Growing apart / The future of the Firm

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[강남_0927(금)] Economist영어토론 

http://www.economist.com/news/leaders/21586578-americas-income-inequality-growing-again-time-cut-subsidies-rich-and-invest

Inequality

Growing apart

America’s income inequality is growing again. Time to cut subsidies to the rich and invest in the young

Sep 21st 2013 |From the print edition From the print edition: Leaders

[1] A BARRAGE of new statistics on American living standards offers some grounds for optimism. A typical American household’s income has stopped falling for the first time in five years, and the poverty rate has stopped rising. At last, it seems, the expansion is strong enough at least to stabilise ordinary people’s incomes.

[2] But the main message is a grim one. Most of the growth is going to an extraordinarily small share of the population: 95% of the gains from the recovery have gone to the richest 1% of people, whose share of overall income is once again close to its highest level in a century. The most unequal country in the rich world is thus becoming even more so.

[3] You do not have to be an egalitarian to worry about this trend. Although some degree of inequality is good for an economy, creating incentives to work hard and take risks, the recent concentration of income gains among the most affluent is both politically dangerous and economically damaging. The political worry is a descent into angry populism. Americans are not about to string up the wealthy, but there is growing evidence of fury—witness the Democratic left’s vilification of Larry Summers, a progressive economist who this week felt compelled to withdraw his candidacy for the chairmanship of the Federal Reserve, largely because he was seen as too soft on Wall Street.

[4] Inequality can be a symptom of inefficiency. The implicit subsidy provided to banks that governments judge too big to fail allows bankers to overpay themselves. And a highly skewed distribution can lower growth, if it translates into less equality of opportunity for the next generation. This seems to be happening. The gap in test scores between rich and poor children is 30-40% wider than it was 25 years ago: given that the distribution of innate intelligence is unlikely to have shifted so much in a generation, that suggests that rich youngsters are benefiting more than ever from their economic and social advantages. Measures of social mobility between generations, already lower than in much of Europe, have stagnated.

End the boondoggles, help the young

[5] Many of the underlying causes of the growing gap between rich and poor—fast technological change and the rapid globalisation of the economy—are deep-seated and likely to persist. Tyler Cowen of George Mason University thinks the population will soon be divided into two groups: those who are good at working with intelligent machines, and those who can be replaced by them (see Lexington). The former will prosper; the latter will play a lot of video games.

[6] Plenty of American politicians worry about inequality, but few offer constructive ways of dealing with it. Democrats tend to turn to bromide leftist solutions, whether a higher minimum wage or another rise in tax rates on the rich. Too many Republicans, meanwhile, simply deny that there is a problem.

[7] Inequality is not impervious to government policy, but higher marginal tax rates are not the only or the best way to address it. A two-part agenda drawing on ideas from both left and right, aimed at reducing boondoggles for the affluent and increasing investment in the young, could achieve a lot.

[8] The attack on favours for the wealthy ought to start with the budget. America’s tax code is riddled with distortions that favour the rich, from the loopholes benefiting private equity to the mortgage-interest deduction (an enormous subsidy for those who buy big houses). A simpler, flatter code with no exemptions would be more efficient and more progressive. A blast of deregulation would help, too. Many of America’s most lucrative occupations are shielded by pointlessly restrictive rules (think doctors and lawyers).

[9] Investment in the young should focus on early education. Pre-school is a crucial first step to improving the lot of disadvantaged children, and America is an international laggard. According to the OECD, it ranks only 28th out of 38 leading economies in the proportion of four-year-olds in education. Mr Obama has a plan to push universal pre-school. The details are imperfect, but it is a goal that Republicans should embrace. Equality of outcome will always be a fantasy, but America should do more to spread opportunity widely. A society without hand-ups won’t have much hope.

From the print edition: Leaders

http://www.economist.com/news/business/21586524-mckinsey-looks-set-stay-top-heap-management-consulting-future-firm

Schumpeter

The future of the Firm

McKinsey looks set to stay top of the heap in management consulting

Sep 21st 2013 |From the print edition From the print edition: Business

[1] IT IS one of the engines of global capitalism. Not only does McKinsey provide advice to most of the world’s leading companies (and governments). It also pioneered the idea that business is a profession rather than a mere trade—and a profession that thrives on raw brainpower more than specialist industry knowledge or plain old common sense.

[2] Yet McKinsey’s name has suffered a succession of blows in the past 15 years. The Firm, as it calls itself, was deeply involved in the Enron debacle: the energy company’s boss, Jeff Skilling, was a McKinsey veteran who praised the consultancy for doing “God’s work”, and the McKinsey Quarterly published articles on Enron as enthusiastically as Hello! runs pieces about the Beckhams. In 2010 Anil Kumar, a McKinsey consultant, admitted passing inside information to Raj Rajaratnam of Galleon, a hedge fund. Last year Rajat Gupta, a former McKinsey managing partner, was also convicted of passing inside information to Mr Rajaratnam.

[3] Life is getting tougher for professional-services firms. Midsized consultancies are already suffering: Monitor Group went bankrupt last year—Deloitte later bought it for $120m—and Booz & Co and Roland Berger are agonising about their futures. If the legal profession is anything to go by, worse is to come: Dewey & LeBoeuf collapsed last year after borrowing heavily in a dash for growth, and other elite law firms are struggling to win business.

[4] So, are McKinsey’s best days behind it? Two new publications offer some interesting answers. “The Firm”, by Duff McDonald, is a generally admiring book that nevertheless asks hard questions about the organisation’s future. “Consulting on the Cusp of Disruption”, by Clayton Christensen and two colleagues, is a penetrating article in the October Harvard Business Review, arguing that the comfortable world of the strategy consultancies is about to be turned upside down.

[5] McKinsey’s success depends above all on an unimpeachable reputation for integrity. It cannot continue to serve most of the world’s leading companies (including working simultaneously for competitors) if its consultants are willing to spill secrets. Mr McDonald argues that the firm’s size makes it impossible to avoid repeats of the Kumar problem. It is now a giant factory with 1,200 consultants rather than the cosy club of old. The firm has to keep growing, not least to provide its partners with the $1.5m or so a year that they earn. But every time it grows it puts its most important asset at risk.

[6] McKinsey’s success also depends on its ability to remain at the cutting edge of business. But in recent years it has seemed to be on the wrong cutting edge. Mr McDonald points out that whereas McKinsey has led the “financialisation” of basic industries such as oil and gas, it has had little if any role in shaping the giants of the internet economy, such as Apple and Google. The new lords of business are engineers in hoodies, not MBAs in pinstripes.

[7] Mr Christensen focuses on a bigger subject: how the forces that have disrupted so many other businesses, from steel to publishing, are disrupting consulting. The big three strategy consultants—the other two are the Boston Consulting Group (BCG) and Bain—are masters of opacity. But Mr Christensen argues that light is being let in on the magic. Companies are getting better at measuring results and demanding value for money. They also have access to more business expertise than ever before: the big three have more than 50,000 living alumni.

[8] The big three have been masters at bundling lots of different services into a single, high-priced package. But clients no longer want to pay fat fees for a bit of strategic advice from a senior partner and a lot of humdrum work from neophytes. Mr Christensen says low-priced competitors are beginning to dismember the consultants’ business. Eden McCallum cuts costs by deploying freelancers, most of whom once worked for the big three. BeyondCore replaces overpriced junior analysts with Big Data, crunching vast amounts of information to identify trends.

[9] McKinsey clearly faces a more difficult market than it is used to. But it has overcome serious challenges before—such as in the 1980s, when it lost the intellectual high ground to BCG and then Bain before regaining it. The firm is fixing some of the problems from the Gupta era. It has elected two successive managing directors, Ian Davis and Dominic Barton, who have worked hard to restore its professional ethos. Mr Barton urges companies to embrace “long-term capitalism” rather than “quarterly capitalism” and corporate responsibility rather than financial engineering: the very opposite of the Enron-era McKinsey’s gospel.

Old boys (and girls) everywhere

[10] McKinsey also has two huge assets: talent and knowledge. It retains an unrivalled ability to recruit hundreds of clever young people and turn them into an army of problem-solving worker ants. It also has an enviable network of alumni, many of whom are happy to hire their old employer: in 2011 more than 150 ex-McKinseyites were running companies with more than $1 billion in annual sales. The firm has also invested heavily in knowledge for decades: perhaps no other organisation has as much interesting data on global capitalism.

[11] Though lesser firms may be facing disruption, McKinsey dispenses a special sort of consultorial fairy-dust that is hard to replicate, and as much in demand as ever. The global ruling class is seized with a toxic combination of status-obsession and status-insecurity. Decision-makers also fear being swept away by one of Mr Christensen’s disruptive forces. They seek constant reassurance and reaffirmation from prestigious institutions. McKinsey knows better than almost anyone how to exploit this peculiar mindset. That will guarantee the Firm a solid future, even if no one can prove that its advice actually does any good.

Economist.com/blogs/schumpeter

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boondoggle
/?buːn?d?g.l ?/ (US) /-?d?ː.gl ?/ noun [C] US informal
an unnecessary and expensive piece of work, especially one which is paid for by the public
The senator called the new highways proposal "...a fraud and a boondoggle that the taxpayer should not tolerate".

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laggard
/?læg.?d/ (US) /-?d/ noun [C] old-fashioned
1. someone or something that is very slow

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penetrating
/?pen.?.tre?.t?ŋ/ (US) /-t ??ŋ/ adjective
LOUD?
1. very loud
I heard a penetrating scream.
He has a very penetrating voice.
penetrating
/?pen.?.tre?.t?ŋ/ (US) /-t ??ŋ/ adjective
UNDERSTANDING?
2. describes a way of looking at someone in which you seem to know what they are thinking
3. a penetrating mind
a mind which understands things quickly and well

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humdrum
/?h?m.dr?m/ adjective
having no excitement, interest or new and different events; ordinary
We lead such a humdrum life/existence.
Most of the work is fairly humdrum.

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dismember
/d??smem.b?r / (US) /-b?/ verb [T]
1. to cut, tear or pull the arms and legs off a human body
The police found the dismembered body of a young man in the murderer's freezer.
2. literary to divide a country or an empire into different parts
The UN protested at the dismembering of Bosnia.
dismemberment
/d??smem.b?.m?nt/ (US) /-b?.m?nt/ noun [U]
literary the dismemberment of the empire