To get off the point a little (which should be banking), this article on the skills CEOs will need in 25 years interested me for some reason. Translating the article into modern business strategy theory, they are really emphasising three things:
- The Resource Based View of the firm where competitive advantage is delivered by cultivating resources which are Valuable, Rare, In-imitable and Non-substitutable
- The Dynamic Capabilities view of the firm, where competitive advantage is delivered through the identification of core capabilities, but most importantly where these capabilities can be reconfigured rapidly to cope with a changing environment
- A sort of Network Theory of the firm requiring excellent connectivity within and across enterprises, though in this case the main purpose they see for this networking capability is to align strategy with the development and cultivation of resources and capabilities.
The authors believe that an increasing percentage of CEOs will be women (and on that front you might wish to check out the 30 percent Club) and that a new role will develop called the chief resources officer, who will “help the company respond to shortages of natural resources, shifting demographics in the workforce, and all other non-financial resources.” Hmm, not sure the latter would really help most firms – well unless they wished to start their own eugenics programme to breed future perfect workers of course.
The end of financial globalisation?
While the strategists above also emphasise the need for future CEO’s to be able to cope with globalisation, elements of globalisation are being questioned by policy makers and financial regulators. There are even calls to consider rolling back certain areas of globalisation, especially the influence of global banking and the consequential capital flows they create.
A key paper questioning global banking came from Princeton economist Hyun Song Shin where, when addressing the IMF, he coined the phrase “Global Banking Glut”.
He illustrated, which others have as well, that the European global banks used short term funding, much of it from US money market, to then fund the shadow banking system in the US by buying mortgage backed securities. So while there was not much flow in current account terms between the two regions, there was a huge balance sheet shift. Now both the IMF and the Bank for International Settlements and they have commissioned a whole series of historical studies looking at how international and shadow banking have led to global crises) are questioning unencumbered capital flows.
The overwhelming concern is that uncontrolled global banking and global shadow banking leads to balance sheet shifts to places where asset prices are growing creating an enormous force of pro-cyclicality this leading to bubbles and then economic collapses. The latest of these, one could argue, being the failure of the economies in southern Europe following massive shifts of capital from German and other Northern European states to Spain, Greece and other periphery countries.
Dismay in Germany with the ECB cutting benchmark interest rates to 0.05%. Though this reaction may cover immense pleasure at the competitiveness boost this has given their exports via a decline in the value of the euro. Of course for those Eurozone countries with very large external deficits, servicing the debt has just increased given this decline in the value of the Euro, though most of the outstanding debt is in Euro anyway.
The almost certain introduction of quantitative easing by the ECB is another dilemma. The natural thing to do would be to buy government bonds in proportion to the size of the economies in the Zone, but that would not help anyone as it would focus on Germany and the last thing needed is massive negative rates on German bunds. However, deliberately buying peripheral bonds would both be seen as rewarding those countries maintaining large deficits and transferring risks onto Germany. Buying selected private sector bonds on the same basis would simply exacerbate the risk transfer, though this maybe is actually what is required.
Meanwhile the Bank of England’s latest Quarterly Inflation Attitudes survey shows more than 50% of people now expecting a rate hike in the UK. The US, UK and Europe are clearly one very different points in the economic cycle.