How to measure well-being? OECD’s Better Life Index

In recent years increasing concerns emerged regarding the issue of how to measure people’s well-being and, ultimately, how satisfied people are with their life in general. The traditional economic approach to get to grips with this issue is to use statistics related to a country’s Gross Domestic Product (GDP). In this regard, GDP per capita is a widely used indicator to measure people’s actual economic well-being and its change over time. I would like to highlight just two out of many shortcomings regarding this approach of measuring people’s well-being. First, GDP per capita is calculated as a proxy for the average economic well-being of people living in a specific country. This is problematic, because if inequality in a country increases enough relative to GDP per capita, it is possible that most people can be worse off, although the average income is increasing. Second, statistics related to a country’s GDP are a very distal indicator for people’s well-being, as GDP mainly measures market production in monetary units. This is problematic, because on the one hand, many services relevant for people’s well-being do not have a market price, and on the other hand, individuals assess the different aspects of their well-being by drawing on their subjective values and norms.

During the last years, a lot of work has been conducted to face the challenges of measuring people’s well-being. One out of many promising approaches are the recommendations made by the Commission on the Measurement of Economic Performance and Social Progress (CMEPSP) set up by Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi. These recommendations include, among others, two important basic principles. First, indices should focus on the well-being of people in each country, rather than on the macro-economic conditions of economies. Second, both objective and subjective aspects of living conditions and their appreciation by individuals should be integrated to understand people’s well-being.

By drawing upon those recommendations of the CMEPSP, the OECD has identified 11 dimensions as being essential to people’s well-being and included them in a first attempt to provide a comparable and comprehensive set of indicators at an international level. These indicators include both the people’s material living conditions but also their quality of life. The OECD Better Life Index is available online (www.oecdbetterlifeindex.org) in a sophisticated and fancy tool to compare the different dimensions across countries but also to create one’s own Better Life Index. Give it a try!

Despite my enthusiasm to complement the GDP-based indices for economic wealth by drawing on objective and subjective indices of well-being, the latter are in an early stage of development. They still need to prove that they are a reliable, but also valid measure for people’s quality of life and, finally, could provide policymakers with the information they need to make improved decisions for people’s well-being.

Tom Schneider

Real value creation in banking

Since the financial crisis and the enduring dangers of the ongoing European debt crisis, the banks are under strong pressure not only to rethink their traditional strategies for growth and value creation but also for regaining trust. Additional industry developments, including consolidation, regulation, industry specialization, changing workforce needs and new technologies, are challenges for banks today. A prominent addition to these challenges seems to be the concept of “industrialization”, which has been discussed since the 90s in the industry itself, but also in the scientific community. Similar to the manufacturing industry, banks focus now on optimizing the whole value creation chain, especially on the improvement of the efficiency of the operational processes and the centralization of their back offices and support functions (http://tinyurl.com/8256vh9). This optimization is obviously an adaptation and transformation of the success of the manufacturing industries, especially the highly rationalized automotive industry. The two large Swiss banks have also committed themselves lately to adapting industrialization processes to their operations (http://tinyurl.com/8xpewgf).

Industrialization thus promises to reduce costs and improve productivity. But even more important, industrialization in banking offers the chance to rethink a stronger connection to “real” value creation. This means creating value for shareholders, customers and other stakeholders by fostering value chains for innovative solutions. Such operational optimization creates a strong foundation for subsequent sustainable strategic positioning and for people oriented real value creation, which has to follow operational optimization. Leaders in banks today are not only challenged to reduce costs to overcome shrinking margins but also to regain trust. Professionalism at the operational and the strategic level as well as a strong focus on the human side of their business creates trust. ‘Nomen est omen’ for the industry.

 Sybille Sachs

Discretionary Morality in a Competitive World?

In the heady days of younger years I thought and felt strongly that I could chart my own path through this world of ours without compromising what I intrinsically believed to be “right” or “wrong”. As you might expect, this belief turned out to be rooted more in naiveté than reality, and latest upon entering the corporate world did reality bite back. Let me give you one particularly illustrative example.

In charge of developing the overseas markets for a US manufacturer in the apparel industry, I was evaluating potential business partners in numerous countries to distribute, install and service our products. Due to the high labor costs in the US or Western Europe, the fabrication of clothing was rapidly shifting to areas of the world in which labor was still affordable enough so as to allow a reasonable profit margin in an increasingly competitive industry. A country of interest was then for us Tunisia, which promised to have the right mix of low labor costs with a reasonably reliable legal framework so as to make doing business there a relatively low risk venture.

I had singled out two companies in Tunisia which seemed promising business partners. The first was a start-up led by an enthusiastic and eager young woman having just returned from Canada where she had done her studies in the design and production of apparel. The latter was a large manufacturing company from the Netherlands which had been established in the Tunisian market for the better part of three decades. Meeting first with the young woman entrepreneur (in a male-dominated society!), I was immediately invited to her home to share a dinner with the entire family. It not only turned out that her business “headquarters” was the house’s basement, but that the entire family was poised to participate – as deeply vested stakeholders – in the venture. The mother, working at a local bank, was to be in charge of finances, the brother in sales, the father figured as the presidential formal “figure head” of the company (important in a patriarchic society), and the young, female entrepreneur was the effective Chief Executive Officer.

The following day I met with the director of the Dutch company and was shown around an expansive manufacturing plant which included several hundred workers busily hunched over sewing machines, churning out mounds of pants. He outlined for me the various sales channels they had throughout the country, and I was shown a well-equipped repair shop for technical support. In as much as servicing a sophisticated technical product as was ours is at least as important as just selling it, I was duly reassured.

That night at the hotel, however, the moral dilemma which I faced struck me with full poignancy. From a business perspective, the choice was as simple as could be: the established Dutch company disposed of vastly more resources, experience and connections to make our market entry in Tunisia a profitable and smooth one. By contrast, the small start-up lacked all of these crucial elements necessary for fast and profitable market development.

From a sustainable, human perspective, however, the choice was also as simple as could be: the established Dutch company lacked the heart-felt enthusiasm and commitment of the small venture and could readily do well without the benefit of adding our product to their already extensive product mix. But giving it our business would do little to nothing for developing the sprouting, indigenous economy in this area, and most of the profits would be ciphered off to the Netherlands. If I gave this business opportunity to the small start-up, however, I would be able to nurture the local, grass-roots economy, transferring not only financial resources to the locals, but also valuable know-how, so as to provide for the emancipation not only of the local economy from the dominance of the wealthy West, but, in this particular case, also of women in a still conservative, patriarchic Muslim society.

It was, however, equally apparent that it would be nothing but impossible (and virtual professional suicide) to justify going with the small start-up from a business point of view: I already pictured myself explaining my decision to my boss, the company’s CEO  - and then, following the food-chain upwards – him to the board of directors and the investors: “well, I know that we are rapidly losing market share in this highly competitive industry and our sales are imploding, but take a look at how much grass-roots, sustainable nurturing we are able to do in poor countries, taking heed of all the involved stakeholders!”

In essence, I was damned if I do, and damned if I did not. So what was the solution, and how would you choose if you were faced with such a decision?

For me, the solution was to leave the business world for the academic one, where I hoped to at least find an intellectual microcosm where I could align what I believed in with what I worked on and actually practiced. Moral of the story: I capitulated not by becoming entrenched in a system that was profoundly out of sync with what I believed to be “right”, but by stepping out of – or, if you like – fleeing a system I felt I simply could not change from the inside out. But capitulating will certainly will not change matters for the better…

The above account raises many questions about to what extent leaders should – and in a certain manner are even at a liberty to – live by what they believe is “right” or “wrong”. It also raises many questions about our social and economic system as a whole. In particular, how can leaders walk the moral high ground in an increasingly competitive, globalized world that so often punishes those who seek a more long-term perspective?

We shall take a closer look at this in a subsequent post. Stay tuned.

Manuel Heer Dawson

Europe Today: From Great Crises and Great Visions

Europe is not in a condition to think about great visions. It is busy with solving its debt crisis. One great discussion is if Eurobonds could or should be part of the solution. The European Commissioner for Economic and Financial Affairs, Olli Rehn, spoke last week at the EU summit for a deeper integration as a precondition of a launch of such Eurobonds. With this he hit the nail on the head: Deeper integration. It is often said that Europe growths through crises. The idea is that during crises Europe is compelled to find steps leading towards a deeper integration which are necessary for its continued existence.

                                                          

But is this only possible through crises? No. It is also possible through visions. A vision can be seen as a positive connoted motivation-factor for activities leading to more integration. Visions in this sense are the contrary of crises which are negative connoted motivation-factors. In contrast, a deeper integration is not a vision as such. It is more an objective behind the scene, which only can be ‘sold’ with difficulty because of its missing emotionality and concrete associations.

Europe's missing of a vision is also often said to be a disadvantage in the competition with other powerful regions such as China, North America, South Asia, Brasil etc. Emerging markets like India or China all have generally the vision of an economic catch up. Although this is quite a down-to-earth vision its implementation is a big challenge confirming the character of a vision as an imagined ideal (end-)state far away from an actual state.

But what could be a vision for Europe? Why not an economy integrated in a comprehensive ecologically sustainable recycling-system? On the one hand we have today in many countries in Europe different recycling-systems. A simple example are PET- and glass-bottles recycling-systems. But on the other hand we still have many products and processes using too many resources. For example there are still products made after the strategy of planned obsolescence (products with intentionally integrated weaknesses with the aim to reduce their life-time and to bring people to buy earlier new ones. It is also looked that reparations are no options).

Planned obsolescence is a resource-intensive (the product-turnover is very high) one-way strategy (many ‘dead’ products are landing on uncontrolled disposal sites in Western Africa or elsewhere in the third world). The strategy is legitimized by the argument that it secures a lot of workplaces and a prosperous economy. In a time where we know that resources are scarce linear one-way strategies aren’t options. In the long run there is no other way than to fit all economical processes into a sustainable recycle-system that has the form of a circle where all resources – from address-notes on paper to zinc carbon batteries – can circulate several or even endless times. Thus, the aim of an economy completely (and not only partly) integrated in a comprehensive recycling-system could be a vision for Europe.

By searching for economic, technical and political ways to implement the necessary steps to achieve these aims Europe would have the necessary challenges buttressing its integration. The vision, if taken seriously, would need creative and innovative ideas and would create workplaces. It probably also could be an example for emerging markets which may soon have caught up to the West and then are looking for new meaningful, pragmatic and future-leading visions. There are many possible visions for economically developed regions and countries. The mere protection of what has been achieved or the solving of serious (homemade) crises aren’t visions. Arguments that Europe can’t find a new vision because it is sluggish and replete are cheap and helpless justifications: If Europe wants to prosper and to stay one of the important regions in the world there is only one way: Europe needs a vision.

Claude Meier

The Facebook-Party

A few days ago Facebook went public. What was announced to become by far the biggest IPO of a technology company, felt to me like the announcement of the regional party of the year - the one everyone talks about in advance and you just want to make sure, not to miss out on what might become a legendary event. Today, shortly after the party, as the big hype is over and the even bigger hangover kicks in, you are more often than not painfully forced to ask yourself, was it worth it? And why the disillusionment now? What went wrong? Or was it supposed to turn out like this? In the case of Facebook, I go for the latter.

First, what generally bothers me from an entrepreneurial perspective; Founder and CEO, Mark Zuckerberg stated in the course of the stock market launch that “Facebook wasn’t originally planned to become a public corporation”. The early aspiration was a social mission – “to make the world more open and better connected.” While he is clearly doing so with The Social Network, this statement leads me to the straightforward question; So, was a commercial approach then chosen in order to be able to more effectively fulfill this mission in the future? I rather doubt it and believe that, as it has often been the case, the original mission has to a certain extent given way to the credo “money rules the world”.

On the other side of the equation, new stakeholders have entered the network of Facebook. Shareholders like retail banks, investment firms and private and institutional investors jumped on the bandwagon in the hope of quick returns - at the forefront, a syndicate of major US banks, many of those who received government aid during the recent financial crisis. Side by side with Zuckerberg, they decided just before the IPO to push the hype further, issue 25 percent more shares than initially planned and raise the shares’ opening price considerably.

In the aftermath of the Facebook-Party, both Zuckerberg and the bank syndicate obviously made billions of dollars. Shareholders, on the other hand, are suffering a 20 percent-loss on day three after the party – big hangover. However, there were clear warning signals for investors. Thus, not only greed of initiators is to be blamed, but also the naivety and short-term thinking of their followers. Besides my delight that I missed out on that particular party, I’m puzzled about the incredible hype around an IPO, at the end, of an institution whose business model still remains in the dark and whose turnover and return figures have never been published as yet. Moreover, I regrettably feel that for both, the involved financial institutions as well as the unfortunate investors, after the party is, most likely, before the party.

Marc Moser

A different kind of customer

Switzerland is one of the many European countries with a growing percentage of elderly people, as the baby boomer generation will be retired in the period 2015 - 2035. This year 2012 is the European Year for Active Aging. To overcome the barriers for an active life for older people, we have to improve our understanding of their most frequent illnesses and raise awareness of their impact on society at large.

Between the ages of 70 to 80 the risk of becoming dement is 5 - 7 %; up to the age of 90, 12 - 15 %; after 90 every third person is dement. Dementia is an illness that first slows down the pace of activities of an older person. Later, in a more severe stage, it makes difficult challenges out of simple activities. Therefore, we need to understand how dement people can have dignified lives and still be an active part of our society. As an example, this implies empowering them as customers.   

Only in recent years have we started to realize that due to the growing number of people with dementia, employees in shops, restaurants, banks etc. are confronted on the job with dement customers. Until now due to a lack of information and training, the employees are often not prepared for this situation, and in particular fail to understand the behavior of dement customers.

To raise awareness for such situations, the Alzheimer Association of Switzerland has published guidelines to support employees, who are in contact with people suffering from dementia (www.alz.ch). Especially employees in the service industry often have contact with dement customers. Hairdressers for instance are quite often persons of trust for elderly people. Due to the guidelines of the Alzheimer Association they learn how to interact with these customers, and even how to help them realize that they might need additional help.

In these guidelines also employees of banks can learn to understand which symptoms might be a sign of dementia. For instance, dement people have troubles with appointments, they have problems to articulate themselves, they show up several times on the same day to get money, they have difficulties filling out documents etc. In each of these cases, it is important to approach these customers with respect and understanding. Sometimes such employees are the only contact they have and they place trust in them. As the illness of dementia progresses, it is important to recognize that these relationships of trust are an opportunity for elderly persons to receive support and understanding.

The guidelines of the Alzheimer Association are first steps to keep dement people better involved in an active life. Based on this, firms should systematically train and support those employees who interact with dement customers. Corporate proactive behavior will reduce costs as transactions will be more successful, but most importantly the quality of life for dement people will be better.

 Sybille Sachs

Walmart – Civilizing the Chinese?

Your first reaction to reading this title may well be one of bafflement (what does Walmart have to do with civilizing anything?!), or if you happen to be Chinese, of likely indignation (how can a fifty year old American retail megastore contribute anything to our august, thousand year old civilization?!). But – as preposterous as it may seem – there is indeed a kernel of truth in this proposition. Let me explain.

The word “civilize” has its etymological roots in the French word “civilité”, which initially denoted the refined manners and decorum at French aristocratic courts. With repeated initiatives to – yes, “civilize” – the Chinese (as in their “no spitting on the street” campaign), the Chinese leadership is keen at molding the behavior of its citizens for the better. Recent outrage involving food manufacturers deliberately fortifying food with poisonous substances in order to cut costs, with employee unrest and even suicides (such as at Foxconn) in response to poor working conditions, as well as the omnipresent environmental pollution scandals, has the Chinese regime become increasingly edgy and aware that things need to change.

Enter Walmart.

Much as the Chinese regime, Walmart has seen itself confronted by a customer base ever more bent on better quality food, disgruntled employees (as with a high publicity class-action suit by female employees) and a questionable environmental record driven by aggressive rock bottom pricing on many of its throw-away products. So starting in 2004, Walmart’s then CEO Lee Scott proactively contacted environmentalist NGOs such as the Rocky Mountain Institute and the Environmental Defense Fund for assistance as to how to better manage its environmental track record.

What resulted is no less than remarkable. Wall-Mart has, since its entry to the Chinese market in 1996, become the leader in China as pertains to food quality, implementing rigorous food quality standards for its suppliers and launching an ambitious – and well received – organic food initiative. Moreover, the company has significantly reduced its packaging material volume and pressured its suppliers to cut energy consumption and pollution. The Chinese suppliers, while at first skeptical, are now keen to advertise their environmental objectives and successes. The Chinese shoppers, for their part, are delighted to get better quality food and organic produce, trusting a big company like Walmart more than smaller shops which are – in their eyes – more prone to cheat them and offer inferior quality products. And the Chinese regime is pleased to have such a potent partner in addressing these pressing problems and “civilizing” its companies and citizens. In sum, we have an excellent example of numerous stakeholders working in sync to achieve a win-win situation for all.

So all is good that ends well? Well, it may be too soon to bring out all the trumpets. While Walmart in China serves de facto as an extension of the Chinese government’s regulatory efforts and as a “civilizing” factor for its citizens, it is legitimate to question the long-term sustainability of such an in the end effect still purely instrumental objective. Nonetheless, there is reasonable hope that at least parts of it may be sustainable due to an interesting insight that the sociologist Norbert Elias outlined as part of any civilizing process. Therein, he posits that to become “civilized” entails individuals to restrain their drives and affects. In a first phase, this is achieved through a permanent outside authority and on pain of punishment. With time, however, in a second stage, there arises a moral code that is upheld by individuals even in absence of the threat of punishment, driven by people suffering from a bad conscience in light of failure to adhere to these mores. In the last phase, then, even such self-constraints dissipate, and individuals are intrinsically motivated in a very natural manner to adhere to the involved normative standards.

This is, in essence, what is beginning to occur in China in part with the help of Walmart (and also other parts of the world in other contexts), where social and environmental responsibility by corporations and individuals is becoming ever more part of the discussion, part of the regulatory and legal fabric and as well as public awareness in form of a normative “should”. Normative change, while it may initially have to be forced upon individuals and corporations, may in due time become second nature to them. We as a global civilization, as is apparent also in China, seem to be “primed” for a major normative paradigm change towards greater social and environmental responsibility. And, as we have seen, even a major multinational corporation such as Walmart can play a significant role in this “civilizing” process, if the necessary extrinsic motivation is there and a society is ready to reward such a change.

Manuel Heer Dawson

 For a fascinating and detailed account of Walmart’s social and environmental impact in China, read the “How Walmart is Changing China”, by Orville Schell in The Atlantic: http://tinyurl.com/bopuxsa

China’s Silver-Spoon Generation: How does it Impact China and the West?

In China the 90s generation is entering the employment market. During my visit in the last weeks in Hong Kong, in Guangdong Province and in Shanghai I met with many managers from manufacturing companies all complaining about the troubles they have with the generation’s representatives: They leave working places too often for smoking or playing e-games. They try to dodge work as much as possible. If another company offers just a minimally higher wage these employees suddenly change the company. In short, they are said not to be very productive and to lack loyalty vis-à-vis their employers.

I was quite surprised that exactly this issue was picked out in an article of the English-written Chinese paper “Global Times” when I read it for the first time. The article basically says that the 90s generation is unconventional, innovative, rebellious as well as self-centred. It is flexible and quick in learning. And, it is the first generation in which a really diversified set of values exist: everyone sees herself as different. This stands in strong contrast to the 70s and 80s generation of which each knew a quite homogenous set of values. The 90s generation is the 2^nd generation of rich. Because this generation’s elders became rich in the reform era its children have grown up with a silver spoon in mouth.

The silver spoon generation is still quite young. It is most likely too simple to reduce this generation to the actual troubling behaviour in companies. The question is how will this generation behave in some years when it has developed itself further? What implications does such a self-consciousness and value-diversified generation has to China and the rest of the world?

In the West we know e.g. the 68s generation. Although a comparison of China’s 90s generation to the 68s must be treated with caution there are some clear similarities: Both have grown up in economically prosperous surroundings; both are individualistic and differ themselves from the older generations through more open and more diverse values; they are creative and innovative; the older generations are rather negative to the ideas of these new generations.

Ideas of the 68s we may recognise e.g. in the IT industry. The ideal of openness underlying the internet and other computer-technologies is often brought in context with the Hippie or 68s generation. Early IT-cracks indeed often stayed together with Hippies (Steve Jobs e.g. lived for a certain time with Hippies in the USA, travelled to India in search for illumination, and even sometimes took LSD).

Today we know that although the older generations often were negative towards the youth of the 68s this generation had a big societal impact and also created some very successful and innovative entrepreneurs.

It is quite likely that China has the potential to boost its innovative power with its 90s generation. But, it is decisive that this young generation understands to bring in and develop their creative skills constructively in the next years. With these young people it is probably possible for China to leave its learn-by-heart mentality in education. For the rest and the West of the world this means that it has to envisage more innovations from China. The positive thing for the West and the rest is that they can profit of these innovations as consumer or user. But overall it is highly likely that global competition will become harder again. Therefore the West has to hold on the curiosity (at the functioning of the world) which was born once during Enlightenment. In this tradition it has to have the important and necessary courage to ask not only big but also unconventional questions.

Culturally the West is still very innovative and attractive, with a charisma also to other regions, including China. It will be interesting to see what influence the 90s generation will have on the cultural understanding and on political institutions of future China. This is even more difficult to prognosticate than the economic implications.

Claude Meier