as USTech realized it could not rely safely on one supplier, so too must the United States.

A Homestead Act for the Twenty-First Century

Cecille Isidro — Fri, 03 Feb 2006 00:00:00 -0500

The United States owes much of its status as the first mass middle-class society to enlightened social policy designed to broaden asset ownership. To this day, a quarter of all adult Americans enjoy a legacy of asset ownership traceable to the Homestead Act of 1862, which awarded 60 acres of land in the American West to families who lived on the land for five years. Likewise, the GI Bill, the Federal Housing Administration, and mortgage deduction policies paved the way for one of the highest home-ownership rates in the world.

But America's middle class has begun to atrophy. Poverty has grown over each of the last four years, and real wages are falling. Meanwhile, income inequality has reached an all-time high, and asset inequality is even more acute. Hurricane Katrina laid bare those stark realities.

The most promising way to revitalize America's middle class is to update old traditions. In the nineteenth century, the U.S. sought to broaden the ownership of land; in the twentieth, the ownership of homes. In this new century, the target should be the ownership of financial assets. The logic for such a course follows from the economic dynamics that are widening the gap between today's haves and have-nots.

The historic correlation between economic growth and wage growth has broken down, largely because returns on human and financial capital are outpacing those on labor. As growth and productivity increase while real wages decline, it is not hard to understand why those who depend solely on wages fall behind, while those who benefit from returns on financial assets get ahead. The best way to break this cycle is to help far more Americans accumulate a sizable ownership stake in the most productive sectors of society.

Imagine if every newborn in America were to receive $6,000 at birth as a down payment on a productive life. With the magic of compound interest, that sum could grow to $20,000 or more by the time the child reaches 18. This young adult could then apply his or her nest egg toward various investments, such as college tuition, a down payment on a first home, seed money for a legitimate business, or retirement savings. Given the number of children born in America each year, the annual cost of such a program would be about $24 billion -- roughly what the government squanders on farm subsidies. The benefits, however, would be immeasurable.

Endowing the next generation with resources to invest in its own human capital and financial future would create not only a much broader middle class but also a more self-sufficient, skilled, and entrepreneurial workforce. Gradually, the U.S. would witness the birth of a mass investor class, with ever more citizens deriving their income from returns on financial holdings as well as from wages. There would be less need for a generous welfare state, and the interests of workers and business would be better aligned.

A Homestead Act for the twenty-first century could also offer inner-city kids a new social contract:if they play by the rules and graduate from high school, then a pot of money will allow them to invest in their own futures. Paired with financial-literacy education in schools, such a policy could help turn a culture of poverty and dependency into one of hope and opportunity.

Those who doubt the political viability of such an idea should think again. Britain recently enacted its own version of accounts at birth and has already funded 2 million of them. In the United States, this is one of the few social policy innovations gaining bipartisan support in a deeply divided Congress. Last year, an odd-bedfellows alliance led by Senators Santorum, Corzine, Schumer, and DeMint introduced the ASPIRE Act, calling for deposits of $500 for every newborn, with an additional $500 for babies from low-income families. The policy's biggest advocate may turn out to be President Bush, who wants to make bipartisan headway on his ownership society agenda now that his Social Security plans have stalled.

Let us hope that historians looking back on twenty-first-century America will see the reemergence of a vibrant middle class. If they do, they will likely credit bold policies that enabled ever more citizens to enjoy the benefits of capital ownership.

Vanishing Jobs? Blame the Boomers

Cecille Isidro — Tue, 08 Mar 2005 00:00:00 -0500

To all the brouhaha over offshoring in America, one rejoinder is that any unemployment is temporary. When the mass of baby boomers starts retiring in the next few years, the argument goes, there will be plenty of work for anyone in the baby bust generation whose job went overseas. That may be a comforting thought for U.S. baby busters, but it's probably wrong. Despite their small numbers, the busters may paradoxically see unemployment get worse, not better.

Without a crystal ball, we can't say definitely what will happen as baby boomers start retiring. But we can find clues in two places. Japan's birthrate fell below replacement levels long before that of any other industrialized nation. As a result, workers have been a shrinking proportion of the country's population since 1989. Yet the jobless rate has actually gone up. Similarly, in the United States, the number of people between the ages of 15 and 24 has been declining in relative terms since 1990. But the smaller supply has not made younger workers more valuable; their unemployment rate has increased relative to that of their older counterparts. The situation is even worse for young men: Their median inflation-adjusted income in the booming economy of the late 1990s was actually below what the legions of young baby boomer men earned when they hit the workforce during the stagflation of the late 1970s. A similar story can be told about young workers in most European economies.

Why doesn't a declining labor supply bring more opportunities for those seeking jobs? First, an aging population often increases the cost of hiring. All those elder baby boomers are already helping to drive up the cost of employer-provided health care, and as they start to retire, payroll taxes will be likely to rise to make up for shortfalls in public health and pension systems. Such a jump in taxes could discourage hiring in the United States, as it has in nations that have already experienced large jumps in their elderly populations, like Germany. Payroll taxes there exceed 40%.

Second, as their populations age, societies become more risk averse and resistant to change. One reason Japan is still struggling to fix its sclerotic banking system and France can barely raise its absurdly low retirement age is that older voters have nothing to gain, and much to lose, from fundamental changes that pay off only in the long term. The U.S. population may not be as old as those of other rich countries, but just look at how hard it is for Americans to face up to obvious threats to their country's long-term prosperity, such as the unsustainable cost of entitlement programs, looming future deficits, and overdependence on foreign energy sources. Studies worldwide also show that older populations are less likely to be entrepreneurial and so may create fewer new jobs.

Finally, businesses have other, potentially less costly, options besides replacing retirees with the next generation. They can move even more work offshore, and for those jobs that can't be sent overseas, they can lobby the government to allow more immigration. Or, as some hard-nosed firms are already doing, they can reduce their operations, either directly or by cutting plans for future investment. A shrinking workforce could give us merely a shrinking economy.