Global Economy: Five Warning Signs To Watch

Financial Times

Published: September 23, 2011

A downgrade in Italy’s credit rating; more bad business survey data from Europe; a search for capital to shore up French banks; and alarming signs that investors have lost faith in the ability of the world’s most important central bank to come to the rescue – all this week darkened the mood once again.

Disaster threatens. Echoes of the 2008 financial and economic crisis cannot be ignored, but are amplified this time by greater policy impotence. Governments must aim to maintain budgetary credibility without eliminating necessary growth. Central banks have less leeway to generate growth and barely understand the new tools they are using.

Certainly, the promise made by the Group of 20 leading economies that 2011 would herald a new “strong, stable and balanced” global economy is dead. The game is now to achieve the less ambitious goal of preventing the crisis spiralling out of control.

Policymakers still cling to the possibility of creating a virtuous circle of improved growth; reduced sovereign debt concerns; stronger banks; a brightening investment climate for companies; and a shift in the growth locomotive to Chinese consumers and other creditors. But their grip is weakening and the danger of recession looms.

The outcome is not set in stone. Imminent decisions by policymakers, companies and households will determine whether the economy will descend into downturn or emerge with a few cuts and bruises. In the weeks ahead, savvy investors will be seeking signposts indicating the global economy’s likely direction of travel. The following five areas are a good place to start.

Third-quarter growth

Growth in advanced economies slowed to a crawl in the second quarter, raising legitimate fears of a descent into recession, Chris Giles reports. A bounce-back in the third quarter would allay fears considerably.

Grounds for optimism rest on peculiarities in the May-June data and a fall in oil prices since the spring.

IMF estimates suggest second-quarter output was hit by temporary supply chain disruptions after the Japanese earthquake and tsunami in March; the restarting of car production lines worldwide, along with lower oil prices, could boost third-quarter growth.

Japan would clearly be the most significant beneficiary, but special factors also depressed German and UK second-quarter growth. Germany’s shutdown of its nuclear reactors following the meltdown at Japan’s Fukushima plant helped push second-quarter growth down to 0.1 per cent; some economists are pencilling in a jump to 0.5 per cent in the third. Britain enjoyed an additional day’s holiday for the royal wedding, reducing the number of days worked in the second.

A positive surprise on growth figures would muffle the relentless drumbeat of gloomy data and should encourage some consumers and companies to spend. But policymakers cannot bank on even a temporary return to better numbers. The third quarter coincided with financial market turbulence, further eurozone debt turmoil and unrelated confidence-damping events, such as Britain’s riots.

A bounce-back in the third quarter is therefore necessary for a benign outcome – but it is far from sufficient, and not guaranteed.

Eurozone debt crisis

Greece triggered the eurozone debt crisis, and Greece will largely determine what happens next, Ralph Atkins reports. Athens is being pressed hard by the Troika (the International Monetary Fund, European Commission and European Central Bank) to put its emergency rescue programme back on track or face a halt to bail-out payments. But it is unclear whet­her George Papandreou, Greek prime minister, can deliver. The risk is of a default that delivers a Lehman Brothers-scale shock to the global economy.

Italy is already feeling contagion effects. Silvio Berlusconi, prime minister, has little credibility among international investors. Political uncertainty is adding to nervousness. Next week could bring some relief if Germany’s parliament backs proposals to strengthen the European Union’s bail-out fund. Yet even those steps might prove inadequate. Chancellor Angela Merkel’s grip on her supporters is wobbling, and German patience with the eurozone’s fiscal miscreants has already been tested to the limit.

Acting as backstop is the ECB. It has massively expanded its government bond-buying programme in the past six weeks – despite fierce resistance in Germany – but made clear this is temporary. To head off funding problems at banks, the ECB could also expand its offers of unlimited loans or relax rules on the collateral needed for its liquidity. With the eurozone economy on the brink of recession, the ECB could soon cut its main interest rate. A change of its president at the end of October could add uncertainty.

Central banks

The cavalry is not what it was, Robin Harding reports. If the past few years have proved anything, it is that the rapid restoration of full employment is not within the power of central banks. Rather than saddling up to ride to the rescue of the world economy,the world’s central bankers have in the past week or two been digging grimly into defensive positions, determined to use all of their limited weaponry to fight off the economic peril that they fear is coming their way.

“Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Ben Bernanke, US Federal Reserve chairman, told fellow central bankers in August.

Despite those words, the Fed this week launched Operation Twist – a $400bn programme aimed at driving down long-term interest rates by buying long-dated Treasury securities with money raised from selling short-term bonds.

The Twist was bolder than markets expected but did not cheer them up. “I feel that this will have little effect on the overall economy and simply shows that the Fed is powerless against the fundamental problems facing the economy,” noted Steven Ricchiuto of Mizuho Securities in New York.

The trouble is that US consumers and European governments need to pay down their debts. No matter how low the interest rate, only a few will borrow and spend. The Bank of England looks set to try more quantitative easing; the ECB may well be forced to reverse interest rate rises. It is one line of defence – but it may not be enough.

Markets

Markets have been hinting for some weeks at an ever-increasing probability of recession, Richard Milne reports. The most gloomy asset class by far has been bonds where, as investors go in search of safety, market interest rates for government debt have plummeted. Germany’s are at an all-time low; US and UK rates are at the lowest for, respectively, 65 years and 112 years. “Treasuries today are not pricing in a recession but a depression,” argues Paul Griffiths of Aberdeen Asset Management.

Others argue special forces, including central bank purchases and unusually low official interest rates in most developed countries, are at work in bond markets. Good economic news, if it comes, could cause yields to shoot up, they argue.

But equity markets are also showing significant signs of distress. German and French stock markets have shed a third of their value since their peaks this year while US and UK shares have fallen by almost a fifth, a loss that would put them in bear market territory. Such drops have often – but not always – been associated with recessions.

Andrew Parry, head of Hermes Sourcecap, a UK investor, says that equities will periodically rally and then collapse, a phenomenon Japan has experienced for the past 20 years as bonds have outperformed equities. “Japan is not the perfect roadmap but [today’s events are] playing out like that more and more,” he adds.

Perhaps the biggest danger is of the tail wagging the dog, with markets tipping economies into recession. Companies globally are in fine fettle, with strong balance sheets, but market turmoil gives them little incentive to invest or for consumers to spend.

US politics

For the past 60 years, the global economy has had an answer to any woe: the American consumer, Robin Harding reports.

Citizens of the world’s largest economy have shown such animal spirits, such willingness to buy and build and do, that their demand has pulled the rest through all economic turmoil. Their appetites drove growth in the 2000s.

But since the housing crash began, they have been trying to pay down their debts. The government stepped in with a fiscal stimulus to replace their demand in 2009 and 2010 – but that is now fading away.

Poisonous politics means that the stimulus is unlikely to be replaced in full.President Barack Obama proposes a $447bn plan, most of which is based on short-term relief from payroll taxes for business and workers.

In the end, at least some tax relief is likely to be passed by Congress. Putting more money in the pockets of American workers appeals to Democrats and Republicans alike. But the dysfunction of Washington means the bill is unlikely to pass in a way that inspires confidence in business and workers.

For the third time this year, Congress is embroiled in an argument that could lead to a shutdown of the federal government, this time over whether spending on natural disasters should be offset by savings elsewhere. A shutdown is unlikely – but it highlights the continued rancour of political debate.

One thing that could steady nerves in the global economy is rational and determined US policy. Recent escapades on Capitol Hill, plus a looming presidential election campaign that promises to be bitter, do not offer much hope of that.

School Of The Dark Arts

The Economist - September 20, 2011

WILFRIED VANHONACKER explains that it was one of the more difficult admissions decisions he has had to make. The dean ofSkolkovo Moscow School of Management, perhaps Russia’s only internationally recognised business school, was considering two candidates for his executive MBA programme. Background checks had shown that they were both members of large crime families. 

He initially recoiled. “My natural reaction was to think about the headlines in the New York Times or Economist,” he says. “But it rather made the point: if you want to prepare executives to function in Russia, this is the reality.” And so both were accepted. The dean says that they will bring an interesting perspective to the class, although, at least half jokingly, he worries about the first time he has to give either a bad grade.

Skolkovo celebrated its fifth anniversary over the weekend with a flying visit from Dmitry Medvedev, Russia’s president and chairman of the school’s advisory board. In that time it has moved three times, only settling this year into its permanent home in an enterprise zone just outside the capital. 

The school unabashedly takes a different perspective from its Western counterparts. The ambition is to prepare entrepreneurs to function in what Mr Vanhonacker describes as “difficult economies”—particularly Russia, but also India, China and Brazil. Getting by in these countries, he says, sometimes means coming to terms with institutional gaps, limited availability of talent and graft. 

There is no ethical proselytising. Unlike many Western schools, Skolkovo does not harbour “rather arrogant ambitions” to change Russia's business environment. When one of Mr Vanhonacker’s American students, who had been sent to complete a project in a “difficult” region, phoned him to express horror at the business environment she had encountered, he told her she was simply learning a practical lesson that would stand her in good stead in her career. “Western schools focus on knowledge,” he says. “We focus on how to get things done.”

Around half of the students on the full-time MBA programme are foreigners, many from other “difficult economies”. The debates between the outsiders and local students on Russian business values can be lively. But it is perhaps enlightening that some foreign alumni have gone on to start successful firms in Russia. Indeed, around half of all of the students on the MBA programme set up their own companies. The dean says that when they do, nothing scares them. They have already seen it all. 

The school was set up with the backing of Vladimir Putin and with donations from a handful of Russia’s oligarchs, including Roman Abramovich. By not openly challenging the country’s business environment, it leaves itself open to the accusation that it is helping to prop up a system that has served its masters well. But the dean insists that Skolkovo is not a cornerstone of the status quo. Although it enjoys strong political support from Russia’s rulers, he says it has refused to accept cash from Mr Putin. Furthermore, much of the funding, he says, comes from straightforward entrepreneurs, not just the wealthy elite. 

With only a handful of exceptions, business schools from outside Europe and North America have failed to make an impact on the world stage. When the best students from developing countries decide where to take an MBA, heading west remains the ambition of many—even when they intend to return home to work. Yet, for those keen on a career in one of Mr Vanhonacker’s difficult economies, it might be that those well versed in the dark arts of business will hold an advantage. Whether you approve of Skolkovo’s approach perhaps comes down to whether you believe that it is a business school’s purpose to preach ethics, or to furnish students with the skills to become effective managers. 

Higher Ambition Leadership

Harvard Business School - Harvard University
Published: September 15, 2011

What is welcome and all too rare? Leaders who care about building great institutions, not just profits. What sets these leaders apart in their practice and outlook?

Harvard Business School's Michael Beer in his new book, Higher Ambition: How Great Leaders Create Economic and Social Value, examines how CEOs from major companies around the globe—Becton Dickinson, IKEA, Tata Group—made a positive difference for their employees, their customers, their community, and society while not neglecting profits. Beer cowrote the book with Russell Eisenstat, Nathaniel Foote (Harvard MBA'81/JD'82), Tobias Fredberg, and Flemming Norrgren.

"The world of business has been governed by an implicit leadership model," Beer explains. "With the exception of a minority of CEOs, however—those we interviewed and others like them—the purpose of the firm is defined by a single-minded focus on return on financial and physical assets, not creating social value."

Higher-ambition leaders, as the authors call them, also make decisions about long-term relationships with all their stakeholders in mind. "Consider United Stationers' strategy of 'enabling our partners to succeed,' or Becton Dickinson's concern with creating healthy lives, not just profits, from its medical products. Higher-ambition leaders craft a distinctive set of practices, outlined in our book, to enact the multiple stakeholder perspective."

In addition to being the Cahners-Robb Professor of Business Administration, Emeritus, at HBS, Beer serves as chairman of the consultancy TruePoint Partners and of its educational and research institute, the TruePoint Center for Higher Ambition Leadership. In the e-mail interview that follows, Beer talks about the book and what boards and business schools can do to cultivate higher-ambition leaders.

Martha Lagace: What is missing in leadership models today?

Michael Beer: Most formal leadership models do not incorporate institution-building in their definition of leadership. Leadership is thought of as a means for activating change, employee engagement and motivation, ethical behavior, improvement processes of one kind or another, innovation, and so on. With a few notable exceptions—including Jim Collins's work on "Level Five" leaders, and the treatment of leadership both in my previous book, High Commitment, High Performance, and in Higher Ambition—however, there are few leadership models that explicitly address the leaders' role in building a "great institution": one that does "well" (produces financial results) and "good" (contributes to the larger good).

Q: Who are higher-ambition leaders?

A: In our book we explicitly selected leaders who defined their purpose as creating economic and social value. The goal of the corporation is to add value to employees, customers, suppliers and other partners, and community/society. These CEOs and the companies they lead make decisions with the interests of these other constituencies in mind. Higher-ambition leaders are concerned with long-term relationships, not transactional relationships where immediate price (for employees, salary) and cost are the only factors in decisions.

Q: You and your coauthors spoke with 36 CEOs based on three continents. Why did you choose these particular people to study?

A: We started out to find outliers: CEOs who produced outstanding economic and social value. Every successful CEO produces the first, but too few frame the purpose of their firm or behave in a way that illustrates their concern with social value. So we had two criteria that CEOs and their companies had to meet.

The CEOs we chose to study must have had a compounded annual growth rate in revenues, profits, and market capitalization that exceeded the 50th percentile of industry peers between 1997 and 2006 or for the CEO's tenure. Corresponding figures were used for public or privately held companies. There was evidence from the public record—articles, speeches, and views from those with direct knowledge—that the CEO was concerned with developing a people-centric, high commitment culture.

In effect, we searched for CEOs who were leading high commitment, high performance companies like those I described in my previous book. They were successfully creating commitment to the firm and its purpose in all their stakeholders. We wanted to take a deep dive into how these CEOs thought, spoke, and described their stewardship of the company.

I want to emphasize that in no way did we set out to prove a relationship between the practices of these CEOs and financial performance. There is already ample evidence to support this. We wanted to understand what this model of leadership looks like close up.

Q: One key to success is that these leaders align strategy and organization instead of treating them as separate realms. How do higher-ambition leaders align strategy and organization?

A: The CEOs we interviewed align strategy and organization by first and foremost developing and defining the direction of the company in a different way than do most CEOs and companies. They began the search for what markets to serve and what products or services to offer by first looking inside. Contrary to most companies that begin by looking at markets and competition, these CEOs looked inside to define "who" the company was—where was the most powerful intersection between their company's capabilities and purpose and the passions of their people with marketplace opportunity. These CEOs spent a great deal of time crystallizing their values and purpose and how strategy could be defined in a way that integrated strategy with values.

In this way the animating beliefs of the leaders, the employees, and the company's strategy were aligned. It was what we call in the book "forging strategic identity." Sometimes, usually with startups, this is done at the beginning of the CEO's tenure. In other instances this way of thinking develops over time. This process is often accompanied by divestment and sale of businesses that the company should not have entered in the first place.

The example we use in the book is Nokia. Consultants from a leading strategy consulting firm had recommended that Nokia should absolutely not be in the cell phone business. (Nokia already had engineers and resources for this but they were underdeveloped.) Nokia's CEO knew, however, that the passion and capabilities of the company lay in its cell phone business, and that there was a unique market opportunity to transform [cell phones] from an expensive tool for the rich to an affordable and transformative tool for communications in both developing and more mature economies. He sold off many other unrelated businesses to successfully focus on this one, with remarkable success until very recently.

Having forged an identity that defines strategy and the company's animating beliefs and values, higher-ambition leaders work hard to enroll everyone in this strategic direction through a variety of practices. They spend an enormous amount of time engaging their employees in communicating and further refining the company's strategic identity. Val Gooding, then the CEO of BUPA in the United Kingdom, gave talks and encouraged much discussion of the company's direction in many locations over a long period. Peter Sands at Standard Chartered Bank worked with his immediate leadership team to define the bank's values and strategic direction and then engaged his top 300 staff in the same process. Ed Ludwig, CEO of Becton Dickinson, appointed a task force to interview 250 key staff about the company's strengths and barriers to achieving a new direction.

This engagement enabled our leaders to:

• forge demanding goals to which people were committed;
• create a community of shared purpose, one in which people are committed to the larger good of the company as opposed to their department or themselves;
• hire people whose values and skills fit the culture and strategy, thus reinforcing and sustaining the community of purpose.

In addition, leaders spend a great deal of time on leadership development. In the case of former Campbell Soup CEO Doug Conant, he taught in a leadership course that he had designed for the company's high-potential managers. In all cases, higher-ambition leaders identified future leaders and developed them—usually through cross-functional and cross-geographic career paths.

Q: How does someone earn the right to lead? What personal attributes were crucial among the leaders you have studied?

A: There is no substitute for leaders personally meeting employees. Leif Johansson, CEO of the Volvo Group in Sweden, did a lot of that when he took charge. He made an important decision to locate headquarters where most of the employees in Sweden were. Russ Fradin, of Hewitt Associates, said that early in his tenure he spent three-quarters of his time going around. I think he met with 72 clients in the first 100 days, just hearing what they had to say.

Making yourself vulnerable increases trust and commitment. When Becton Dickinson's Ludwig owned up to his responsibility for problems with a multimillion-dollar IT system brought to him by a task force he had commissioned to speak truth to power, and then outlined his commitment to fix the problem, he earned trust. In one way or another, the CEOs we studied were able to engender trust by holding themselves accountable publicly.

Q: Your book analyzes leaders primarily in public for-profit companies. What is different about being a higher-ambition leader at a public or private firm?

A: Private company leaders have a great deal more freedom to take a long-term view of the firm. There is substantial evidence for this: see Danny Miller and Isabelle Le Breton-Miller's book Managing for the Long Run: Lessons in Competitive Advantage from Great Family Businesses. These leaders also start with the motivation to leave a legacy and build an institution, something that does not come as easily to public company leaders, with the exception of the higher-ambition-type leaders we studied.

Public company leaders have the constraints of capital market expectations for short-term quarterly earnings. They live in a world in which the conventional but incorrect wisdom is that their exclusive purpose is to produce ever-higher shareholder returns. So it is the extraordinary leader who has the courage to break out of that frame and define a higher ambition. The public company leader simply has more headwind and therefore needs more conviction, skills, and courage to fashion and execute against a higher-ambition agenda.

Q: Many companies in your book have a global reach. At the same time, however, they are often connected to a local identity or home base. How do higher-ambition leaders view culture? How do they treat culture as an asset?

A: Some of the companies in our sample had developed a strong, locally oriented culture. Examples include Cummins and Herman Miller. Their respective cultures were rooted in the values of the small towns in which they were headquartered. Building a global culture required reshaping the culture around a broader set of values that would attract and motivate a diverse global community.

The challenge, of course, was to create a community of shared values and purpose from a much more diverse set of people ethnically, religiously, nationally, and so on. The leaders did this by developing an identity with a common mission and a set of human values that everyone could connect with. People around the world value trust, want meaning out of work, and want to do good and well. In the example of Standard Chartered Bank, people from a diverse set of countries and backgrounds could relate to and become committed to the goal of dramatically reducing preventable blindness worldwide. United Stationers, not in our sample but a higher-ambition company, has been able to use higher purpose to do good: Employees want to help others through community projects they define and work on together. And by collaborating around "worthy" community projects, employees team up better around business issues.

Q: Boards and business schools, for different reasons, do not cultivate higher-ambition leaders. How should they?

A: Boards need to begin to change their frame for how they evaluate management and firm effectiveness. They should be asking their CEO what kind of an institution they are building. Does the CEO and the firm have a higher purpose? What is she or he doing to create a healthy institution that can deliver long-term and sustainable success? Boards should spend time assessing whether the CEO has created a strategic identity, a community of shared values, and trust-based relationships with employees, customers, community, and investors. Boards often do not ask the right questions about these things nor have the data to know if it is happening.

In a recent article in Directorship magazine, Nathaniel Foote and I suggest that boards need to create mechanisms for learning the truth about what is going on in the firm. Consider how things might have gone differently for some failed firms like Washington Mutual and Lehman Brothers if the boards had insight into the prevailing culture and the leader.

Business schools are teaching ethics and corporate social responsibility, but they do not teach these subjects in the context of building a higher-ambition or a high commitment, high performance firm. Students learn about finance and organizational behavior, for example, without ever learning how to integrate these and many other disciplines (marketing, operations, etc.) into a coherent, internally consistent set of practices that collectively reinforce a higher- ambition mission. If financial considerations require cost cutting, what should be the stance of the company toward layoffs if management also aspires to develop commitment from employees? If the company strategy calls for rapid growth, can this be done without diluting the higher-ambition culture? If you are trying to develop such a culture, rapid growth makes it harder to find people who fit the culture and possess the capabilities needed. And business schools, with the exception of a few like Harvard Business School, do not ask students to reflect on their values and define who they are and then help them see how these values relate to decisions they make about strategy, performance measurement, growth, and so on.

In short, business schools, as we argue in the book, do not teach integrity. By integrity we mean learning about (1) how different disciplines must be integrated with each other and higher-ambition purpose and values, and (2) how students' espoused higher-ambition values are reflected in decisions and actions they recommend should be taken in marketing, strategy, and finance. What business schools need is a course that teaches students how to think and act to build a higher-ambition firm.

Q: What are you working on next?

A: If business is to regain the legitimacy that it has lost in the last 20 years, and particularly since the 2008-2009 economic meltdown, we must change the leadership and management paradigm. We need to widen the circle of leaders who "get" higher ambition. My colleagues and I have committed ourselves to this mission. We have founded the TruePoint Center for Higher Ambition Leadership, a not-for-profit educational and research institute that will bring together higher-ambition leaders from around the world to learn from each other's experience. It will also offer leadership development programs for the next generation of leaders, as well as conduct research about what it takes to manage in a higher-ambition way.

Animal Farm - 1954 - Full Lenght - Based On The Book Of The Same Name By George Orwell

                                     

Book Outlines Why Bad Behavior Online Can Ruin Your Life

Stanford Graduate School Of Business - Stanford University

Stanford MBA student Matt Ivester lays out the dangers of bad online behavior and offers a prescription to college students who want to enter the adult world with their reputations intact in his book lol . . . OMG!.

Matt Ivester, MBA class of 2012, learned the hard way that the digital age can play havoc with normally well-behaved people. The result isIvester's book, lol … OMG!: What Every Student Needs to Know About Reputation Management, Digital Citizenship, and Cyberbullying, which lays out, in sometimes ugly detail, the dangers of bad online behavior, and offers a prescription to college students who want to enter the adult world with their reputations intact.

Like any good entrepreneur, Ivester created his current project from the ashes of an earlier startup that went awry. In 2007 he founded the website JuicyCampus.com and invited students at his alma mater, Duke University, to gossip freely and anonymously. "When I started it, I thought it would be a fun place for college students. It became this malicious website where students were attacked. It got away from me," he says now.

"The posts named names, and they were racist, homophobic, misogynistic, vulgar, sexually explicit, deeply personal," he writes in the book's preface.

JuicyCampus.com spread to 500 campuses, attracted investigations from two state attorneys general, spawned hundreds of complaints from college administrators, students, and parents, and even caught the attention of national broadcaster Katie Couric, who described JuicyCampus as a "malicious cesspool of barbs, disses, and insults." In February 2009 Ivester shut it down.

Though he moved on to other ventures, Ivester continued to reflect on his experience. What seemed reasonably harmless, or mildly embarrassing when spoken in a college dorm among friends, turned poisonous online. Being on the receiving end of death threats was scary, he says. Invited to speak on a panel at Emory University on the topic Civil Discourse: Gossip, Bullying, and the Digital Age, Ivester says he sensed the anxiety in the voices of parents, students, and college staff looking for advice. "There was genuine concern about some of the negative stuff happening online that affects college students," he says.

An enthusiastic entrepreneur, Ivester saw a business opportunity. "I realized that there is still a big problem on campus with reputation management and cyber-bullying and that there aren't really great resources for college students," he says.

Ivester's experience and observations are wrapped up in lol … OMG!, a guide to managing online reputations from the moment a student steps on campus until graduation. Ivester's goal is to raise students' awareness on two fronts; how their decisions about posting content online will affect how others see them, and how posting decisions by one student will affect the reputations of others. The book includes carefully chosen anecdotes about videos, PowerPoints, and emails sent for the eyes of a few, and seen eventually by millions, that will send shivers down the spine of anyone concerned about online content and lifetime reputations.

As Ivester points out, in the digital age missteps don't go away. Twenty years later photographs of unflattering behavior, vicious comments on blogs, and even students choices of which pages to "Like" on Facebook might come back to haunt them. Because of this permanently public record, Ivester believes that college is harder today than ever. Previous generations didn't have to worry about their college experiments and mistakes living forever for billions to view, he says.

Since the internet is here to stay, Ivester's purpose with the book is to help college students make the right decisions, to take control, to think carefully about their every online activity. "The book is all about personal responsibility," he says.

He starts from the premise that students are creating their online reputations with every piece of content that they post. Most of them enter college with an established digital trail. "Now it's time for them to take control of that trail and make sure that they are portraying themselves in a positive light," he says. Campus life offers many temptations and opportunities to experiment. What goes up online will be taken seriously by many people in the outside world. Prospective dates will do a search on their names. Professors, future employers, neighbors, and parents of the friends of their children — the list of possibilities is long.

In the book, scheduled to be published in October, Ivester describes the many ways students can protect their reputations, from carefully managing their privacy settings to constantly monitoring what appears about them online. Ivester is particularly adamant about raising the awareness of the behavior gap between what people might say or how they might act in the real world versus words and actions online. Psychologists have noticed an "online disinhibition effect" with normally polite people slinging insults unabashedly when commenting on websites. Ivester also gives them a crash course in free speech and tips to help persuade others, either through friendly or litigious means, to remove unflattering content.

Ivester's business plan includes offering the book to colleges to include in freshman welcome packets. He is making himself available to speak to incoming classes. With job seekers in mind he is looking for partnerships with career development centers to help seniors present their best selves online to employers and to companies such as Social Intelligence, whose business is investigating and reporting the online behavior of potential employees.

By these efforts Ivester hopes to implant in today's college students and administrators the phrase Digital Citizenship and all that it stands for — self-testing a twitter entry, a photo upload, a blog entry — against a set of standards that represents the students' values toward themselves and toward others. "JuicyCampus was my lol … OMG! moment," he says. He hopes to spare others the same experience.

— Anne Gregor

The Economist - September 3, 2011

Doing business in Brazil

Rio or São Paulo?

For the first time in decades, Brazil’s Marvellous City looks attractive for business

Sep 3rd 2011 | RIO DE JANEIRO AND SÃO PAULO | from the print edition

LAST year Paulo Rezende, a Brazilian private-equity investor, and two partners decided to set up a fund investing in suppliers to oil and gas companies. Although this industry is centred on Rio de Janeiro, Brazil’s second-largest city, with its huge offshore oilfields—and fabulous beaches, dramatic scenery and outdoor lifestyle—they instead established the Brasil Oil and Gas Fund 430km (270 miles) away, in São Paulo’s concrete sprawl. Even though it means flying to Rio once or twice a week, Mr Rezende, like many other businesspeople, decided that São Paulo’s economic heft outweighed Rio’s charms. But the choice is harder than it used to be.

For many years, São Paulo has been the place for multinationals to open a Brazil office. It may be less glamorous than Rio, as the two cities’ nicknames suggest: Rio is Cidade Maravilhosa (the Marvellous City); São Paulo is Cidade da Garoa (the City of Drizzle). But as Mr Rezende sadly concluded: “São Paulo is the financial centre, and that’s where the money is.”

In this section

• »Rio or São Paulo?
• Tripped at the altar
• Nightmareliner
• Guns N’ Rosewood
• Exxonerated
• Your mine is mine
• Angst for the educated

Reprints

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Related topics

• Brazil
• Sao Paulo
• Rio de Janeiro

Edilson Camara of Egon Zehnder International, an executive-search firm, does 12 searches in São Paulo for each one in Rio. The biggest mistake, he reckons, is for firms to let future expatriates visit Rio at all. “They are seduced by the scenery and lifestyle, and it’s a move they can sell to their families. But many have ended up moving their office to São Paulo a couple of years later, with all the upheaval that entails.”

From a hamlet founded by Jesuit missionaries in 1554, São Paulo grew on coffee in the 19th century, industry in the first half of the 20th—and then on the misfortunes of Rio, once Brazil’s capital and its richest, biggest city. The federal government abandoned Rio for the newly built Brasília in 1960, starting a half-century of decline. Misgoverned by politicians and fought over by drug gangs and corrupt police, Rio became dangerous, even by Brazilian standards. The exodus gained pace as businesses and the rich fled, mostly for São Paulo.

Now, though, there are signs that the cost-benefit calculation is shifting. São Paulo’s economy has done well in Brazil’s recent boom years and it is still much bigger, but Rio’s is growing faster, boosted by oil discoveries and winning its bid to host the 2016 Olympics (see table). Last year Rio received $7.3 billion in foreign direct investment—seven times more than the year before, and more than twice as much as São Paulo. Prime office rents in Rio are now higher than anywhere else in the Americas, north or south, according to Cushman and Wakefield, a property consultancy.

Community-policing projects are taming its infamous favelas, or shantytowns: its murder rate, though still very high at 26 per 100,000 people per year (2.5 times São Paulo’s), is at last falling. Brazil’s soaring real is pricing expats paid in foreign currencies out of São Paulo’s classy restaurants and shopping malls; Rio’s recipe of sun, sea and samba is still free. Even Hollywood seems to be on Rio’s side: an eponymous animation, with its lush depictions of rainforest and carnival, is one of the year’s highest-grossing films.

Rio’s mayor, Eduardo Paes, has big plans for capitalising on the city’s magic moment. He has set up a business-development agency, Rio Negócios, to market the city, help businesspeople find investment opportunities, and advise on paperwork and tax breaks. It concentrates on sectors where it reckons Rio has an edge: tourism, energy, infrastructure and creative industries such as fashion and film. “A couple of years ago, foreign businessmen would come to Rio and ask what we had to offer,” says Mr Paes. “We had no answer. Now we roll out the red carpet.”

The political balance between the two cities has changed too. In the 1990s São Paulo was more influential and better run: it is the stronghold of the Party of Brazilian Social Democracy (PSDB), the national party of government from 1995 to 2002. Now the PSDB is in its third term of opposition in Brasília, and though it still governs São Paulo state, it is weakened by internal feuds. In Rio, by contrast, the political stars are aligned. The state governor, Sérgio Cabral, campaigned tirelessly for the current president, Dilma Rousseff—and received his reward when police actions in an unruly favela late last year were backed up by federal forces.

São Paulo’s socioeconomic segregation, long part of its appeal to expats, is starting to look like less of an advantage. Most of its nicer bits are clustered together, allowing rich paulistanos to ignore the vast favelas on the periphery. In Rio, selective blindness is harder with favelas perched on hilltops overlooking all the best neighbourhoods. But proximity seems to be teaching well-off cariocas that abandonment is no solution for poverty and violence. Community policing and urban-renewal schemes are bringing safety and public services. Chapéu Mangueira and Babilônia, twin favelas a 20-minute uphill scramble from Copacabana beach, are being rebuilt, with a clinic, nursery and a 24-hour police presence. The price of nearby apartments has soared. Other slums are also getting similar make-overs.

Rio’s Olympic preparations include extending its metro and building lots of dedicated bus lanes, including one linking the international airport to the city centre. By 2016, predicts City Hall, half of all journeys in the city will be by high-quality public transport, up from 16% today. São Paulo’s metro extensions are years behind schedule, and the city is grinding towards gridlock. Its plans to link the city centre to its main international airport (recently voted Latin America’s most-hated by business travellers) rely on a grandiose federal high-speed train project, bidding for which was recently postponed for the third time.

Rio is still unpredictably dangerous, and decades of poor infrastructure maintenance have left their mark. Its mobile-phone and electricity networks are outage-prone; thelíngua negra (“black tongue”, a sudden overflow of water and sewage) is a staple of the rainy season; exploding manholes, caused by subterranean gas leaks, are a hazard all year round. All in all, still not an easy choice for a multinational—but it is no longer foolish to let prospective expats fly down to Rio to take a look.