Did Hyman Minsky anticipate creative capitalism?

March 25, 2014

Bill Gates has called for a more creative form of Capitalism. The work of Hyman Minsky is being reappraised as relevant after the 2008 financial crisis

Minsky’s ideas were taken up by Paul Krugman, and later by other influential figures such as Janet Yellen, now head of the US Federal Reserve bank. They offer an explanation for the irrationalities of economic boom and bust, though inherent instabilities rather than temporary distortions. As such it relates to the Animal Spirits of John Maynard Keynes.

What is creative capitalism

Some posts ago I asked what is the nature of creative capitalism. The question arose after Bill Gates called for it, without exactly joining up the dots. My best shot was a suggestion that thinkers about capitalism were rewriting the map to deal with the uncertainties of the global economic climate. Under such uncertainties, creativity in thought and action becomes important. Mr Gates suggested that Capitalism needs to refocus its energy on social issues including the environment. Minsky suggests how this might come about.

Minsky’s destabilization hypothesis

An interesting article on the BBC website [March 2014] and a subsequent Radio Four broadcast outline why Minsky’s ideas might be relevant.

It seems that the relatively unknown Minsky has attracted attention recently for his theory of inherent instabilities of financial markets. Stock Market bubbles are inevitable as turbulent flow of water from a high pressure hose or water boiling in a saucepan on a hob through induction heating.

Minsky’s three stages

Minsky describes three stages within the process. The hedge is the stage in which the innate caution of professional investors dominates. The hedge offers possibilities for more risky gains, and the famous animal spirits kick in. In Wall Street jargon, the animal spirits move from those of cautious bears to those of Raging Bulls.

The ghost of Ponzi

Conventional wisdom is that bears and bulls eventually damp down irrational blips in the market. Minsky argues that after the speculative stage comes a fraudulent stage he termed the Ponzi stage. This honours or maybe I should say dishonours the schemes of Charles Ponzi, [1882-1949] the infamous modern inventor of a huge pyramid-selling scam.

To be continued

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How should we read a statement by George Soros? Carefully.

March 13, 2014

George Soros If I could outguess George Soros I would be very clever and perhaps very rich. But I can offer a few observations about his history which may help interpret his recent comments about a new financial crisis

When George Soros speaks, the financial world listens. He has been speaking in the UK this week [March 2014] of the next financial crisis that he says will come about in part a consequence of weak financial leadership in Europe, and in particular in Germany.

He is particularly remembered for an enormous financial coup as the pound Sterling crashed at the time of Black Wednesday [16th September, 1992]. His success then was through a daring short-selling operation which can be admired for its daring or condemned for its contribution to a global economic crisis. Since then, his espousing of various social causes has led him to be pronounced ‘a dangerous leftist’ by Human Events’ readers, who in an online poll, recently voted him “the single most destructive leftist demagogue in the country.”

Soros is a big player

George is a capitalist superstar or a dangerous leftist supervillain. He may be speaking as an old man and a noted philanthropist concerned only to warn us that Europe is heading for yet more financial trouble. He may be speaking to avert or reduce such a crisis. He may be speaking with no personal agenda.

Or he may have the motives of a inveterate speculator

Or he may have the motives of a inveterate speculator, the gamester whose actions always designed to “tell” what he wants to reveal.

Or he may be plugging his new book

Or he may be plugging his new book, The Tragedy of the European Union, which was published this week, and which itself aligns with his libertarian political philosophy and his altruistic efforts.

Putting lipstick on a Rottweiler

To rephrase a term expressed by the American politician and folk philosopher Sarah Palin, you kin put lipstick on a Rottweiler but underneath it’s still a goddam Rotweiler .

Note to my students

I am not a supporter of either/or logic in assessing complex socio-economic issues. George Soros needs to be studied as a successful thought leader who shows consistency only in his skills of revealing what he wishes to reveal.


The Co-operative Group: A noble business failure?

March 12, 2014

The Co-operative Group has its place in the social and political history of modern Britain. Yet it is in deep crisis as its departing leader Euan Sutherland declares it ‘ungovernable’

On March 11th 2014 the following statement appeared on the website of The Co-operative Group

The Co-operative Group announces that Euan Sutherland has resigned as Group Chief Executive with immediate effect. Richard Pennycook, Chief Financial Officer, has been appointed as Interim Group Chief Executive.

The statement then quoted its former CEO’s damning indictment of its professionalism and governance:

“It is with great sadness that I have resigned as Chief Executive. I have given my all to the business and had hoped to be able to lead its revival. However, I now feel that until the Group adopts professional and commercial governance it will be impossible to implement what my team and I believe are the necessary changes and reforms to renew the Group and give it a relevant and sustainable future.

“Saving The Co-operative Bank and with it The Co-operative Group from administration was a huge task, but the changes required do not stop there, with fundamental modernisation needed to safeguard the future for our 90,000 colleagues and millions of members.

“The Group must reduce its significant debt and drive major efficiencies and growth in all of its businesses, but to do so also urgently needs fundamental governance reform and a revitalised membership.

“I will not accept the retention payments and long term incentive payments previously agreed for the delivery and protection of value in the Group and the Bank, even though this was successfully delivered. “I would like to thank all of the Co-op’s hard working colleagues for the support they have given me during my time. I wish them all well. The Co-operative has some wonderful people who deserve a great future.”

Concealing more than it says

Even without further background knowledge by the reader, the news item is of interest to any student of leadership. [Hint to tutors. Try redacting the name of the company and offer the resignation statement for class discussion.]

The resignation statement may be read as a farewell message, concealing more than it says. Why did the CEO fail to achieve the ‘fundamental modernisation’ he believed necessary? What does a revitalised membership imply? How do we interpret the statement that ‘The Co-operative has some wonderful people who deserve a great future.’

A missing story

As editor of LWD I am disappointed that after 1000 posts I have not reported one that dealt directly with the important history and current financial problems of the Co-operative Society. Even a juicy scandal earlier this year did not warrant a mention, although it led to the departure of Euan Sutherland’s predecessor. The story is one which includes one of the most powerful forces towards an alternative capitalism merging socialist ideals with self-help and corporate effectiveness.

What do you think?

I will offer more of the story as an addition to this post. In the meanwhile, I would be particularly interested in receiving the views of LWD subscribers who are unfamiliar with the history of the group, and their assessment of the situation as indicated in Euan Sutherland’s resignation statement.


The Syrian crisis: Study leadership decisions not leadership styles

September 16, 2013

The complexities of leadership make assessments of a leader’s style less effective than assessments of a leader’s most critical decisions and dilemmas

The story of Syria’s internal conflicts and external attempts at intervention remains complex and obscure. I want to advocate its analysis through a study of leadership dilemmas and decision-making.

My executive students are familiar with the principle through applying it to current leadership cases. Here is how the approach may be effective in understanding some of the complexities of the Syrian crisis [as of September 2013].

Media treatments

Media treatments are arriving at a narrative or interpretive story of events in Syria. In the narrative, the Syrian leader Bashar al Assad faces increasing attempts to overthrow his regime by a complex set of internal interests. The American President Barack Obama would like to intervene, preferably with support from the international community. The Russian President Vladimir Putin argues that the forces opposing Assad are waging war against a legally constituted leader.

The nature of narrative

Narrative by its nature is interpretative. It implies a belief in a story. I like to think of the story as a map or interpretation of a real-world reality. The Russian, American and Syrian maps differ. The real-world events involve thousands of people being killed, millions being displaced. If the narratives are maps, the conflict is the territory represented in the maps.

Dilemmas

News stories provide us with the maps. One way to examine them is to consider evidence of the most important dilemmas facing leaders. That way we glimpse the leadership processes better. For example, an excellent analysis in the Wall Street journal [updated and uploaded 15 Sept 2013] gives a Western map of current events. It also suggests the dilemmas facing President Obama.

Through mixed messages, miscalculations and an 11th-hour break, the U.S. stumbled into an international crisis and then stumbled out of it. A president who made a goal of reducing the U.S.’s role as global cop lurched from the brink of launching strikes to seeking congressional approval to embracing a deal with his biggest international adversary on Syria, Russian President Vladimir Putin.

Mr. Obama saw the unintended outcome as better than the alternative: limited strikes that risked pulling the U.S. into a new conflict. It forestalled what could have been a crippling congressional defeat and put the onus on Russia to take responsibility for seeing the deal through. U.S. officials say the deal could diminish Syrian President Bashar al-Assad’s chemical stockpile more effectively than a strike, though it leaves Mr. Assad and his conventional arsenal in place…

[D]uring a news conference in London on Sept. 9. Secretary of State Kerry, in response to a question, ad libbed that Syria could avert a U.S. attack if it gave up its chemical weapons.

Minutes later, his Russian counterpart, Sergei Lavrov, called him. “I’d like to talk to you about your initiative,” Mr. Lavrov said from Moscow, where he was hosting a delegation of Syrian diplomats.

Map-reading

Before I can assess or ‘map-test’ the ‘rightness’ of decisions, I need to ‘map-read’ thoroughly. The story suggests a critical dilemma. Mr Obama [it says] wants to reduce the U.S.’s role as global cop, but finds himself ‘lurching into launching a strike against Syria’. The dilemma, and the Presidential decision-making start to resolve with ‘the unintended outcome’ of the public remark by Secretary of State John Kerry and the reaction by his Russian counterpart.

Map-testing

This interpretation of events can be tested. Kerry’s statement is the most public. That it was ad-libbed and not offical policy is a piece of map-making or interpretation by the WSJ. Mr Lavrov’s reply is reported but not public. Subsequent events give it, and the narrative or map some plausibility.

Map-making

The events may have helped President Obama re-make his map to increase the chances of a non-military approach to Syria. The debate continues whether this is ‘true’; whether it was influenced by the decision of the Parliament of the United Kingdom to withhold support for military action; whether The Russian position and that of President Bashar al-Assad are to be trusted. But these become speculations. By sticking with dilemmas and decisions we avoid the morass we find ourselves in when dealing with such speculation.

I have chosen to examine the dilemmas facing President Obama. A richer picture (or map) emerges only after examination of other maps, other decisions, other leaders.


Is Myanmar edging towards democracy?

June 8, 2013

There have been acclaimed signs of movement towards democracy in Myanmar. But racial tensions will present familiar challenges for any new non-military leadership

According to the BBC The head of the UK’s armed forces, General Sir David Richards, is visiting Burma [June 2013] to try to build ties with the country’s powerful military. He also met President Thein Sein (a former General) and leaders of the opposition including Aung San Suu Kyi for ‘serious talks’ on support short of lifting UN sanctions.

Steps to democracy

The release from house arrest of Aung San Suu Kyi and her swearing into Parliament [2012] were given global significance as steps in Myanmar towards democracy.

Under Imperial rule, Burma was treated as an outpost of the British Empire. Regional rule was operated from India, which still shows considerable interest in its Commonwealth partner.

Racial tensions

However, the country still faces the challenges of racial tensions as complex and arguably as intractable as those in The Middle East. The Indian Express outlines the tensions that have bubbled over in Malaysia.

Malaysian police said today they had detained more than 900 Myanmar nationals in a security sweep after at least two were killed last week in clashes believed to be linked to sectarian violence back home.
The two dead were likely to have been Myanmar Buddhists.. and the attacks were [reported as] believed to be the result of violence in Myanmar.
Deadly sectarian strife pitting Myanmar’s majority Buddhists against the Muslim ethnic Rohingya minority has flared since last year, in the country’s western state of Rakhine.
Myanmar called on Malaysia to take action against those responsible for the attacks and protect Myanmar citizens. U Maung Hla, who heads the Burma Refugee Organisation in Malaysia, said violence between exiled Myanmar communities here was not uncommon and was “sometimes due to religion.” The Rohingya have been described by the United Nations as one of the world’s most persecuted minorities. About 800,000 are estimated to live in Myanmar, which denies them citizenship, rendering them stateless.

The long walk

The democratic vision is that Aung San Suu Kyi will lead her country in the fashion of a 21st century Mandela or Gandhi (the two leaders she most publically admires). It is likely to be a long walk to freedom.


Google accused of being evil, doing evil by UK politicians

May 21, 2013

Do no evilGoogle stands accused of acting in a way contrary to its slogan “do no evil”. This continues a debate over tax avoidance, tax evasion and corporate social responsibility

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Last week [May 18th 2013] Google’s European leader Matt Brittin appeared before The Commons Public Accounts Committee in London to defend his Company’s tax arrangements in the UK. A pivotal point was the practice of declaring sales were completed in another country [Ireland] with more generous Corporate taxation arrangements.

The Chair of the Committee, Margret Hodge, was particularly vehement in her criticism of the firm’s methods of tax avoidance in the UK. The criticism had moved on from tax evasion (illegal) to tax avoidance (legal) in a way that amounts to serious departure from the corporate claims of good citizenship.

The Guardian reported that

“[The] Commons Public Accounts Committee Members reacted in disbelief on Thursday [16th May 2013] after it emerged that they paid just £3.4m of tax on £3.2bn of sales taken from UK customers last year as their sales were technically “closed” in low-tax Ireland.”

Writing in The Observer a few days later, Google CEO Eric Schmidt noted:

“It is tempting for every government to assume that they will benefit if and when the current [tax] structure changes. But in reality, it’s probably only a significant increase in corporation taxes globally that would make every country a “winner” – and the consequences of that would likely be less innovation, less growth and less job creation. That said, the UK government has the perfect opportunity to take the lead in shaping this complex debate at the G8 summit next month. We hope George Osborne seizes the initiative and makes meaningful tax reform one of the top items on the agenda.”

It’s a Tax Dodge, says Hodge

Margaret Hodge had made clear her view at the Committee investigation, telling Google’s European CEO Matt Brittin, that his company’s behaviour on tax was “devious, calculated and, in my view, unethical”.

[Mr Brittin] had been recalled by MPs after being accused of misleading parliament over the firm’s tax affairs six months ago. Hodge said: “You are a company that says you ‘do no evil’. And I think that you do do evil.” Hodge was referring to Google’s long-standing corporate motto, “Don’t be evil,” which appeared in its $23bn US stock market flotation prospectus in 2004.

Do no evil image

Image from grokdot

To be continued


Political Mannequin Helena Torry in Prison Exchange Scheme

January 14, 2013

Helena TorryA bizarre story from Aberdeen in Scotland tells of a life-size dummy “arrested” and its creator released in what has been called a prisoner exchange scheme

In a recent Aberdeen City Council election, [April 2012] a creative protest saw a mannequin entered as a candidate with the name Helena Torry. Its purported election agent was Renee Slater, in real-life a political activist.

The authorities were not pleased, and began legal procedures against Renee for election fraud. At some stage Renee was incarcerated in a police cell briefly. When the dummy was recovered by the police, it was “held in custody” and Rene released.

Prisoner exchange

The “facts” of the case were taken and turned into the story of a political exchange between a dummy and its creator. Fact: the name of Helena Torry was entered on the electoral role. Fact: its purported agent Rene Slater was charged under the Representation of the People Act 1983. Fact: Slater claimed to have spent some time in a police cell and was released after the dummy was held by the police [Habeas Corpus act, 1649 to apply]

Renee Slater, who put the name Helena Torry forward to stand in the elections in protest against the candidates and their parties, won the case which had been brought by a council returning officer under the Representation of the People Act 1983. From these facts a story was constructed which is told with relish on the BBC politics show, where you can also find a U-tube of the interview, in which Renee tells the interviewer Andrew Neil [Jan 2013] that she had been in a police cell and was initially exchanged for the dummy.

It had been suggested that the dummy had shown more charisma than any of the other candidates.

You say Torrey I say Torry

The BBC is favouring the spelling Torrey. Other earlier stories and election posters have the spelling Torry.

Scotland the brave

There is a wit and vibrancy in this gesture which auger well for the forthcoming referendum on the possibility of an independent future for Scotland outside the United Kingdom.

Note to MBA students

You may find it instructive to apply the map reading and map testing approach to examine this blog post.