Tag: economics

Links of the day – Terrorism, deflation and London’s rebirth

The terrorist murders in Paris lead today’s links of the day.

Today’s links kick off with the worldwide reaction to the terrorist atrocity in Paris. The other links, which pale in contrast, include why we should really fear deflation, the decline and rise of China and how to understand a food critic.

Cartoonists unite over French terrorist murders

After the terrorist atrocity that saw twelve people murdered in an attack on a magazine office in Paris, cartoonists around the world have shown their reaction.

Why Europeans should fear deflation

Yesterday the main economic news was the Eurozone had re-entered a deflationary period. Irish economist David McWilliams explains why deflation scares governments and banks with some lessons from the Great Depression.

The decline and rise of London

In 1939 London reached its peak population of 8.3 million then saw declines for the next fifty years as war, government policies and economic restructuring saw the city’s attractions wane.

Sometime this week London will pass its 1939 peak and Citymetric magazine looks at the reasons for the decline and why the recovery began.

China’s incredible disappearing former leader

In November 2012 Chinese leader Hu Jintao stepped down from his post. Since then he’s effectively disappeared from public view Foreign Policy magazine reports.

At the same time many of his allies and supporters have been purged from their party positions as part of a major change in direction for the Chinese government. What this means for the parties’ cronies who’ve been propping up property prices across the Pacific and Macau’s lucrative casino business remains to be seen.

What restaurants should know about food critics

First impressions matter warns former restaurant critic for the New York Times and Los Angeles Times, Ruth Reichl, in a terrific interview with Open For Business.

Reichl’s advice is good for pretty well any business; make sure your first impressions are good, don’t rip off your customers or be too pushy with upselling and train your staff. It’s an entertaining insight into a field dominated by egos that’s largely becoming extinct.

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Links of the day – dead malls, economics and politics of the future

What will the economy and politics of the future look like?

Today’s interesting links revolve around economics – those of shopping malls, the future and how politics might react to a world where the majority’s incomes are lower and far more precarious than we’re used to.

The economics of dead malls

Shopping malls were the town square of the late Twentieth Century consumerist society. Now in many parts of the US the shopping mall is dying as economics and culture turns against them.

The New York Times looks at the economics of shopping malls and how they are affected by changes to society, particularly the decline of working class incomes and the middle class squeeze. In the meantime high end malls seem to be doing extremely well.

Having opened in 1986 with a renovation in 1998, Owings Mills is young for a dying mall. And while its locale may have contributed to its demise, other forces played a crucial role, too, like changing shopping habits and demographics, experts say.

A number of factors are working against old fashioned shopping malls including growing wealth disparity, falling middle and working class incomes along with fundamental changes to the economy which mean retail businesses, along with other industries, are going to have to adapt to a very different future.

Journey through the landscape of the future

Some of those changes to the global economy are described in Deloitte’s Centre For The Edge’s The hero’s journey through the landscape of the future, first published in July last year.

The Deloitte think tank describes a world where the workforce is more casualised – dare one say more precarious – and the barriers to business far lower than today.

Democracy in the 21st Century

Changes like those described by Deloitte don’t happen without consequences and economist Joseph Stiglitz suggests this will change our democratic institutions.

Sadly Stiglitz doesn’t suggest the changes that might happen apart from observing the current system that seems to be baking in inequality probably isn’t sustainable.

In a world where incomes are less stable and economic standards of livings are falling for the majority of people, the current beliefs that underpin the philosophies of political parties and government agencies become redundant. How today’s governments react to these changes will be an important question for how our societies look in the 21st Century.

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A need for cultural change

Creating a more resilient economy will take a culture shift and a change in the way all of us think.

On Sunday the Murray Report into the Australian Financial System was handed down with a range of recommendations on ensuring the stability and future of the nation’s banking and finance institutions.

Choosing David Murray, the former CEO of the nation’s biggest bank, was controversial but it turns out he and his team have delivered a sensible overview of the opportunities, risks and challenges facing Australia’s financial sector and economy. Many of the recommendations though require a change in both the culture of banks and that of the country’s population towards investment and savings.

A key part of the review is identifying the lessons learned from the Global Financial Crisis of 2008 in an attempt to reduce the country’s vulnerability to external economic shocks and limit the taxpayers’ exposure to any consequential bank failures.

In proposing ways of strengthening the nation’s banks against similar future shocks The report identifies a cultural problem in the finance industry.

Culture of financial firms

Since the GFC, a persistent theme of international political and regulatory discourse has been the breakdown in financial firms’ behaviour in failing to balance risk and reward appropriately and in treating their customers unfairly. Without a culture supporting appropriate risk-taking and the fair treatment of consumers, financial firms will continue to fall short of community expectations. This may lead to ongoing political pressure for additional financial system regulation and the undermining of confidence and trust in the financial system.

Interestingly, exactly this sentiment is echoed by last week’s World Of Business on BBC Four where host Peter Day reported from the recent Drucker Forum spoke to various economists, bankers and market commentators.

Breaking the debt culture

A key point raised in Day’s story was best expressed by Gary Hamel, Management expert and professor at The London Business School who said; “I think what the global financial crisis revealed — in addition to a lot of mendacious bankers who had lost touch with their social role — was the fact we’d been sustaining living standards through debt. I think that overhang is still there.”

The Global Financial Crisis was a warning the late Twentieth century model of using debt to sustain living standards was coming to an end, of all the western countries Australians had been one of the most enthusiastic nations about using debt to underpin consumption and that debt obsession had allowed the nation to skirt the worst of the GFCs effects.

With personal debt still at astronomically high levels it’s unlikely Australia will be able to avoid the next global financial shock and part of Murray’s recommendations are aimed at making both the economy and the banking sector more resilient to those shocks.

A fall in income

For the bankers this means lending less money and stricter financial controls; it almost certainly will mean their incomes will fall and it will be harder for millions of Australians to borrow money for easy speculation in the property market.

Creating a more resilient economy will take a culture shift in more than just highly paid bank staff, it will require a change in the way all of us think.

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Lessons from the G20 leaders meeting

The Brisbane G20 meeting shows the world’s leaders are locked into old models, it’s up to you to change your world.

This year’s G20 talkfest has come to an end with the usual communique of fine words.

Apart from the discussion of climate change there’s little in the communique that wouldn’t have furrowed the brows of Margaret Thatcher or Ronald Regan thirty years ago with most of the pronouncement a being around opening markets, reducing unemployment and freeing capital.

On the latter point, the call to reduce tax avoidance given this was an obvious consequence of the 1980s reforms would be met by with a rueful laugh from those responsible for the deregulation wave of the Reagan and Thatcher years given reducing taxes on corporations was one of the reasons for the ‘reforms’

An aspect that would trouble Maggie’s and Ronnie’s ghosts would be the commitment to ‘address deflationary pressures’, something undreamt of in the 1980s, although a clear warning to today’s commentators and investors that Quantitative Easing is not going away any time soon.

What today’s communique shows is the world’s leaders are still very wedded to the economic models of the Twentieth Century despite the massive demographic and technological developments changing our society.

The real message from the G20 is don’t wait for your country’s leaders if you want progress; at best they probably won’t comprehend what you’re saying.

Although if you can put your ideas in terms of creating growth or reducing youth unemployment then you might have a willing audience with your local minister, chancellor or President.

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Making the case for engineers

Engineers need to start arguing the case for their profession

“It’s important to keep the engineers under control as they don’t understand costs,” a tech industry commentator said to me last week.

That was an interesting view and one that’s at odds with the core role of engineers – engineering is applied science where the job description is to create something within the sponsor’s scope, time and cost requirements.

It’s rare that a project doesn’t have cost constraints and it’s a very junior engineer who won’t be aware of those and how expenses are tracking against forecasts during the assignment. It’s a core role of the job.

Engineers as financial naifs

How this view of engineers being financial naïfs has developed is interesting in itself; there’s three factors that drove that commentator’s view.

The first factor is the financiers and accountants have hijacked project planning and management – sort of like how marketers have overrun the social media sector – so it is in their interest to portray their professions as being the only people who can be trusted to watch the books.

Giving the power of managing projects to the financiers has tragic results for many projects; invariably the money men misunderstand the costs required to meet a project’s scope resulting in a substandard result or, paradoxically, the project running massively over budget.

IT industry failures

The IT industry’s behaviour is a second factor which in itself can be split into two; the startup community’s model and the ‘rob the client’ mentality of the major outsourcing companies.

One of the greatest business failures of the last thirty years has been IT outsourcing where enterprises have essentially written blank cheques to the global outsourcing firms to save computing costs.

Because most of those projects have been run by moneymen with little understanding – despite their hubris – of either the business’ needs or the role of information technology in the organisation the results have often been catastrophic for shareholder or taxpayers, although very good for the salespeople and managers of the global outsourcing companies.

Usually a good indicator of project doomed to failure is when a CEO or minister announces the scheme with the justification it will save an improbably large amount of money for the organisation; tears usually follow.

The startup community’s attitude to project management has also twisted the engineer’s role. While there are some ventures that keep a very canny eye upon costs and deliverables – these are often the successful ones – many of the high profile, big funded companies take the attitude that engineers should focus on code while costs are a concern for founders and financiers.

In that view, the software engineers don’t have to worry about costs – it is none of their business.

Finally there’s a cultural element and it’s notable that the commentator speaking to me was Australian.

Australian mediocrity

One of the traits of modern Australian management is the culture of mediocrity and unaccountability that has crept into the nation’s business leadership from the early 1990s onwards. Tolerance of over budget or failed projects has become the cultural norm.

Probably the best example of this was the deeply troubled National Broadband Network currently struggling to stay alive in the face of a restructured management, government hostility and community indifference. Both the previous and current management have shown themselves to be particularly unsuited to meeting the engineering and contractual challenges of the project.

Interestingly, the engineers get blamed for the management’s hapless inability to deliver the project on time, budget or within the project scope.

The perverse, and tragic, thing about the NBN is had managers listened to wise voices from the engineering and construction communities in the early days the scheme would have had a chance of succeeding despite the political incompetence and bastardry that surrounded it.

Squandered resources

As the western world and developed economies move into more constrained times squandering resources on poorly thought out or badly managed projects is becoming an unaffordable luxury.

Engineers need to make the case they are not just a bunch of technology obsessed geeks implementing unrealistic and uneconomic solutions. Getting projects built properly is too important to be left to the accountants.

Image from Seattle municipal archives image of Engineers planning a freeway through Flickr

 

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Economics for the ordinary person

Economist Ha-Joon Chang believes we should challenge the economic theories that rule our modern governments

“95% of economics is common sense” says economist Ha-Joon Chang in his book The Little Blue Book — Five Things They Don’t Tell You About Economics.

In a presentation at this year’s RSA conference Chang explains some of the underlying themes of his book, particularly the point that the various schools of economics theory are based on their own sets of cultural assumptions and that every group struggles to explain the world, especially when asked to fit Singapore into their models.

Chang’s five points are a call for the average person to understand economics and be prepared to challenge the orthodoxies being trundled out by business and political leaders.

You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly over the truth, even when it comes to economic matters.

As economists have been allowed to become the high priests of modern society — or possibly the court jesters of the corporatist world — it may well be time to challenge them.

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Dealing with the demographic dividend

As populations age, training and education become more important than ever.

“In the 20th century the planet’s population doubled twice. It will not double even once in the current century,” states The Economist in a lengthy article on how the world’s aging population is going to affect economic growth.

One of the most overlooked aspects of modern day economics is the changing demographics of the developed world, the aging army of baby boomers has been effectively ignored by policy makers and voters alike and now we’re about the see the consequences.

Japan is the case study as the country is well ahead of the pack with an rapidly aging population and the indicators aren’t good.

Amlan Roy, an economist at Credit Suisse, has calculated that the shrinking working-age population dragged down Japan’s GDP growth by an average of just over 0.6 percentage points a year between 2000 and 2013, and that over the next four years that will increase to 1 percentage point a year.

Despite that drag on growth, the Japanese are still living quite well and could be showing that an economy can grow old gracefully and productively.

The key to doing that is to have a well educated, skilled and productive workforce. An efficient health system that ensures older workers stay fit enough to work doesn’t hurt either.

What The Economist illustrates in its story is that some countries are going to perform better than others as their workforces age. Those who’ve neglected their education systems and workforce skill bases are not going to do well.

One can’t help but think the ideologies that gripped the Anglo-Saxon countries in the 1980s that saw skills being discarded, investment neglected and education cut are going to have a high cost on those nations over the next twenty years.

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