Back to basics for the US and the rest of the developed world?

Greece's credit rating was yesterday downgraded again, now to "junk bond" level by one of the main three rating agencies.
Plus, as Howard Schneider wrote in the Washington Post last Saturday, April 24, 2010, "For nations living the good life, the party's over, IMF says", referring to the US and the rest of the developed world.

Thus, it is time for back to basics?
Then, dust off the togas, stock on grapes, start writing poetry and philosophising, take the dumbbells out of the closet, get a new mattress, we are going back to (the) basics (of "Western civilisation")! Wave goodbye to material possessions and other post-industrial revolution "perks" , for an austerity that is austere in some ways and more fulfilling in others.

Redefining what makes a market free

So it seems that many people, in different countries - economies, developing, developed, etc, are not that "in love" with the either the concept or the reality/experience of the "free market".

But what is a "free market"? I have had many discussions and debates with various people on this issue in the last few years, be it in online or "real life" situations/discussions/forums.

Here is my definition.

IMO a free market is a market that has the following characteristics:

a) Freedom to enter - access
b) Freedom to exit
c) Freedom of each single seller to sell or not to sell, ie withhold his/her sale (ie non-desperate sellers).
d) Freedom of each single buyer to buy or not to buy, ie withhold his/her purchase (ie non-desperate buyers).
e) No concentration of power in either the sellers', buyers' or intermediaries side (ie no oligopoly, no oligopsony, etc).

Plus, of course,
f) effective competition legislation and authority observing the adherence to the rules that the competition legislation entails.

In my opinion and in my experience, a large majority of markets do not meet the above criteria.

Firstly, especially in inter-national trade/activity, be it goods or services or even work, market access may exist in theory but in practice it is not that feasible, especially for the "average citizen" and the "average company" (ie the small or micro company).

Secondly, and even more importantly, in my experience and perception, there are many "desperate" buyers and sellers (and intermediaries) in many markets. For a variety of reasons or causes.

If you wish, take this model of free market I have proposed that try to apply it to the various markets for goods, services, work, etc, that you are in (as a buyer, seller or even intermediary), as a person, household or organisation (company, etc). Especially the "non desperate" factor.


Eg how many people in how many types of jobs or sectors do not "need" or are "desperate" for the (salary or social security of the) job they are interviewing for?
And why (what other parameters make them "desperate", is it eg the need to provide for their family via their monthly salary).

Eg think why Germany got out of the recession relatively fast? Why were so many Germans not in debt but, the opposite, had savings in the bank could thus "afford" to stay jobless for a while or not fear so much losing their job (in addition to the German legislation and customs re dismissals in the private sector)?

More on a "rethink of capitalism": The purpose of a business and "profit maximisation"

In recent months due to The Crisis, many have called for a fundamental rethink of capitalism, the French (right of center) President of France, M. Nicolas Sarkozy, most recently at the Davos World Economic Forum.

This is part of my contribution to the (re)think:

The purpose of a business is to produce and/or market goods (tangible or intangible) and/or services that satisfy needs and wants of enough people (or organisations) at a price that and cost that makes the endevour worth it for the owners - shareholders. And IMO there is nothing wrong or faulty in that.

Plus, "Greed" per se and in general, although much discussed or used as an explanation for systemic socio-economic problems these days, is IMO not a factor. What is IMO/IME a factor, and a main causal one at that, is that most corporations have become so large and so impersonal - bureaucratic that they can only operate based on a single factor (mono-variable). And that factor becomes profit (or shareholder value) maximisation.

On the other hand, micro and small companies tend to remain small enough that they can operate based on a multi-variable set of goals, that includes no only profit but other factors as well that cause owner satisfaction (fame, personal ambitions and dreams, ideas, etc).

Corporations that have stocks publicly traded (ie in stock markets) have an additional source of monolithic (mono-variable) pressure ie one that focuses exclusively on profit - shareholder value maximisation: The financial market and its analyses.

What I mean by that? Most often, critiques of capitalism overlook that fact that there is no "capital" per se in large corporations at least, ie the capital-labor-knowhow triangle/model is too simplistic to describe the "system". Why? Because most operators in the financial markets are not the owners of the invested money themselves. They handle the money of clients, many clients, and, this is the key IMO, they have to compete with other operators for their business - clientele. This competition too is based on too narrow, IMO, factors: expected return (and at best, expected risk and their combo (see the "expected risk vs expected return trade-off and the max efficiency frontier). That is the best approximation of the "greed" many politicians and other "accuse", but It is not real greed, it is the competition between money managers for attracting and maintaining their clients based who will offer them the best return. It is that which, in cascade, causes the "profit maximisation" prime and single-directive on publicly quoted corporations.

So whereas in theory, other parameters could be introduced, eg social and/or environmental "responsibility", it is profit maximisation that is dominant.

That's my theory.

Global Warming, World Affairs, the EU, the US and leadership

Here are some thoughts, a tad radical maybe, food for thought, on the dynamics of our times:

1) EU: -30% not even as a conditional EU offer to the US, China, et al? Hm!

2) Here is a radical strategic scenario for the EU (EU2020 etc):
EU2020 Scenario: The EU adopts a -30% emissions target and stops trading with those who do not match the cut! I know, radical.

3) IMO EUropeans need to adopt a sustainable, simpler, healthier lifestyle anyway! Maybe all the way to a "Fortress Europe" (economic+environmental)? Just brainstorming!

4) How radical would this scanario be: The EU uses only solar and wind energy, no CO2 emitting energy, no nukes and EUropeans adopt simpler lifestyles (anyway). Radical, but the times we live in ....

5) Let's look at it from a wider point of view: The West: Our industrial lifestyles in the West have proved unhealthy, thus Europe, North America and others need to revise many aspects of life.

6) Why all this (the above)? Among other things, because the industrial era brought many good things but many bad ones as well, thus it is maybe time to audit the "basket" and revise models and lifestyles.

EU Leadership?

7) For the EU to assume a leadership position in world affairs, it must IMO be a thought leader, instead of a "world bureaucrat"

8) What sort of leadership has the EU shown in the 9 years of the Doha Round of WTO world trade talks and the COP15 - Climate Change talks in 2009 (leading to the results of the Copenhagen Coneference in December 2009)? With Obama now stuck in the US, there seems to be a certain leadership vacuum in world affairs and the EU could/needs to rise to the occasion and lead the world in thought and in "do as I do" throwing in a negotiation assets its 0.5 billion population - consumers - lifestyles and the economic weight of the "rich" EU in order to be a leader in world affairs. Bold?

The US:

9) In the US, the GOP (+ Fox) sem to have checkmated Obama and the Dems and thus US policy making, home and abroad, may be frozen until .... Jan 2013?


The world:

10) Meanwhile, the Director-General of the ILO (International Labor Organization) Juan Somavia calls for the same policy decisiveness that saved banks to save and create jobs

Banking in post-industrial economies

In recent months I have blogged and tweeted the question: Do London and NYC over rely on financial services for activities, growth and jobs?
And does the crisis show that NYC and London need a new model for activities, growth and jobs?

Thus it does not surprise me to read, today, in an article at the Guardian that, in view of the recent decisions by the British and French governments to highly tax large bankers' bonuses and the arguments that they could lead to an exodus of bankers from London, Andy Haldane, the head of financial stability at the Bank of England (Britain's central bank) has argued during an interview with BBC World Service that bankers moving overseas to avoid the bonus supertax could be price worth paying to achieve lasting reform of the sector! Plus he also poses some very insightful food for thought re the structure of commercial and investment banking these days and arguing for a potential separation of commercial banking and investment banking activities (and thus benefits and risks).

I am in no way antithetical to the financial services and banking industries. They always had and still have a role to play in an economy. What I am skeptical about though is the weigh that has been placed on this industry or sector. Especially by London and NYC.

In my theory about the causes of the current crisis, I propose that in recent decades, financial services did not adapt to the shrinking of manufacturing in the US and Europe (based on an assumption of mine that it is large manufacturing companies that have high needs for banking and investment banking due to the high fixed costs and capital intensity of manufacturing). The rapid shrinking of the manufacturing base in the US and much of Europe should IMO have led to some shrinking of the financial services and investment banking, which do not seem to have happened before the crisis. The alleged trend for high level bankers to move to Asia, where manufacturing strives in recent years, proves to some extent the validity of my claim that high level banking needs manufacturing (and vice-versa), whereas Services based economies of our times, such as the US, the UK, etc, do not the same volume and type of banking needs that manufacturing did in the peak days of the US and European industrial era.

In addition, it does make sense IMO to pose the question whether it makes more sense for commercial and investment banking to co-exist in an entity and hedge each other or to be separate? Not that the answer is easy. We do after all live in interesting times and to wish someone to live in such times was not a wish but, allegedly, an Ancient Chinese curse.

Listen to an audio presentation, about 10 minutes) of my theory on the causes of the crisis: http://www.box.net/shared/d9pccl6q4v (October 2008)

Concepts: No pain no gain (in 2010)?

Does "no pain, no gain" apply in work in 2009?

Job satisfaction: suffering for a living?

Survival of the hardest working, the cheapest, the smartest or the wisest? Or the .....?

Work hard, smartly or wisely?

De-industrialisation: In a few decades will we all become poets, philosophers, artists etc like in Ancient times? But what about income?

Philosophy: Never send a human to do the job of a machine, robot or animal

Home is where the jobs are? Is globalization gonna turn us into nomads or globetrotters?

UK: Some sectors need more regulation, but many need much less

In the UK (but this is also relevant for many other countries and more the capitalism - regulation - needs of micros and SMEs discussion (see post), there is much debate going on regarding heavier supervision and regulation of banks and other financial services. Eg the government's Financial Services Bill and the issue as to whether a watchdog (eg the FSA) should have a word over top exec pay in banks.

IMO, whereas banks may need to be more heavily regulated due to their "too big to fail" nature as part of the economy and their involvement in the daily lives of most people (as far as retail banking is concerned), radical deregulation IMO is urgent for SMEs and micro companies in many other sectors of the UK economy (and other economies).

Not to mention that IMO a radical re-think of the total model of financial services and banking would be in order in the UK, the EU, the US, almost everywhere. A comprehensive re-think of what is the reason of being of banks, their business model (especially the presence of many different and some difficult to appreciate types of risks), all aspects, in parts and as a whole, would be in order, in the aftermath of the crisis.

But in any case, banking is not a "business as usual" or "business" in general. It has complex systemics and structures that are far reaching and cut to the bone of any economy and the people.

So, what about top exec pay in banks? Should anyone "interfere" in those "contracts". Well, for one, the Plenary of the stockholders should, but that applies to any company in any sector whose shares are traded (publicly quoted, see "Corporate Governance" or what I prefer to call "Corporate Democracy"). Should a retail bank have the pay of its top execs approved or vetoed by "the state"? Only when and while it has borrowed money from the state or the state is a shareholder? Or in any case, because banks "need" to be bailed out in case they may fail because they are "too big to fail"?

By the way, more than 100 banks have failed or been "closed" by the authorities in the US this year. Of course FDIC reimburses all deposits of up to a certain level (the rest was part of a depositors "risk"). But banking and its systemic role and effects in an economy as most economies are today, especially in the UK and the US, are much more than just the deposits, isn't it?

Oh we do live in interesting times. Quite a curse.

The entrepreneurship vs regulation oxymoron within the context of global socio-econ trends and dynamics

What oxymoron?

Well, if you have been reading this blog or following my tweets in the last few weeks, you should know what I mean:

a) Free market capitalism seems to be losing popular support, all around the world, even in the US.

b) Much of public opinion around the world again is in favour of more regulation on business.

So, while micro firms and SMEs are suffocating in over-regulation and red tape, world public opinion is asking for more business regulation.

Analyse this!

As I have pointed in numerous posts and tweets in recent months, many people (be they men in the streets or policy makers or media etc) when they think "business" they continue to be "tied" to states of the past (large industry, esp. international), whereas, at least in the US, EU and orher OECD at least countries/economies, 70-80% of the economy is Services and the companies ("business") is mostly SME (small and medium) or even micro (0-9 employees).

Hence: they could be talking of different business, but that is IMO lost in .....

Plus I ask you to consider this:

1) IMO globalization will gain popular support only when most micro and small companies can feel the global market + its niches as "theirs"/ Plus, IMO the EU will gain popular support only when most of its micro + small companies can feel the EU Single Market as their market.


2) Many young people are opting to start a business rather than become "corporate material": An "Entrepreneur or corporate manager" dilemma? Yet, corporate bureaucracy may be bad these days but the red tape a #micro company faces is not cool either.

3) Real capitalism vs. pseudo (fake) capitalism? Which of the two is prevalent in your part of the world? Many people cannot tell the difference!

4) IMO we need either more or less of "Europe" + either more or less globalisation, current levels of both EU and globalization make no sense (and do not work for the micro and small firm and the "man in the street").

Is free market capitalism fatally flawed?

(605 words)
While the OECD (The Organisation for Economic Co-operation and Development (OECD) is saying that major economies across the world are showing strong signs of recovery, 23% of 29000 people in 27 countries who participated in a BBC World Service poll feel free-market capitalism is fatally flawed.


Here are my observations and comments re the scope of the above analysis (OECD) and poll (BBC World Service):

1) The BBC World Service's poll is not global (covered 27 countries, WTO has 152 and UN over 190)
2) Neither do major economies constitute the "global economy"
3) Nor do the G20 constitute the global economy, even if they represent some 70-80% of its GDP

And here are my observations and comments re the essence:

I) The current (economic) system in the 27 countries surveyed may be either "fatally" or "very" flawed but has to consider: In how many of them is the system real "free market capitalism"?

Communism vs Capitalism (and people's memories from the former and experience with the latter): Aren't the good old times due to bad or selective memory? Plus, again, in how many countries do people experience a real - genuine "free market capitalism"?

II) What is equally if not more worrying IMO is that the BBC World Service poll in those 27 countries (as well as other surveys that have come to my attention recently) indicates there are majorities almost everywhere (in those 27 countries) that want government to be more active in regulating business!

More active in regulating business? Does that mean more regulation or better regulation, one may ponder?
Of what business? What do they respondents have in mind when they express or agree to that view? Large and small or micro business? In general or specific sectors (eg financial)? Domestic or foreign ?

The above are very crucial IMO, if one is to get any useful conclusions out of the popular view for regulation that seems to exist.

III. Thus, IMHO:

a) The economic system in many countries today is flawed but that system is not free market capitalism

b) A key factor leading to the flaws and resulting popular dissatisfaction with the current economic systems are major flaws in competition laws and related supervision of the markets.

c) the BBC World Service poll results show need for better functioning free markers and better welfare state, both!

d) The BBC World Service poll results show the need to secure peoples' basic needs and for giving people more freedom in pursuing wants and dreams in their work/economic or social or other aspects of their lives.

e) Neoliberalism and conservatism tend to underestimate the fundamental human "need" for basic needs including the security of social security

f) Most political parties and platforms miss the concept that some things are better done by the market, some better done by the public sector. Each sector has activities where it is stronger.

Instead we are flooded by ideologies that either theologise the markets and demonise the state and its public sector (eg most Libertarians) or, to an increasing again level, the opposite, ie theologise the state and its public sector and demonise the private sector.

Modern systemics and dynamics are complex and volatile thus they are difficult to grasp. Thus some resort to the aforementioned and other simplistic models that have IMO confused the public opinion.

What is the solution? Not simple, but a basic element of any model I have in mind is:

To have the state/Society guarantee all its members that rain or shine their basic needs will be covered and then let them go out to real free markets to pursue their wants.

policy attention: real economy for real growth and real jobs

IMO until small companies around the world see economic structures + rules that are made with them in mind, real growth + jobs ...

Back to basics: in business, it is the ideas that count and the dreams !!!

Philosophy: Small company owners and staff around the world are heroes of our era

on entrepreneurship, success, needs and wants and niches

The triangle of success in work or entrepreneurship: a) like it b) be good at it c) it is in demand?

What do I mean?

Well, you have a hobby that you love, you turn it into a profession - job, you work very hard at it, BUT is it in demand? Many entrepreneurs forget that (the demand dimension).

Can you create demand for something because YOU think that people need it? IMO, that's quite unlikely! It's like trying to MAKE someone love you or fall in love with you: it rarely works! same with demand 4 a product or service! Unless you have many millions to spend in advertising, and then, even then, it is not that more likely IMO.

Of course that does not ignore the utility of pockets of demand (niche) but that niche demand IMO has to satisfy niche's needs

USA - EU similarities and differences

Philosophy:

Should USA and EU "systemics"

a) converge or

b) remain different to offer 2 distinct choices - options?

the competitive advantage of being human!!!

philosophy - work - management:

Never send a human 2 do the work/job of an animal or a machine (and vice-versa)!

Do not "buy into" the antiquated notions of productivity of the industrial age, remember, you are not a robot!

ah those Basics, where are they?

Lifestyle - Philosophy:

A solution to many problems in 2009:

Back (or is it forward) to Basics!

Barrier: most have lost sight of them!

a wiser life for a better planet!!!

IMO much of the materialism, greed even CO2 emitting activities of humankind come from trying to impress other people in wrong ways.

Example: Dating

IMO/IME dates really care about "other things" and they have nothing to do with wealth + car.

Yet, are there guys today who think that an expensive car will land them a cool date? Yes, there are.

But, how many dates ACTUALLY expect it or attach REAL importance to these things? Not that many after all is said and done! Other things matter!

private (vs?) private: beyond political ideologies

IMO, the private sector has a natural advantage in certain areas, industries, activities; the public sector and Society in others (eg health care - medical - pension insurance)

For example: An individual's health risks are better covered by "Society" - the public sector rather than the private sector; IMO this not a matter of political ideology but the structural nature of health risks and the industry/activity in general.

The private and public sectors have, each, their own role in a Society, economy, country/state.

capitalism mach II?

Towards a meta-materialist, meta-industrial, energy lean, intellect driven capitalism?

Is it attainable?
What is the role of opinion leaders and shapers of all kinds (thinkers, lifestyle and fashion gurus, marketers, etc)?

some thoughts on environment and an energy leaner way of life

a) The French president announces plans for CO2 tax of 17 euros per tonne of emitted CO2 environment

b) US cap and trade legislative proposals

c) More than 50% of electricity in the USA is provided by coal!!!!

d) Philosophy: What are the total per unit carbon footprints (manufacturing + transportation) of various global products we buy at our local store?

e) a) CO2 b) nuclear or c) solar and wind AND an energy leaner way of life? Strategic trilemma for humanity and each human.

f) Could regionalisation of the trade of goods (as opposed to globalisation) reduce CO2 emissions - carbon footprint per unit of good sold?

the causes of the crisis: who is "greedy "after all?

Is it "Wall Street" per se that was/is "greedy" for profits or its clients?

The "new" pleasures in life (post-recession) - way of life

Philosophy post-consumerism meta-recession economy and way of life:

What is more satisfactory? Material goods or intellectual goods and other "things" in life? Eg

1) expensive cars, jewelry, clothes, gourmet foods, etc OR 2) a good book, movie, song, sunset, thinking and conversation, good sex etc?