Will governments stay on defense?

There’s no wi-fi or power outlets in the waiting room at the UKBA, so when the batteries died on my laptop and tablet, I was left looking out the thick protective windows at the empty plaza in front of the building.  It was probably conceived as a public space where people could gather, talk, and eat on sunny days.  Now it’s walled off from the street by concrete barriers, from the sidewalks by high fences.

It’s not much different inside.  The clerks are protected from the clients by reinforced windows; the furniture is bolted to the floor.  Yet this is, to paraphrase the Gettysburg Address, a government of the people, by the people, for the people. 

What’s happened?

There’s no doubt that people are frustrated with government: they doubt their leadership’s ability to make their lives better, to provide civil and social infrastructure, or to manage laws and resources for the common good.  Promises to improve services and hold down taxes never materialize.   Governments everywhere, whether Western-democratic or Eastern-authoritarian,  are viewed as venal, corrupt, wasteful, and under control of the moneyed and the powerful.

Yet governments are, well, sovereign.  They literally own the country, they make and enforce the laws, set rules for the economy and media, maintain the civil and defense forces.  How did things go so wrong that they must surround official buildings with bunkers?

I was talking with one of the facilitators about the incongruity of seeing national governments on the defensive in their own countries. We agreed that they are caught in the middle, enforcing transnational policies on immigration, austerity, trade, and the environment that are at odds with their national self-interest.  The people electing them and the media holding them to account are increasingly critical.  He predicts that they will soon respond to populist pressure from within, turning away from global institutions and idealism.

There’s  rich academic literature on the topic,  the problem and the risks are widely perceived but there is little agreement on remedies. Many hold that nations have already transferred so much power that they can’t regain national sovereignty. The solution, in many papers, is to complete the globalization process more quickly so that the benefits arrive sooner.

I’m suspecting that the opposite may happen.  There may be a weakening of the EU, withdrawal from the Euro, default on financial debt, or increased border and trade protections. But something has to change: a sovereign that holds power won’t remain in a defensive crouch when they have the ability to re-assert control.

The third wave of globalisation

The Institute for Public Policy Research, a progressive UK think-tank, issued a report last week describing how Britain should shape it’s future economy.  It’s interesting reading, and the recommendations probably apply to most 1st-world economies.

Globalisation is the ongoing process by which territorial boundaries and national states lose their hold over economy, politics, and culture.  Luke Martell reviewed the various intellectual camps, ranging from hyperglobalists (States wither away because the movement of money, technology, and media can’t be controlled by political institutions) to global skeptics (National identities have a history and a hold on the popular imagination that global identities cannot replace, even though global products and ideas seep in).  But they disagree only about the pace of change, not it’s influence on modern life.

Nor is there much disagreement that the process has been socially disruptive, in at least four areas:

1. There is a strong correlation between trade and growth,  trade alone is not enough to guarantee growth.
2. Trade encourages productivity and drives technological innovation, but also leads to job losses and wage decline.
3. Globally, trade lifts millions of people out of poverty and reduces global inequality, but locally it leads to increased inequality.
4. Capital market liberalisation and short-term investment flows can spread risks arbitrage, allocate goods and spur investment, but also cause instability that causes deep global recessions.

The IPPR report notes that globalization and it’s attendant disruption is not new.  The first wave was the voyages of exploration and the rise of merchant states like the Dutch, Portuguese in the 15th-17th centuries.  The second wave was the rise of global military and economic powers, the British and Americans, in the 19th and 20th centuries.  The third wave will see the emergence of emerging markets, like the much-hyped BRICs (Brazil,Russia, India, China) feeding consumer markets in the established economies.

Economies can’t just consume, though: they must create something that other’s want in order to thrive.  The report returns to Porter’s ideas of competitive advantage and suggests that their relative advantages in the third wave parse out like this:

Their conclusion is As a relatively highly-skilled medium-sized economy with a comparative advantage in a number of high-value sectors, the UK has the potential to benefit significantly from deep integration with the global economy. In sectors such as financial and business services, pharmaceuticals, aerospace, education and health services, green technology, hi-tech and electronic industries and tourism, increasing global demand can help create jobs and opportunities in the UK.

But, while  Europe can compete in the upper right, the clear winners will lie to the lower right. And, although I agree with the analysis, this is where the recommendations falter a bit.  Is the future really just fashion and music?

We are the 1%

I visited San Francisco a week ago for a mixture of business and pleasure:  a few friends had asked if I would consider joining a new business venture and my son was completing his training leading to his deployment to Afghanistan.  It was an enjoyable visit in all regards, with time for good meals, serious conversations, and a nice mental stretch in a great city.

There was even time available to visit the ‘people’s park’ of the Occupy Wall Street movement down by the ferry terminal.  Which, reflecting on the 1%, inevitably got me thinking…

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The Small Business Administration reports that there are 6 million businesses registered in the United States: about 600,000 are formed each year and about 540,000 die.  The difference, 60,000 successful businesses, represents 1% of the total number of employers.  Odds are long against any new business succeeding: I believe that funding, talent, commitment, persistence, and focus are key elements that determine success. 

Since joining the ranks of entrepreneurs three years ago, I’ve wondered about how to increase the 1% odds in my favor.  On the one hand, hard work on a single idea is crucial: making the most of every opportunity and accomplishing as much as possible each day.  On the other, I mitigate risk by spreading myself across several different opportunities, diversified roles, products, and geographies that make up a varied portfolio of self-investments.  

AT, the new SF business, is an example of going broader rather than deeper.  It’s made up of people that I know well, coming together 'around an idea that makes great “back-of’ the-envelope” economic sense.  Everyone is good at what they do and respects what the others contribute.  The early work is funded; the conversations are generative.  It feels like a winner.

Nothing in my broad, early portfolio of five ventures takes a lot of my time or resources, so I can play my part in all of them within a day each week and wait see what develops.  Then, when one hits, I’ve doubled down fast and hard to push that success ahead.  Two ventures currently demand that level of effort, and both are responding wonderfully.

One day I want to model whether I’m reducing or increasing my overall risk with this strategy – it would be unfortunate if I am making more work and increasing my meltdown potential.  It already makes for very full days (and weekends), but has the virtue of keeping focus on my most productive ventures. 

I’ve also been able to claim salary as things ramp up, based on the contribution of prior sweat equity during the embryonic portfolio stage.  Hopefully, the broad strategy also pays off with at least one large equity exit, sometime soon.

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The United States has 1.6 million active servicepeople, 5.1 per thousand, suggesting that around 1% of families have sons and daughters in the military. Ours has no military tradition, so it’s been a learning experience since ‘Liam joined the Air Force three years ago.  Karen and I are both proud of what he does as a surveillance specialist, yet worried about the risks he takes as an active combat participant.

I’m still reconciling the contradictory impulses, conversations with family and friends elicit a similar mix of concerned patriotism.  Discussing it, there’s not the sense of a moral calling so much as a task that needs doing with reluctantly good reasons for doing it.

Still, we all are delighted that he is excelling in a job that he enjoys so much, and it was wonderful to see him before he goes.

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Occupy Wall Street makes much of the struggle between the 99% and the 1%.   I’m sympathetic to their cause: the Tea Party has been a discouraging mix of selfishness, short-sightedness, and intolerance, and I’ve longed for a counterweight.  Near the Federal Reserve Bank in San Francisco, I found the local encampment (staked out by a large group of police), and stopped in to see what it was all about.

Unfortunately, this group was completely incoherent.  More street fair than political statement, the signs railed against oil, government, money, the Fed, global trade, Wall Street, school cuts, banks, and the media.  It made me realize how broad the problems are, how frustrated people get, but didn’t suggest that the opposition has found cohesion, direction, or goals.  Right-wing talkers sneer at the protesters lack of unity and length of hair, and, from what I saw, they do make easy targets.

But there is underlying truth.  I’ve been reading Jeffrey Sachs book, The Price of Civilization, and the issues are clear and well-understood (and nicely enumerated by the Financial Times in their review):  Stagnant wages, diminished savings, rising inequality, and declining health and social program effectiveness, exacerbated by the pernicious view that “government is the problem”, mismanaged  globalisation of labor, and the corrupting influence of big business and big money on politics and media.   An accurate and coherent description of the problem could lead to constructive discussion of solutions. 

But this is not the group that can carry that banner.  A pity.

The Troubles, old and new

I had very little understanding of Belfast’s history before I made a day’s visit there. Back in the 80’s, I was vaguely aware of the rioting, fiery pictures in the magazines and the IRA to blame, so we were told.  But I had little insight into the people or issues behind it all.  Visiting Belfast yesterday was a steep and unsettling immersion into its Troubles, and it left me with a lot of  doubts about their future.

When I visited Jerusalem a few years ago, my epiphany was in seeing how compact the problem was.  Jewish and Arab neighborhoods are within blocks of one another; the Wall is just beyond the city. Partition would never work; a co-existent solution needs to be found.

Similarly in Belfast.  The immersion showed me how close together the Unionist and Republican neighborhoods lie, with angry murals marking territory and yellow Peace Walls holding people apart.  It’s deeply disquieting to see the neat houses and shops in the shadow of the violence and emotion.  The murals are warning, expression, symbol, reminder, everywhere.

It still feels fragile, there are so many open wounds scattered across the city, the martyrs and the innocents filling parks and memorials.

And, layered over it, our tour guide pointing out bombings, shootings, burnings and, finally, reconciliation.  I was acutely uncomfortable to be riding through tragic scenes in an open-topped bus, imagining the neighbors hearing our guide’s even-handed commentary about their history.

 

Today, Belfast feels run-down and spent.  The streets are dotted with shawled beggars and debris-strewn lots.  Rare flashes of controversially red or green clothing color the people, who prefer neutral blues and blacks.  Condominiums rise on burned foundations in the old quarters, even as they are falling in value. Clusters of sharp-eyed young men hurry along the sidewalks going nowhere; there are only jobs for 500 workers in shipyards that used to employ 35,0000. 

 

And what of tomorrow?

The city leaders are trying to smooth over the emotion with drugs of shopping and tourism.  Downtown is dotted with restorations of iconic bars and gingerbread culture centers.  The legacy of Titanic and Narnia are their rallying points for Belfast’s rebranding.  New murals commemorating the Ship and statues remembering the Wardrobe are being purposefully painted over the old.  They seem like shallow substitutes for the authentic history and community pride being torn down.

In this post-modern environment, “The Future” is a debate over whether to convert the giant cranes into bungee jumps or restaurants.  Deliberate Disney-fication bringing in too-familiar global brands, local shops, pubs, restaurants smothered by a cream of outdoor clothing, bath products, and jewelry.

Is the cure worse than the disease?  I imagine that if something weren’t done, the city could have become another Beirut.  But I don’t feel that relentless consumerism the answer: it’s just goods in / jobs out.  The huge yellow cranes stand above the dark skyline, monuments to the shipbuilding jobs, textile industry, and dockyard trade that disappeared overseas with globalization. 

There is a battle here for the legacy of a city and the heart of its people.  The past needs to be reconciled and a new future built, I feel that this just isn’t a real or sustainable way forward.

Two disparate hopes

The nouvelle beaujolais hit the stores here in the Netherlands this week, 4 euro a bottle.  The price is right, even if I don’t know what I’m buying.  It’s the first sample of the vintage that will become 2009 and, although it’s taste will be raw and meaningless, there is some continuity from young to old that makes it worth a try.

Especially in this year, with so many new seeds planted in my life that it almost seems fitting to pause and give thanks for the hopes that may, finally, come to fruition in the years to come.

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A fellow blogger is off to participate in a pre-meeting ahead of the climate change summit in Copenhagen.  He has good observations about the evidence for change, and I hope that he is successful in bringing these points forward.

Effective solutions are hard to come by, and failure is often blamed on social factors and political divisions.  In the US, in particular, this has become a “red-blue” litmus issue.  But I think that there is an economic side to the stalemate, one that engulfs more than the global warming issue.

I think that the pervasive economic belief in efficient free markets as solutions to social problems actually creates a lot of the difficulty that we have in solving large problems today. There is a religion in some quarters that worships global capitalism: problems are solved when production  meets demand and to adapts to resources; costs and profits define the best solutions within these constraints.

Thus, climate change, health care reform, the banking crisis, all meet cries for less, rather than more, regulation, for unleashing innovation and energy through private initiatives, and for global free trade in resources to keep costs low. Opponents are forced to argue that government regulation, whether cap and trade, a public insurance option, or stronger monetary oversight, will somehow be wiser and more efficient than collective entrepreneurs.

I believe in the virtues of free-market entrepreneurship, but it's efficiencies decline when markets and processes are dominated by companies that have become too big to fail, have monopoly influence over politicians and markets, profit by financial engineering, or expand by acquisition rather than the hard work of building a real competitive position.

My suggestion would be that these excesses should be more generally curbed through regulation so that a truly competitive landscape emerges. Then we might successfully harness individual creativity to find answers, backed up by seed funding and a public option for 'last resort' action that assures private initiatives aren't left to themselves.

Airplane reading and thinking

‘back in Maastricht after the long trip back: arrived to steady rain and darkness that fit my mood re-opening the silent apartment.  A pile of mail was waiting; a couple of plants dried out over the week.  Airplane time is always good for a bit of reading: so this might be a good time to catch up on a few articles and observations.

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Intelligent Life featured an article about modafinil, an analeptic (brain stimulant) used in treating sleep disorders.  Students are taking it as an aid to concentration and students are using it to help them study.  The author reports that it made him feel more alert and focused, but didn’t improve the quality or volume of his work.  So, on balance, is this drug enhancement a good thing?

My thoughts, feelings, and personality are the things that make me who I am as an individual, unique and meaningful.  Chemically altering those qualities touches something fundamental. The claim is that modafinil simply enhances the qualities already there, a better sort of caffine.  My concern is that enhanced cognition carries side effects that change perceptions and actions, and that the drug will keep you from realizing that there have been changes.  I don’t think that a more focused, less feeling version of myself is a more human version of myself.

Aside:

This person record requires harvesting.  iTunes greeted me with this message when I tried to log in, somewhere between a database error and Soylant Green.  A bit of searching and I found that they were trying to tell me that my account information was incomplete: please go to Apple and fix it.

Another IL article concerned Polymaths, people who can reach expert levels of performance in two or more unrelated disciplines.  The author distinguishes it from Genius, reaching extraordinary performance in one domain, or Multitalented, dabbling in several domains and perhaps becoming expert in one.  Their signature example from previous times is Leonardo daVinci, from our own time is Nathan Myhrvold.

Myhrvold is a problematic choice to me: his second career as an author is expository, and the third as a cook is an enhanced hobby.  I would have chosen Pauling or Russell, people who went on to do distinguished work in unrelated social fields after great achievement in scientific ones.  I lead a more T-shaped life: deep in one area, knowledgeable in many, aware of most.  I’m happy dabbling in art and writing, challenging myself in technical, business, and clinical areas. The article notes that the expanding volume of knowledge and the resistance of professionals to outsiders makes it ever more difficult to become a true polymath.  That seems to beg the question of definition more than whether people have innate talent and motivation to become a polymath.  I do know a number of people who perform at that level: they are both delightful and rare.

Aside:

As I work to acquire proficiency in Dutch, a friend raised the question of how quickly it can be lost.  He recounted several instances where expats moved out of the country, then had lost all fluency within a year.  They could reacquire proficiency more quickly, but it seems unfortunate and surprising that the skill is easily lost without constant practice.  It argues for doing reading or listening when out of the country to keep the skill active.

The Wall Street Journal published a column discussing the proposed acquisition of Cadbury by Kraft foods: The Boundaries Facing Global Firms.  The article reviewed the impact of  globalization (good), noting that takeovers carry their own motivations for improving efficiency and competitiveness when established firms are acquired. Protectionism (bad) only perpetuates the status quo, preserving local jobs (temporarily) at the expense of local consumers (permanently).

Yet, the article concedes that companies tend to invest closer to home, reducing foreign subsidiaries to component suppliers and distribution conduits rather than using them for market analysis or as development centers.  And, for me, this crystallized a fundamental flaw in the argument for globalization: acquisition does not promote competition.

If a company creates a new division locally to compete with established firms, then the investment creates jobs, knowledge, and economic benefit.  True competition depends on creating better products and services, on finding a better business model, and on mentoring local talent.  An acquisition, by contrast, is about synergy and economies of scale: can the same job be done better by one owner than by another.

It makes me think that the true good in globalization can best be realized by making markets more open, while simultaneously making acquisition more difficult.

Minerva's Owl 2 :: Corporate version

In hindsight, what have we learned? What would we have done differently?

Between support meetings, we've all been debating what happened. Our emerging consensus is that there are five expectations that parent companies have for their distant divisions. Some are more important than others, all are necessary.

• Return on Investment.

Success here ("Making the numbers") will make up for lots of other problems. Revenue and Income are both important, along with subsidiary numbers like margin and year-over-year top-line growth. 90% of expectation may be a "gentleman's miss", but less is failure: miss this, and everything else needs to go right.

• Quality

Put out a product that works well and satisfies customers, avoiding surprises and recalls. It also means that you don't tarnish your own brand or the parent's reputation with customers or regulators.

• Market Penetration

Pick your targets and hit them, executing strategies that lead to absolute and share growth. This also picks up elements like opening new geographies and obtaining reimbursement.

• Build the Business

This picks up the organizational aspects of acquiring talent, making everyone productive, establishing business processes, managing cash flow, and meeting timely reporting standards.

• Communicate

Set realistic expectations, build relationships, establish trust, and avoid surprises.

I think we know which ones we hit and which ones we missed and most of the subsequent debate revolved around what changes would have turned around perceptions of our value.

Conversely, could Corporate have been a better parent?

I read an interview with Pankaj Ghemawat, author of Redefining Global Strategy, who emphasized that many US companies see the world as flat, without significant regional differences that affect their overseas divisions. In this state of "semiglobalization", companies must recognizes and manage differences among countries:

The range of barriers that companies face in their global efforts are called "distances", and come in four basic types: Cultural, Administrative, Geographic, and Economic (CAGE). To make any global strategy actionable, you have to go down to the industry level and thing about which distances matter the most and address these through a tailored combination of adaptation, aggregation, and arbitrage.

'sounds like business-speak, but he makes a number of really good points that reflect my own experiences.

Reflecting on Malaga

'Back from a wonderful few days in the South of Spain and Portugal. There weren't many Internet connections along the way, so it was a real vacation, disconnected from the office and the social network. The travel loop led through the mountains near Ronda, around Seville, and across the Algarve: weather was temperate and very windy.

I had originally planned to drive the Costa del Sol from Malaga to Gibraltar, up to Cadiz, and then around into Portugal, but I very quickly tired of the coastline. There is absolutely rampant construction everywhere, with cranes dotting the horizon and white condominium developments crawling up every hillside. The agents are asking well over 100,000 euros for units: who is buying bits of these vast tracts of new construction? There are lots of British in Spain, Germans in Portugal, but do they all have enough disposable income to buy in these volumes? And to stay?

I also wonder at the impact of the changes on the local economy, culture, and environment. The people that I talked with in cafe's and grocery stores were happy for the jobs and money, but resentful of the overwhelming number of visitors and the escalation of prices. The land seems fragile and arid, and unlikely to be able to sustain the cumulative pressure of people that is being placed upon it. The small towns already look more like strip malls, sterile and empty much of the day.

Somehow, Globalization should be more respectful of local scale.

At the moment, once the world economy identifies what an area is good for, it overwhelmingly exploits that single aspect. The Costa del Sol is good for vacation homes, so thousands are built, erasing towns, agriculture, and coastal wilderness. I don't think that the resulting monoculture can be viable or adaptable over the long term. Thus, the short term elevation in living standards would seem to be only a temporary benefit. Like Algernon's mouse, it has the potential to leave the region in worse condition when the boom ends, having lost the historic culture that lived from and supported the region.