President Obama can't win by running a constructive campaign, and he won't be able to govern if he does win a second term

The Hillary Moment. By Patrick H Caddell & Douglas E Schoen
President Obama can't win by running a constructive campaign, and he won't be able to govern if he does win a second term.
http://online.wsj.com/article/SB10001424052970203611404577041950781477944.html

When Harry Truman and Lyndon Johnson accepted the reality that they could not effectively govern the nation if they sought re-election to the White House, both men took the moral high ground and decided against running for a new term as president. President Obama is facing a similar reality—and he must reach the same conclusion.

He should abandon his candidacy for re-election in favor of a clear alternative, one capable not only of saving the Democratic Party, but more important, of governing effectively and in a way that preserves the most important of the president's accomplishments. He should step aside for the one candidate who would become, by acclamation, the nominee of the Democratic Party: Secretary of State Hillary Clinton.

Never before has there been such an obvious potential successor—one who has been a loyal and effective member of the president's administration, who has the stature to take on the office, and who is the only leader capable of uniting the country around a bipartisan economic and foreign policy.

Certainly, Mr. Obama could still win re-election in 2012. Even with his all-time low job approval ratings (and even worse ratings on handling the economy) the president could eke out a victory in November. But the kind of campaign required for the president's political survival would make it almost impossible for him to govern—not only during the campaign, but throughout a second term.

Put simply, it seems that the White House has concluded that if the president cannot run on his record, he will need to wage the most negative campaign in history to stand any chance. With his job approval ratings below 45% overall and below 40% on the economy, the president cannot affirmatively make the case that voters are better off now than they were four years ago. He—like everyone else—knows that they are worse off.

President Obama is now neck and neck with a generic Republican challenger in the latest Real Clear Politics 2012 General Election Average (43.8%-43.%). Meanwhile, voters disapprove of the president's performance 49%-41% in the most recent Gallup survey, and 63% of voters disapprove of his handling of the economy, according to the most recent CNN/ORC poll.

Consequently, he has to make the case that the Republicans, who have garnered even lower ratings in the polls for their unwillingness to compromise and settle for gridlock, represent a more risky and dangerous choice than the current administration—an argument he's clearly begun to articulate.

One year ago in these pages, we warned that if President Obama continued down his overly partisan road, the nation would be "guaranteed two years of political gridlock at a time when we can ill afford it." The result has been exactly as we predicted: stalemate in Washington, fights over the debt ceiling, an inability to tackle the debt and deficit, and paralysis exacerbating market turmoil and economic decline.

If President Obama were to withdraw, he would put great pressure on the Republicans to come to the table and negotiate—especially if the president singularly focused in the way we have suggested on the economy, job creation, and debt and deficit reduction. By taking himself out of the campaign, he would change the dynamic from who is more to blame—George W. Bush or Barack Obama?—to a more constructive dialogue about our nation's future.

Even though Mrs. Clinton has expressed no interest in running, and we have no information to suggest that she is running any sort of stealth campaign, it is clear that she commands majority support throughout the country. A CNN/ORC poll released in late September had Mrs. Clinton's approval rating at an all-time high of 69%—even better than when she was the nation's first lady. Meanwhile, a Time Magazine poll shows that Mrs. Clinton is favored over former Massachusetts Gov. Mitt Romney by 17 points (55%-38%), and Texas Gov. Rick Perry by 26 points (58%-32%).

But this is about more than electoral politics. Not only is Mrs. Clinton better positioned to win in 2012 than Mr. Obama, but she is better positioned to govern if she does. Given her strong public support, she has the ability to step above partisan politics, reach out to Republicans, change the dialogue, and break the gridlock in Washington.

President Bill Clinton reached a historic agreement with the Republicans in 1997 that led to a balanced budget. Were Mrs. Clinton to become the Democratic nominee, her argument would almost certainly have to be about reconciliation and about an overarching deal to rein in the federal deficit. She will understand implicitly the need to draw up a bipartisan plan with elements similar to her husband's in the mid-to-late '90s—entitlement reform, reform of the Defense Department, reining in spending, all the while working to preserve the country's social safety net.

Having unique experience in government as first lady, senator and now as Secretary of State, Mrs. Clinton is more qualified than any presidential candidate in recent memory, including her husband. Her election would arguably be as historic an event as the election of President Obama in 2008.

By going down the re-election road and into partisan mode, the president has effectively guaranteed that the remainder of his term will be marred by the resentment and division that have eroded our national identity, common purpose, and most of all, our economic strength. If he continues on this course it is certain that the 2012 campaign will exacerbate the divisions in our country and weaken our national identity to such a degree that the scorched-earth campaign that President George W. Bush ran in the 2002 midterms and the 2004 presidential election will pale in comparison.

We write as patriots and Democrats—concerned about the fate of our party and, most of all, our country. We do not write as people who have been in contact with Mrs. Clinton or her political operation. Nor would we expect to be directly involved in any Clinton campaign.

If President Obama is not willing to seize the moral high ground and step aside, then the two Democratic leaders in Congress, Sen. Harry Reid and Rep. Nancy Pelosi, must urge the president not to seek re-election—for the good of the party and most of all for the good of the country. And they must present the only clear alternative—Hillary Clinton.

Mr. Caddell served as a pollster for President Jimmy Carter. Mr. Schoen, who served as a pollster for President Bill Clinton, is author of "Hopelessly Divided: The New Crisis in American Politics and What It Means for 2012 and Beyond," forthcoming from Rowman and Littlefield.

How Coca-Cola Manages 90 Emerging Markets

How Coca-Cola Manages 90 Emerging Markets, by William J. Holstein
The world’s largest beverage company has delegated major decision making to individual markets, but it maintains its global brand strategy through collaborative practices.
November 7, 2011
http://www.strategy-business.com/article/00093?pg=all

Ahmet C. Bozer, president of the Coca-Cola Company’s Eurasia and Africa Group, has spent his career demonstrating how a large international company can build a strategy and structure itself to compete in emerging markets. Coca-Cola is one of the most globally active international companies, deriving 80 percent of its sales from outside the U.S., and it is therefore one of the most experienced in tackling emerging markets, including Egypt and Pakistan, where political tension renders the business environment uncertain and Coca-Cola’s strategy has proven resilient.

Bozer, who was born and raised in Turkey, has worked for Coca-Cola since 1990 in various capacities, including operations and finance, as well as leading the Coca-Cola bottling company in Turkey. He is currently based in Istanbul, where he oversees 90 markets, ranging geographically from India and South Asia through the Middle East and all of Africa, across Turkey and the Caucasus into the countries of the former Soviet Union. This territory accounted for 16 percent of Coke’s sales last year, for a retail value of US$10 billion, and Bozer expects that number to grow rapidly during the next decade. Like four other regional presidents, Bozer reports directly to Coca-Cola Chairman and CEO Muhtar Kent in Atlanta, Ga. Bozer sat down with us at the Coca-Cola offices in New York.

S+B: Your late CEO Roberto Goizueta charged the company to “think global, act local” in its strategy. How do you accomplish this?

BOZER: I wish it was as easy as repeating the slogan. The key for international companies is finding the right mix of global and local in their operations. The Coca-Cola brand is global, but it must be locally relevant. We may be giving the same happiness message, the same brand architecture may be communicated, but it has to be done differently in each country.

S+B: Your structure has strong regional managers such as yourself, but headquarters in Atlanta maintains global responsibility for sales, finance, and marketing — and for specific product lines like water or juices. How do you manage this?

BOZER: We are a franchise system. Our bottlers are primarily local. In Turkey, for example, we have a Turkish bottler. So the effectiveness of our company depends on the effectiveness of our relationships with the bottlers and our brands. To manage franchise relationships, you have to have a geographic orientation. Therefore our organization is primarily geographic. Globally, we have five operating groups: North America, Latin America, Europe, Eurasia and Africa, and Pacific.

At the same time, the juice business requires a different organizational structure than the sparkling beverages business. The raw material costs are high and fluctuate a lot, and there are opportunities to innovate more quickly; we may introduce four or five new variants of a juice in a given year. Thus, there is a matrix. A functional group in Atlanta is in charge of juices worldwide, but they work through the geographic organizations.

We are still evolving in finding the best local and global combination that works for us. When it comes to franchise relations with the bottlers, that is local. We have to make decisions in the local context with the right speed. Quality standards are both local (we adhere to all local government safety regulations) and global (we have our own global, rigorous, quality control standards). But we take advantage of our global properties and collaborate as a global team, bringing the best resources to bear on a specific issue.

S+B: How do you manage disagreements between the field and headquarters?
 
BOZER: We have been working on it for many years. We all understand that nothing is as black-and-white as we’d like. Let’s say I’m hiring a function leader. I am the ultimate decision maker, but I know that any function leader must operate as part of the global team. He or she must be able to collaborate globally, and the global organization has to be comfortable with that candidate. This is where maturity is important. We emphasize a collaborative process because it makes the decision better. But our culture is purely focused on making the right choice, rather than defining my turf versus your turf. That allows us to make these decisions quickly.

S+B: How do you manage the dramatic variations in cultures and politics among your 90 markets?
 
BOZER: It’s not as difficult as it might seem. I have six business units, based in South Africa, Kenya, Turkey, Russia, India, and Dubai. And I have a functional team in Istanbul with finance, marketing, and strategy capabilities. The functional team works as part of the global team to come up with strategic plans for each market. We share those with the business units, and we expect them to enrich [the plans] and add value to them by adapting them to their own needs.
Russia might say, “Well, iced tea is a big category here, so here’s how we are going to compete [with that product].” There is a clear thread of consistency among all the regions; we stay connected to the global team in Atlanta through the finance and marketing communities.

S+B: What do you see as the greatest opportunity in your 90 markets?
 
BOZER: If you project the demographics of today into 2020, you will find that about half of the favorable changes will be located in Eurasia and Africa: new entrants into the middle class, an increase in the number of teenagers, urbanization. A few of these countries have very high per capita consumption of our beverages. South Africa is about 250 drinks per year per person, which is above the global average. Turkey is higher than 150. But when you take those relatively well-developed markets out and look at India, Pakistan, sub-Saharan Africa, Russia, and central Asia, those markets have very low per capita consumption — for the whole industry. In India, just 4 or 5 percent of the beverages consumed are packaged. People drink tap water, tea, and dairy; vendors squeeze juice on the street. When people start having a bit more money and a middle class emerges, demand for packaged beverages will increase.
In that context, our strategy is not very complicated. We know how to grow “Brand Coke.” It’s about locally relevant brand building with consumers — the right pricing and packaging, with small packs, large packs, or take-home packs. We place new coolers in the market and invest in people, putting “feet on the street,” and activate outlets one by one. At the same time, there is a flourishing juice business and a flourishing water business, and in some of our markets, teas and energy drinks are developing.

S+B: How do you make yourself “locally relevant?”
 
BOZER: We have very strong consumer marketing teams. We invest a lot in understanding the psyche of the local consumer. In Egypt, during the Arab Spring [uprisings], our marketing people were able to tap into the psyche of the public — especially the teenagers. We understood that despite the uncertainty they were going through, they wanted to create a bright future. Our brand promise is happiness and optimism. Our team quickly put together some excellent consumer communication with the message that if everybody came together, the Egyptian people could build a better future. That message was delivered in a wonderful ad in which the skies over Tahrir Square in Cairo are quite overcast and dark, but people get together and throw ropes to the clouds and start pulling the ropes. The clouds open up and the sun appears. That type of communication resonated extremely well. We tapped into the feelings and emotions that were most relevant to the Egyptian people.
We try to do this kind of thing everywhere. We have good marketers in each country who have access into consumer insight data, and who work with very good agencies, while at the same time working with robust global processes.

S+B: Doesn’t political and social upheaval create a problem for you?
 
BOZER: Not really. I was in Pakistan recently. When you read the papers and watch television, you hear about terrorism, earthquakes, floods, and sectarian violence. It’s all negative. But we’ve been there for more than 50 years and we have not experienced any problems in running our business. In fact, our business is thriving there. Over the past four years, we have been growing extremely well. The same holds true for the Arab Spring countries.
In our external environment, we may have many headwinds, but we sell simple moments of pleasure that get consumed a million times a day, and that business continues to be vibrant. It’s a very simple product. Yes, growth slows when you go through major political changes, but things settle down and life goes back to normal. Then you start building from there.

S+B: You have a tremendous variation in the type and sophistication of bottlers you work with, ranging from a giant like SABMiller in South Africa to mom-and-pop-type bottlers in other markets. How do you adapt to their different styles and capabilities?
 
BOZER: This is the bread and butter of our business: being effective with our partnerships. Our partners may be multi-country bottlers, or they may operate within a single country. They may be public or private. In some countries we work with multiple bottlers. We have all kinds of relationships.

With each one, we first establish a shared vision. We have a one-page road map that portrays a very clear destination for 2020, a clear framework about our strategic pillars and metrics. That road map is actually prepared with our bottlers. It guides all our business planning.
Then it comes to capability. Does the bottler have the capability to execute these plans with us?

At the end of the day, we’re trying to create value for the overall system of the Coca-Cola Company and its bottlers, not just ourselves. Otherwise, the system won’t be sustainable in terms of our results.

One of the best examples is our bottler in Turkey, which I used to run. The bottler was built by the Coca-Cola Company and sold to a local shareholder who now owns a majority. It’s a public company with a market value of more than €2.5 billion (US$3.5 billion). It has great alignment with the Coca-Cola Company. It is now 10 times the size of when it started in 1994. This model really works.

S+B: How do you support your partners? Do you train them or lend them money?
 
BOZER: It depends on the needs of the bottler. The bottlers that operate in multiple countries tend not to need our help. But there might be some emerging area of knowledge — for example, about how to do better category management, in which case we have centers of excellence that the bottlers can access. We have websites where they can download best practices or get our help in building their capabilities. We sometimes support bottlers financially as well, if we are aligned on a fairly aggressive growth plan and want to invest in marketing to build the brands with more intensity. And let’s not forget, we own about 30 percent of our bottlers around the world.

S+B: How do you allow a local bottler and local business unit to differentiate the mix of products they offer?
 
BOZER: We don’t work in a way whereby every time a business unit wants to launch a product, they have to get my approval. Instead, we share the strategic framework. We have strategy discussions and business plan discussions, and we have other guidelines and rules.
For example, it is understood within the group that I want to know your top three priorities. If you want to launch a new product, but you need to take away [resources] from one of those core priorities to launch that product, then you shouldn’t do it. And if your bottler doesn’t have the capabilities to handle that product, you shouldn’t launch it. But if you can figure out how to do all of that in a way that still funds your core, if you have followed the right process, and if you are in the right marketplace with the right capabilities on the marketing side, then by all means go ahead.

We have Maaza juice in India, for example. The local team wanted to launch a Maaza milkshake, which is a wonderful mango dairy product. Dairy is a very relevant category in India, and Maaza milkshakes were received extremely well by consumers. My group function heads and the global function heads contributed to this by supporting the local team. This is not a bureaucratic approval–based system. Of course, there are approvals, but once the strategy and business plan are approved, local teams can execute.

S+B: Have you had much reverse innovation, in which a local group comes up with an idea that you take to other markets?
 
BOZER: Yes. One innovation that came out of India is the solar-powered coolers. We’re looking to expand that to other markets. There’s great engineering talent in India. Another product that shows promise is Minute Maid’s Pulpy, an orange juice with pulp that did extremely well in China. We expanded it into many countries. We have also taken communications elsewhere. Turkey, for example, had a very successful Ramadan communication to celebrate the holy month in Muslim countries. We took that to other Muslim countries in our group.

S+B: How do you recruit the talent you need?
 
BOZER: We look for critical experiences and functional competencies. And we ask about candidates: Do they represent the values of the company? We’re about optimism. A pessimistic person wouldn’t work out.
The nationality and gender don’t really matter. On my group leadership team of 18 people, I have 12 nationalities represented, including individuals from Zimbabwe, Scotland, the United States, Turkey, South Africa, India, Croatia, and elsewhere.
The most important competency is leadership. It takes very strong leadership to be able to explain the environment, establish a vision, and rally the troops. Command and control, in most cases, does not work. If you try to control everything, the system won’t work.

CGFS: The macrofinancial implications of alternative configurations for access to central counterparties in OTC derivatives markets

November 17, 2011

The Committee on the Global Financial System (CGFS) has today released a report on The macrofinancial implications of alternative configurations for access to central counterparties in OTC derivatives markets. It was prepared by a study group chaired by Timothy Lane of the Bank of Canada.

Various alternative access arrangements are under consideration for the central clearing of OTC derivatives trades. Several jurisdictions are exploring the establishment of domestic central counterparties (CCPs) and the possible benefits of establishing links between them.

The conditions under which market participants obtain access to central clearing could have important implications for financial stability and efficiency. The report concludes that:

• expanding direct access to CCPs may reduce the concentration of risk in the largest global dealers. As direct access is broadened, it is essential that CCPs' risk management procedures be adapted appropriately to ensure their continued effectiveness;
• both large global and smaller regional or domestic CCPs will probably play a role in meeting G20 commitments. In both cases, developing and adopting international standards will be essential to avoid regulatory arbitrage and promote effective cross-border monitoring of infrastructure and participants; and
• CCPs and authorities should consider enhancements where needed to strengthen the safety and efficiency of indirect clearing that comply with international standards. Effective segregation, as well as portability of positions and collateral belonging to a direct clearer's clients, will be needed to realise the benefits of systemic risk reduction.

CGFS Chairman Mark Carney, in presenting the report, said that it "provides relevant and timely input to international initiatives related to CCP access arrangements and configurations."

Algeria: structural and other reasons for regime stability

Kal writes:

Richard Phelps argues that Algeria has not seen a popular uprising this year on broad structural lines (‘An Algerian Exception?‘ CMEC Blog): ‘Algerian regime does not have an identifiable leader with whom political power truly lies’.

[...]

And the government has focused its strategy toward them based on this reality and avoided the provocative showings of ‘symbolic’ violence that gave fuel to protest movements in Tunisia and Libya and Syria and Egypt (part of this is owed to the government’s relationships with the private media as well). Official and unofficial media has not covered demonstrations extensively to the extent that protesters in one city would necessarily be aware of those in another. The massive showing of ‘force’ at the February demonstrations — which were quite small, using barely a few thousand people if that — was a show of bodies more than anything else, and while protesters were manhandled and some beaten few or none were shot or killed in the way their counterparts elsewhere in the Arab world were. The government issued reforms, after long deliberations, and statements of intent to reform on a range of issues. It acted quickly to buy off organizers and potential participants or to contain and frustrate them rather than making public ‘examples’ of children or attempting to use overwhelming and direct force. The ‘crackdowns’ on protesters in Algeria this year were in large measure qualitatively different from those elsewhere, as were the demonstrations themselves.

Structurally it is important to understand that Algeria’s politics do operate in a diffuse manner, that power is spread through regional and professional and bureaucratic networks which often compete with one another but are also sometimes dependent on one another. (One might quibble with any comparison of the Algerian presidency to the power of any single office in Lebanon or to even its strongest Lebanese za’im; the perception and reality of the president’s power in Algeria is an interesting thing to follow and to try an gage at any one time but the presidency has frequently overwhelmed the military under Bouteflika.) The business class and the military officers and the technocrats and local notables intersect and it would be difficult to ‘purge’ the government as the Tunisians are now trying to do and it would also be difficult to make removing Bouteflika in a coup appear to Algerians as a symbolic act with and the armed forces a trusted ‘care taker’ of some transition process (let alone a ‘savior’) as the Egyptian Army did with Mubarak, since Algerians are generally more cynical and probably distrust their military and opposition more than their cousins in the rest of the region. It is also important to understand the field in which these various networks and factions (‘clans’) interact, overlap and struggle; it involves a great deal of both external and internal opacity and risk. There are enormous uncertainties involved. Longtime Algeria hand John Entelis wrote in September that change of some kind would wind up taking place in Algeria, if only so that the country’s elite could keep its own interests, and that  ’[w]hether this process develops peacefully or violently is ultimately in the hands of le pouvoir’.


But structural reasons are not the only ones Algeria has not seen an uprising. The Algerian military and political class has dealt with uprisings and transitions before and probably had a better idea of how to deal with such problems technically given its experience in the 1988-1990 period and the youth uprising in 2001 and the tens of thousands of youth riots which have struck the country in the last decade. In other words, it is important to recognize that the Algerian regime — like its counterparts elsewhere — made choices this year.

Read the whole post at http://themoornextdoor.wordpress.com/2011/11/16/exceptions-agency-structure/

IMF Calls for Further Reforms in China’s Financial System

IMF Calls for Further Reforms in China’s Financial System
Press Release No. 11/409
November 14, 2011 

http://www.imf.org/external/np/sec/pr/2011/pr11409.htm

China’s financial system is robust overall, but faces a steady build-up in vulnerabilities. While significant progress has been made towards developing a more commercially-oriented financial sector, and supervision and regulation are being strengthened, risks stem from the growing complexity of the system and the uncertainties surrounding the global economy. Further reforms are needed to support financial stability and encourage strong and balanced growth, the International Monetary Fund (IMF) says in its first formal evaluation of China’s financial sector published today.

The IMF’s first Financial Sector Assessment Program (FSAP) review of China was carried out jointly with the World Bank. China is one of 25 systemically important countries that have agreed to mandatory assessments at least once every five years. The FSAPs are part of the IMF’s activities in financial surveillance and the monitoring of the international monetary system.

“China’s banks and financial sector are healthy, but there are vulnerabilities that should be addressed by the authorities,” says Jonathan Fiechter, deputy director of the IMF’s Monetary and Capital Markets Department and the head of the IMF team that conducted the FSAP. “While the existing structure fosters high savings and high levels of liquidity, it also creates the risk of capital misallocation and the formation of bubbles, especially in real estate. The cost of such distortions will only rise over time, so the sooner these distortions are addressed the better.”

Risks
According to the FSAP report, China’s financial sector is confronting several near-term risks: deterioration in loan quality due to rapid credit expansion; growing disintermediation by shadow banks and off-balance sheet exposures; a downturn in real estate prices; and the uncertainties of the global economic scenario. Medium-term vulnerabilities are also building and could impair the needed reorientation of the financial system to support the country’s future growth. Moving along this path will pose additional risks, so priority must be given to establishing the institutional and operational preconditions that are crucial for a wide-ranging financial reform agenda.

The main areas of reform should include:

• Steps to broaden financial markets and services, and developing diversified modalities of financial intermediation that would foster healthy competition among banks;
• A reorientation of the role of government away from using the banking system to carry out broad government policy goals and to allow lending decisions to be based on commercial goals;
• Expansion of the use of market-based monetary policy instruments, using interest rates as the main instrument to govern credit expansion, rather than administrative measures;
• An upgrading of the financial infrastructure and legal frameworks, including strengthening the payments and settlement systems, as well as consumer protection and expansion of financial literacy.

The Chinese authorities have begun to move on many of its recommendations, and the IMF stands ready to provide technical cooperation in areas relating to strengthening the financial stability framework in China.

Stress Tests
Stress tests conducted jointly by the Fund and Chinese authorities of the country’s largest 17 commercial banks indicate that most of them appear to be resilient to isolated shocks, which include: a sharp deterioration in asset quality (including a correction in the real estate markets), shifts in the yield curve, and changes in the exchange rate. If several of these risks were to occur at the same time, however, the banking system could be severely impacted, the report warns.

About the FSAP
The Financial Sector Assessment Program, established in 1999, is an in-depth analysis of a country’s financial sector. The IMF conducts mandatory FSAPs for the 25 jurisdictions with systemically important financial sectors, and any member countries that request it. Assessments in developing and emerging market countries are conducted jointly with the World Bank. FSAPs include two components: a financial stability assessment, which is the responsibility of the Fund; and, in developing and emerging market countries, a financial development assessment, conducted by the World Bank.

To assess the stability of the financial sector, IMF teams examine the soundness of the banking and other financial sectors; rate the quality of bank, insurance, and capital market supervision against accepted international standards; and evaluate the ability of supervisors, policymakers, and financial safety nets to respond effectively to a systemic crisis. While FSAPs do not evaluate the health of individual financial institutions and cannot predict or prevent financial crises, they identify the main vulnerabilities that could trigger one.

In September 2010, the IMF made financial stability assessments under the FSAP a mandatory part of IMF surveillance every five years for jurisdictions deemed systemically important based on the size of the financial sector and their global interconnectedness. The countries affected by this decision are: Australia, Austria, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, Italy, Japan, India, Ireland, Luxembourg, Mexico, the Netherlands, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

For more information on FSAPs, see Press Release No. 10/357