In the context of UK’s indebtedness, it might seem that any morsels in the new budget to benefit the real economy, for start-ups, small businesses, for technology and innovation, should be thankfully received. But the real opportunity, the one the now toothless Vince Cable made so much noise about, has been totally ignored. For the financial sector, it really is business as usual. Its rape of the real economy can continue for another year at least without fear of interference.
Continue reading Osborne’s Wasted Opportunity
All posts by Gordon Pearson
Is Japan’s Misfortune the Real Tipping Point?
From time to time the real world where people eat, drink, sleep and have their being, is impacted by the very unreal financial world of speculative markets, and invariably to its huge disadvantage. The bursting bubble of 2007-8 was one such example, which some hoped might be a tipping point, leading to a more civilised future. But not just yet. Now, the speculating elements are picking over the humanitarian disaster unfolding in Japan, to seize the chance of a quick profit. And there is still no sign the ‘madmen in authority’ have the stomach for making any fundamental change. The real world will continue its devastation.
Continue reading Is Japan’s Misfortune the Real Tipping Point?
Co-ownership Financing Growth
As announced this week, the John Lewis partnership is raising £50m to finance further expansion by issuing a savings bond to its ‘partners’ and customers. If it succeeds it would make a lot of expensive City activity seem rather unnecessary, and its success is not seriously in doubt. The bond will return 4.5% gross plus 2% in John Lewis vouchers which puts it slightly ahead of the field in terms of returns. City “experts” seem worried that this sort of thing might catch on. They advise investors to proceed with caution because the issue is not covered by the Financial Services Compensation Scheme. So, if John Lewis were to go bust over the next five years, investors might lose their money.
Restoring Enterprise by Burying Dogma
The almost universal acceptance of neoclassical economic theory, at least in Britain and the United States, has resulted in much destruction of professional management practice. The so simplistic dogma leads to a set of mindless clichés which have not only severely damaged enterprise management practice, but, also the wider management of the real economy, as has been seen over the past two years.
Food Insecurity: Another Big Bubble
Neoclassical free market orthodoxy, by which the world is still ruled, makes no distinction between real and speculative markets. Both are granted maximum freedom to grow. Speculative markets started as a strand within the financial sector which itself was brought into existence to support investment in the first industrialisation. But while the size of real markets is limited by the ‘appetite’ of potential customers, speculative markets have no such limit. Their growth has been phenomenal; the market for derivative securities has already been estimated as close to the GDP of the planet and many times the value of the world’s stocks and shares. But that is only the start.
The Ignorance of Economics
Despite their much vaunted economic expertise, the leading national and global institutions failed to prevent the financial and economic crisis they’re now arguing over how to clear up. The IMF’s Independent Evaluation Office (IEO) reported last month on why the IMF, as one such institution, failed to identify the risks and give clear warnings. The prime causes of that failure were identified as ‘analytical weaknesses’, which were actually shared by all relevant institutions. These analytical weaknesses included a tendency, among IMF economists, to be dominated by neoclassical free market dogma, and so to believe ‘market discipline and self-regulation’ would be sufficient to avoid financial disaster, and to trust the new mathematically based techniques for spreading financial risk, and to conflate the financial and industrial sectors, thus ignoring the influence of finance over the real economy. ‘Perhaps the more worrisome was the overreliance by many economists on models as the only valid tool to analyze economic circumstances that are too complex for modelling.’ (Paragraph 46).
Innovation, Strategy, Culture and Suicide
Eras of rapid change come and go. Schumpeter, Kondratiev, Piatier and others, studied waves of fundamental innovations. We are in the middle of the 4th wave at the moment (comprising ICT, electronics, internet, biotechnology, molecular engineering and the applications of quantum mechanics, etc), still with new innovations being developed, some still growing, some already maturing and some even starting to decline.
Pity the Poor Banker!
Empathise with the banker, trader or fund manager looking after other people’s money, whose performance on their behalf is continually assessed and reported as the basis for a position on a league table. Two options are on offer.
1. Invest in a start-up widget manufacturer creating new employment but only offering a return of 10-15% pa and even that is at risk, or,
2. Invest in “Alternative Markets – Dedicated to providing established green sippable alternative investments. Guaranteed investment opportunities with ROI ranging from 60% to 398%. Purchasing carbon credits to offset harmful emissions is a popular carbon reducing option. Investors can invest in companies that provide credits for carbon emissions, through forestry plantations for example, which are then sold on.”
See http://www.alternativemarkets.co.uk/carbon_trading.php
Assuming both options are perfectly legal, which way is investment likely to be made?
The British Government’s Hopes for Partnership with the Unions
The end of the self-defeating miners’ strike in 1985 led to the somewhat fundamentalist right wing government imposing severe restrictions on the unions’ rights to engage in industrial action. Despite the 13 years of Labour rule, those restrictions were never undone. So it remains extremely difficult, within the law, for the union movement to mount any general industrial action. However, the wholesale nature of the current government’s expenditure cuts, presents a once in a life time opportunity for the unions to mount a hundred or more individual legitimate trade disputes, which could, to all intents and purposes, look very much like a general strike. The unions hope this will be the appearance of their London demonstration at the end of March, which they expect to attract a million supporters.
Continue reading The British Government’s Hopes for Partnership with the Unions
The Neoclassical S-Curve
The pattern of technological progress has been found to be surprisingly consistent. New technology has to clear various hurdles before attracting funds for its commercial development. A successful project that gets fully exploited grows fast, all the time getting detailed improvements and added features. Eventually, progress begins to slow, returns from further R&D diminish and the technology begins to stagnate, before being replaced by something totally new and different which starts the whole process off again. The graph of this progression is the S curve, starting at the tail of the S, going through a rapid growth and tailing off, before being replaced by a new S.
About 30 years ago, when Friedman’s fixation on maximising shareholder wealth was beginning to be widely adopted, S curves were a trendy form of strategic analysis. They had been applied to many industrial sectors, studying the introduction, development and replacement of technologies, all following discernible S curve progressions. However, the idea was not then applied to theoretical development.
Fighting for Fairness by Remaking the Real Economy 