The New Economy
The Monitor's Money editor, Laurent Belsie, blogs about the economic changes now under way in the U.S. and around the globe.
In this December file photo, an advertisement in the classified section of the Boston Herald newspaper calls attention to possible employment opportunities in Walpole, Mass. With the job market improving slowly but steadily – US employers added 155,000 jobs in December – many workers are eager to change jobs or even careers, new surveys show. (Steven Senne/AP/File)
2013: the year to find a new job – if the economy will let you
With America’s slow-growth economy looking stable, 2013 is shaping up to be the year that many workers look for a new job.
After years of slogging in their current positions, unable to move because of the lack of new openings, workers are eager for a new job – sometimes an entirely new career. If the job market continues on its current path, those who are aiming to work in growth industries should be able to make the jump. Those aiming to make a change in slow-growth industries will find it harder to make a switch, since unemployment is still high at 7.8 percent and overall employment growth remains tepid.
In December, the economy created 155,000 new jobs – the average job growth that has prevailed for more than two years, the US Department of Labor reported Friday.
Many Americans are eager to change jobs. In a new suvery of 1,000 workers, 38 percent are resolved to find a new or better job this year, according to Indeed.com, a job-search website. In a separate survey of 2,250 adults by Glassdoor, an online career-search company, 33 percent of workers say they will look for a new job this year if the economy doesn’t contract; more than half of those plan on looking in the next three months. ( Continue… )
Job seekers stand in line to meet with prospective employers at a career fair in New York City in this October file photo. The US Labor Department reported Friday, Dec. 7, 2012, that the private sector gained 147,000 jobs in November. But when government-subsidized jobs aren't counted, the 'real' private sector only gained 129,000 jobs, (Mike Segar/Reuters/File)
Are we halfway back from the Great Recession? Not really.
Early on in this historically weak recovery, many Americans realized that measuring real job gains required making a vital distinction. Government hiring and firing needed to be viewed separately from employment changes in the private sector.
After all, much of President Obama’s stimulus bill focused on preserving state and local government services, something that wasn't likely to be sustainable on its own. And even most on the Left have long appreciated that private sector-led growth is vastly preferable over time to government-led growth.
But there's another important distinction within the private sector that's not so obvious. Industries where hiring is overwhelmingly determined by market forces (the true private sector) are a different breed than industries where hiring is heavily influenced by government support (the subsidized private sector).
The latter industries are by no means government-owned, so their hiring and firing shouldn’t be lumped in with government totals. But they benefit from financial props that aren’t available to most private business, and therefore don’t belong in that category, either.
This distinction matters for the same economic reasons that lead most Americans to judge countries with relatively small, limited governments as superior to those with big, powerful governments. The former tend to produce the greatest, most widely shared prosperity over time, because economic actors generally need to live with the material effects of their decisions. These disciplines are rarer in state-dominated systems, where investment, consumption, and hiring decisions are often politicized, and accountability is therefore lacking.
Defense is an obvious example of the subsidized private sector. Government is not only the sole customer, it's a key source of research and development. But the Labor Department doesn’t break out defense-related employment when it reports monthly job numbers. Ditto for jobs related to homeland security.
The Labor Department does publish figures on hiring in three other industries in the subsidized private sector: health-care services, social assistance agencies, and for-profit educational institutions. And they suggest a troubling idea: America's recovery is even weaker than is commonly reported.
Since the recession ended (at least in most economists’ minds) in mid-2009, the subsidized private sector has accounted for just over 38 percent of all the jobs regained by Americans – even though its share of employment has stayed at less than half that level. Moreover, subsidized private sector jobs represent nearly half (47.5 percent) of all the private sector jobs created.
Here's what that means: If you define the private sector the usual way, you could say that America is halfway back from the Great Recession. The conventionally defined private sector has regained just over half of the 7.7 million jobs it lost. But if you look at the real private sector, you would say the US is only a third of the way to a full recovery: Only a third of the 8.3 million jobs lost during the downturn have been replaced.
A careful reader will notice an apparent discrepancy. The real private sector seems to have lost more jobs during the recession than the conventionally defined private sector did. How can that be? Because the payrolls of the subsidized private sector actually grew during the recession – by 625,000.
Friday's job numbers suggest a positive development. In November, the subsidized private sector – the one we can track, anyway – weakened as a hiring engine. It created only 12.3 percent of all the net new nonfarm jobs generated by the economy, a smaller share than its share of total American jobs – 15.3 percent.
All the same, had the critical distinction been drawn, the Labor Department would have reported Friday that November's real private-sector job growth was 129,000, not the 147,000 figure contained in its release.
It's too early to judge whether November signals a sea change for the subsidized private sector. In September and October, hiring in the subsidized private sector grew by 34.1 percent and 17.4 percent, respectively – i.e., it was still punching above its weight. Moreover, the Labor Department keeps revising its jobs numbers, sometimes substantially, so we might not know for months.
There's another difficulty: The easily tracked industries reported here hardly represent the extent of the subsidized private sector. Adding defense and homeland security may not suffice, either.
For example, Americans’ use of pharmaceuticals and medical devices is just as artificially propped up by government as their use of doctors and nurses. Government’s role in housing has been enormous for decades and stands at historic highs – surely construction industry employment has benefitted.
These government economic interventions will remain controversial among Americans for years. What shouldn’t be controversial is the need to incorporate them much more effectively into government employment data. Otherwise, US policymakers will continue flying largely blind as they try to create the best environment for real job growth in the long term.
– Alan Tonelson, author of “The Race to the Bottom” is research fellow at the U.S. Business and Industry Council, which represents small and medium-sized domestic manufacturing companies. He contributes regularly to AmericanEconomicAlert.org.
Employee Carla Lepis wheels some of the artwork from the heavily damaged Matisse restaurant last month in Belmar, N.J. According to the owner, the popular oceanfront restaurant was so battered by superstorm Sandy that it will have to be torn down. A new ADP report suggests that small firms were hit particularly hard by the storm. (Mel Evans/AP/File)
ADP employment report: Superstorm Sandy hit small firms hardest
When a hurricane or superstorm hits a large business, it can knock out operations for days. But the corporation usually has the resources to get back up and running. For smaller businesses, it’s a different story.
It can take weeks, even months, to recover – if small businesses can recover at all. When superstorm Sandy hit New Jersey and New York, the impact on small business appears to have been abnormally large.
The latest evidence comes from the ADP employment report, released Wednesday, which offered the first evidence of how hard superstorm Sandy affected hiring last month. Overall, Sandy reduced private-sector job gains by some 86,000 workers in November, payroll processor Automatic Data Processing estimates. So instead of creating a robust 200,000-plus private sector jobs, November’s actual employment increase was a more modest 118,000.
Sandy's impact on small business hiring was far more pronounced. Businesses with fewer than 50 employers added only 19,000 jobs in November, according to the ADP report. That’s the lowest number in nearly two years. And the share of jobs added by small business, which typically account for a third to a half of all jobs private-sector jobs created, fell to a low of 16.2 percent.
“My guess is that the storm was particularly hard on smaller companies,” says Mark Zandi, chief economist of Moody's Analytics, which collaborated with ADP to produce the report.
Disaster loans are only beginning to trickle in. The Small Business Administration, which typically offers disaster loans to small firms, had approved only 73 disaster loans through Nov. 30, amounting to only $83 million, according to Bloomberg Businessweek. The agency blames misperceptions about eligibility among business owners.
Anecdotally, small businesses in the hardest hit areas of New Jersey and New York have taken it on the chin.
“Basically, our entire business had collapsed in onto itself,” says Susan Povich, co-owner of Red Hook Lobster Pound in Brooklyn, in a new mini-documentary. The lobster wholesaler and retailer lost most of its equipment, had to let go all of its employees, and is only beginning to get operations back to normal. Ms. Povich hopes to be fully operational by Valentine’s Day. (See the video of her story above.)
The mini-documentary is part of a series on how superstorm Sandy affected small businesses and produced by IIL Media in New York. Called “Weathering the storm,” the series will have 15 segments and air on YouTube as well as the company’s own website through Dec. 10.
In this July 18, 2012 file photo, credit card logos are seen on a downtown storefront as a pedestrian passes in Atlanta. Americans cranked up their use of credit cards in the third quarter of 2012, racking up more debt than a year ago, while also being less diligent about making payments on time, an analysis of consumer-credit data shows. (David Goldman/AP/File)
Credit card debt rises to nearly $5,000 per borrower
Americans' credit card debt is rising again and they're not as diligent about paying on time, signs perhaps that credit trends are returning to normal.
The average credit card debt per American borrower increased to $4,996, up 4.9 percent in the third quarter from the year before, according to a report released yesterday from TransUnion, a credit reporting agency. The pattern fits 2011, when debt fell in the first two quarters and rose in the last two.
Late payments at least 90 days overdue also slightly increased to 0.75 percent during the July-September period, up from 0.71 percent in the third quarter of 2011. The late payment rate was 0.63 percent in the second quarter of 2012. But the late payment rate is rising from historically low levels.
TransUnion reported 36 states had increases in their credit card delinquency rates from a year ago while nine other states and the District of Columbia posted decreases. There were no changes in five states.
Average credit card debt is likely to climb again in the fourth quarter as consumers use credit cards to pay for holiday shopping.
The increase in credit card debt may reinforce the latest research from the Federal Reserve that shows bankers have eased up slightly on lending standards and demand is increasing for credit cards. During the past three months, 17 percent of all banks and 26 percent of large banks reported a moderately stronger demand for credit card loans, according to the Federal Reserve Senior Loan Officer Survey. In addition, nearly 17 percent of large banks eased the credit standards for applying for a credit card.
– Bill Hardekopf is founder of Lowcards.com, an online credit-card information site.
Nutella, produced from Italy, is sold in 200 countries, including this supermarket in Vitez, Bosnia and Herzegovina, pictured in March. In France, the world's largest consumer of the chocolate-hazelnut spread, a Nutella tax is spurring a backlash. (Dado Ruvic/Reuters/File)
Nutella tax: Is France taking austerity too far?
Everyone understands France's fiscal austerity: Too much government spending and too little revenue has prompted French President Francois Hollande to cut spending and raise taxes on rich people, capital gains, and just about anything else he can find.
But in approving the so-called "Nutella amendment" Wednesday, France's Senate is invoking a new kind of food austerity: trying to encourage healthier eating by taxing unhealthy ingredients.
That's a tricky political move anywhere. In food-crazy France, it's dangerous, especially when the target is Nutella, the creamy chocolate-hazelnut spread that the French just love.
French children slather it on bread with the same gusto that American kids make peanut butter sandwiches. Adults put it on crepes. Although it's an Italian product, 26 percent of the world's Nutella is consumed in France, more than any other country, according to the French newspaper Le Monde.
Actually, the Nutella tax is aimed at palm oil, not the spread directly. Since it will raise only about €40 million (about $51 million) in revenue, it's no big deal in the budget picture. Instead, it's meant to reduce French obesity.
Palm oil has been linked to cholesterol and health risks. Nutella, it turns out, is 17 percent palm oil and 55 percent sugar, hardly the healthiest of snacks. Gram for gram, it packs 76 percent more calories than a McDonald's cheeseburger, according to Le Monde.
By quadrupling the tax on palm oil, Socialist Sen. Yves Daudigny, who wrote the "Nutella amendment," hopes to force food companies to switch to healthier ingredients.
But a top official of Ferrero, which makes Nutella, told a French newspaper the company had no intention of changing ingredients. The Nutella tax would only raise prices a few pennies per jar, if at all.
The outlook for the Nutella tax is unclear. The French Senate still has to approve the entire package of tax increases. Senator Daudigny himself cosponsored a measure to reduce a proposed tax hike on beer. If the senate rejects the package, the Nutella tax could reappear in another form.
The worldwide visibility and popularity of the product is spurring a backlash.
The two largest exporters of palm oil, Indonesia and Malaysia, have already criticized the tax. On Twitter, Nutella fans are battling healthy-food advocates over the tax issue.
"Our country is becoming less and less attractive," tweeted one French Nutella lover after the Senate's 212-113 vote in favor of the tax.
"How dare the French tax nutella!" tweeted another fan. "That is a gift from heaven...."
In this 2009 file photo, Stephanie Maple of Atlanta looks over notes she kept about calls from a debt collection agency. She says a debt collector threatened to take her house and put her husband in jail if they didn't pay an old debt. (Melanie Stetson Freeman/The Christian Science Monitor/File)
Impose a moratorium on debt collection lawsuits
Everyone gets the Great Recession, it seems. Too much debt. Too few jobs.
But what we often forget is the squeeze that those twin problems impose during a slow recovery. Some 15 million Americans are out of work and many of them are staring at debts they cannot pay. About one-third of them have been productively employed virtually their entire working life, and suddenly they find themselves in their mid-50s and out of work for the first time.
Put yourself in those middle-aged shoes for a moment. You are overqualified for entry level jobs. Employers are looking for younger workers. You can’t pay your bills, but creditors still have the right to demand payment.
And demand they do. They threaten to sue if you don’t pay and eventually they do. Each year between 4 million and 5 million debt-collection lawsuits are filed by third party debt collectors. Our courts are overwhelmed with such cases.
Never mind that much of this litigation is predicated on weak supporting evidence, where the amounts claimed are not accurate, or even target the wrong person. The Wall Street Journal and The New York Times have thoroughly documented the abuse within our court system – including that one-third of the states actually allow a person to be jailed for failing to pay a debt.
All this legal action exacts a heavy financial toll. In 2011, there were 1.4 million personal bankruptcies in the United States and the financial loss to creditors was in the range of $150 billion.
Much of this could be avoided by one simple action: a moratorium on third-party credit card debt collection litigation until the national unemployment rate falls below 6 percent.
We know this idea sounds extreme; but consider these four points:
- A moratorium on certain types of debt collection litigation during periods of high unemployment provides time for the unemployed to get back to work and establish the financial equilibrium to avoid bankruptcy.
- A moratorium isn’t a free ride for anyone. No debt would be forgiven – merely postponed until the nation returns to a more “normal” employment environment. Consumers and creditors both gain, since the former is better able to pay their debts voluntarily.
- The temporary moratorium would be limited to third party debt collectors, companies that acquire charged off credit card debt for pennies on the dollar and then often use high-pressure tactics to force consumers to pay.
- The moratorium would only apply while the national unemployment rate exceeded 6 percent. Interest would continue to accrue on the debt. The moratorium period couldn’t be counted when calculating the statute of limitation for filing a lawsuit against the consumer.
These unemployed debtors have not asked for anything free, only a chance to get back on their feet and live a productive and responsible life. Denying them a temporary moratorium would create a growing dependency on government for millions of Americans and a bigger burden on our already frayed social safety net.
– Bill Bartmann is CEO of CFS II, a debt-collection company in Tulsa, Okla., and has helped to settle the debts of more than 4.5 million people without ever filing suit against a customer.
In this October file photo, Fabio Magliano, right, fills out a job application as he stands in line at a job fair in Miami. According to government reports released Friday, Nov. 2, 2012, the US economy added 171,000 jobs in October, and the unemployment rate ticked up to 7.9 percent. (Alan Diaz/AP/File)
High unemployment gives Romney an edge – but it's complicated
America's unemployment rate rose slightly to 7.9 percent in October, which does not bode well for President Obama's reelection prospects.
The last time unemployment was above 7 percent in October of a presidential election year, incumbent George H.W. Bush was on his way to losing the White House to upstart challenger Bill Clinton in 1992. So the sad shape of today's economy favors challenger Mitt Romney in Tuesday's election.
But unemployment is not always a decisive factor in elections – indeed, perhaps not a decisive one at all. October unemployment was even higher in 1984 (7.4 vs. 7.3 percent) and that year President Reagan thumped challenger Walter Mondale with 58.8 percent of the vote. So Mr. Obama's supporters can take heart that elections turn on something other than the unemployment rate.
Of course, these are extraordinary times. October's 7.9 percent unemployment is the worst of any election-year October since 1940, the tail end of the Depression. Back then, it was nearly double today's rate, yet incumbent Franklin Roosevelt handily beat dark horse challenger Wendell Willkie with 54.7 percent of the vote.
So if the unemployment rate on the eve of a presidential election isn't especially decisive, what is? The change in the unemployment rate during a presidency seems to be slightly more predictive, as Nate Silver of The New York Times pointed out last year.
That might explain, for example, President Roosevelt's resounding defeat of Alf Landon in 1936. Even though the unemployment rate was 16.9 percent that year (monthly rates weren't calculated in that era), it had been above 20 percent for the previous three years. By 1940, when Roosevelt beat Wilkie, it had fallen again to 14.6 percent.
By that measure, Obama's reelection prospects don't look good, either. Unemployment is now higher than when he beat John McCain in 2008 (6.5 percent in October) or took office in January 2009 (7.8 percent).
"Economic performance usually is the dominant factor" in elections, writes economist and former University of Gothenburg professor Douglas Hibbs in an article from July, but other factors also play a role. Mr. Hibb's two-factor framework, which he calls the "Bread and Peace" model, ignores unemployment and uses instead the change in per capita real disposable income during a president's term. He couples that with wartime fatalities in an unprovoked war.
Using his model, Obama's chances don't look good, either. In an Oct. 26 update, he projects the president will get only 46.6 percent of the two-party vote. That would put him on par with George Bush Sr., who in 1992 got 46.5 percent of the two-party vote (excluding the results from third-party candidate Ross Perot) and lost to Mr. Clinton when unemployment was high.
If economic performance is predictive, Mr. Romney has the advantage – but the link between economic performance and elections is complicated.
California Gov. Jerry Brown warns of painful cuts in Sacramento unless voters approve his $6 billion-a-year tax increase, including a 'rich tax,' as he speaks in Los Angeles on Wednesday. A new study suggests that higher taxes don't push rich Californians to leave the state. (Nick Ut/AP/File)
High taxes don’t drive the rich out of California
As Californians debate the "rich tax" contained in Gov. Jerry Brown’s Prop 30, a new report challenges one argument for lowering tax rates on the wealthy: that millionaires simply move to avoid higher taxes, leaving the middle class with a higher burden.
The study, by sociologists at Stanford and Princeton, looked at two tax changes in California, a 1996 tax cut on high-income filers and a 2005 levy called the Mental Health Services Tax that took one percent of income over $1 million. Using tax-return data, the researchers examined how the changes affected “millionaire migration” in or out of the state before and after the tax laws were passed.
The research showed that millionaires not only were unmoved, so to speak, by their taxes being raised, “the highest-income Californians were less likely to leave the state after the millionaire tax was passed,” wrote Charles Varner and Cristobal Young in their report.
In fact, the richer the Californian, the more likely he or she was to stay, the study found. Nor did the data suggest that lowering taxes lured millionaires to the state. (Read more: Millionaire 'Munger Sandwich' Squeezes Gov. Brown)
The pair previously studied millionaire migration in New Jersey, with largely the same results. But California's dynamic, tech-based economy may be, if anything, a better testing ground for the notion that job creators are forced out by taxation. “The presumption that exceptionally skilled, monied, and entrepreneurial individuals are also exceptionally mobile is debatable,” Varner and Young concluded.
Aware, no doubt, of the politics swirling around their topic, Varner and Young appear to have considered every likely objection to their findings. They looked at the periods before each tax change in order to scoop up any high earners who moved in anticipation of being taxed. They scrutinized part-year returns to capture those who might take a second home to remove their out-of-state earnings from California's purview.
What they found is that California’s millionaires, no matter the circumstances, move very little. “At the most, migration accounts for 1.2 percent of the annual changes in the millionaire population,” the report said.
Most of the fluctuation in numbers of millionaires, as my colleague Robert Frank pointed out in his book The High-Beta Rich, relates to the rise and fall of personal fortunes. “The remaining 98.8 percent of changes in the millionaire population is due to income dynamics at the top,” Varner and Young wrote, “California residents growing into the millionaire bracket, or falling out of it again.” (Read more: Maryland Study Says Taxes Chase Out Rich)
This constant turnover in the top income brackets, the researchers say, may explain why millionaires aren’t more sensitive to tax changes. A top earner who breaks into the millionaire’s club only a few times in his career would be less likely to consider the tax when deciding to stay or go.
Indeed, the typical Californian millionaire only repeated his or her feat 54 percent of the time in the years from 1996 to 2003, the researchers found. Instead of paying one percent of their million-plus income to the government, this typical taxpayer would pay an effective tax rate of one-tenth of one percent over the 13 years. “This is a key question for someone considering whether to migrate for tax purposes,” the study said.
The up-and-down fortunes of rich Californians is another reason they don’t leave. “Most people who earn $1 million or more are having an unusually good year,” Varner and Young wrote. “It is difficult to migrate away from an unusually good year of income.”
So what does control millionaires' residential status? Loss of that golden opportunity for one: the greatest exodus of wealthy Californians in the years studied came after the collapse of the tech bubble. (The trend wasn’t reversed until just after the Mental Health Services Tax was passed in ’05.)
The other clear impetus for millionaires to get out of California was divorce. Knowing that the end of a marriage both occasions a move and shows up in tax data, the researchers used marital splits a “reverse placebo” to test tax data’s ability to detect migration. In the first year after a divorce, 1.2 percent of divorcees start a new life elsewhere, according to the study.
“Divorce is something that has a very clear effect on migration, modest changes in the tax rate for high-income earners do not," the researchers concluded.
In this March file photo, consumer credit cards are posed in North Andover, Mass. In trying to make it easier for stay-at-home spouses to qualify for a credit card, the US consumer financial watchdog wants to weaken safeguards unnecessarily. (Elise Amendola/AP/File)
Sensible credit-card reform doesn’t make you anti-mom
In order to help stay-at-home moms and dads get credit cards, do we really have to jeopardize the health of our banking system? The Consumer Financial Protection Bureau (CFPB) sure seems to think so. It recently proposed a rule change that will make it easier for roughly 16 million consumers to access credit, yet promises to undermine the effectiveness of underwriters and thereby ultimately serve as a drain on the economy.
More specifically, the CFPB is suggesting an about-face when it comes to reporting income on credit card applications. The new CARD Act requires consumers to list their independent income, rather than household income. The rule was enacted to ensure that only those who can afford credit cards will get approved, but it has also made it harder for stay-at-home spouses to build credit independently, forcing them to become more reliant on their significant others. Calling this an “unintended consequence,” the CFPB essentially wants to eliminate the rule.
Here are four reasons why we should reject that solution:
It promotes overleveraging. Congress included an ability-to-pay provision in the CARD Act of 2009 for a reason: When consumers apply for credit cards using household income, issuers have no way of knowing how much can actually be used to pay for a new account and how much is already dedicated to debt obligations linked to their spouse. Even if individuals use household income, they still only have to list personal debts, which means banks must guess about what’s missing from the equation. Thus, people who can’t afford high lines of credit are mistakenly granted them. That in turn leads to a greater number of defaults and bankruptcies on a personal level as well as significant banking losses and downward pressure on the economy in a broader sense.
Credit card terms will worsen. Without the ability to gauge consumer risk, banks will have to implement a profit “buffer zone” of sorts by reducing rewards, raising interest rates, and cutting other consumer benefits. In other words, by adhering to the CFPB’s plan to provide everyone access to credit, we’d also be ensuring that what we’re accessing is average.
The CFPB is missing the complete picture. Financial regulators have two traditional roles: 1) consumer watchdog and 2) protector of the safety and soundness of financial institutions. By implementing a rule that will help a certain consumer demographic but hurts banks, the CFPB is sacrificing its latter obligation. It’s therefore surprising that the CFPB was so quick to settle on this easy fix instead of searching for a universally beneficial solution.
There is a better solution. There’s no need to choose the lesser of two evils here. The most logical course of action would be to require that all credit card companies offer joint applications and approve anyone who can place a security deposit for a secured credit card.
Joint applications enable couples to apply for a shared account, using the incomes and debt liabilities of both parties. This would give issuers the proper perspective on applicants’ overall ability to pay, and since information about shared accounts is reported to both parties’ credit reports, would enable stay—at-home spouses to build independent credit even if they don’t have independent income. When it comes to secured cards, the deposit you’re required to place also acts as your credit line, which means issuers don’t have to worry about getting repaid and income verification is redundant. The ability for stay-at-home spouses to obtain their own credit card account with a simple lump-sum payment would prevent them from having to involve their significant other if they don’t wish to do so.
It’s unfortunate that many of the folks who recognize the flaws in the CFPB’s plan perhaps are afraid to speak up for fear of being labeled sexist or coldhearted. The choice is not between financial security and stay-at-home spouses. Instead, it’s a choice between lazy rulemaking and getting the job done right, and we can only hope that enough people realize that before the public comment period for the CFPB’s new rule closes.
– Odysseas Papadimitriou is the CEO of Card Hub, a leading website that covers the credit card market, and Wallet Hub, a personal finance social network, where you can review banks and other financial companies and professionals. He previously served as a senior director in Card Hub’s credit card division.
Anglo American's Chief Executive Officer Cynthia Carroll attends the G20 CEO Summit in Seoul in this 2010 file photo. Ms. Carroll is stepping down after more than five years on the job amid a difficult strike in its platinum operations in South Africa. (Aly Song/Reuters/File)
Anglo American's female CEO stepping down. It's 'right time.' (+video)
There's plenty of speculation about whether Cynthia Carroll, the first woman to head British mining company Anglo American, is stepping down because of her performance or her gender.
The first woman and the first non-South African to head the company, Ms. Carroll took the world's largest producer of platinum in new directions – both in the way it operated and the commodities it mined. But on Friday she said it was "the right time" to leave.
Did she push modernization too hard? Did the company accept, as the Financial Times put it, her "double-outsider" status?
Perhaps. But timing is everything for chief executive officers – and sometimes it really is the right time to go, even if they've done the right things for the company to prosper in the long term.
The American-born Carroll took the reins in 2007, when Anglo-American was booming. Its stock price had doubled in just two years. The future seemed bright.
Then the financial crisis and Great Recession hit and Anglo American stock (like other commodity stocks) plunged. The stock recovered in 2011, when Anglo American announced a record operating profit, reaching post-recession highs.
But this year's economic slowdown pushed down commodity prices. And the company ran into unique problems. It became embroiled in a dispute with Chile's state-owned copper company, Codelco, after it announced last year it was selling its copper operations to Mitsubishi. Instead, Anglo American backed down and in August reached a deal with Codelco, reducing its stake in the copper operations.
Then in September, its all-important platinum operations in South Africa were hit by wildcat strikes from workers demanding more pay. Anglo American called the strike illegal and fired 12,000 miners at one mine earlier this month. Shareholders complained.
The sometimes violent strikes reached beyond Anglo American. Some 100,000 South African miners walked out in August. But on Thursday, gold mining companies and the workers' union announced a wage agreement (under the threat of worker firings similar to Anglo American's tactics). There's no sign of a similar resolution at Anglo American's operations.
The strike has cut Anglo American's platinum output by $217 million. The Congress of South Africa Trade Unions has called for a giant street protest Saturday to show solidarity with the miners that Anglo American fired.
In a company-sponsored video, Carroll says the decision to leave was her own: "I think it is the right time to hand the baton on to someone else who can continue to develop and capitalize off the foundation that we have been building."
Carroll will stay on until a successor is found.
The idea was echoed by Anglo American's chairman, John Parker, in a separate video: "We always listen to our shareholders very carefully, but today's decision was very much based on Cynthia's decision."
But then he emphasized, for the second time, that the board has accepted the decision.
Maybe that's because when it's time for a CEO to leave, everyone can read the writing on the wall.
Previous
Become part of the Monitor community