Italian Luxury Eyewear Maker Luxottica to Offer Recession Benefits

From WSJ:

"Italian eyewear maker Luxottica SpA is expected to unveil a new social-benefits program for its domestic work force, an attempt to ease the pain as the global economic downturn hits Italy's industrial north.
Cities in northern Italy are home to some of the country's biggest employers. But they've been hard hit as demand for luxury goods has dried up.
Luxottica, which produces eyeglasses under license for brands such as Prada and Salvatore Ferragamo near the Belluno district of Northern Italy, announced plans earlier this year to place about 6,000 workers on temporary, state-subsidized leave for a total of four days during January and February. Last month, Safilo SpA, Italy's second biggest eyeglass maker, said it will idle plants for two months as it grapples with slumping sales and a heavy debt load.
The shutdowns are taking a toll on factory towns, as households scrimp on spending to offset lost wages. Workers who are placed on state-subsidized leave take an average 20% pay cut while their jobs are suspended.
Associated Press
Eyewear maker Luxottica is among Italian companies hard hit as demand for luxury goods fades.
Under the terms of an accord reached after 15 months of negotiations with unions, Luxottica will spend more than €2.5 million ($3.2 million) a year on benefits for its workers ranging from dental care to scholarships. The measures are apart from union contracts that cover wages and working conditions. Employees' health care and social services are covered by the state social welfare system.
"The assumption is practical: You cannot deliver and produce quality products unless people enjoy a decent quality of life and have the basic needs fulfilled," said Nicola Pelà, Luxottica's head of human resources.
Under the new system, Luxottica aims to leverage its scale to buy basic goods, such as baby food, and services at discount prices and distribute them to employees who reach production and efficiency targets.
Luxottica will distribute scholarship money for the children of employees to attend local vocational schools and colleges. In the luxury industry, where know-how is often passed down through generations of craftsmen, keeping young people close to home is essential.
Even before the economic downturn gripped the luxury industry, towns specializing in luxury goods faced tough odds. Over the past decade an increasing number of brands have begun to buy textiles and semifinished materials from countries with lower-cost labor like China.
As competition with China tightened, worker wages across the luxury industry stagnated and workers struggled to keep apace with a rising cost of living. Luxottica's average monthly salary of €1,200, Mr. Pela said, was "above market rate," but needed a supplement. At the same time, Luxottica didn't want to simply raise wages, which are heavily taxed in Italy, he added.
Valeria Fedeli, a union representative for Luxottica's employees, applauded the benefits program, but added: "We're still in a crisis situation."

Obama administration should radically change the terms of stimulus plan(if they designed the previous to get a bit of bi-partisanship)

People will take you responsible for any failure.
If you are gonna be charged so be by playing according to your belief.
If you believe that tax cut's bang for the buck is way lower than government spending, well go for it!!
Soon!

The Smart Growth Manifesto

Umair Haque from Harvard Business blog:

Obama is stimulating. Davos is deliberating. C-levels are eliminating. Wall St is recriminating. Welcome to the macropocalypse: no one, it seems, can put the global economy back together again.
It's time to reboot capitalism. So where do we begin?
Here's a suggestion for what should be at the top of agenda of every decision-maker across the economy, from Davos, to Obama, to Sand Hill Road, to the revolutionaries in tiny garages hatching tomorrow's Googles: reconceiving growth.
Why?

20th century capitalism is eating itself. For the first time since World War II, global growth is forecast to turn negative -- and that's an optimistic forecast, relative to the possibility of a global lost decade.Today's leaders are plugging dikes, bailing out industries and banks as they fail. Yet, what negative global growth suggests is that the problem is of a different order: that we have reached the boundaries of a kind of growth.

Reigniting growth requires rethinking growth. The question Davos -- and most leaders -- are asking is: where will tomorrow's growth come from? Will it result from oil, cleantech, bailouts, China, or Obama? The answer is: none of the above. Tomorrow's growth won't come from a person, place, or technology - but from understanding why yesterday's growth has failed. The same growth models applied to new people, places, and technologies will simply result in the same crises, over and over again. We have to reboot growth: the problem is not what is growing versus what is not, but how we grow.

20th century growth was dumb. The central, defining lesson of the macropocalypse is that 20th century growth wasn't built to last. Dumb growth is unsustainable - if the world grows the same way that developed countries did, well, there won't be a world. Dumb growth is unfair: it's growth that's an illusion for many; just ask the American middle class. And, ultimately, perhaps most dangerously, dumb growth is brittle: it falls too easily into collapse, reversing many of yesterday's gains; just ask Iceland.

21st century economies will be powered by smart growth. Not all growth is created equal. Some kinds of growth are more valuable than others. Where dumb growth is unsustainable, unfair, and brittle, smart growth is sustainable, equitable, and resilient.

Here are the four pillars of smart growth - for economies, communities, and corporations:

1. Outcomes, not income. Dumb growth is about incomes - are we richer today than we were yesterday? Smart growth is about people, and how much better or worse off they are - not merely how much junk an economy can churn out. Smart growth measures people's outcomes - not just their incomes. Are people healthier, fitter, smarter, happier? Economics that measure financial numbers, we've learned the hard way, often fail to be meaningful, except to the quants among us. It is tangible human outcomes that are the arbiters of authentic value creation.

2. Connections, not transactions. Dumb growth looks at what's flowing through the pipes of the global economy: the volume of trade. Smart growth looks at how pipes are formed, and why some pipes matter more than others: the quality of connections. It doesn't just look at transactions at the global, regional, or national level -- how much world trade has grown, for example -- but looks at how local and global relationships power invention and innovation. Without Silicon Valley's relationships powering the development of personal computing and the internet, for example, the volume of trade between Taiwan, Japan, and China, would be a fraction of what it is. Smart growth seeks to amplify connection and community -- because the goal isn't just to trade, but to co-create and collaborate.

3. People, not product. The next time you hear an old dude talking about "product", let him know the 20th century ended a decade ago. Smart growth isn't driven by pushing product, but by the skill, dedication, and creativity of people. What's the difference? Everything. Globalization driven by McJobs deskilling the world, versus globalization driven by entrepreneurship, venture economies, and radical innovation. People not product means a renewed focus on labour mobility, human capital investment, labour market standards, and labour market efficiency. Smart growth isn't powered by capital dully seeking the lowest-cost labour -- but by giving labour the power to seek the capital with they can create, invent, and innovate the most.

4. Creativity, not productivity. Uh-oh: Creativity is an economic four-letter word. Why? Because it's hard to measure, manage, and model. So economists focus on productivity instead -- and the result is dumb growth. Smart growth focuses on economic creativity - because creativity is what let us know that competition is creating new value, instead of just shifting old value around. What is economic creativity? How many new industries, markets, categories, and segments an economy can consistently create. Think China's gonna save the world? Think again: it's economically productive, but it's far from economically creative. Smart growth is creative -- not merely productive.

Here's a final point -- and a question.

Smart economies are driven by smart growth. The four pillars of smart growth are design principles for next-generation economies. 20th century economies are limited to unsustainable, unfair, brittle, dumb growth. Smart growth is more sustainable, equitable, and resilient.
Capitalism 2.0 cannot be powered by growth.1.0: that's why the race for smart growth is inevitable. The economic pressure -- the potential for value creation, in a world being ripped apart by value destruction -- is simply too great.

Can you build a business powered by smart growth? The four pillars of smart growth aren't just design principles for next-generation economies: they're also design principles for next-generation businesses. Already, tomorrow's radical innovators don't accept yesterday's toxic, tired consensus. Revolutionaries like Apple, Threadless, Etsy, Whole Foods, American Apparel, and Google are already reinventing better ways to grow - from the grass-roots up.
Yesterday's incumbents are beginning to fail en masse, while these revolutionaries remain resilient. Why? As our research at the Lab suggests, getting smart is a better choice than staying dumb: smart growth results in more creativity, innovation, effectiveness, and power than dumb growth.
For now, fire away in the comments with questions, examples, or criticisms. Which other companies are seeking smart growth? Is your organization building any of the pillars of smart growth? Are there countries or cities that are pockets of smart growth?

Here Ibn Battuta: I don't share the manichean polarization and the idea that XXth century growth was dumb.
This is not to say that it wasn't, at all! Just that to judge history is not that wise, let alone productive.

For the general approach, what should I say, I enjoy greatly the fact that somebody is writing something that close to my ideas that just allows me to use it a sample to remix.
Since english is not my native language this is quite important.

Protectionism and stimulus

Paul Krugman lucid as ever:

Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes.
The economic case against protectionism is that it distorts incentives: each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods. And under normal conditions that’s the end of the story.
But these are not normal conditions. We’re in the midst of a global slump, with governments everywhere having trouble coming up with an effective response.
And one part of the problem facing the world is that there are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt. As I explained a while back, this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.
And this in turn means that if macro policy isn’t coordinated internationally — and it isn’t — we’ll tend to end up with too little fiscal stimulus, everywhere.
Now ask, how would this change if each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment than it would have otherwise. Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced. And as the late James Tobin liked to say, it takes a lot of Harberger triangles to fill an Okun gap.
Let’s be clear: this isn’t an argument for beggaring thy neighbor, it’s an argument that protectionism can make the world as a whole better off. It’s a second-best argument — coordinated policy is the first-best answer. But it needs to be taken seriously.
What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics.
The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.
But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.

And Now For Something Completely Different: Davos Features “Refugee Run”

From the much needed, long waited blog of William Easterly:

"When somebody sent me this invitation from Antonio Guterres, the UN High Commissioner for Refugees, I thought at first it was a joke from the Onion. What do you think of the Davos rich and powerful going through the “Refugee Run” theme park re-enactment of life in a refugee camp?
Can Davos man empathize with refugees when he or she is not in danger and is going back to a luxury banquet and hotel room afterwards? Isn’t this just a tad different from the life of an actual refugee, at risk of all too real rape, murder, hunger, and disease?
Did the words “insensitive,” “dehumanizing,” or “disrespectful” (not to mention “ludicrous”) ever come up in discussing the plans for “Refugee Run”?
I hope such bad taste does not reflect some inability in UNHCR to see refugees as real people with their own dignity and rights.
Of course, I understand that there were good intentions here, that you really want rich people to have a consciousness of tragedies elsewhere in the world, and mobilize help for the victims. However, I think a Refugee Theme Park crosses a line that should not be crossed. Sensationalizing and dehumanizing and patronizing results in bad aid policy – if you have little respect for the dignity of individuals you are trying to help, you are not going to give THEM much say in what THEY want and need, and how you can help THEM help themselves?
Unfortunately, sensationalizing, patronizing, and dehumanizing attitudes are a real ongoing issue in foreign aid. David Rieff in his great book A Bed For the Night talks about how humanitarian agencies universally picture children in their publicity campaigns, as if the parents of these children are irrelevant. A classic Rieff quote: “There are two groups of people who like to be photographed with children: dictators and aid officials.”
Former World Bank President Wolfowitz with a few children
Alex de Waal in his equally great book Famine Crimes (and continuing writings since) writes about “disaster pornography.” He gives an example of a Western television producer in Somalia in 1992-93 who said to a local Somali doctor: “pick the children who are most severely malnourished” and bring them to be photographed.
Here’s a resolution to be proposed at Davos: we rich people hereby recognize each and every citizen of the globe as an individual with their own human dignity equal to our own, regardless of their poverty or refugee status. And Davos man: please give Refugee Run a pass.

Price Waterhouse Auditors Arrested in Satyam Inquiry

From Bloomberg:

PricewaterhouseCoopers LLP’s Indian affiliate, the auditor of Satyam Computer Services Ltd., said two partners were arrested by police as authorities extended the nation’s largest fraud inquiry.
Srinivas Talluri and S. Gopalakrishnan were remanded to judicial custody on charges of “conspiracy and co- participation,” A. Shivanarayana, a police spokesman in Andhra Pradesh state, said from the province’s capital Hyderabad, where Satyam is based. Price Waterhouse said in an e-mailed statement it didn’t know why two partners were detained.

Seven years after the implosion of Enron Corp. led to the dissolution of accounting firm Arthur Andersen LLP, the Satyam case has put PricewaterhouseCoopers in the spotlight. Indian police, fraud squad, markets regulator and accounting body have started investigations after Satyam founder Ramalinga Raju said Jan. 7 that he had fabricated $1 billion of assets.
“Over the last fortnight, the firm has fully cooperated in all inquiries and has provided the documents called for by the Indian authorities,” Price Waterhouse said today in a statement from New Delhi. “We greatly regret that two Price Waterhouse partners have been detained today for further questioning.”

PricewaterhouseCoopers LLP may also face scrutiny in the U.S. after Satyam’s New York-listed equities lost 82 percent of their market value in two weeks. The U.S. Securities and Exchange Commission is investigating whether Satyam misled investors and officials from the SEC plan to coordinate inquiries with counterparts in India.

The auditing firm said Jan. 15 that its reports could no longer be relied on after former chairman Raju said he’d fudged the accounts. The Institute of Chartered Accountants of India, a statutory body which oversees auditors, will report on its investigation into Price Waterhouse on Feb. 11.
Prosecutors allege Satyam padded employee numbers to siphon off cash and forged documents to support fake bank deposits.
Satyam had about 33 billion rupees ($674 million) of “fictitious and non-existent” accounts, public prosecutor K. Ajay Kumar told a hearing on Jan. 22. The company had about 40,000 employees, compared with the 53,000 claimed by Satyam, he said.

Can we learn from the “Italian Miracle” Formula?

Carlo Resta from RGE:

"In the 1960s, while the Italian economy was booming, such to talk of “The Italian Economic Miracle”, IRI - Istituto per la Ricostruzione Industriale S.p.A. - was among its most important factors[1]. The IRI, (Institute of Industrial Reconstruction) was a conglomerate owned by the Italian government and inherited by the Great Depression period. By the 1960's it was growing at rates that were more than double those of the national economy and it was once the largest non-oil producing company in the world outside the United States. It had stakes in a multitude of sectors of the Italian economy, ranging from infrastructure and manufacturing to telecommunications.
This experience of the IRI contains some valuable precedents and lessons for policy makers today in the midst of the extreme economic difficulties.
When the 1929 market crash initiated the worldwide depression of the 1930s, few countries were as adversely affected as Italy, even though this propagated with a certain delay. Italian banks had a history of purchasing substantial interests in Italian industry, and when those industries began to fail it appeared that the nation's banking system might well collapse. The Fascist government of Benito Mussolini created IRI in January 1933 to bail out Italy's three largest banks, Banco di Roma, Banca Commerciale, and Credito Italiano. As a result, wrote Stuart Holland in: The State as Entrepreneur. New Dimensions for Public Enterprise: The IRI State Shareholding Formula, “the new state holding company found itself responsible for major proportions of the main industrial and service sectors in the economy.”
During the years of its intense growth, IRI behaved unlike any corporation seen before. Because it served the interests of the state, it did not have to concern itself with short term profits. Thus IRI could sink millions of lire into enterprises, like steel and road building that private companies shied away from. The effect of such government investment was to create markets in which other companies could then compete, thereby expanding the economy as a whole. The U.S. government was using tax-breaks and incentives, but their situation was different, so Italy employed IRI. Not only did IRI create economic markets, it did so in areas thought to be most beneficial to the country as a whole or in areas of strategic importance.
It is crucial to remember that IRI avoided the pitfalls of most state-run businesses. The problem with most state-run businesses, especially in the formerly communist countries, was that there were few incentives to be productive or efficient. Thus, state-run companies often became notorious for mismanagement, creating unnecessary jobs and spending public money unwisely. IRI avoided these drawbacks by creating a level of distance between itself and its subsidiary holding companies. IRI's subsidiaries were put in a position to behave as if they were private enterprises; they were encouraged to be entrepreneurs, while the small core of IRI management acted as investors, backed by the financial might of the Italian government. While IRI was 100 percent government owned, the subholdings were not, and thus these subholdings could attract private investment as well. And so they did.
When IRI was working well, it combined the dynamism of entrepreneurial capitalism with some sort of social guardianship and long term forward looking common purpose. The success that IRI had in the 1950s and 1960s, during what was dubbed: “The Italian Economic Miracle”, made it the model for governmental involvement with industry around the world. In the 1960s, Great Britain, France, Australia, Canada, Sweden, and West Germany all initiated programs that were based at least in part on the IRI formula of mixed state/private investment formula.
Many European countries, particularly the UK, were looking at the “IRI’s formula” as a positive and effective example of a proper state participation in the economy. It was better than the straightforward “nationalization” because it allowed a direct cooperation between public and private capital. Many of the companies of IRIs’ group had mixed capital, partly from public government, partly from private investors. Many of IRI’s enterprises were listed and the bonds issued by IRI to finance its own companies were massively subscribed by savers.

Here are the main functions of the newly proposed Institutes for Economic Reconstruction:

1.Be of immediate support to companies in strategic sectors of the economy; prevent their collapse, avoiding catastrophic impacts by taking over preferred shares, (a midway instrument between shares and bonds with no voting rights), taking control only where strictly necessary.

2.Acquire stakes in small and medium size businesses (SMEs) to protect them for being indirect contagion casualties, facilitate their financing, their international development plans.

3.Acquire preferred stakes in new enterprises with strong growth prospects, to promote new technologies, new inventions, more exports to BRICs, vital sectors of the economy …

4.Act as a traditional institutional investor in search of long term returns, acquiring assets domestically but also abroad, restoring confidence and stabilizing markets in coordination with the necessary general economic reforms of each of the western countries.

5.Defy fears that external SWFs investment reasons are other than portfolio diversification and that by investing in other countries they could take control of crucial national interests, or could influence other sovereign states. Consider co-investments with SWFs with the aim of contributing to a globally coordinated stabilization effort.

Now, the big problem facing this depressionary period is that there is strong general reluctance to undertake any investment at all. There is widespread fear. The risks are perceived to be too high; a vicious “Trust Crunch” circle is generated, and that brings to a compression and ultimately to the freezing of any exchange in the economy. If the blood stops circulating even the healthiest individual will eventually die. The banks stop lending, even to themselves; consumer confidence plummets at its lowest, panic spreads across and creates damage to fundamentally sound businesses. The above curve gets flatter and it moves more and more to the extreme right of the graph. This deadly spiral must be “unlocked”!

The implementation of a proper “State/Private Co-Investment” formula allows reducing enterprise risks, guarantees a long term view horizon, reestablishes trust and confidence in the markets for investments to take place, gives a positive boost to all of the firm’s constituents, and thus decreases risks. The presence of such a ‘Strong hand’, enhances the value of a company for all the parties involved: employees, management, suppliers, customers, shareholders, bondholders, financing banks, insurers, regulators, local administrators. The positive impact reverberates also into other companies of the same sector, creates a compounding positive virtual circle, a psychologically positive impact into the entire system.

... The impact of the “State/Private Co-Investment Formula” is obviously of superior significance in periods of deep dislocation and depression like those we are currently going through. Historical examples show also that where there is a public presence, growth is even faster than the market average at times of expansion. Last but not least, history reminds us that the most important element will be, much further down the line, a proper ‘exit strategy’ for the public money. This is a relevant aspect but it can be addressed later on.

Furthermore, a renewed formula of the Italian I.R.I., a new breed of western Sovereign Fund which I call Institutes of Economic Reconstruction (IER), can be viewed exactly as a portfolio manager, having to allocate capital among different selection of enterprises and industrial sectors.

...The IER holding company can also be viewed as a fund manager and similarly, if successful in allocating its asset among best performers and diversifying risks accordingly, generating return higher than the market. ...The value generated by these asset allocation strategies will also improve because the allocation process itself is made easier by the presence of a “strong hand” that reduces fears and uncertainties. And we know that asset allocation is the most important factor in successful value creation and preservation. From the case study of IRI, we see that when the Italian economy was growing 8%, IRI was growing more than double that.
The stronger the depression, the higher is value of the “State/Private Co-Investment Theory”. Same was for the Great Depression and for other similar historical periods. After all the creation of “Sovereign Alpha” does not just come automatically, but it is also be the result of a selection and an enhancement process; the enterprise will have to improve its values and standards, requirements, conditions, and keep them that way.

If IRI chemistry allowed to flourish the unstoppable Italian art of making do with what available; if that formula allowed the unfolding of the fantastic creativity of the Italians and their relentless ‘trial and error’ mentality that brought to life world icons like Ferrari or Espresso, Versace and Armani,… up to the helicopters currently used by the USA President and much more, think what a similar formula could do to revamp a United America and the western economies today. Not only the historical comparables match, but the advantage of available technology and knowledge make possible a more effective and controlled use of the “State/Private Co-Investment” formula. Yet, time is of the essence.

A new breed of Sovereign Wealth Funds, the Institutes for Economic Reconstruction (IER), based on the “State/Private Co-Investment” formula with the crucial goal of reestablishing confidence in each of the national markets, and restarting the much needed economic growth, appears to be the only way forward and a viable one. Not Von Hayek but not really Keynes either. It is going to be a balanced, comprehensive approach, a real generator of modern value.
This approach not only will benefit the individual enterprises which receive the participation from the State, but it will also generate a positive crucial impulse to the global economy, increasing overall market returns and reducing risks. Last but not least, ethical and sustainable growth considerations will be able to receive a reasonable place in a much needed restructuring of the world order. Markets will come out different from this crisis but ultimately stronger.
We have the means, the expertise, and now a good impending necessity to make it happen.

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty”. Winston Churchill




Carlo Resta is the founding Partner and President of Oraculum Advisors Limited, an investment banking boutique consultant to global financial services institutions for their business development, marketing, partnerships andalliances activities.
As a wealth manager, Carlo was the Managing Director of Global Investment advisory at Chase Manhattan Bank, for Europe, Africa and the Middle East from 1999-2001. The group was responsible for all client-directed investment business in this region within Chase’s Private Bank. As a start-up and product specialist in equities, Carlo was formerly a Director of the Client Strategies Group for the Merrill Lynch International Private Bank from 1997 to 1999. From 1995 to 1997 he was a Director, Global EquityDerivatives, at Merrill Lynch where he developed and expanded the derivatives business of Merrill Lynch in Southern Europe. He was also responsible for marketing Merrill’s entire range of financial products and services to his client-base. Carlo’s team launched the first Equity Linked Capital Protected Investment Product for the Italian,Portuguese and Spanish markets. Most recently in 2002 and 2003, Carlo worked for the Old Mutual Group on projects dealing with their expansioninto new financial products and services. Prior to joining Merrill Lynch in 1993, Carlo spent eight years at San Paolo Bank in their headquarters in Turin and in New York. Carlo holds a degree in Economics and Banking Sciences from the University of Siena, Italy, and an MBA in Finance and International Business from New York University, Leonard Stern School of Business.