APPLETON, WIS. —
Nothing can shake Scott Rice’s faith that President Donald Trump will save the U.S. economy — not seeing businesses close or friends furloughed, not even his own hellish bout with the novel coronavirus.
He was once a virus skeptic. But then the disease seeped into the paper mill where he works, and he was stricken, suddenly losing his appetite. He lay in bed, feverish, drenched in sweat. His body seemed at war with itself.
After 16 days at home, Rice told his co-workers that the disease was scary and real. But Trump held onto his vote for one reason: The stock market was climbing.
“The 401(k)s, just the economy,” Rice said. “He got jobs going. Just accumulated a lot of jobs, being a businessman.”
Rice’s belief represents the foundation of Trump’s hopes — that Americans believe the economy is strong enough to deliver him a second term.
But in Appleton, a city of 75,000 people along the Fox River, the health of the economy isn’t judged on jobs numbers, personal bank accounts or union contracts. Instead, it’s viewed through partisan lenses — filtered through the facts voters want to see and hear, and those they don’t.
By almost any measure, Trump’s promises of an economic revival in places like Appleton have gone unfulfilled. The area has lost about 8,000 jobs since he got elected.
While supporters like Rice are immovable, others have had enough. President Barack Obama won here in 2012, but voters flipped to Trump four years later, and Trump cannot afford much erosion in a state that he won by only 22,000 votes out of more than 2.8 million.
Biden holds a slight lead over Trump in the latest Marquette Law School poll of Wisconsin voters. Trump’s disapproval rating has risen to 54% from 49% at the start the year. But 52% of Wisconsin voters applaud Trump on the economy, while 56% dislike his handling of the pandemic.
Even Rice concedes that the economy is not just an argument for Trump — it’s also an argument against him. His 20-year-old daughter, Cassidy, tells him so. She is studying public health at George Washington University and will cast her first presidential vote for Biden.
“The fact that there was a pandemic and the fact that it had those consequences on the economy should be an eye opener, like, hey, maybe we’re not doing this correctly,” she said.
Trump won the presidency by wringing tens of thousands of votes out of small towns and medium-size cities across Wisconsin, Michigan and Pennsylvania.
He did it in places like Appleton’s Outagamie County. A city of stone and brick, Appleton hugs the Fox River, its currents powering the smoke-stacked paper mills that built fortunes. Now condos, cafes, offices and a jogging trail line the riverbank.
The trail ends downtown at Houdini Plaza, a monument to the city’s most famous offspring, illusionist Harry Houdini. His words are inscribed on the monument where his childhood home once stood: “What the eyes see and the ears hear, the mind believes.”
There may be no better explanation of American politics in this confounding moment.
Trump voters listen to his cheerleading for the economy and believe the businessman president has worked his magic. Biden’s backers see an illusion — an economy that was recovering under Obama, but now, with the pandemic, is trying to crawl back to health, with no real plan from Trump.
People cannot even agree on the terms of the economic debate.
“What we’ve done with politics is gotten into a tribal war that looks only at elections when we should be looking at policies and results,” said John Burke, CEO and chairman of Wisconsin-based Trek Bicycles, one of the state’s most prominent business leaders.
After 2016, local Democrats wasted no time mourning. Lee Snodgrass became chair of the local party and began a blitz of door-knocking to build up volunteers and voters, a task that led her into areas that were firmly for Trump.
As a candidate now for the state legislature, Snodgrass finds Republicans still defending Trump after she recited facts about the economy and the pandemic: several millions jobs lost, a rising body count.
These Republican voters found Trump’s demeanour crude. But the unemployment rate was a strong 3.5% before the pandemic. Trump had updated and replaced the North American Free Trade Agreement. They give Trump credit, although he inherited a healthy 4.7% unemployment rate and the trade deficit with Mexico on goods had jumped to $101 billion last year — higher than in any year under Obama.
At the Midwest Paper Group, where Scott Rice works, there is a story of recovery, but one where credit lay with the union and the Outagamie County executive, not with Trump.
More than 600 workers were handed pink slips in anticipation of the mill being shuttered, in an area where nearly one in five jobs are still in factories.
“Most were resigned to fate,” said Tom Nelson, the county executive. “The paper industry was deemed old and outdated, uncompetitive because of imports, unfair trade deals, electronic substitution.”
The workers, their union representation and Nelson lobbied the bankruptcy court and struck a deal. Instead, the mill added new machines to make materials for cardboard, capitalizing on the growing number of people shopping online at Amazon. For 12 hours a day, Rice mans the control room in a red face mask that says “USA.”
Trek’s three U.S. warehouses were emptied of bikes by August because of a rush of pandemic buying, yet Burke, its CEO, was agonizing about the fate of the broader economy.
Burke, 58, pedals 110 miles on his standard Saturday ride, long enough for the nation’s problems to turn over in his mind. He decided to write a book in 2016 and updated it this year, “Presidential Playbook 2020: 16 Nonpartisan Solutions to Save America.”
As Burke sees it, Trump has governed with a dangerous set of blind. There are the hurricanes and wildfires unleashed by climate change. Not enough money invested in children. And Trump initially downplayed the virus’ threat.
In Appleton, nearly 40% of the leisure and hospitality jobs have been lost. Restaurants have been closed, hotels vacant. Downtown, Mondo! wine bar is getting by with retail sales and outdoor seating, until the weather changes.
The bar’s owner, David Oliver, 59, said American businesses desperately need another round of aid and Oliver blames the president.
“They’re supposed to be pro-business,” Oliver said. “But so much of the Republican Party has reverted to this magical thinking that Trump has that the economy is fine and the virus is going away.”
What the pandemic has shattered is consumer confidence, said Marvin Murphy, the 80-year-old owner of Fox Cities magazine. He estimates he has spoken with every business within 70 miles of Appleton.
“The COVID has put so much pessimism into the economy — that’s the big killer,” he said.
Murphy sipped a fresh cup of coffee in his backyard overlooking the Wolf River and lamented that so many people only process the world based on what they see and hear on TV.
“Reality is is not the most important thing,” Murphy said. “The perceived reality is what’s important.”
Bank of Canada says economy will likely be scarred by COVID-19 until 2023 – CBC.ca
Maybe it’s his job to prepare us for the worst, but Canada’s chief central banker, Tiff Macklem, has warned of a long, slow recovery as successive rounds of COVID-19 lead to a “scarring” of the domestic and world economy.
After what some see as a false dawn this summer as the economy resurged, Macklem, governor of the Bank of Canada, and his senior deputy, Carolyn Wilkins, offered a gloomy outlook for an economy that they say is unlikely to get back on track until 2023.
Not only that, but jobs — hit harder in this recession than the last one — are disproportionately affecting Canadians with the lowest wages. While 425,000 jobs disappeared following the 2008 credit crisis, this time around, employment has been cut by 700,000.
And Macklem said some of those jobs may never come back.
“We’re going to get through this, but it’s going to be a long slog,” he said at a virtual meeting with financial reporters on Wednesday.
Good news? Lower for longer
The good news, if you could call it that, was that the central bankers have committed to keeping interest rates at current extraordinarily low levels until inflation climbs back to between two and three per cent, which they don’t foresee as likely for three years.
Forecasting the economy is always something of a guessing game, but Macklem and Wilkins said that this time there was added uncertainty because of not knowing what the novel coronavirus is going to do next.
The central bankers made it very clear that the current outlook depends on a number of assumptions about the path of the pandemic that may turn out to be better or worse than they currently foresee.
Among those assumptions is that the virus will return in succeeding waves, each less damaging than the last. Another is that a vaccine will not become widely available until 2022, a sobering estimate from sober central bankers that may be disheartening for those who had hoped U.S. President Donald Trump’s optimistic outlook of an October vaccine launch was more than just electioneering.
By promising that interest rates will stay low until 2023 — something central bankers call “forward guidance” — Macklem said he hopes businesses and consumers can confidently borrow for the medium term without fear that interest rates, and therefore loan repayments, will suddenly shoot up.
That’s good if you are buying a new stove but not for a home, or for a longer-term business investment. To influence those longer-term rates, the central bank has shifted the way it buys bonds as part of its quantitative easing plan that it initiated for the first time following the COVID-19 market disruption.
When the market crisis hit in early spring, the bank bought short-term bonds to help increase the amount of money in circulation, reassuring investors, Macklem said. But now that markets are working more normally, the Bank of Canada has reduced its monthly bond purchases from $5 billion to $4 billion and is switching to buying bonds that don’t mature for up to 30 years, in theory making longer-term loans cheaper.
Economy scarred by COVID-19
But while making borrowing cheap will help, the central bank worries that it won’t be enough to prevent the economy from being scarred by large employment losses as some people’s jobs never come back.
“We’ve assumed that a fraction of these people are permanent,” Wilkins said. “That’s because with COVID, not only is the recovery going to take longer so that there is more chance there’ll be scarring, it’s also the types of jobs created.”
As the economy rebounds, she said, the new jobs available will not match the skills of those who became unemployed. Among those worst hit will be women and young people.
“The effects of this pandemic have been extremely uneven,” Macklem said, directing reporters to a “particularly stunning” chart in the Monetary Policy Report, reproduced below, showing low-income workers have suffered more and their jobs have uniquely failed to recover.
Just as we saw during the long climb out of the last recession, replacing those jobs will require new private investment, some of it in entirely new sectors. But with so much uncertainty — and so much permanent structural change — Macklem said many companies will be hesitant to invest until things begin to stabilize.
“Clearly we are seeing a resurgence of the virus — it’s happening in Canada and it’s happening elsewhere,” he said.
Macklem’s current economic outlook is only a best guess based on so many unknowns. It may be that the virus gets even worse, he said, and it may be that a vaccine does not arrive until later than the bank has estimated or that it is ineffective.
But while the central bank is compelled to consider the bleakest case in its economic planning, Macklem does not exclude the possibility of a far less gloomy outcome, which he said would be “wonderful.”
“There’s certainly scenarios where a vaccine is available early next year and it proves effective, and we can deploy it at scale so that by the end of the year, we don’t need to physically distance anymore.”
And from a central banker, that is a positive ray of sunshine.
Follow Don Pittis on Twitter: @don_pittis
Building a stakeholder economy – Brookings Institution
Norms and expectations of what corporations should do are changing rapidly. In August 2019, the Business Roundtable, an influential club of the chief executives of major U.S. corporations, announced a new statement on the “Purpose of a Corporation”. Signed by 181 CEOs, the statement of purpose called for a departure from “shareholder primacy” to “stakeholderism” as a core principle of corporate governance, with the CEOs committing to “lead their companies for the benefit of all stakeholders”.
This change of heart in corporate America is a belated response to the decades-old critique and activism against shareholder-primacy. Preoccupation with quarterly profits is blamed for making corporations short-sighted, leading to environmental pollution, income inequalities, weakening workers’ rights, and lower capital investments—all of which are believed to undermine social cohesion and long-term competitiveness. Stakeholderism, also called stakeholder economy/capitalism by the World Economic Forum, is expected to encourage a long-term orientation by rebalancing the asymmetric power of shareholders vis-à-vis other stakeholders, and revitalize the legitimacy of business.
A sizable share of corporations already practice some form of stakeholderism in response to pressure from value-conscious investors, consumers, and others. More than 80 percent of large corporations, for example, claim to explicitly contribute to the Sustainable Development Goals. Environment, social, and governance (ESG) investing—a class of value-based investments that target corporations that meet minimum ESG criteria—has been growing rapidly, with an estimated total value of $45 trillion in assets under management.
Ambiguous definitions, mixed results
But stakeholderism has had mixed success. While some companies have managed to create environmental and social value, many engage in “greenwashing” or “impact washing” to mask their unsustainable performances. This is in part due to a mismatch between a renewed corporate purpose that emphasizes stakeholder value, and corporate governance principles and incentive structures that are primarily designed to maximize shareholder returns. Even as corporations make commitments to take greater societal and environmental roles, they often fail to change their governance guidelines and board structures to reflect these intentions. This has resulted in a dissonance between what they aspire to achieve and what they can show for it—a process that can also undo the legitimacy of the emerging stakeholder economy.
This is due to a lack of consensus on how corporate governance should adapt to help build a stakeholder economy, due in part to a lack of clarity on who qualifies as a stakeholder as well as what stakeholder value entails. Think of Facebook, with almost 3 billion users, or Boeing, with thousands of customer airlines and hundreds of millions of passenger users, all of whom would qualify as stakeholders. Without specificity on what value a company creates, for which stakeholder and how, a generic commitment to advance stakeholder interests has little practical meaning.
It is also feared that the ambiguity of stakeholderism could enable corporate leaders to amass too much discretionary power that would enable them to dodge shareholder oversight. A vague commitment to all stakeholders could also undermine long-term competitiveness if managers set out to meet multiple goals that are incompatible with one another. Further, implausibly high expectations can end up making managers risk-averse, forcing them to settle for a minimum acceptable performance for all stakeholders rather than excelling in specific issues where they have greater competitiveness. A vague and broad focus on stakeholder value could thus make shareholders and other societal stakeholders worse off.
Needed: Institutional Reform
These critiques, however, do not warrant the conclusion that building a stakeholder economy is an impossible agenda. A growing body of scholarly work, including a recent British Academy report, has documented that building a stakeholder economy requires extensive reforms of market institutions to incentive the creation of long-term corporate and social value. At a minimum, such a reform would include three ingredients.
- Renewed corporate purpose. This is best defined by the directors of individual businesses, who should specify the stakeholders to whom the businesses will create value, and how this will be achieved. This facilitates effective corporate governance by providing clearly defined goals, and the mechanism for aligning them with corporate strategy. A study by professors Oliver Hart and Luigi Zingales suggests that organizational purpose anchored in maximizing shareholder welfare can help link corporate strategy with stakeholder value. To the extent that shareholders care about certain non-financial outcomes, such as environmental sustainability, the purpose of the corporation should be geared towards producing these outcomes. Corporations can then communicate their performance via third-party verified reports to demonstrate if and how they have created the desired outcomes to their stakeholders.
- Corporate law reform. Corporate law needs to incentivize directors to take responsibility for the company’s long-term interests, including its social and environmental impacts. Corporate law in many countries is anchored on the principle of shareholder primacy, creating legal challenges for firms that adopt a broader conception of purpose. A recent study commissioned by the European Union underscored the need to modify corporate law to foster the pursuit of long-term corporate goals and environmental sustainability by corporate directors. Another positive development is the emergence of legal innovations for new corporate entities with governance structures designed for addressing long-term societal issues. More than 30 states in the U.S. have introduced legal mechanisms for “benefit corporations” that pursue a hybrid mission of creating financial and social/environmental value. Similar innovations could facilitate investments into corporate innovations for addressing social and environmental problems.
- Complementary regulations. Stakeholderism should not be expected to substitute for the regulation of negative environmental and social externalities. Many of the issues that currently fall within ESG domain are in fact negative societal and environmental externalities that are not suited for self-regulation by markets. Effective regulation of externalities, such as CO2 emissions, can also level out the playing field by penalizing the distorting effects of non-compliance. In a positive development, the European Commission has recently started to develop a legal framework for mandatory human rights and environmental due diligence, which is expected to outline corporate directors’ duties “not to do harm”.
Building a stakeholder economy requires breaking the artificial boundaries that isolate purpose from performance and creating incentive structures that make corporations drivers of sustainable prosperity. This will entail systematic effort to rewire market and regulatory institutions to ensure that they serve the long-term interests of society.
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