Monday, 29 September 2014


Banks, fines and trust.  The fallout from the financial crisis is still around.  Roger McCormick (London School of Economics) has started to look at the escalating penalties imposed by regulators.  For the five years to end-2012 the ‘conduct costs’ for ten major banks where nearly £150 billion.  For the same period to December 2013, this figure rose to £160 billion.  It is reasonable to expect a rapid increase to 2014.  Bank of America, BNP Paribas, Citigroup, Lloyds Group, Standard Chartered and UBS will assure higher total payments.  There is beginning to be acceptance of the link between conduct and culture.  Investors and other stakeholders are starting to understand it can be beneficial to have a transparent approach to costs.  Banks are lagging behind and do not seem to share experiences, use available intelligence and trends from their own data, or share experiences.  Building trust and confidence is now beyond competitive edge.

Taxation is a popular subject.  There will be more words as we move towards next year’s general election.  Economists, politicians and others will continue complaints that:  structures are unsatisfactory, budgetary constrains look complicated, and policy is uncertain. These protests will not make much difference.  The government has to raise tax revenues.  This is an expensive task.  And the cost of doing it this way is unlikely to be much greater than the outlay on a system which would satisfy the demands from professional commentators.  The Institute for Fiscal Studies points out what really matters is the capacity to collect taxation, and the current process, despite its faults, brings in large sums of money with acquiescence of the payers.  A finance minister to Louis XIV of France said, ‘The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest volume of hissing.’  We all know that: council tax should be updated and reformed, National Insurance is a tax and ought to be treated as such, environmental taxes are incoherent and deserve attention.  Governments are reluctant to risk killing that big bird of taxpayers’ acceptance which lays the golden egg of £600 billion a year.  Of course, there are big benefits to be had from a well-designed procedure for taxing us.  Government collects £4 of every £10 in the economy.  Research shows the serious disadvantages of ignoring the issues.  However, do not expect action soon.

Productivity is a mandatory problem for managers.  The Office for National Statistics released worrying information in June.  Output per hour worked in the UK is now 30% lower than France, Germany and the United States.  Back in 1993, Peter Drucker said, ‘ ... the greatest challenge facing employers in the 21st century will be improving the productivity of knowledge workers’.  Businesses which buck the current trend in their own performances win an advantage over domestic competitors.  They will have recognised that productivity has three inter-related components: the knowledge and skills to perform well (capability), the motivation to do so (engagement) and a conducive context (effective management).  This is an urgent problem.  There are no quick-fixes.

Do they make things?  The Jobs Economist has revealed that there have been dramatic increases over the last three years in the number people in particular jobs.  The top ten included : specialists in taxation (up 88%); advertising managers and creative directors (75%); paramedics (62%), debt collectors and credit agents (59%); psychologists (59%); town planners (55%); bakers (54%).

Deliverability.  ‘I’ll tell you what happens with impossible promises.  You start with far-fetched resolutions.  They are then pickled into a rigid dogmas, a code, and you go through the years sticking to that, out-dated, mis-placed, irrelevant to the real needs.’  Neil (now Lord) Kinnock in 1985.  Quoted by Michael Taylor.

He ought to know.  ‘There are decades when nothing happens and there are weeks when decades happen.’  V I Lenin (1908).

Friday, 19 September 2014


Why the upturn?  A major question is whether the recent economic upturn is due to the austerity measures.  Or is it a happy coincidence of falling energy prices, low-cost loans and stimulants to build houses?  Is our government repeating the mistakes of the past – a recovery led by the housing market, generated by supply constraints, fuelled by cheap borrowing, and aided and abetted by the Help to Buy scheme?  How vulnerable is this to rises in interest rates – quite possibly and for some, unhelpfully, before the next election?  It is thought often to be a no-brainer that cutting the government’s deficit reduces the national debt.

However, cutting expenditure reduces demand, particularly by the poor, who spend a larger proportion of their income.  This adversely affects GDP and employment.  This in turn lowers tax revenues, worsening the deficit.  The conclusion is that a government’s investment plans play a key part in increasing demand and hence reducing the national debt.

This may explain why, despite the tough talk, the UK government has still run the deficit throughout the post-recession period.  The bottom line is that there has been a lot less austerity than we were led to believe, and austerity is unlikely to have been responsible for the first signs of recovery.  Arguably, the fact that government’s outgoings were not cut as aggressively as some would have liked has allowed the restorations to begin.  All the same, it is still too fragile and unimpressive to be worth shouting about; and possibly assisted by unsustainable interventions in the housing market.  With reductions in benefits and rises in interest rates likely to have an impact down the line, then even this recovery may be in jeopardy before long.

Financial services is a strange industry.  This is the opinion of Morgan Housel.  There’s nothing else like it.  Is there another sector in which customers have so little knowledge of costs?  Most people have no idea what they are paying managers of their monies.  Yet if you are moderately wealthy, this might be your biggest outgoing.  These practitioners can do much harm, but do not need credentials.  Results do not seem to matter a lot.  Not many well-paid managers beat what could be achieved in a low-price index fund, but remain in business for decades.  Finance is an important service/activity for everyone, yet so few of us care about it.  Maybe each of us has a moral obligation to have a basic understanding of how saving, investing and debt work?

Interest rates up?  Anyone expecting a rise in interest rates in 2014 is facing disappointment.  Mark Carney, governor of the Bank of England, said in the last quarterly report on inflation that Britain’s economy has returned to ‘a semblance of normality’.  However, the Bank reckons there is more weakness in the labour market than suggested in earlier comments.  It suggests growth in wages will be 1.25% this year, rather than previous estimate at 2.5%.  Mr Carney indicated also that even if we eliminated spare capacity overnight in the economy, the appropriate interest rates would be close to the present situation.  This is because of high indebtedness of households and the low recovery in the eurozone.  Some informed observers have thought for a long time that the Bank is in the dark about the true state of the economy.  Moreover, the Bank‘s report said, ‘ .... there is a wide range of views’ in the Monetary Policy Committee about the slack in the system.  Measurement in this context is an imprecise skill.  We should have learnt from the failure of central banks to do anything about the global financial crisis that they are as clueless as the rest of us.

Experience.  ‘There are no solutions, only trade-offs.’   Thomas Sowell, a US scholar on democratic politics, quoted in the Financial Times.
And more.  ‘You can’t learn too soon that the most useful thing about a principle is that it can be sacrificed always to expediency.’  W Somerset Maugham, quoted in The Times.

Monday, 1 September 2014


Austerity.  Really?  Mike Riddell on Bondvigilantes suggests ‘austerity posturing’ among this country’s politicians is ‘built on a completely phoney premise’.  In reality, there has been little frugality.  Comparing the UK’s budget deficit (the amount by which public outgoings exceed income from taxes) to the results in the Eurozone and America indicates that fiscal consolidation has been more pronounced elsewhere.  The Europeans are running a deficit at around 3% of GDP.  The United States has reduced the gap from 10% of GDP in 2009 to around 3% now.  Britain’s has come back from a scary 11% to a still worrying 6% and remained thereabouts for the past two years.  Riddell refers to ‘an addiction to spending’.  Total expenditure by government has mounted gradually for eight years.  Simultaneously, revenue from taxation has been disappointing.  This year is unlikely to deliver a sharp improvement.  In the first four months of 2014/15, the government has borrowed 5% more than in 2013.  The timetable for eliminating the annual overspend has slipped already.  The first budget surplus is expected now in 2018/19.  In 2010, the prediction was 2015/16.  Winning the election next year might not be such a bright idea!

Employability is the priority.  There has been a large increase in vocational training at further education colleges.  Universities UK’s figures show the number of entrants from Britain into higher education in England has fallen by 21.7%. However, a closer look at the information reveals that the percentage of 18-year-olds from the lowest socio-economic groups has risen from 9.8% in 2003 to 16.9% this year.  The overall decline is because of falling numbers of mature students on part-time and non-degree courses.  The signs are the more people pay, the more discerning they become – especially parents.  They ask, ‘What do we get from tuition fees at £9,000 a year?’  Also, there are different choices of subjects.  Applications for mathematics, science and technology are up.  Those for social studies, philosophy and history are down.  The emphasis is on courses which enhance chances of employment.  It is essential that further education responds effectively to the new challenges to that part of the system.

A dangerous shortage.  The Chartered Management Institute’s (CMI) Commission on Management and Leadership is run in collaboration with the All-Party Parliamentary Group on Management.  It has unearthed a dearth of managers who can use so-called soft skills to tackle difficult situations and/or handle tricky conversations.  These skills are those needed to motivate and engage people for higher productivity.

Try prevention.  Most people have learned the hard way that dieting is more difficult than putting on fat in the first place.  Excess costs are overindulgence. Careful observers have realised over the years that successful businesses – by whatever measure – are devoted to constant reduction of their unit costs.  It is an obsession.

Top of the list.  From a professor in South America.  ‘You guys, you got it all wrong.  You spend your life loving your products.  Why do that?  Nasty, uncomfortable things with sharp corners and hard edges.  Better you have something soft and warm.  Better you love the customer.’

Dead on Ron.  ‘There is nothing more permanent than a temporary government programme.’   President Ronald Reagan, quoted on
Important definition.  ‘Science is a belief in the ignorance of experts.’  Physicist, Richard Feynman, quoted on

Monday, 18 August 2014


UK’s economy looks different from 2008.  It has, at last, exceeded the previous peak.  The recovery has been slow.  This country came up at the rear of G7.  Only Italy’s GDP is smaller than six years ago. However, we have a different shape.  Some industries have dwindled, others have mushroomed.  Economic impact has shifted from workers to companies.  Economists predicted a boom in exports.  George Osborne, chancellor of the exchequer, looked forward to a ‘march of the makers’ as manufacturing businesses became more active.  The prognosis that Britain would ‘rebalance’ away from its large services sector became an exciting talking point.  It was wrong.

Yet businesses are flush with money.  Michael Saunders of Citigroup has calculated that the ratio of businesses’ bank deposits to their debts rose to 77%, up from 48% in 2008.  The rate of corporate liquidations was 0.56% earlier in 2014, the lowest for thirty years. The recession in the early 1990s put many firms out of business.  The recent downturn damaged households’ finances more than companies’. The pattern will probably persist. The reshaped economy means the fate of the recovery is in the hands of those people running this country’s newly enriched firms.  Investment is an upward trend, but still far below its heyday. Action on this need is the key to higher productivity and justification of higher pay.

Five millions British people live abroad.  This is an estimate from the World Bank and The Economist (9 August) and points to our government’s neglect of valuable contacts with the different type of emigrant.  It is no longer ‘leathery retirees’ in the Mediterranean.  Some ambitious graduates and technicians are moving to North America and Asia.  The Office for National Statistics (ONS) says that since 2007/08, emigration is down by 19% overall but up by 8% among 15-24 year-olds.  Of 193 of the United Nation’s member states, 110 have formal schemes to build links with citizens abroad. The UK is not one of them.  PR China’s diaspora is reckoned by informed observers to be the most powerful economic force on the planet. If we do not want our talented globetrotters, others do.  Germany encourages Britons actively to take apprenticeships there.  Government from the Middle East tour our universities.  There is some evidence that America and China (Hong Kong) are making direct approaches to small and growing hi-tech firms.  Maybe UK Trade and Investment (UKTI) ought to take fast corrective action?  There is plenty of experience in other countries:  France, India, Italy and New Zealand, just for starters.

Warren Bennis died on 31 July, aged 89.  He invented leadership as a business idea. Central to his thinking was a distinction between managers and leaders.  Managers are people who do things right, he argued that leaders do the right thing.  Managers have their eyes on the bottom line.  Leaders watch the horizon.  Managers help you to get where you want to go.  Leaders tell you what it is you want.  The process of becoming a leader is similar, if not identical, to becoming a fully integrated human being.  Mr Bennis emphasised that what constitutes good leadership changes over time and context. Leaders can no longer crack the whip and expect people to jump through hoops.  They must become more like mentors and coaches than old-fashioned sergeant majors.  One of Warren Bennis’s thirty books, ‘On Becoming a Leader’ (1989), included warnings about corporate corruption, extravagant executive awards and short-termism.  Warren Bennis and Peter Drucker were the primary movers in making managers think about being more effective in what they try to do.  Drucker said that management is the prose, leadership is the poetry. A business must have both.

Over-confidence.  Managers tend to make their biggest mistakes on issues and decisions they handled successfully in earlier years.  In business, as elsewhere, acting cocky when things are going well is an unforgivable sin.  As the Greek’s kept telling us, Hubris is followed inevitably by Nemesis.

What is this thing?  ‘I have nothing against work, particularly when performed quietly and unobtrusively, by someone else.’  Writer, Barbara Ehrenreich, in Real Simple. 
Wise planning: ‘Build your enemy a golden bridge to retreat across.’  Confucius, according to The Guardian.

And there are not many.  ‘A friend is one who sees through you and still enjoys the view.’  Wilma Askinas, quoted in