Communications

In a recent New York Times article, Jeanna Smialek and Madeleine Ngo explore the impact on inflation in the U.S. from supply chain problems that have become increasingly disruptive. As you might suspect, they implicitly conclude that resolution to the supply chain mess, as they call it, depends overwhelmingly on the global ability to contain and control the pandemic.

The closing of manufacturing facilities and ports along the numerous supply chain routes around the world has resulted in severe shortages in consumer goods and manufactured commodities. In addition, transportation costs have exploded, and transit times have increased dramatically for a vast array of consumer products and precision parts essential for the completion of manufactured products in the U.S.

These events translate to an emerging imbalance between supply and demand, which results in higher prices. The upward pressure on prices is intensified by pent-up consumer spending by those who have prospered during the various lockdowns, along with the impact of federal relief checks that add considerably to consumer demand. Further, the emergence of the Delta variant has greatly slowed the consumer's return to bars, restaurants, meetings, conferences, and general use of hospitality services. Consequently, the U.S. consumer is forced once again to focus on furniture, fixtures, automobiles, home improvements, etc., which, in turn, fail to meet demand because of supply chain issues.

The pressing question is whether the supply chain problems will be temporary or permanent. If temporary, supply will catch up with demand, and prices will stabilize. If more permanent, however, the increase in prices would likely lead to increased wages, which would loop back to push prices higher, which would stimulate additional demands for increased wages. So long as the pandemic remains in force along existing supply chain routes, the bets will begin to favor a permanent increase in prices for a substantial range of products and commodities.

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As Gaia Pianigiana and Jack Ewing report in a recent New York Times article, UniCredit, Italy's largest bank, is currently in discussions to acquire Monte dei Paschi and end its 549 years as a stand-alone entity.

In 2008, Monte dei Paschi di Sienna bought a major competitor in becoming the third largest bank in Italy. The purchase set the stage for immediate problems attributed to the inflated price of the transaction, the acquisition of a poorly performing portfolio, and the widespread financial repercussions from the onset of the Great Recession. Thirteen years later in July 2021, Monte dei Paschi earned the ignoble distinction of the weakest bank in Europe following the results of a stress test administered by the European Central Bank to all European banks.

The economic considerations of the acquisition appear sound and widely supported. But the psychological and emotional impact on Sienna's inhabitants is a different matter. As one observer commented, "Monte dei Paschi is part of the city's flesh and blood" and has been so for centuries. The bank is the city's largest employer. The foundation that owns it has traditionally provided a range of civic services such as kindergartens, ambulance services, and costumes for the rival clans marching in the procession preceding the annual bareback horse race held in the Sienna's central plaza. In effect, over a 549 year period, Monte dei Paschi has touched and left its mark on virtually every dimension of society in and around Sienna.

The acquisition is not yet final. Both local and national politics may play an increasing role in the ultimate outcome. But if the acquisition succeeds, the honor of the oldest bank in the world moves from Italy to Germany to be bestowed on Berenberg Bank, founded in Hamburg in 1590 - a mere youngster alongside Monte dei Paschi.

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As The Economist notes in a recent commentary, the final in the European soccer championship was a study in two opposite management styles. Roberto Mancini, the manager of the Italian team, is renowned for his aggressive management style while his English counterpart, Gareth Southgate, is known for his inclusive approach, close rapport with both players and fans, sensitivity to social issues, and modest demeanor.

Italy prevailed, which immediately raised questions about the new school of management and whether it was up to the task of winning hard fought battles. After all, Mancini's team won 24 consecutive victories en route to the championship. Moreover, it started its run ranked lower than England.

But the back story does not necessarily endorse such a conclusion. Mancini had been fired from past managerial positions because of interminable conflicts with players and staff that attributed to a lack of success over a period of years. Southgate, promoted from within, had guided England from an ignominious loss to Iceland and the resulting exit from the 2016 European championship to the semi-finals in 2018 and then to the finals in the pandemic-delayed 2021 championship. Throughout Southgate stressed politeness to all parties within his range of influence.

As The Economist notes, neither manager could have prevailed without the array of talent at its disposal in the 2021 championship, regardless of management styles. To quote Warren Buffet, "When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."

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