September 22, 2019

Political Economy: It’s Too Soon to Be Sure of a Euro Zone Happy Ending

Mario Draghi, the president of the European Central Bank, did not quite coin a new phrase last week, but he certainly popularized the expression “positive contagion.” After years in which the euro zone has been suffering from plain old contagion, Mr. Draghi now thinks a positive dynamic is in play.

The term contagion has tended to be used in financial markets to refer to the way that problems in one country (like Greece) can so unnerve investors that they cause difficulties in other countries (like Italy, Portugal and Spain). Mr. Draghi, though, seems to be using the word more broadly to cover the whole panoply of vicious cycles that had been sucking the euro zone into a whirlpool.

The E.C.B. president is right that the vicious cycle in financial markets has given way to a virtuous one. The best measure of this is how peripheral governments’ bond yields have dropped since he said last July that the E.C.B. would do whatever it took to preserve the euro — “and believe me, it will be enough.” Spanish 10-year yields have fallen to 4.9 percent from 7.4 percent, while Italian ones are down to 4.1 percent from 6.4 percent. The Stoxx 50 index or euro zone stocks, meanwhile, is up 12 percent.

But vicious cycles do not apply only to financial markets. They also affect the real economy and politics — and flip back into the world of finance. Until the economies of Italy and Spain stop shrinking, the risk of tipping back into negative contagion remains.

Remember, too, how financial markets can be fickle. Only a year ago, confidence was buoyed by the central bank’s decision to lend struggling banks €1 trillion, or $1.3 trillion, in low-cost, three-year loans. But then Greece’s indecisive first election and Spain’s dithering over its banking overhaul led to the most dangerous episode yet in the euro crisis.

Still, before looking at the remaining risks, it is important to acknowledge progress in the underlying situation and in confidence.

The fundamental causes of the crisis were uncompetitive economies, excessive government borrowing and weak banks.

All three problems have been partly remedied. For example, labor costs in Spain and Greece have been falling, improving their industries’ competitiveness — so much that Spain has had a current account surplus for the past three months. Meanwhile, fiscal deficits across the periphery of the euro zone have been cut, although they are still too high. Finally, Irish, Greek and Spanish banks have been stuffed with capital.

Confidence, too, is returning. It is not just the sovereign debt yields that have fallen. Capital flight has reversed and banks depend less on the E.C.B. for funding.

Positive contagion could set in when there is a growing conviction that the euro zone is addressing its problems and will not break up, which could strengthen confidence in financial markets. As borrowing costs in peripheral countries fall and their banks feel they are no longer on the precipice, companies and individuals will face less of a credit squeeze. Ultimately, businesses would invest and individuals would spend. Measures taken to restore competitiveness would also encourage investment and increase exports.

All this would bring the recession to an end, which would further bolster the confidence of investors, businesses and consumers. With interest rates falling and tax revenue rising, fiscal deficits would fall — kicking off another virtuous circle, as governments would no longer be under pressure to tighten their belts with further rounds of austerity.

Unfortunately, it is still too soon to be sure of such a happy ending — largely because the measures taken to improve competitiveness and the effect of the better mood in financial markets on the real economy both operate with a lag. Meanwhile, the austerity measures are still crushing activity. The concern is that, in the interim, as unemployment continues to rise, the political situation in one or more countries could get nasty.

The political outlook is fairly benign because the two most vulnerable countries — Greece and Spain — have recently had elections and are not supposed to have new ones for several years. The German election this year could even be positive, if it leads to a grand coalition with Angela Merkel as chancellor, but including the Social Democrats, who may be more willing to help their struggling southern partners. The same could be true if the Italian election in February results in a stable coalition led by the center-left Pier Luigi Bersani and involving Mario Monti’s centrist movement.

There are, admittedly, short-term risks. One is that Greece’s fragile coalition does not survive an intensification in the economic gloom. Another is that the former Italian prime minister, Silvio Berlusconi, somehow pulls off a victory in the Italian elections.

But the biggest risk is that Spain, Italy and Greece, in particular, might be still mired in recession this time next year. Deficits would remain stubbornly high and debt-to-gross domestic product ratios would still be rising, as would unemployment. Markets might then start worrying again about the sustainability of both public finances and governments’ reform policies, kicking off a vicious cycle.

The euro zone is witnessing the early stages of positive contagion. But politicians should not be complacent. They must do everything in their power to maximize the chances of this virtuous cycle’s taking hold. This means keeping up their long-term structural reforms while trying to do whatever they can to mitigate the short-term austerity.

Hugo Dixon is the founder and editor of Reuters Breakingviews.

Article source: http://www.nytimes.com/2013/01/14/business/global/14iht-dixon14.html?partner=rss&emc=rss

Supreme Court Hears Copyright Case on Imported Textbooks

WASHINGTON — The Supreme Court heard arguments on Monday in a copyright case about the sale of imported textbooks on eBay that has wide-ranging implications for many products made abroad and sold in the United States.

The case arose from the entrepreneurial impulses of Supap Kirtsaeng, a Thai student who attended Cornell University and the University of Southern California. He helped pay for his education by selling textbooks that his friends and relatives had bought abroad and shipped to him.

Publishers of textbooks, like other manufacturers, often charge different prices in different markets. One publisher, John Wiley Sons, successfully sued Mr. Kirtsaeng for copyright infringement.

The general rule for products made in the United States is that the owners of particular copies can do what they like with them. If you buy a book or record made in the United States, for instance, you are free to lend it or sell it as you wish. The question for the justices was whether that rule, called the first-sale doctrine, also applies when the works in question were made abroad.

The answer turns on a phrase in the Copyright Act, which appears to limit the first-sale doctrine to works “lawfully made under this title.” The lower courts said that textbooks manufactured outside the United States cannot have been made under American law and so remained subject to the control of the owner of the copyright.

Much of the argument concerned what lawyers call the “parade of horribles” — the hypothetical problems that might follow a ruling in favor of one side or the other.

E. Joshua Rosencranz, a lawyer for Mr. Kirtsaeng, said the happenstance of where a record was made should not alter the rights of the person who buys it. Otherwise, he said, “the result is that a teacher can go and buy a Beethoven record and play it to her class if it was made in the United States,” he said. “But if she flips one past it to the next Beethoven record that happens to have been made in Asia, she can’t play that for her class.”

Worse, he said, the ability to retain control of copyrighted works made abroad provides manufacturers with a powerful incentive to ship jobs overseas.

Justice Stephen G. Breyer asked a series of hypothetical questions, starting with whether he was permitted to buy a book abroad and give it to his wife.

“Imagine Toyota,” he went on. “Millions sold in the United States. They have copyrighted sound systems. They have copyrighted GPS systems. When people buy them in America, they think they’re going to be able to resell them.”

He gave other examples: “libraries with three hundred million books bought from foreign publishers that they might sell, resell or use” and “museums that buy Picassos.”

Theodore B. Olson, a lawyer for the publisher, said that none of those things were before the court. “When we talk about all the horribles that might apply in cases other than this — museums, used Toyotas, books and luggage, and that sort of thing — we’re not talking about this case.”

Justice Anthony M. Kennedy responded that “you have to look at those hypotheticals in order to decide this case” so that the justices understand the consequences of their ruling.

Mr. Olson said there might be provisions of the copyright laws that allowed some gifts and resales. He gave the example of the fair use defense, which protects some reproductions of copyrighted works for criticism, research and similar purposes.

Chief Justice John G. Roberts Jr. said that defense would not carry much weight in many of the hypothetical cases.

“It seems unlikely to me that, if your position is right,” the chief justice told Mr. Olson, “that a court would say, it’s a fair use to resell the Toyota, it’s a fair use to display the Picasso.”

In 2010, the court considered essentially the same question in Costco Wholesale Corp. v. Omega S.A. But Justice Elena Kagan did not participate in that case — presumably because she worked on it when she was solicitor general — and the rest of the justices split 4-to-4, which upheld the decision. All nine justices heard the case argued Monday, Kirtsaeng v. John Wiley Sons, No. 11-697.

Justice Kagan was an active questioner but did not indicate which way she was planning to cast her presumably decisive vote.

Article source: http://www.nytimes.com/2012/10/30/business/supreme-court-hears-copyright-case-on-imported-textbooks.html?partner=rss&emc=rss

You’re the Boss: Would Your Business Be Better Without Employees?

Thinking Entrepreneur

I recently visited a business owner’s facility. As our meeting ended, she turned to me and said, “Wouldn’t it be great if you could run a business without employees?”

There were no employees around. I smiled and gave the perfunctory head nod — but it was a lying perfunctory head nod, if there is such a thing. I know that many people have commented on this very blog that they prefer, or would prefer, to run their businesses without employees. I don’t feel that way, but let me state the obvious: employees can be a liability. Whether they are causing problems with customers, stealing, breaking things, suing you or doing something that gets you in trouble with a regulatory agency, employees can be trouble. And when trouble rears its ugly head, the owner cannot say, “I was only taking orders!”

Even if you weren’t the one who personally hired the problem employees, you are responsible for them. That can be a tough pill to swallow. So tough, in fact, that many people choose not to hire anyone. In some businesses, you might be able to get away with working by yourself. Mine is not one of those businesses. I have 105 employees. I’m guessing that some of you may be cringing at the thought of managing that many people, but I do not. I have less grief today with 105 employees than I did when I had 10 employees. This is not a riddle. It is the law of averages, at least the way I define the phrase. If you have a bunch of average employees, you will end up with an average business. Probably not growing much. Probably not that profitable.

I have written about this before (“The Dirty Little Secret of Successful Companies“), but it bears repeating: It is a matter of having the right people — and enough of the right managers to deal with the occasional baloney. But it can go far beyond figuring out how to run the business without having everyone make you crazy. It starts with hiring the right people, then training them, and giving them direction until they can operate on their own or almost on their own. This could be someone you groomed to give customer service, to run the loading dock, or to be the vice president of your company.

The process can take months, a year, or many years. It can work with someone who came in at a young age with no experience or someone who has years of experience, maybe more than you do. Some companies promote mostly from within, others hire “talent” from competitors. (And some think they are hiring talent from competitors when they are really hiring someone else’s problem. I’ve been both the giver and the taker in that equation.) There is an almost magical time after you have hired and groomed people who take over a part of the business. They do a great job. They develop confidence and the respect of others, and they earn a raise. They become a valuable part of your company. But there is more. At least to me.

I don’t pretend to speak for all business owners, but I know I am not the only one who regularly appreciates, respects, feels good about, and enjoys the fact that we have found and developed people who have not only done great jobs but have signed on to our adventure. This goes beyond the business. It gets personal. It’s about people buying houses, sending their kids to college, or even just providing for themselves or their family in a way that exceeds their expectations. I know pride is one of the seven deadly sins, but I am not sure why. Is it a sin to be proud of your people? Or is it a sin not to be?

Do you get a sense of satisfaction from knowing that you’ve given people opportunities, and they have succeeded — which benefits everybody? Does this make up for the employees who don’t succeed along the way, including the ones who do serious damage to your business or your psyche? Maybe. I hope so. It does in my case. Failure is fixable. Success can last for years. But it doesn’t happen on its own.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=a9f74960e11f15fb6b92b0f2eaf721e2