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Tuesday, 19 May 2015

‘Earning money from somebody else’s efforts and investments!’ There is something extremely fishy about that!

Everybody who knows LinkedIn well, is very much aware that it is loaded with all kinds of ‘wise’ statements from famous earthlings, like Shakespeare, the Dalai Lama, Bill Gates, Warren Buffett, Steve Jobs and Richard Branson.

Unfortunately, for many people it is better to recycle a corny statement from a famous and successful sage, than to develop an original and though-provoking statement themselves. They hope that some of the glory and splendour of their sages illuminates themselves, which of course… hardly happens.

A few days ago, however, there was an advertising statement on LinkedIn that attracted my attention, for the simple reason that it presented a quite painful truth in a  straight-forward, thought-provoking and easy-to-understand way:

Advert of Wetp@int on LinkedIn, used as the
foundation for this blog
Picture courtesy of: Wetp@int and LinkedIn
Click to enlarge
It is true…

Airbnb, Uber, Facebook and Alibaba are in fact freeloaders on somebody else’s efforts, talent, creativity, capital investments and risks. And so are Google Blogger, WordPress, Instagram and LinkedIn and numerous other successful content and service mediation sites. 

Sometimes such sites cause their users even unacceptable risks and personal misery: especially in case of Uber Pop and Airbnb, which actively promote de facto forbidden practices, thus offending a series court judgments in different European countries and elsewhere. Airbnb and Uber earn the money, while their hosts and drivers take the heat from the local law enforcement. 

All these sites and companies, based on at least one brilliant idea and founded upon a mixture of conviction, perseverence and (in some cases) lack of conscious and funded by smart investors (“I’ll give them that”), put to practice how one should privatize the profits, while socializing almost all the efforts, risks, expenses and even penalties: the house wins!

Simply too many people believe in the (often) fairytales of:
  • eternal friendship, while sharing every experience, event and thought concept that they have (Facebook, Twitter, Instagram, Whatsapp);
  • becoming a successful writer or blogger, by posting their content for free on a blogsite (Google’s Blogger, WordPress or Amazon);
  • becoming a successful retailer (Alibaba);
  • creating a successful second career and new wealth as taxi driver or maître d’hotel, when their real career is faltering (Airbnb, UberPOP)

I in particular understand the truth behind this LinkedIn advertisement very well indeed. 

At this very moment I am writing my next blog to implicitely promote Google’s Blogger site for free and turn it into one of the world’s leading sources of original content in the process. At other moments I am frantically clicking on the ‘refresh’-button, in order to see the rising number of visitors per day. It is my personal Pavlov-reaction and I am fully aware of that.

While I abolished every illusion about Blogger making me rich or even earning me a decent income, I still like the concept that Google Blogger offers me endless amounts of free hosting space, without any hassle; in exchange I write for them the free content that they need to remain popular and influential and a firm base for their adverts. 

Although it is not a financially rewarding deal for me personally, it offers me an intellectual reward to do something with my talent that I really, really like. Google is very aware of such notions, you better believe it…!

Nevertheless, there is still something extremely fishy about my deal with Google and about those numerous other deals between private citizens and small companies on one hand and the ‘big enchiladas on the Internet’ on the other hand. 

While I and most of my millions of colleagues on Blogger don’t earn one penny of income with our countless writing efforts and constant flow of fresh content, Google reels in the mega profits, through advertisements and paid search results.

And that is almost the same with the other brands mentioned in this particular advertisement at LinkedIn: Uber, Airbnb, Alibaba and Facebook all make excessive amounts of money and profits, with in comparison extremely small investments; investments in only a zillion terabytes in hosting space and a few thousands of employees worldwide.

While those terabytes of hosting space and that personnel are definitely not for free, their expenses truly pale in comparison with the consolidated investments in: 
  • all available Uber Pop-taxis; 
  • all available Airbnb hospitality rooms;
  • all available inventory for sale on Alibaba.
Not even to mention all the necessary efforts to create the billions and billions of pages of original content, that can be found for free on Blogger and WordPress.

Would all these efforts actually have been paid for at fair value by Google and Wordpress, these companies would not have earned one penny. Fortunately for these companies, however, these efforts have hardly been paid for by them…

And that is undeniably fishy… 

Monday, 18 May 2015

Pursuing more flexibility and lower expenses for labour, until ‘death do us part’?! That might happen, in the aviation industry!

This morning, the Dutch newspaper Volkskrant printed an article about “fake labour constructions”, which rookie pilots enter into, in order to acquire a necessary position in the aviation industry.

These very unfavourable “strangulation contracts”, especially at pricefighters like Ryanair and Norwegian Airlines, could put the safety of passengers and air personnel under jeopardy eventually.

Here are the pertinent snippets of the article in the Volkskrant:

Advancing fake labour constructions jeopardize the safety of aviation. The majority of rookie pilots, in service at price fighters, works as a freelancer or even has to pay for ‘receiving the favour’ of getting flying hours at these companies. ’It is very scary that these pilots do not dare to call in sick, afraid as they are to lose their job’, according to Member of European Parliament and ex chairwoman of Dutch labour union FNV, Agnes Jongerius.

Jongerius and her colleagues Peter van Dalen (ChristenUnie) and Wim van de Camp (Christian Democrat Party) want Brussels to make an end to these fake constructions. Jongerius: “Flying inexpensively is pleasureable, but it has to be safe!”

An investigation by the Belgian University of Ghent disclosed that especially young pilots at pricefighters don’t receive a traditional labour contract anymore, but work with special labour constructions, which prohibit them to make critical remarks or refuse work.

According to the University of Ghent, the safety regulations become under jeopardy. Not only at Ryanair, but also at Norwegian Airlines, a pilot starts working with a debt. The pilot pays back this debt by flying the airplane ‘for free’ during the first two years of his assignment, using a so-called ‘pay-to-fly construction’. According to the investigation, half of the pilot corps at the so-called pricefighers works under this construction.

This investigation shows the effect of the ‘double whammy’ that is currently happening in the aviation industry:

Within Europe, a massive overcapacity in aviators has mounted during the last decade. Simply too many young boys (and perhaps some girls) followed their childhood dreams to become an aviator at an aviation company. They invested heavily in these extremely expensive trainings, only to find out that they were stuck eventually: without a job as airliner pilot, but with a gargantuous debt of €100,000+ and hardly a chance to earn it back as a pilot.

Common aviation companies often only want to have experienced aviators with sufficient flying hours and all the necessary certificates and trainings for the most popular plane types and don't want to spend time on training these rookie pilots anymore. 

This circumstance makes these young, rookie aviators an easy bait for the price fighters, which are always looking for possible ways to save a penny or a pound, in order to offer even cheaper airline tickets and still maintain a profit. These pricefighters offer those jobless aviators the flying hours for which they are craving, in exchange for an extremely unfavourable ‘strangulation contract’ and a ‘no sickness / no critical opinions’ policy:´shut your mouth and fly your darn plane or face the consequences’.

Especially in the case of Ryanair, it is important to realize how much impact their ‘no critical opinions’-policy for aviators can have upon the safety of the airplane and the environment under the flightpath in general. This pricefighter became infamous a few years ago, when within one week three of its airplanes had to make an emergency landing in Spain, after being redirected to another airport in this country, due to stormy weather at their original destination. 

After investigation it became clear that the Ryanair airplanes had flown on kerosene fumes during the moments before the emergency landing procedure: their initial available amount of fuel had been so frugal, that there had been virtually no room for any deviations whatsoever. 

While the general, bargain-hungry public might have forgiven Ryanair for these incidents and this behaviour, or might even have forgotten about it, this airliner is the last one that should have silenced and scared aviators, in my not so humble opionion.

During the last few years, I had the pleasure of talking twice with the distinguished Fred Bruggeman, chairman of the association Aircraft Engineers International, about the things that bothered him in today’s aviation industry. He repeatedly stated at these occasions that:
  • Aviators generally report in their flight logs many more incidents and malfunctions during the returning flights back to the hub of their airliner, than during the departing flight away from it. Definitely much more than could be expected from the statistical standard deviation, applicable in these situations. According to Bruggeman, the differences have been so great that ‘a kind of fraudulent behaviour had to be involved in order to explain these erratic data’.
  • Official Aircraft Engineers are more and more ‘downgraded’ to being administrative supervisors of repairs and maintenance executed by non-certified mechanics, instead of being in the lead during active checkups of such repairs and maintenance.

Suffice it to say that both of Bruggeman’s issues could cause serious accidents among the tens of thousands of airplanes that are in the air on a daily basis; especially when pilots are too afraid to speak up loudly, scared as they are to lose their job at these pricefighters and thus their financial future.

And please don’t underestimate the problem of ‘silenced’ aviators flying possible faulty planes with – on top of that – too little fuel aboard. This is probably not a neglectable problem, even though it did not clearly lead to particular accidents yet.

When a two hour flight with Ryanair yields €28,000 (f.i. 255 passengers times an average ticket price of €110, including surcharges), it means that everything must be paid from this money alone, including a 10+% profit for Ryanair itself:
  • the aviator, as well as other air and ground personnel;
  • airport (handling and landing) fees;
  • ticket and airport taxes;
  • luggage handling;
  • fuel;
  • airplane lease;
  • mandatory trainings, assessments and inspections;
  • maintenance costs.
The only way to make aviation a profitable business with such narrow margins, is to keep these planes in the air virtually around the clock and staffed with pressured, scared and inexperienced aviators, who virtually work for free, as well as undertrained (?) auxiliary personnel that costs their airliner as little money as possible. 

And the worst thing is that all other airliners have to slowly adapt similar business models, when they don’t want to be run over by these pricefighters and lose their business to them.

This means that the room for additional margin is extremely narrow in the aviation industry and that such pricefighters as Ryanair and Norwegian Airlines squeeze the last penny and cent of margin out of their ticket yields, in order to remain more profitable than their competition.

In the process, Ryanair, Norwegian Airlines and many other pricefighters, and perhaps common airliners as well, try to cut back on anything that does not crash the plane (service, meals, air and ground personnel) and perhaps sometimes even on things that theoretically could, like mandatory maintenance and the critical fuel amount for safe flights.  

The last thing that you want in this situation is a gagged pilot, who remains silent about truly dangerous situations emerging during his working day! 

In other words: while flexible labour contracts and lower labour expenses are not per sé a bad thing, in theory, they could very well lead to excesses. 

Flexible contracts seriously weaken the position of the employee, in favour of the employer. In the aviation industry this circumstance could theoretically lead to dangerous and even fatal situations and accidents in which “death does passenger and personnel part indeed”. 

Update 18 May, 2015

After I finished my article this morning, I received information through email from the University of Ghent; in particular from Professor Yves Jorens and academic assistant Dirk Gillis, who have been responsible for the creation of the very important report, mentioned in the aforementioned article of De Volkskrant. 

I am very grateful for receiving this additional information and therefore I want to offer you a link to the full report, which is a very interesting and also disturbing read for inquiring minds.

The following snippets contain the two page summary of this report, which I print here in full for the purpose of information:

Key findings:
  • More than 1 pilot out of 6, among the surveyed, is under ‘atypical’ employment conditions; i.e. working through a temporary work agency, as self-employed, or on a zero-hour contract with no minimum pay guaranteed. 
  • Low Fares Airlines (LFA) are the largest ‘users’ of atypical employment, in what the researchers see as a clear divide in the employment market between the traditional network carriers and LFA:
    • In LFAs only half of the pilots are directly employed (53%), while 15% are self-employed, 11% fly for an airline via an own (e.g. limited liability) company, and 17% are working on a temporary agency contract. As regards self-employment, 7 out of 10 of all self-employed pilots surveyed state they work for a low fares airline.
    • In network carriers, these “atypical practices” represent a significantly lower share of their workforce: only 0.6% of pilots are self-employed pilots, 0.4% fly via an own company and 1.7% work on temporary agency contract.
    • Young pilots are most affected by precarious employment. With more respondents from the 20-30 year age category reporting to fly for LFAs, almost 40% of these young pilots have no direct employment contract with their airline. Some airlines offer cadets a position at deplorable conditions, or even resort to ‘Pay-to-Fly’ schemes where the pilot actually pays the airline to fly (revenue-earning) flights. This shows the labour market is deeply segregated between young and more experienced pilots.
  • Greater diversification in contracts can, on the one hand, be a tool for more flexibility, on the other hand it can be used for “social and fiscal engineering”, i.e. schemes to ‘shop’ for more lenient laws, to avoid high social security contributions and reduce taxes for companies. For example, almost half of pilots working via an own company are mainly paid per hour with a minimum of hours guaranteed, which can be an indicator for a ‘bogus situation’; and many selfemployed pilots state they have no say in the amount of hours they fly. These findings cast doubt on the genuineness of their self-employment status. 
  • Almost half (46.6%) of self-employed pilots (strongly) disagree with the statement ‘I can amend the instructions of the airline based on e.g. objections regarding flight safety, liability, or regarding health & safety’. This could raise serious flight safety concerns. The lack of control on flight hours, health & training are other matters linked to safety highlighted by the study. 
Key issues highlighted by the study & conference:
  •  Applicable labour law and social security legislation remain problematic. The ‘home base rule’ as the basis for the coordination of social security systems has solved some of the legal issues but others remain unresolved, and needs to be further improved to bring legal certainty. 
  • Civil aviation legislation dates from World War II and is not adapted to take into account the different forms of atypical work and outsourcing. This is also the case for labour law and social security regulations, which allow complex subcontracting chains and contractual bogus constructs to replace direct employment. 
  • Atypical work forms are frequently in tension with aviation safety culture. The ‘dependency’ created by conditional and precarious employment arrangements could place an employer’s commercial imperatives in conflict with the pilot’s legal duty to take independent professional safety judgments before other considerations. 
  • Young pilots are in a particularly weak and vulnerable position, due to the amount of financial debts they incur to finance their studies, combined with the (mostly low fares) airline policy to recruit young pilots only if they have a type-rating. In a context of a mala fide management style this could degrade some safety nets. 
  • Aviation risks drifting to the maritime model of ‘Flags of Convenience’ with ‘regulatory shopping’, tax and social engineering and hiring air crew from outside the EU to man and fly EU aircraft. Fair competition and worker rights are compromised by this development, safety could be difficult to monitor effectively and the current legislative framework is clearly inadequate. According to the Ghent University, “its minutes past midnight” and urgent action is needed. 
Initial policy recommendations:
  •  Amending Reg. 987/2009 on the coordination of social security systems to strengthen the principle of home base. The establishment of European occupational pension funds and a better coordination of social security systems to improve confidence and control between Member states regarding the really applied criteria for issuing any social security forms. Ideally, the development of a dedicated European social security system for highly mobile workers should be pursued.
  • Limitation and continuous monitoring and control through technical and labour regulations of the air crew operating aircraft as service providers or through a temporary contract. Restricting subcontracting in the civil aviation sector to meet a temporary increase of the workload and not a usual workload, and better regulating liability and crew management.
  • Active prevention of bogus situations, especially of bogus self-employment by strengthening cross-border cooperation and oversight as well as an enhanced legislative framework that provides for a default assumption of direct employment for mobile workers unless concrete and robust criteria are met that prove otherwise. 
  • Better protection of whistleblowers, both legally and economically, through establishing adequate reporting mechanisms in tax, labour and social security. 
  • Development of global or European oversight system allowing for effective oversight of the social, labour and safety situations of aircrews. 
  • Banning Pay-to-Fly schemes at European level and/or globally. Revision of aircrew training structures and financing of such training.
  • Mandatory publication by companies with more 1.000 employees, of an annual social report including data defined by the European social partners of air transport. 3 ? Development of a plan to prevent Flags of Convenience in Aviation, based on the Maritime experience covering safety, tax and social aspects.

Friday, 15 May 2015

Not surprising: there seems to be a plausible correlation between success in exports and a faltering domestic retail industry. Is this indeed the effect of the ‘financial starvation’ of the own population? And is that a desirable strategy to strive after for economic strongholds, like Germany and The Netherlands?!

About one week ago, the statistical bureau of the European Union, Eurostat, presented the retail sales data for the European Union. Although there was a small, negative hickup in the retail sales data in March 2015, there has been a general improvement of this data during the last twelve months, all over Europe.

Of course this development is good news and it could be a very important sign that the economic crisis, which started in 2008 and already lasts for seven years, is finally getting over. And it is definitely a sign that the consumers are becoming more confident and start to spend a larger part of their income on consumption goods again, instead of hoarding it at the bank or spending it mainly on fixed expenses.

Yet, before you raise the flag and organize a party; how good are those retail sales data within the Euro-zone anyway?

To find that out, I took the Eurostat retail sales data for the eight largest economies within the Euro-zone; not more than eight countries, in order to keep those retail sales data clearly distinguishable. 

And I particularly took the retail sales data from Euro-zone countries, as there is no influence from national, monetary policies and/or central bank actions, like you would have in countries like the United Kingdom, Poland and Sweden, which have their own currencies.

When we compare the current data of those eight, leading economies with the retail sales data of 10 years ago (2005), it is shocking to see how much impact the Euro-crisis has had on retail sales.

In the following table (data courtesy of Eurostat), I compare the indexed retail sales data from the first three months of 2005 with those of 2015 (Index: January 2005 = 100).

Retail sales results in the 8 strongest Euro-zone economies
2005Q1 versus 2015Q1
Table by: Ernst's Economy
Data courtesy of Eurostat
Click to enlarge
What is perhaps not surprising for most readers, is that two prominent members of the South-European peripheral countries – Spain and Italy – had a substantial decline in their consumer spending, since January 2005. 

Everybody knows the story about the so-called PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) and the troubles they had over the last five years; this included issues like a massive state debt, massive fiscal deficits, massive financial issues (i.e. ‘saving the banks’) and/or soaring unemployment. Particularly Spain suffered from a bedazzling (youth) unemployment and to a lesser degree Italy did too. So that makes sense.

What is rather surprising, however, is how poor the sales data in the economic powerhouses Germany and The Netherlands are, in comparison with 2005. Although these countries belong to the strongest economies in the Euro-zone, this is not visible at all in the retail data.

Since March 2005, Germany had a very poor increase in retail sales of only 1.25%, in spite of the country’s successes with the exports of goods and services and an extremely low unemployment rate of only 4.7% in March 2015.

So in spite of the fact that almost everybody has a job in Germany and the economy seems to do fine overthere, the people hardly buy more goods in the retail stores than they did in 2005.

Even worse are the data in exports behemoth The Netherlands. Since March 2005, the country showed a decline in retail sales of 2.88%, in spite of the relatively low unemployment of 7.0% and the fact that the Dutch economy and especially Dutch exports are doing fine these days.

In comparison, in Austria, Belgium, economic ‘problem child’ France and Finland, the retail sales are respectively up with 4.81%, 8.16%, 14.7% and 15.02% since 2005.

Retail sales results in the 8 strongest Euro-zone
economies from 2005 - 2015Q1
Chart by: Ernst's Economy
Data courtesy of Eurostat
Click to enlarge
So the strange phenomena occurs that two of the strongest economies in the Euro-zone – Germany and The Netherlands – are among the worst performing economies, when it comes to retail sales. 

Is that coincidence? Or does it have to do with the monomanic focus of these countries on exports and – to achieve these exports successes – wage restraint or even wage reduction?!

And is there a more general correlation between good achievements in exports and poor retail sales?

To find this out, I collected the balanced imports and exports for goods and services of these same eight countries. I think that the data speak for themselves.

Exports versus imports of goods in the 8 strongest
Euro-zone economies 2005 - 2015
Chart by: Ernst's Economy
Data courtesy of Eurostat
Click to enlarge
The best performing countries with respect to the exports of goods (see the aforementioned chart) are Spain and Italy; not coincidentially the countries with the worst development of the retail sales. 

The countries at last having more imports of goods than exports showed in general better retail sales results. In this chart, Austria is a positive outlier (more exports than imports and still quite good retail sales results) and Germany is a negative outlier (more imports of goods than exports and still quite poor sales results).

These data make sense. Spain and to a lesser degree Italy suffered from massive unemployment during the last seven years (these days the unemployment rates are still 23% and 13% for respectively Spain and Italy) and one can expect that unemployed people, looking for a better future, are nowadays willing to accept jobs at much lower wages than they would have done ten years earlier.

The result of this development will be that the wage expenses will drop dramatically in these countries and the export position will improve just as dramatically.

However, with generally lower wages people will have less money to spend on consumption and shopping, even when they have a job; this is probably the reason that you find this development back in the retail sales data of these two countries.
Exports versus imports of services in the 8 strongest
Euro-zone economies 2005 - 2015
Chart by: Ernst's Economy
Data courtesy of Eurostat
Click to enlarge
When we look at the second chart with the balanced imports and exports of services, we suddenly get a hunch of where the mediocre retail sales results of Germany might come from.

Although Germany is currently a net importer of goods, it is definitely a net exporter of services with a 22% surplus on the trading balance, as you can see in this chart. 

Even though some services are so specialistic that the wages probably do not matter much (for instance in case of high end commercial and financial services), I suspect that the restrained wage development in Germany declares its export successes in the services area and at the same time its poor retail sales results, as these are two sides of the same coin. The same is probably true for The Netherlands.

Again Austria is an outlier here, but especially in this chart it is visible that Austrian exports and imports are increasingly balancing out.

Exports versus imports of goods and services combined in
the 8 strongest Euro-zone economies 2005 - 2015
Chart by: Ernst's Economy
Data courtesy of Eurostat
Click to enlarge
The combined charts of these eight countries prove my point superfluously, which brings me to the following conclusion: 

The best way for countries to improve their export position is by restrained or even lowered wages, when everything else does not change and no great inventions or developments have been made. This is probably what has happened in Spain, Italy, Germany and The Netherlands.

What also seems clear from all these charts, is that improved exports are killing for the domestic retail sales, as financially starved people – due to long-term wage restraint and wage reduction – have less money to spend on consumption.

This makes it a very hard choice for governments: do we financially starve people to improve our export position, through the active and passive promotion of wage restraint? Or do we keep the wages up in order to save our domestic economy and perhaps lose our export position. It seems clear for which options Spain and Italy chose during the last five years; and really I can’t blame them. 

However, the governments in The Netherlands and Germany should ask themselves how sensible their export strategy is, when it kills their domestic retail industry?! That is a very important question, in my humble opinion.