Author: Sarah Green

With former CEO A.G. Lafley returning to the helm of Procter & Gamble, I asked Rosabeth Moss Kanter for her analysis. She holds the Ernest L. Arbuckle Professorship at Harvard Business School. She’s an expert on strategy, innovation, and leading change. She is also Chair and Director of the Harvard University Advanced Leadership Initiative. She is a regular contributor to HBR and HBR.org. She’s on twitter @RosabethKanter.

In her latest book, SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good, she analyzed how P&G (among other companies) achieved long-term performance. She wrote the HBS cases on the P&G/Gillette merger, and when she teaches those cases, frequently invites P&G executives to her class.

Why is P&G making this move, now? P&G is in the midst of a major restructuring, and has laid off thousands of people. Why switch horses midstream?

P&G’s board has been under a great deal of pressure from an activist investor who has made his views on the pace of the restructuring clear and vocal. Regardless of the merits, that begins to wear everyone down. If the current CEO is under attack, that becomes a distraction for the company and makes it harder to execute or gain credibility with certain stakeholders. Even if the performance improvement plan is on a good path, that noise becomes a distraction (and psychologically, it leads to dreams of escape or wishes for a bold dramatic move). Appointing a new CEO buys everyone time, and thus quiets the noise for a while. But note how P&G did it. Asking A.G. Lafley to return is a sign of how much the company values continuity and company knowledge.

Any time a former CEO returns to run the company after a brief absence, you have to ask about succession planning. Does this move suggest that P&G needs a better succession strategy?

The absence wasn’t so brief. Lafley has been out of P&G for 4 years, which in this age of rapid change can include several waves of volatile external change — economic, geopolitcal, technological (social media) etc. But it’s also important to note that A.G. Lafley and Bob McDonald worked as a team during the 2000s; when Lafley scored his major successes, McDonald was by his side as vice chairman and then COO. McDonald was intimately involved with the Gillette acquisition and oversaw a model merger integration process. The P&G culture was also important to Lafley’s success, and he emphasized the PVP (purpose, values, and principles) as a management guide at the same time that he pushed product innovation, accelerated growth in emerging markets, and used the Gillette merger (with McDonald’s full involvement and leadership) as a change catalyst, to adopt some faster Gillette processes. But with the culture still a bedrock of P&G’s success and endurance, it always seemed inevitable back then that the CEO successor would be an insider.

Lafley won’t just be the CEO, he’ll be the President and the Chairman of the Board. That’s been a hot topic this week. Will having one person in those three roles make P&G more agile? Or run the risk of them not having independent board oversight?

Among other things, if a turnaround is needed, then the new CEO also needs full support and authority — and probably wouldn’t take the job without it. It wouldn’t send a great signal if Lafley returned but had one hand tied behind his back. Since he previously held all three roles successfully, why restrict him now? Also, I would hazard a guess that the Lafley return is an effort to accelerate progress on things already underway in McDonald’s plan, although Lafley could certainly add creative twists, and that Lafley won’t stay very long, just long enough to ensure investor and customer confidence, strategic priorities, and a good succession plan.

McDonald became CEO in the 2009 recession, a time when the middle class continued to shrink. That proved challenging to all the major consumer goods companies, but some (like Unilever) adapted by introducing lower-priced products. How should P&G adapt to a shrinking middle class in the US?

P&G began a portfolio of lower-priced but high-quality products in emerging markets and brought some of the concepts to the U.S., e.g., a laundry variety. It might have been slower than Unilever but wasn’t asleep at the switch. The challenge has been not in brand extensions, whether lower price points or additional features. The challenge has been creating new categories entirely. Under Lafley, there were category innovations such as Swiffer and Febreeze, and the addition of men’s shaving via the Gillette acquisition. McDonald did shift the portfolio, e.g., sell Pringles and emphasize beauty which is a growth category that is less price-sensitive. But new products or categories that might be in the pipeline don’t spring up overnight. The categories introduced under Lafley built on earlier R&D. I wouldn’t be surprised if Lafley again gets credit for products underway under McDonald. Also, social media have come on strong since Lafley handed the reins to McDonald, causing shifts in marketing strategies from TV to other media; Lafley will need to be on top of that.

There’s also the issue of emerging markets — some have accused McDonald of being overly aggressive in expanding there. Do you think Lafley will need to alter their approach?

It’s ironic. Lafley was credited with opening emerging markets as a virtue, but when McDonald built on this, he has been accused of expanding too aggressively. Of course a company should never neglect its largest developed markets. But with Europe as a drag, it seemed wise at the time to invest where there was still growth potential. Brazil has been a major success.

There are clearly no shortage of challenges on Lafley’s plate. How can he get people to take creative risks in a climate of turbulence and uncertainty? And what’s the number one priority for him right now?

Lafley will have to explain this to the executive team and the company in a way that ensures them that the path they’ve been on can be productive, especially if they accelerate innovation. He should scrutinize the entire portfolio and product/country mix to identify the most and least profitable and promising for growth, and then to make any needed people changes or adjust investments, such as marketing or product extensions. That’s immediate, along with any financial quick fixes. It’s not a bad idea to stress accountability. Maybe some of the improvement plan underway was happening too slowly because one area or unit or part of the world dragged their feet and made changes too slowly.

If Lafley accelerates progress on the operational and financial improvements underway, and people see success as reflected in profitability and stock price, then he can look for the creative ideas for innovation, large and small. Also, he can then look at the balance between Cincinnati-centricity and the recent distribution of brand global functions out to the regions, such as beauty in Singapore.

A strategic challenge is not only getting the product and category mix right, but also attracting talent (one reason for moving these brand HQs out of Cincinnati) while also integrating people across the portfolio as “one enterprise” that can find synergies and leverage learning, resources, and talent mobility. When Lafley first became CEO, P&G was struggling with how to become a more global and globally-integrated company; that is still a challenge.

On Friday, with the Boston metro area on lockdown, many folks stuck at home were running an experiment in how much information can be consumed at once. I maxed out with a laptop streaming video coverage, iPhone full of tweets, TV blaring footage, and radio providing analysis — all simultaneously. (I’d have been using the iPad too, but was limited by having only two hands, dangit.) While we do live in an era of great access to information, this proliferation of devices only made it that much more obvious that the river of information had slowed to a frustrating drip.

But the inability to communicate clearly and quickly didn’t just affect how much the public or the media knew. Employers, too, ran into this challenge as they tried to notify employees that they don’t need to come in to the office — and in fact, that they should stay home, as offices were closed. At 5:45 Friday morning, Harvard Business Publishing sent a mass email telling employees to stay home. Staples sent a message to their staff at 7 am. One PR firm emailed its employees at 6 am, while an environmental nonprofit emailed at 8.

But not all the messages got through. A simple technical miscue can mean that not all employee email addresses make it on to the “everyone” email list. For others, the timing can be wrong. For instance, our early morning security guard found herself in the office before the message had gone out. Because our offices were at the heart of the locked-down zone (you probably saw them on television) she was then stuck here all day, while law enforcement used our parking lot as a staging area. Similarly, at Staples, Mark Cautela, a PR manager, mentioned that a couple of employees who had left home before receiving their 7 am message had ended up at their Harvard Square store, and ultimately decided it was safer to stay there than try to get back home. While the store remained closed, the employees hunkered down inside.

And as with the rest of the week, miscommunications and tempers both flared. In the absence of the information we want, we’re overreacting to what little information we have. Cautela mentioned that they’ve been actively quashing online reports that Staples told employees to report for work despite the lockdown, saying those resulted from misunderstandings. A person who works in health care tweeted angrily that her employer was going to charge her vacation time for staying home on Friday. As it turned out, a supervisor later called her to assure her that that was not the case — while that would have been their usual policy, given the severity of the situation they’d decided to make an exception.

Of course, not every employer did tell employees to stay home. On Friday, I heard reports through social media that some employees were either explicitly told to report for work, or felt pressured to do so. Then there was the too-perfect the story that police had allowed Dunkin Donuts to remain open to serve first responders.

But some companies did get it right, safely shutting down their businesses for the day, communicating that shutdown effectively to their staff, and pre-emptively answering any concerns about lost wages or benefits.

Making sure employees know what to do in a fast-breaking emergency isn’t as easy as just sending a text or an email. It takes preparation as well as rapid execution. One Cambridge-based company, HubSpot, talked to me about how they coordinated their response, with people in IT, security, and HR all working together to first identify employees in the Watertown area who might be in harm’s way, and then reaching out to those people “to make sure they had heard the news and didn’t plan to go outside,” said Katie Burke, from the company. They phoned, texted, and as a last resort, emailed them individually. Then, says Burke, “Our Chief Security Officer notified all employees early [Friday] morning that the office would be closed so people wouldn’t drive or try to train into work and get stranded.” Finally, they made sure everyone knew there’d be no penalty for staying home, and encouraged them to reach out if they needed help.

Another company for whom this situation struck very close to home was athenahealth, which offers cloud-based services to health care providers. Carolyn Reckman is VP of athenaEnvironment, the function that covers everything to do with the firm’s physical environment, from facilities to security. “As a HIPAA-regulated organization, we have a heightened sense of responsibility for business continuity and crisis management,” she told me. Their crisis plan was enviable.

Every employee, when they first join the company, is handed a wallet card with Reckman’s phone number and other emergency contact numbers. At 4:30 in the morning on Friday, Reckman was awoken by a Watertown-based employee who’d called the number on that card to tell her that he had heard gunshots outside his home, and was now following the unfolding events on the news and listening to a police scanner. It sounded, he said, like this might go on for a while. Reckman jumped out of bed and activated their emergency notification system. The first alert went out to the firm’s crisis-management team, a group of about 15 or 20 people from around the company. Closing for the day “was a no-brainer,” Reckman said. So within another few minutes, they’d activated the automated emergency contact system that goes out to all employees — reaching their home phones, cell phones, work phones, work email accounts, and personal email accounts. They got the message out by 5:30 am.

“I was asleep until 6 a.m.,” said Amanda Guisbond, who works in the communications department. “I woke up and had a voicemail on my cell phone telling me the offices were closed, and I also had an email in my gmail account, which was good because I wouldn’t have been checking work email right away.”

Looking at the successes and the mistakes here, some simple best practices emerge:

First, email isn’t the best way to get in touch with people in an emergency. This seemed especially true in companies whose employees were hourly workers who generally don’t have employer-provided smartphones. It was also especially true for anyone in the immediately affected areas of Cambridge or Watertown, where bullets and home-made bombs were flying and time was essential. SMS text messages were a quicker way to push information out to people, although this approach was less common among private employers and more common at universities. For instance, both MIT and Emerson College used text messages to push alerts out to members of their communities. Emerson’s alert went out at 5:10 Friday morning. And MIT’s first alert went out at 11:01 pm Thursday night, shortly after a member of their campus police was found shot. As Reckman told me, “Really, I think the only way to do it is to hit people’s personal cell phones.”

Second, make sure it’s a system multiple people can activate, from any location. At athenahealth, any employee can call a senior manager and alert them to an emergency, because of the wallet card they’ve been asked to carry. Moreover, there are 15 or 20 people on the crisis management team, any one of whom can activate the alert system. It shouldn’t be a system that relies on people being able to access their work email, or that you can only log into from inside the office.

Third, when the crisis is over, ask what you could have done better. For instance, when Reckman first initiated the emergency system — the one that went to the 15 people on the crisis team — it said “this is a test.” Obviously, it wasn’t a test, and that’s something she said they plan to figure out when they debrief on the incident this week.

But finally, the companies that got this right realized it wasn’t only a technological challenge, but a management challenge. Not only did they communicate in human, empathetic terms, but they also addressed practical concerns up-front, such as assuring their employees that they wouldn’t lose time off or pay. Unfortunately, the number of companies that did this seems small. Those who didn’t not only created publicity problems for themselves when employees began venting on social media, but also generated anxiety in employees who wondered if they were going to take a financial hit for the time spent obeying the lockdown. Companies who have refused to pay their hourly workers or have forced salaried workers to take a vacation day are no doubt creating sour memories in their staff, perhaps saving a few dollars in the short-term, but fostering bitter feelings in the long-term. The policy at athenahealth is again admirable: in the event of an emergency office closing, everyone still gets paid. And Nordstrom confirmed over Twitter, after the fact, that all employees who had been scheduled for Friday shifts at the Boston store will still be getting paid.

The companies that got this right anticipated the questions and concerns that all of their workers would have — no matter what mode of communication they’re most likely to use and no matter where they sit on the salary scale. It’s understandable, perhaps, that an executive who does the daily email “prayer” — check it first thing when you wake up, and last thing before you go to sleep — might assume that was the best way to reach all workers. It’s understandable that in the heat of the moment, giving reassurance on pay and benefits might just not have occurred to those executives, either. They may be worried about their own safety, or just, as highly paid professionals, unlikely to worry about a day’s pay or a day’s vacation here or there. But that’s why it’s so essential to have a plan for these sorts of emergencies ahead of time: to cover the fact that, in the moment, you probably won’t be thinking clearly.

If you wait until the bomber is on the loose, or the hurricane is barreling down the coast, or the need to evacuate your building has become only too clear, you have waited too long.

On a map, Harvard Business Review’s offices look far from the site of yesterday’s Boston Marathon bombing, seven miles up the winding Charles River. But in a city that feels more like a town, everyone in the area — as well as in cities and countries far beyond — has been shaken up by the Patriots’ Day explosions. In our reflections, we remembered an interview conducted after the September 11 attacks that we found helpful in understanding how to cope. Diane Coutu, a longtime HBR editor, interviewed Dr. Steven E. Hyman, who served as the director of the National Institute of Mental Health (NIMH) from 1996 through 2001. Today, he directs the Stanley Center for Psychiatric Research. What follows are excerpts of their conversation from over ten years ago that have given us strength and perspective today.

On the impact of an event like this on people who witnessed it on TV, but may not have been present:

Most people will have at least transient trouble concentrating, and many will be irritable or depressed. Some people may feel that normal tasks are not meaningful anymore, so they may lose their motivation. These symptoms can obviously affect interactions among colleagues at work, and they can negatively affect productivity. For most individuals, these symptoms will recede with time.

Unfortunately… the current situation is one of continuing uncertainty, and the fear of new attacks is a rational one. It’s impossible to escape this reality, but we should not panic. Like most emotions, fear is highly contagious. The infectious quality of fear and anxiety is part of our species’s warning system for shared dangers; but when anxiety becomes chronic, it is no longer adaptive. That’s why we need to develop strategies for coping.

On some of the coping strategies that may be particularly helpful for businesses at a time like this:

Corporate leaders must speak and act calmly, despite their own concern. They must provide honest, accurate information insofar as that is possible. Leaders should say what they know — and what they don’t know — and then relate the steps they are taking to control the situation. It is critical that managers not mix their attempts to provide information with efforts to reassure employees. Confusing the two calls into question the reliability of the information at hand.

At the individual level, employees can take steps to improve how they cope. They should stay connected to their social networks because isolation heightens the risk for anxiety and depression. Within their social networks, both at home and at work, people should be solicitous of one another. They should offer to listen if someone needs to unload, or make a concerted effort to keep plans. At the same time, they must be wary of becoming intrusive. Some people want to tell their stories and discuss their concerns, but others do not. Pushing someone who isn’t ready to talk about his anxieties is not helpful. In fact, forcing people to face their raw emotions can retraumatize them, unless they have a safe setting and appropriate coping strategies in place. Parenthetically, this is why poorly trained stress debriefers or grief counselors can actually do harm.

People should also take care of themselves physically. The activation of our bodies’ fight or flight response — with the accompanying release of stress hormones — may actually strengthen traumatic memories in the brain, prolonging or worsening symptoms. And so it is terribly important to get rest, even though sleeping may be difficult. Eating well and getting exercise are also important, as is avoiding excessive alcohol or caffeine. Sleeping pills may be helpful for a few days, but their use should not become long-term. An overreliance on sleeping pills may create more problems than it solves — including the risk of dependence.

Finally, we must try to re-create a sense of control over our destinies and restore a sense of meaning to our lives… Work is a vital aspect of that: People feel healthy when they think they’re contributing to society. Indeed, finding significance in life is crucial for mental health.

On what managers do to help employees deal effectively with feelings of depression or grief:

While this is hard for smaller businesses, many larger businesses have invested in well-publicized employee assistance programs. These programs have been very effective in helping employees resolve personal problems that affect their job performance and their personal well-being. But the critical thing is to make sure that your EAP staff and referral network know what they’re doing. It’s great that companies are making interventions with employees — especially at a time like this — but the interventions have got to be the right ones. It should be well understood that EAP professionals are generally not physicians or clinical psychologists; their job is to offer referrals, not to make diagnoses. It’s also essential for EAPs to maintain confidentiality so that the company’s employees feel safe using them.

With China hacking the US, the US hacking China, and LinkedIn and Facebook and credit card companies and Google and who knows who else all vomiting our data all over the web, I was intrigued when a new report on data loss ran across my desk from auditing firm KPMG.

I spoke with Greg Bell, the firm’s information protection lead, to parse the data on who loses their information, and how.

How are you getting this data?

Bell: First, we’re only able to use information that’s made public. We looked at U.S. and non-U.S.-based sources that registered data-loss. Whether it is a state with a notification requirement, an SEC filing or an FTC filing, some of these are self-reported. So while this provides a tremendous amount of directional information, there may be inaccuracies, or there may be an active breach going that’s on still under investigation [and not reported yet]. Second, it might be that in a certain country or certain location, there’s not an imperative or pressure to release that information.

And third, we believe that some organizations have had a data breach and may not be aware of it yet. So this is not 100% accurate, but we believe this provides directional information. That’s why we’ve gone with percentages and not with total numbers.

How is the threat evolving?

There are organizations or groups causing these external factors — groups of organized criminal elements looking to rapidly monetize information; there are groups that have a social or other agendas — the term du jour is hactivist — and then we’re seeing an increase in foreign national threats.

These groups are all targeting specific organizations. Organizations have gone from being a target of opportunity to a target of choice. What used to happen was the equivalent of walking through parking lot trying every car door. [A bad guy] would scan every company’s Internet presence. But what we’re seeing today is a target of choice — specific industries, specific companies, specific purposes. And they will use multifaceted types of attacks to gain the information they want. It changes the game.

What industries are most at risk?

What we see increasingly are three key industries. Obviously, governments are huge targets of choice. Financial services — that’s where the money is. And the technology industry, for a couple of key reasons: one, there’s intellectual property there, and two, these companies may provide pathways to other [targets]. Those are the three places we’re seeing the focused targets of choice, but we have seen targeted attacks across all industries, from the Fortune 500 to very small businesses.

Selfishly, I have to ask: why are so many hackers interested in the media industry?

It’s the nature of the information, the desire for monetization. The information has value. Whether that be, I want to download and distribute the latest version of a movie, or —

Wait, you mean that level of hacking is so high because of all the people illegally downloading movies and music?

Yes, piracy. That’s most of those targets.

Eek, so we’re all hackers…not that I’ve ever illegally downloaded a song. [Nervous laughter. Awkward pause.] So what’s the lesson here for business leaders?

The key is not to take an “Oh no, the sky is falling” approach, but to factor it into their consideration of risk. It means understanding how valuable your information is: the IP that makes them unique, the operational data they rely on every day, the information that may be entrusted to them by their employees or business partners. That value is being sought after by many other organizations. Think about, “What would happen to my business if my unique manufacturing technique was stolen by a foreign government? What would happen if the operational data I use every day to make decisions got compromised, and someone was changing that data to make it look worse or better than it actually is?” Organizations just need to realize that’s a risk.

For most organizations, that discussion has been very IT-centric. But increasingly, it’s an executive management discussion and a board discussion.

Let’s talk about the global trends. One of your surprising findings is just how much the US is decreasing as a percentage of total hacking incidents. Do you think that gives credence to other governments’ assertions that they’ve been subjected to hacking attacks?

Well, the US has always tended to be a little more transparent. So while the chart might show that five years ago the U.S. was 75% of the global total, it might just be easier to gather that information. What we’re seeing now is that all major foreign entities are very focused on the situation. More governments are getting involved, for the purposes of intelligence, economic development, and cyber offense and cyber defense as part of the next generation of warfare. Every major country is developing that kind of capability.

So incidents [of data loss] everywhere are increasing, and people are more comfortable reporting incidents. Awareness is increasing. We’re also solving the easier problems; the low-hanging fruit, the easy security holes have been shored up. All the easy information has already been dealt with. Now they’re looking for very complicated information. Not just breaking into your website, but going after your business partners, your employees, your email account, even targeting former employees. It’s much more insidious.

So is this something you see as requiring national policies, government intervention? Or is this something individual firms will have to grapple with on their own?

I think you’re going to see an increase in national policy [in the United States] and elsewhere. That alone is not going to solve the issue. For companies that operate globally, across many borders, one country’s policy will not protect them. It’s still going to be up to the corporation to take prudent care.

So it’s sort of like how the government may provide a police force, but banks and stores still have a security guard.

Exactly. I like that metaphor.

What’s next for Venezuela’s economy, in the post-Chavez era?

To find out, I called Francisco Monaldi, Robert F. Kennedy Visiting Professor of Latin American Studies at the Harvard Kennedy School, and Professor at Instituto de Estudios Superiores de Administracion (IESA) in Caracas, Venezuela. He’s a leading authority on the politics and economics of the oil industry in Latin America and developing countries.

What can you tell us about the leadership transition underway?

We are facing elections probably in April or May, and the candidate from the government will be the interim president being sworn in today, Nicolás Maduro. That will give him a great advantage.

The campaign will be very uphill for the opposition, Henrique Capriles. The only advantages he might have is, first, that Maduro is not Chavez and is much less charismatic and less well known by the public, and second, that the public perception that the economy is doing well, which was up around 60 percent last year, is now down to the mid-40s. That’s a big change, and may indicate that the popularity of the president will go down.

How much do you expect the change in leadership to change the Venezuelan economy in the near term?

In the case of Maduro, he is a guy who comes from the left wing of the chavismo, very close to the position of Chavez. He is known to be a negotiator and a relatively pragmatic guy inside that wing. He was instrumental in negotiating the new relationship with Colombia, which was a major accomplishment. But we know very little about him otherwise. It’s difficult to know if he will become more pragmatic as the economic situation becomes more complex.

The problem is that, even though it makes sense for Maduro to move into a more moderate position, he will be a weak president in the sense that he’s not a military guy, he doesn’t have the leadership Chavez had, and he might not move to a moderate position because that would create problems with him controlling the radical faction. He can only pull that off if he has leadership skills we don’t know about yet.

In one of your papers, you write, “Venezuela is the textbook case of a resource-rich country,” but that such natural wealth may not be a good thing. Tell me about that “resource curse.”

Venezuela has huge potential. It has some of the largest oil reserves in the world, up there with Canada, Saudi Arabia. And it has the potential to be a powerhouse in oil production, but only if things are well managed.

The resource curse mostly is the way you manage your oil wealth. On that, Venezuela has a dismal record. It was one of the worst in the 1970s oil boom. It had a terrible record from ’78-’98. In fact, that was one of the reasons Chavez came into power. Then with Chavez, Venezuela was making all the big mistakes — increasing debt in the middle of a boom; investing a lot in military equipment and things that are not going to generate economic growth; not investing enough in the oil sector itself; overvaluing the exchange rate and destroying the tradable sector. Venezuela is the textbook case of the worst economic policies if you want to avoid the resource curse.

So do you see a way for Venezuela to escape that curse? Are there examples of resource rich countries that have worked out better?

Venezuela is an interesting outlier compared to other oil countries that seemed to have learned the lessons from past oil booms in the 70s and 80s. Most of those countries are not running big deficits [like Venezuela]. For instance, Venezuela could go the way of Chile, who have also had a resource boom but are creating a national stabilization fund by not putting all the money back into the economy at once, a counter cyclical policy almost unheard of in Latin America.

Venezuela is also losing about 15 to 20 billion dollars a year in revenues because oil is domestically sold at a price of zero. Basically, gasoline is free. The government could be selling a barrel at $110 [overseas] and they’re selling it domestically at less than a dollar. That’s a big loss. And that’s regressive because it’s mostly benefitting the wealthy, the people who have cars and buy that gas. By contrast, the Iranians changed their policy — they changed the domestic price to close to the international price and then distributed the revenues to the general population. That gave legitimacy and support to increasing the price of domestic gas. That’s the type of thing that Venezuela should be thinking about doing. Improving macroeconomic management like Chile, eliminate domestic subsidies like Iran, and think about other ways to create incentives so citizens make government more accountable in use of oil revenues to create a healthy oil industry and a better managed economy.

OK, so… how likely is that to happen?

If the opposition wins, there is a significant likelihood. However, if Madura wins it is less likely. I think they will do some things to improve the economy, but I think it’s very unlikely they can make a turnaround. The chavista coalition is very authoritarian; they believe this is a revolution that should not be put in the position of losing these elections. Many believe there shouldn’t even be elections.

In the case of the opposition, there is a lot of chance [for reform], but it will be a tough uphill situation. Venezuela has a very corrupt public sector. Moreover, the potential for political instability is very high in any case. Unless the price of oil keeps going up, it will be very hard to sustain this fiscal expenditure path that has happened in the last few years.

The Economist had a useful chart showing how much the poverty rate across all of Latin America has declined in the last ten years, which they predict will drain much of the support for Chavez-like leaders. Do you agree?

The whole region has received a very significant windfall from commodities. Most of these countries are net resource exporters and during the last decade, almost all commodities have risen. Most countries have benefited very significantly. Poverty reduction has happened almost in every single country in the region.

However, the oil windfall has had different impacts on different countries. In Venezuela, it’s 330 percent of GDP according to the IMF. It’s 10 times less in some other countries in the region. Still, this has implied a significant wave of support for almost any politician ruling in these countries. There are very few cases of presidents who were not popular in this period. Most incumbents were reelected with huge margins, an average of 25 points.

Is this going to last? I’m afraid if the commodity boom — as usually happens — dissipates, many of the countries will suffer significantly. Only Chile and Peru have done it very by the book. The others have tended to increase expenditure too much.

Particularly after the financial crisis in the US, Latin America performed very well. Usually when the US caught a cold, we got pneumonia. Not this time. But that gave even the orthodox governments like Chile the license to spend money now, counter-cyclically. But those expenditures are not sustainable.

The history of commodities has been highly volatile. The combination of the resource boom with very high liquidity, especially in the last few years all this liquidity coming from the US, searching for a return, has created a very favorable external environment. But as we know these patterns… well, some things come to a sudden stop. That could create a lot of trouble for these countries.