Industries that earn despite US recession

With shopping no longer their favorite pastime, Americans appear to be spending their money in other ways, such as acquiring new skills, getting help with their finances and visiting the dentist.

This change in spending behavior is helping trade schools, accounting firms and even your neighborhood dentist survive the economic downturn better than other businesses, according to an industry report.

"Our data show that companies selling non-discretionary products and services, things that people really need, are doing pretty well," said Brian Hamilton, CEO of Sageworks Inc., a Raleigh, N.C.-based company that analyzes weekly financial data such as sales, balance sheets and income statements for privately held companies across 1,600 industries.

Hamilton said seven industries are clearly benefiting from a pickup in sales over the past 12 months.

Auto Repairs, Home Repairs

April's retail sales numbers showed consumers are still shunning big-ticket purchases. So instead of buying new cars or upgrading to bigger homes, they are spending money on maintaining what they already own.

Auto repair shop sales grew 2.4% over the last 12 months while car dealership sales declined by 9.7%, according to Sageworks.

As more people remodel and fix their homes instead of moving, revenue for electricians, plumbing and heating contractors has grown 4.6% in the last 12 months while home builders' sales declined by more than 5%.

Supermarkets

Many consumers are looking to save money by eating at home more than eating out. This trend has favored grocery stores, resulting in a 6.7% sales increase for supermarkets in the last 12 months.

By comparison, Sageworks' data showed family-style restaurants logged a slower 3.9% sales increase.

Trade Schools

With an average of 600,000 Americans losing their jobs every month, many are going back to school to learn new skills and improve their chances of rejoining the workforce when the economy rebounds.

Revenue at trade and technical schools has grown by 9.1% in the last 12 months, a faster pace than the 5.9% growth in 2007.

Dentists' Delight

Hamilton said health care has been one of the most recession-resistant sectors, since people regard it as a necessity.

Sageworks' data showed the average dentists' office logged sales growth of 6.9% in the last 12 months, up from 4.9% in 2007.

Looking Good

Personal care extends to looking good through the recession. While Americans may be making concessions on high-end services, they are still getting regular haircuts and manicures.

Hair salons, barber shops, nail salons and spas logged sales growth of 4.5% in the last 12 months, according to Sageworks.

Help With Finances

Many consumers aren't shying away from paying for financial advice to help them make it through the recession.

Sageworks' data showed that the accounting industry ranked among the top 10 industries in terms of revenue growth, with a 10.2% gain in the past 12 months.

"These patterns show that the recession has been lopsided," said Hamilton. "Although the economy has slumped, we're not getting a decline across all industries. Very specific industries like real estate are creating a big drag on the broader economy."

A shortlist of the Worlds Best Banks

As the dust starts to settle, which banks deserve the most plaudits?

Illustration by S. Kambayashi

TRYING to work out which banks are the world’s best is a bit like awarding the prize for prettiest war-torn village. It is a title that carries little kudos. It is also likely to prompt further shelling. Winners of industry awards in the past three years include Ken Lewis, the chief executive of Bank of America, for banker of the year (2008); Société Générale for its risk management; and Angelo Mozilo of Countrywide, a failed mortgage lender, for a “lifetime of achievement”.

Still, the question is becoming more pertinent. After months of indiscriminate fear, widespread losses and government hand-holding, the banking industry is gradually stabilising. Money markets are steadily calming. American banks that got a clean bill of health in this month’s stress tests are queuing up to repay government money. A first wave of escapees is likely to include Goldman Sachs, Morgan Stanley and JPMorgan Chase. Those banks that emerge from this crisis with reputations and franchises strengthened will find it increasingly easy to raise funds, win clients, attract employees and buy assets.

Plenty of institutions have come through the crisis relatively unscathed. The Chinese banks now dominate rankings by market capitalisation. Standard Chartered, an emerging-markets lender, seems to be steering a deft course through the downturn in the developing world. Rabobank, a wonderfully dull co-operative bank in the Netherlands, is the only bank that can still boast a AAA rating from Standard & Poor’s. Bank of New York Mellon, a large custodian, has won lots of new business from belatedly risk-averse clients. But to win the shiniest medals, you need to have come under fire. In the heat of battle, which banks have come off best?

Working out the answer is trickier than it looks. Independence from the government is one marker of success, yet America’s largest banks were given little choice but to take government capital in October. In Europe some avoided state cash by treating existing shareholders badly: witness the money that Barclays hurriedly raised from Middle Eastern investors last year. And lowish credit-default-swap spreads on banks such as Deutsche Bank and Credit Suisse partly reflect the assurance of government help if needed.

Share prices offer another perspective. Every bank investor has been hammered in the past two years, of course, but some have done much better than others. Investors in Citigroup and Royal Bank of Scotland have been all but wiped out. Even the best performing big banks have lost a third of their value in that period. Over a longer time frame, from the start of the bubble to the present, only a handful of the big firms have delivered capital gains for their investors. They include Goldman Sachs, Credit Suisse, BNP Paribas of France and Banco Santander of Spain.

But share prices are also imperfect gauges of bank performance. During the boom investors rewarded growth, whether it was sustainable or not. Banks that avoided the stampede into credit in the go-go years grumble, with some justice, that they were punished for their conservatism. Continuing volatility in share prices partly reflects deep uncertainty over banks’ future earnings power.

The league table of industry write-downs and credit losses is another indicator. There is red ink everywhere but some have spilled much more than expected. HSBC has lost $42.2 billion to date, most of it thanks to its disastrous foray into America’s subprime-mortgage market. The bank is otherwise well run, with a conservative approach to funding that has served it well, but it has lost more to date than the likes of Royal Bank of Scotland, now largely in the hands of the state, and JPMorgan Chase, which has far more exposure to both America and investment banking. That is hard to forgive.

Success can also be judged by how well banks have positioned themselves for the future. Just surviving has been smart. The likes of Deutsche and Credit Suisse have not needed to do huge deals to produce bumper earnings in the first quarter. But many banks have splashed out during the crisis, with strikingly varied results. Bank of America’s purchase of Merrill Lynch and Lloyds TSB’s takeover of HBOS have been horror stories. Wells Fargo has done better with its purchase of Wachovia, but decent longer-term prospects cannot obscure the fact that a generous stress-test process still required it to raise more capital. BNP’s tortuous capture of Fortis gives it the euro area’s biggest deposit-taking franchise. But the dealmaking baubles go to Barclays for its cut-price acquisition of Lehman’s North American business; to JPMorgan Chase for its swoops on Bear Stearns and Washington Mutual; and to Santander for emerging from the ABN AMRO transaction, which killed off RBS and Fortis, with a big presence in Brazil at a fair price.

However the pack is shuffled, a few names keep resurfacing—in America, Goldman Sachs and JPMorgan Chase; and in Europe, Credit Suisse, Deutsche, BNP, Barclays and Santander. They can be whittled down further. In Europe, concerns over what lies on the balance-sheets of Deutsche and Barclays are ebbing but are not gone. The British bank’s willingness to consider a sale of BGI, its asset-management arm, suggests worries over capital. Both banks still have lots of legacy assets, many of them tucked in the banking book.

Santander should rightfully take its bow alongside its regulators, who closed off the capital benefits of building up big off-balance-sheet positions and required Spanish banks to put aside provisions during the upswing. BNP has played its hand very well, but its business mix (a stable home market and a focus on equity derivatives) helped massively by keeping it away from the worst blow-ups.

In America, Goldman still has legions of admirers. It has posted losses of less than $8 billion to date, a performance not nearly as bad as those of its direct peers. Its focus on risk management is a template for others to follow. But its renewed swagger should not conceal the fact that it needed to convert into a bank-holding company in order to survive the market storm—nor the questions that hang over its future earnings in a re-regulated industry.

That leaves Credit Suisse and JPMorgan Chase to take the grand prizes. Credit Suisse has had its share of mishaps during the crisis but it was quick to scale down its balance-sheet, has plotted a credible strategy for its investment bank and pulled well ahead of UBS, its main rival in wealth management. As for JPMorgan Chase, it has kept a tight rein on risk, managed capital well and acquired sensibly. None of this is much comfort for weary Swiss and American taxpayers, of course. Well-run or not, both banks present the problem of being far too important to fail. And that’s to say nothing of the curse of awards.

Record Plunge for Japanese Economy?

Japan's economy in record plunge

Japan's exports have been hit by a collapse in demand

Japan's economy has seen its worst ever quarterly performance, with GDP shrinking 4% in the first three months of 2009.

The contraction is the fourth in succession, following a 3.8% drop in October to December.

But economists are predicting modest growth in the coming months after a small rise in production in March.

The world's second biggest economy, which depends heavily on exports, has been hit hard by the global downturn.

The BBC's Roland Buerk in Tokyo says people around the world are buying fewer of the cars and electronic gadgets that Japan is renowned for.

The latest contraction is the biggest since records began in 1955.

It comes at an annualised rate of 15.2%, compared with a 6.1% fall in the US over the same period.

State of European Economies

A new pecking order

There has been a change in Europe’s balance of economic power; but don’t expect it to last for long

AFP

FOR years leaders in continental Europe have been told by the Americans, the British and even this newspaper that their economies are sclerotic, overregulated and too state-dominated, and that to prosper in true Anglo-Saxon style they need a dose of free-market reform. But the global economic meltdown has given them the satisfying triple whammy of exposing the risks in deregulation, giving the state a more important role and (best of all) laying low les Anglo-Saxons.

At the April G20 summit in London, France’s Nicolas Sarkozy and Germany’s Angela Merkel stood shoulder-to-shoulder to insist pointedly that this recession was not of their making. Ms Merkel has never been a particular fan of Wall Street. But the rhetorical lead has been grabbed by Mr Sarkozy. The man who once wanted to make Paris more like London now declares laissez-faire a broken system. Jean-Baptiste Colbert once again reigns in Paris. Rather than challenge dirigisme, the British and Americans are busy following it: Gordon Brown is ushering in new financial rules and higher taxes, and Barack Obama is suggesting that America could copy some things from France, to the consternation of his more conservative countrymen. Indeed, a new European pecking order has emerged, with statist France on top, corporatist Germany in the middle and poor old liberal Britain floored.

A cockpit of competing capitalisms

It is easy to dismiss this as political opportunism. But behind it sits a big debate not only about the direction of the European Union, the world’s biggest economic unit, but also about what sort of economy works best in the modern world. Thirty years after Thatcherism began to work its cruel magic in Britain (see article), continental Europe still tends to favour a larger state, higher taxes, heavier regulation of product and labour markets and a more generous social safety-net than freer-market sorts like the Iron Lady would tolerate. So what is the evidence for the continental model being better?

The continental countries certainly have not escaped the recession: France may be doing a bit better than the world’s other big rich economies this year, but Germany, dragged down by its exporting industries, is doing significantly worse. Yet Mr Obama is right to admit that in some ways continental Europe has coped well. Tough job-protection laws have slowed the rise in unemployment. Generous welfare states have protected those who are always the first to suffer in a downturn from an immediate sharp drop in their incomes and acted as part of the “automatic stabilisers” that expand budget deficits when consumer spending shrinks. In Britain, and to an even greater extent in America, people have felt more exposed.

The downturn has also confirmed that the continental model has some strengths. France has a comparatively efficient public sector, thanks in part to years of investment in better roads, more high-speed trains, nuclear energy and even the restoration of old cathedrals (see article). Nor is it just a matter of pumping in ever more taxpayers’ cash. By any measure France’s health system delivers better value for money than America’s costlier one. Germany has not just looked after its public finances more prudently than others; its export-driven model has forced its companies to hold down costs, making them competitive not only in Europe but also globally. By design as well as luck, much of continental Europe avoided the debt-fuelled housing bubbles that popped spectacularly in Britain and America (though Spain did not, see article).

But will it last? The strengths that have made parts of continental Europe relatively resilient in recession could quickly emerge as weaknesses in a recovery. For there is a price to pay for more security and greater job protection: a slowness to adjust and innovate that means, in the long run, less growth. The rules against firing that stave off sharp rises in unemployment may mean that fewer jobs are created in new industries. Those generous welfare states that preserve people’s incomes tend to blunt incentives to take new work. That large state, which helps to sustain demand in hard times, becomes a drag on dynamic new firms when growth resumes. The latest forecasts are that the United States and Britain could rebound from recession faster than most of continental Europe.

Individual countries have specific failings of their own. Even if it did everything else right, Germany’s overreliance on exports at the expense of consumer spending has proved a grave weakness in a downturn (see article); its banks also look weak. The rate of youth unemployment in France is over 20% and it can be twice as high in the notorious banlieues where Muslim populations are concentrated. Italy and Spain have seen sharp rises in unit labour costs and their labour-productivity growth has stalled or gone into reverse. It may not be long before the fickle Mr Sarkozy is re-reading his Adam Smith.

Not what you aim for, but how you do it

If there is to be an argument about which model is best, then this newspaper stands firmly on the side of the liberal Anglo-Saxon model—not least because it leaves more power in the hands of individuals rather than the state. But the truth is that the governments on both sides of the intellectual divide could go a long way to making their models work better, without changing their underlying beliefs.

On the continental side, there is nothing especially socially cohesive about labour laws that favour insiders over outsiders, or rules that make the costs of starting a business excessive. Even Colbert might admit that Europe’s tax burdens are too onerous today, particularly since they are likely to have to rise in the future to meet the looming cost of the continent’s rapidly ageing populations.

For the liberals, even if the cycle swings back in their direction, the financial crisis and the recession have shown up defects in the way they too implemented their model. Getting regulation right matters as much as freeing up markets; an efficient public sector may count as much as an efficient private one; public investment in transport, schools and health care, done well, can pay dividends. The pecking order may change, but pragmatism and efficiency will always count.

(May 7th 2009
From The Economist print edition)

Latin America's economies That fragile thing: a good reputation

A reformed region cannot escape recession but it can mitigate its impact

FOR much of the past two centuries Latin America has been a byword for the profligate squandering of economic promise and for financial crisis. So ingrained is this reputation that when Chile’s president recently met Britain’s prime minister and boasted of her government’s foresight in saving some of its windfall revenues during the boom years, George Osborne, the shadow chancellor of the exchequer, sneered: “Gordon Brown is getting lessons from the Latin Americans about sound public finances. You couldn’t make it up.”

Happily, Mr Osborne’s view of Latin America is outdated, or at least it now applies in only a few places. Over the past decade, most of the bigger countries in the region have greatly improved their economic policies and the government institutions that implement them. That is the main reason why Latin America was until recently a spectator in the world financial crisis. Its banks are generally conservative and well-regulated. Many countries eschewed their past habit of abusing a boom to borrow. Public finances were mostly in balance, public debt fell and the region ran a current-account surplus. Indeed Chile is one of the world’s best-managed economies by almost any yardstick, but Mexico, Brazil, Colombia, Peru and Uruguay are not all that far behind.

Sadly none of this has shielded the region from the world recession (see article). Most forecasters predict that Latin America’s output will contract this year and recover only modestly next year, so income per head will shrink. Some countries are doing worse than others. Even before the flu outbreak, Mexico had been especially hard hit, because its economy is so closely tied to that of the United States. Brazil is better placed. Argentina, Venezuela and Ecuador have spurned the prudence of their neighbours and antagonised investors. Only the uncertain prospect of Chinese aid stands between these three countries and possible financial crisis next year.

Yet overall, in contrast to its past recessions, Latin America is doing no worse than the world as a whole. In other words, it is not adding to its troubles with internal weaknesses. What’s more, its governments have been able to cushion the blow with counter-cyclical policies of the kind that the rich world has taken for granted since Keynes but which Latin America’s habitual profligacy and lack of credibility denied it in the past. So instead of having to cut spending as tax revenues fall, this time many governments have been able to increase it. Their central banks have earned sufficient credentials as inflation fighters, and many have enough reserves, to cut interest rates without prompting a dangerous weakening of the currency.

Know your limits

Still, there are limits to what governments can do to mitigate the pain. While there’s scope, by and large, for easing monetary policy, fiscal policy is more constrained. The IMF, the World Bank and the Inter-American Development Bank will plug much of the gap this year, but next year looks harder. Tax revenues will have fallen further and Latin American governments’ dodgy past records may hamper their ability to raise money in debt markets that will be heavily oversubscribed.

The priority for those governments should be to maintain their hard-won reputation for financial stability. That will mean keeping a tight rein on budgets. Some of the social gains of recent years will inevitably be lost. But governments can help the poor by focusing spending on, for instance, preventing child malnutrition, discouraging pupils from dropping out of school and beefing up health services.

There is another, harder lesson. Latin America’s recent growth owed much to the outside world, cheap money and high commodity prices. With the world economy facing (at best) several sluggish years, the region will have to look closer to home for growth, by raising its productivity. That needs a huge effort not just to improve education, but also to implement long-postponed reforms of, for instance, labour markets. Such things are never easy in Latin America, where democratic politicians face voters who have to bear the world’s widest inequalities of income. But if the region is to consolidate its still novel reputation for prudent progress and good management, they will have to be done.

(From The Economist print edition)

News from the Business Schools, April 2009

A selection of news from around the business campuses

Case for the prosecution

In a magnificent example of circular thinking, Harvard Business School professors are writing a case study examining whether teaching at the school—which, famously, is exclusively via the case-study method—is adequately preparing its alumni to manage risk.

The school, whose alumni include Stan O’Neal and Andrew Hornby, the men who were at the helm of failed banks Merrill Lynch and HBOS, is looking particularly exposed to the gathering criticism over business schools’ role in the current economic turmoil. However, many professors remain perplexed at the flak coming their way, arguing that, by its very nature, the case-study method imbues students with a sense of long-term risk. Most case studies taught in business school classrooms tend to be several years old. While this is often to the chagrin of students—who continuously complain about material being out of date—it does, in theory, discourage short-termism as MBAs get to learn the real-world outcomes to the corporate dilemmas on which they have been deliberating. The case, it appears, remains unproven.

Changing course

Dartmouth College’s Tuck School of Business is launching what it believes is the world’s first MBA elective focusing on climate change. The course, “Business and Climate Change”, is the brainchild of Anant Sundaram, a professor at Tuck and the pioneer of a model which gauges firms’ vulnerability to fossil-fuel prices. Professor Sundaram says that rather than acting as a constraint on companies, a warming planet could be a huge business opportunity: “The implications are enormous. Massive wealth will be created by companies that get in front of this issue and lost by those that do not.”

The trend towards greener MBAs has been evident for much of the last decade. What is new is the driving force behind the change: schools are becoming greener not just because it is seen as socially important, but also because it is seen as a potential competitive advantage for companies. Babson College’s Olin Graduate School of Business, for example, has introduced a “Sustainable Entrepreneurship by Nature” course. Meanwhile, New York’s Stern Business School recently announced it had officially “gone green” after it unveiled a plan to make its campus more environmentally friendly. It is also launching a “Leading Sustainable Enterprises”

Oil exploration

Coming at the issue from another angle, Warwick Business School is launching a Global Energy MBA in May. Aimed at those already working within the energy industry, the programme will tackle the dual challenges of how to meet demand for oil and gas and how to bring on alternative, renewable sources of energy to help combat climate change.

According to the programme’s academic director, David Elmes, the MBA will also help students get to grips with a recent shift in responsibility between countries and companies. “Companies who would have accessed funds from banks or markets are now pinning their hopes on government stimulus packages,” he says. “The risk is that the momentum to sustain today’s energy sources and develop alternatives is stalling.” The MBA is delivered over three years, combining week-long seminars and self-study.

Opening for business

Pakistan is to get a new private business school. The Karachi School for Business and Leadership (KSBL) is being set up by the Karachi Education Initiative in partnership with the University of Cambridge’s Judge Business School. It plans to offer executive development programmes from next year, with an MBA following in 2011 and an executive MBA the year after that. It is also being charged with teaching students what it takes to run a for-profit business school in Pakistan.

Pakistan has a dearth of world-class business schools. The most prestigious is probably the Institute of Business Administration in Karachi, which was set up in 1955 by the University of Pennsylvania’s Wharton School of Business. Nonetheless, it, in common with other Pakistani schools, regularly gets overlooked in the important international rankings. Many students head out of the country to pursue their business education, something that KSBL hopes to address.

Joint Finnish

Finland’s premier business school, the Helsinki School of Economics (HSE), is merging with the University of Art and Design Helsinki and the Helsinki University of Technology. The new institution, to be named Aalto University, after Alvar Aalto, an architect and one of Finland’s iconic figures, will open its doors to students in 2010 and will continue to offer many of the business programmes currently run by HSE—including an MBA and Executive MBA. The university says that the combination of three such prestigious institutions opens up new possibilities for multi-disciplinary education and research. Critics have voiced concern, however, that competition in the Finnish market will be stifled, such will be Aalto’s dominance.

Class in Gulf

Grenoble Graduate School of Business is to offer some of its business programmes in Saudi Arabia. The French school will link up with the College of Business Administration (CBA) in Jeddah to run its Master in International Business and Doctorate in Business Administration. The programmes will be taught solely in English by Grenoble faculty on the CBA campus. The school said it also hoped to offer Saudi versions of its MSc in Innovation and Technology Management, MSc in Construction Management and executive education training in the future.

Grenoble isn’t the only school looking to expand in the region. Britain’s Manchester Business School has announced that it will be launching an MBA in Dubai. The programme, lasting 30-36 months, is to be taught through a mixture of self-study, residential workshops in the Emirates and virtual learning. Meanwhile, Canada’s Queen’s School of Business will be rolling out its three-day operational leadership programme in Oman, adding to programmes it already runs in the UAE.

Latin lessons

The University of Miami School of Business Administration is hoping to further expand into Latin America after it announced plans to offer its Executive MBA programme in Puerto Rico. The proposed programme, which is awaiting approval from the Puerto Rican government, would be taught at the headquarters of El Nuevo Día, a local newspaper and partner of the school.

Unsurprisingly, given its location, the Miami school already has strong links to the region. Its Master of Science in Professional Management and Executive MBA programme, which run on its Florida campus, are taught entirely in Spanish and target executives working in Latin America. It has also established several partnerships with Latin American business schools, including Universidad de San Andres in Argentina, the University of São Paulo in Brazil, and CENTRUM Católica in Peru.

The Economies of latin America

A reformed region cannot escape recession but it can mitigate its impact

FOR much of the past two centuries Latin America has been a byword for the profligate squandering of economic promise and for financial crisis. So ingrained is this reputation that when Chile’s president recently met Britain’s prime minister and boasted of her government’s foresight in saving some of its windfall revenues during the boom years, George Osborne, the shadow chancellor of the exchequer, sneered: “Gordon Brown is getting lessons from the Latin Americans about sound public finances. You couldn’t make it up.”

Happily, Mr Osborne’s view of Latin America is outdated, or at least it now applies in only a few places. Over the past decade, most of the bigger countries in the region have greatly improved their economic policies and the government institutions that implement them. That is the main reason why Latin America was until recently a spectator in the world financial crisis. Its banks are generally conservative and well-regulated. Many countries eschewed their past habit of abusing a boom to borrow. Public finances were mostly in balance, public debt fell and the region ran a current-account surplus. Indeed Chile is one of the world’s best-managed economies by almost any yardstick, but Mexico, Brazil, Colombia, Peru and Uruguay are not all that far behind.

Sadly none of this has shielded the region from the world recession (see article). Most forecasters predict that Latin America’s output will contract this year and recover only modestly next year, so income per head will shrink. Some countries are doing worse than others. Even before the flu outbreak, Mexico had been especially hard hit, because its economy is so closely tied to that of the United States. Brazil is better placed. Argentina, Venezuela and Ecuador have spurned the prudence of their neighbours and antagonised investors. Only the uncertain prospect of Chinese aid stands between these three countries and possible financial crisis next year.

Yet overall, in contrast to its past recessions, Latin America is doing no worse than the world as a whole. In other words, it is not adding to its troubles with internal weaknesses. What’s more, its governments have been able to cushion the blow with counter-cyclical policies of the kind that the rich world has taken for granted since Keynes but which Latin America’s habitual profligacy and lack of credibility denied it in the past. So instead of having to cut spending as tax revenues fall, this time many governments have been able to increase it. Their central banks have earned sufficient credentials as inflation fighters, and many have enough reserves, to cut interest rates without prompting a dangerous weakening of the currency.

Know your limits

Still, there are limits to what governments can do to mitigate the pain. While there’s scope, by and large, for easing monetary policy, fiscal policy is more constrained. The IMF, the World Bank and the Inter-American Development Bank will plug much of the gap this year, but next year looks harder. Tax revenues will have fallen further and Latin American governments’ dodgy past records may hamper their ability to raise money in debt markets that will be heavily oversubscribed.

The priority for those governments should be to maintain their hard-won reputation for financial stability. That will mean keeping a tight rein on budgets. Some of the social gains of recent years will inevitably be lost. But governments can help the poor by focusing spending on, for instance, preventing child malnutrition, discouraging pupils from dropping out of school and beefing up health services.

There is another, harder lesson. Latin America’s recent growth owed much to the outside world, cheap money and high commodity prices. With the world economy facing (at best) several sluggish years, the region will have to look closer to home for growth, by raising its productivity. That needs a huge effort not just to improve education, but also to implement long-postponed reforms of, for instance, labour markets. Such things are never easy in Latin America, where democratic politicians face voters who have to bear the world’s widest inequalities of income. But if the region is to consolidate its still novel reputation for prudent progress and good management, they will have to be done.