Category: government

  • Are we prepraed to embrace risk?

    Are we prepraed to embrace risk?

    It’s safe to say the Transport Security Administration – the  TSA – is one of America’s most reviled organisations.

    So it’s notable when a former TSA director publicly describes the system the agency administers as “broken” as Kip Hawley did in the Wall Street Journal on the weekend.

     More than a decade after 9/11, it is a national embarrassment that our airport security system remains so hopelessly bureaucratic and disconnected from the people whom it is meant to protect. Preventing terrorist attacks on air travel demands flexibility and the constant reassessment of threats. It also demands strong public support, which the current system has plainly failed to achieve.

    The underlying question in Kip’s article is “are Americans prepared to accept risk?” The indications are that they aren’t.

    One of the conceits of the late twentieth Century was we could engineer risk out of our society; insurance, collateral debt obligations, regulations and technology would ensure we and our assets were safe and comfortable from the world’s ravages.

    If everything else failed, help was just an emergency phone call away. Usually that help was government funded.

    An overriding lessons from the events of September 11, 2001 and subsequent terrorist attacks in London and Bali is that these risks are real and evolving.

    The creation of the TSA, along with the millions of new laws and billions of security related spending in the US and the rest of the world – much of it one suspect misguided – was to create the myth that the government is eliminating the risk of terrorist attacks.

    It’s understandable that governments would do this – the modern media loves blame so it’s a no win situation that politicians and public servant find themselves in.

    Should a terrorist smuggle plastic explosive onto a plane disguised as baby food then the government will be vilified and careers destroyed.

    Yet we’re indignant that mothers with babies are harassed about the harmless supplies they are carrying with them.

    It’s a no-win.

    This is not an American problem, in Australia we see the same thing with the public vilification of a group of dam engineers blamed for not holding back the massive floods that inundated Brisbane at the end of 2010.

    While we should be critical of governments in the post 9/11 era as almost every administration – regardless of their claimed ideology – saw it as an opportunity to extend their powers and spending, we are really the problem.

    Today’s society refuses to accept risk; the risk that bad people will do bad things to us, the risk that storms will batter our homes or the risk that will we do our dough on what we were told was a safe investment.

    So we demand “the gummint orta do summint”. And the government does.

    The sad thing is the risk doesn’t go away. Risk is like toothpaste, squeeze the tube in one place and it oozes out somewhere else.

    While Kip Hawley is right in that we need to change how we evaluate and respond to risk, it assumes that we are prepared to accept that Bad Things Happen regardless of what governments do. It’s dubious that we’re prepared to do that.

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  • Hubris and risk

    Hubris and risk

    Today is the centenary of the Titanic’s tragic sinking. In many ways, the RMS Titanic described the 20th Century conundrum; a blind faith in technology coupled with a struggle to deal with the consequences of those innovations.

    It’s worthwhile reflecting on the hubris of those who believed their technology made a ship unsinkable, or those who believed their shipyards would never close and – probably most relevant today – those who believe the sun never sets on their empire.

    Technology can liberate our lives which is shown by the fact the average American, European or Australian lives far longer and better than even kings did two centuries ago. But we should never assume these improvements don’t come at a real cost to ourselves, the environment or the ways of life we take for granted today.

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  • Tracking the end of the consumer society

    Tracking the end of the consumer society

    I’m currently researching a presentation about the retail industry.

    One of the things that leaps out when researching consumer behaviour is the savings rate.

    For twenty-five years from the early 1980s to mid 2000s, the savings rate collapsed in Western economies; below are the US and Australian rates.

    The US Personal savings rate shows the rise of consumerism
    US Savings rates 1950 to 2020 – St Louis Federal Reserve
    How did the Australian savings rate fall during the consumer boom
    Australian Savings Rates 1980 to 2012 – Reserve Bank of Australia

     

    The graphs show the same thing; households spent their savings over the 25 years which drove the consumer economy. It’s no accident that period was a good time to be a retailer.

    Being on a deadline, I don’t have time to analyse these number further right now, but one thing is clear; most of the consumer boom from the Reagan Years onwards – or the equivalent from Maggie Thatcher or Paul Keating – was driven by households reducing their savings.

    That couldn’t last and didn’t. Businesses and governments that are basing their decisions on what worked through the 1980s and 90s are going to struggle in the next decade.

    Looking at these figures raises another suspicion – that graphs showing non-real estate investment by businesses and government would show similar declines over the 1980-2005 period.

    It might be that golden period of what appeared to economic success was just us living off society’s collective savings.

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  • We come here to work

    We come here to work

    “We come here to work and not to play” is the quote from a Chinese production line worker in Reuter’s article on Foxconn factory workers.

    That quote could have come from a hundred years ago in Western societies as young workers fled agricultural communities to make better money and find greater opportunities in the factories and cities of North America, Europe and Australia.

    In their report on Chinese labour conditions commissioned by Apple and its supplier Foxconn, the US Fair Labor Association confirmed the quotes from the Reuters article.

    48% thought that their working hours were reasonable, and another 33.8% stated that they would like to work more hours and make more money.

    These workers have an average 56 hour working week and over a third are putting in 70 hours each week.

    Like our great grandparents they are focused on bettering themselves and deeply conservative; they know their immediate livelihoods and future prospects depend upon the work they can get.

    They also understand the government owes them nothing and their expectations on what the authorities will do for them are low.

    It often said the Communist Party of China is the most effective capitalistic organisation on the planet today. In reality it’s the workers on the assembly lines who personify what we know as the free market.

    As the leaders of Western nations continue to indulge in corporate and middle class welfare while believing in magic pudding economics where massive mis allocations of resources have no cost and tax cuts pay for themselves, it might be worthwhile thinking of the businesses those 23 year old factory workers in Shenzhen or Chengdu might be running in thirty years.

    Just as our great-grandparents built modern economies and industrial empires out of their hard work, which most of us still reap the benefit from, those young Chinese workers are doing the same thing.

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  • Playing with Dragons

    Playing with Dragons

    Chinese manufacturing has been in the news recently with various exposes of factory conditions by the New York Times, the now discredited Mike Daisey and a fascinating look at US store chain Wal-Mart’s supply chain by Mother Jones’ Andy Kroll.

    In his examination of Wal-Mart’s Chinese suppliers Andy Kroll interviews factory owners and managers with a common theme, they are all loath to be identified for fear of incurring Wal-Mart’s wrath.

    This is wall of silence is familiar in Australia; the reluctance of local suppliers to speak about the conduct of the Coles’ and Woolworths’ policies has hobbled enquiries into the domestic retail market.

    Another aspect Chinese and Australian have in common is how the retailers drive down costs with big buyers insist upon regular price reductions from their suppliers.

    This is what happens when your business is a price taker that relies on one or two suppliers; you accept what you’re offered or lose a large chunk of your business.

    With many of Australia’s industry sectors now dominated by one or two incumbents, this way of doing business is now the norm rather than the exception.

    As a nation Australia’s finding itself in that position as well. Now our governments and business leaders have decided Australia will only dig stuff up with a few favoured, uncompetitive industries like car manufacturing being being protected, the entire country is in a position not dissimilar to a Foshan coat hanger manufacturer.

    Having that dependency on one or two major customers is a risk and when the commodities boom turns to bust – commodities booms always do – our relationships with these customers will be tested.

    When that test comes, the clumsy way the Federal government has banned Chinese companies from tendering to the National Broadband Network or blocked investment in mining projects may turn out to be mistakes.

    This is the problem with being a price taker selling a commodity product, you become hostage to fortune and when the market turns against you there isn’t a great deal you can do.

    In the early 2000s computer manufacturers like Dell and HP decided to sell commodity products then watched with despair as Apple captured the premium, high margin end of the market. Neither business has truly recovered.

    Being trapped at the commodity end of a market is not a comfortable place to be, particularly if you don’t have a plan to move up the value chain.

    If your business is currently selling low margin, commodity goods then it’s worthwhile considering what Plan B is should the market turn against you. You might also remember to be nice to your customers

    At least you’ll show you have more forethought than our leaders in Canberra who seem to like to play with dragons without thinking through the consequences.

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