Category Archive

Innovation/Global Crisis Blog

Anybody Notice Argentina?

By Shlomo Maital

   Argentina: Annual % Change in GDP, 1998-2010 (World Bank)

       In today’s global markets, the dominant metaphor is that of ‘dominos’.   One ‘domino’ (country) topples another.  Tiny Greece, for instance, is threatening to topple the Euro nations.   Argentina is a good example.  In 2000-1, Brazil devalued its currency, the real, from one real per dollar to two, because of a flight of capital.  Meanwhile, Argentina maintained its one-peso-per-dollar exchange rate.  Joined in the Mercosur free trade bloc, Argentina and Brazil ran a healthy trade – until the devaluation of the real made Argentinean goods doubly expensive and destroyed Argentina’s exports.  The massive crisis (see graph below) was made doubly worse when Argentina refused the draconian IMF conditions for emergency credit – and it was nearly a decade until Argentina could re-enter global capital markets.    

  But by 2003 Argentina had bounced back.  The commodity price boom helped Argentina’s exports of corn, soy and wheat.  A smart government bought dollars to keep the exchange rate favorable for exports.  It taxed  both exports and imports (Tea Party guys, are you there?), and used the money to pay for public works, including 40,000 new low-income housing units and a new highway between Rosario and Cordoba.  A Universal Child Allowance gives 1.9 m. low-income families $42 a month per child, starting in 2009.  The grant is linked to how often the child goes to school. 

    What can we learn from Argentina?  The kind of austerity measures now being embraced by America and Europe were tried, in the 1990’s, and failed miserably.  A pro-active government that promotes local industry, pro-job infrastructure and unemployment benefits puts “money in the pockets of ordinary citizens, who then spend it and spur the economy” brought Chinese-style growth to Argentina, in 2003-2010. *

     Who would have thought that Argentina, once a basket case, could teach valuable lessons to America – while America, of course, learns from no-one, from no other country, because, well, because it is America.   At a time when North America, Europe and Asia are all struggling, South American economies are largely thriving.  No longer is South America in the ‘toppling domino’ league– if anything, it is threatened by other dominos.  What a refreshing change.

GDP %  change, Argentina, 1998-2010  

98     99      2000   01      02       03      04     05     06     07     08      09      10

3.9    -3.4    -0.8    -4.4   -10.9      8.8    9    9.2      8.5     8.7    6.8      0.9       9.2

====================

• Ian Mount, “Argentina’s Turnaround Tango”, Global New York Times, Sept. 4/2011.

Innovation/Global Crisis Blog

Cloud Sourcing & Crowd Sourcing:  Can We Be Bees?

By Shlomo Maital

   Cornell Professor Thomas Seeley has written a fascinating book, Honeybee Democracy (2010).  In it, he explains what beekeepers have known for years:  that overcrowded hives will “swarm”, the majority of the hive’s workers will take off with the old queen and move into a new home, while the remaining bees will rear a new queen in order to perpetuate the parental colony.  Somehow, these tiny bees with microscopic brains manage to find just the right new home, and engage in a fair, democratic process, without deep-pocketed lobbyists,  in which the entire ‘swarm’ ‘votes’ on several alternatives, and, according to Seeley, nearly always picks the best one.  

    One recalls the late Kurt Vonnegut’s scandalous comment, that the only difference between George Bush and Adolf Hitler was that Hitler was elected honestly.  Does bee democracy work far better than human democracy?  You have to believe it does.   

    How the homeless swarm of bees decides where to live, and the settling of the debates among the scout bees who have found potential homesites, is explained beautifully by Seeley.

    I recalled Seeley’s book while reading about a new feature-length film, “One Day on Earth”, by Kyle Ruddick, 32, surfer, and Brandon Litman, 30, serial entrepreneur.  (Global New York Times, Sept. 1, 2011, p. 9).  Without funding, advertising or investors, the film-makers used the Internet to “amass footage from across the globe” from over 100 countries, all of it filmed during the 24 hours of Oct. 10,  based on a social network that now has more than 17,000 members.  After they began, film-maker Ridley Scott (Blade Runner, Alien, Gladiator), backed by Google and YouTube, did the same, and their film “Life in a Day” was released in July.  But Ruddick and Litman are undeterred by the deep pockets of Scott.  Want to bet their film will be better?

     Two trends are merging. One is the “cloud”.  Music, films, photos, everything is now migrating to “the cloud”.  A second is  the “crowd”.  Groups of people large and small combine to pool their brains, like bees, to create something of value.  This is the ultimate democracy.  When the “cloud” and the “crowd” combine – the result will change the lives of all of us, hopefully for the better.

   Innovator:  What new service or experience can you invent, that combines the “cloud” and the “crowd”? 

Innovation/Global Crisis Blog

“If Money Doesn’t Make You Happy, You Aren’t Spending It Right!”

By Shlomo Maital

    What is happiness?  And are there simple things we all can do that would indeed make the coming year happier?  Innovation applies not just to gadgets, but also to the way we live.

     I found some answers in an empirical study, still unpublished,  by three psychologists: Elizabeth W. Dunn (U. of British Columbia), Daniel T. Gilbert (Harvard Univ.) and Timothy D. Wilson (Univ. of Virginia).

      “The relationship between money and happiness is surprisingly weak,” they note.  Their provocative title conveys their main finding: “If money doesn’t make you happy, then you probably aren’t spending it right”.   The authors offer  rules for increased happiness, based on a survey of a large literature on the link between how we spend our money and how happy we are.   Here are a few.  

1.  Help others instead of yourself.  Research shows the quality of our social relationships is a strong determinant of our happiness.  Those who devote more money to ‘prosocial’ spending (for others) were happier, other things equal. 

2. Pay now and consume later.  There has been a huge shift in societies everywhere toward immediate enjoyment and delayed payment.  The result is to rack up debts, while eliminating the pleasure of anticipation – saving up for something while imagining all the while how much we will enjoy it.  Re-learning to defer gratification, as untold generations did before the age of the credit card, can greatly improve happiness.   Living by values rather than by impulse is largely about deferred gratification.  

3. Think about how you want to live, rather than what you want to buy.  The authors note that “consumers who expect a single purchase to have a lasting impact on their happiness might make more realistic predictions if they simply thought about a typical day in their life.”  I often think about people who buy expensive cars.  They lose fortunes as their cars depreciate, but do they really gain vast pleasure in driving it from A to B compared to those who drive a clunker? 

4. Buy experiences instead of  things.  “People are often happier,” note the authors, “when they spend their money on experiences rather than on things.” An experience is an event you live through, while a good is a tangible object you keep. A sample of over a thousand Americans showed that for every three respondents who reported greater happiness from buying things, five said they derived more happiness from buying experiences.  And, of course, some experiences – like a walk on the beach at sunset – are free.  You cannot make a 36-inch LED TV by yourself. But you can create an experience, like visiting a sick or lonely friend, or playing with a grandchild, without putting your hand into your pocket.

5.  Have many small pleasures instead of a few big ones.  “Happiness is more strongly associated with the frequency…of people’s positive affective experiences,” say the authors, “than with the intensity of those experiences”.  Try more double lattés and warm croissants, instead of dream vacations and front-row concert tickets.  A happiness score of ‘7’  six times a day beats a happiness score of ‘10’ once a month.    

    Dickens famously defined happiness as a ratio between what we earn and what we spend.  Happiness is earning more than you spend; misery is the opposite.  It turns out, the Dickensian prescription needs a codicil.  How you spend is equally vital. 

Innovation/Global Crisis Blog

Qatar is a Star!

By Shlomo Maital  

     Not many people track Qatar,   a peninsula in the Persian Gulf,   smaller than Connecticut, bordering Saudi Arabia, rich in oil and natural gas. Its population is only about 900,000,  living on 11,000 sq. kms., ruled as a monarchy by the al-Thani family, a majority of its residents are non-Arabs, non-citizens from India and Pakistan. Qatar is   home to the TV channel Al Jazeera. It will host soccer’s World Cup and it was an important player in Libya.  Qatar is not a democracy.  I have met Qataris; they are very well educated and very very pragmatic.

   Here is what tiny Qatar has accomplished in recent months:

● An expert at Brookings’ Doha Center, on National Public Radio:  “We had about five Qatari fighter jets in Libya… we helped train and arm Libyan rebels. And Qatar also played an important role in developing an Arab League support through the military intervention in Libya, which this Arab League support actually has provided the umbrella for the NATO intervention and for the military intervention and provided the legitimacy that, for example, was missing in Iraq.”  Qatar’s supplies of money and arms for the Libyan rebels was, according to many experts, crucial.

●  Qatar has invested heavily in Greek banks, through Paramount Services, controlled by a wealthy Qatari family. Yesterday, Qatar fostered a key merger between two troubled Greek banks, lubricating the deal with a 500 m. euro convertible bond.  Greek’s stock market rose by 14 percent, as a result.

● Qatar won the right to stage the World Cup (soccer) in 2022.

●  Qatar was successful in the mediating an agreement between the Yemeni government and the Houthi rebels.  Prevented a civil war almost in Lebanon, brokered peace agreements between the Palestinians, Fatah and Hamas, and also intervened successfully in Sudan.  

 ●  Qatar hosts the World Trade Organization negotiations in Doha, crucial for lowering trade barriers on agricultural products.   

  Qatar was a British protectorate until 1971, when it declared its independence. It has over 15 % of the world’s proven gas reserves, and has a futuristic plant to convert natural gas into gasoline.  Once a poor pearl-diving center, it is now exceptionally wealthy.  Qatar is, according to the IMD World Competitiveness Yearbook, the 8^th most competitive economy in the world (!), has GDP per capita of $88,000 (!), highest in the world; GDP growth of  16% in 2010 (highest in the world), and has no unemployment at all.  It attracted inward direct foreign investment of 9 per cent of its GDP in 2009.

   If I were Libya, Syria, Israel, Egypt, America, China, EU and Iceland, I would benchmark this tiny speck on the map, to learn what they do, how they do it and why.  No country comes close to Qatar’s record of success.  Other countries have oil and gas wealth. Few if any leverage it as cleverly as Qatar does. 

     And as for democracy?  As with Singapore, the whole fragile system might come apart if, Qataris say, everyone had the right to protest, demonstrate and vote.  There are brutal murderous dictators like Qaddafi and Assad. And then, there are benevolent monarchs like al-Thani.  Why is al-Thani so unique?  Why is his model not widely copied? 

Innovation/Global Crisis Blog

Four Critical Ruling Bargains Come Unstuck: Can They Be Rebuilt?  

By Shlomo Maital

A Do-It-Yourself Tool for Forecasting Global Developments

Tom Friedman’s NYT column (Global edition, August 29) makes an insightful observation about global markets and economies, which again appear headed for crisis.

   Friedman notes that there are four ‘critical ruling bargains’ that held together the global system since the end of the Cold War in 1991.  They are:

 ● Mideast dictators supplying oil to the West in return for arms and tacit support

  ● Euro zone harmony

  ● American spending, deficits and borrowing

  ● China’s growth, based on an undervalued currency and high domestic saving.

All four of those ‘ruling bargains’, shown as circles above,  have come unstuck, Friedman notes.  The Euro bargain broke down because the PIIGS (Portugal Ireland Italy Greece and Spain) in the South strangely failed to behave like the diligent Germans in the North, and have crashed the system.  Mideast dictators are falling like flies and no-one knows what or who will replace them.  Americans, drowning in debt, have at last resumed saving, but only because recession has shaken their faith and confidence in holding their jobs. And China must shift from a factory-based to a knowledge-based economy with higher domestic spending – a shift easy to define, tough to do.  Underlying all this is the global revolt of lower and middle classes, seeking their democratic rights.

    The ‘zone of  success’ occurs where all of these four ‘ruling bargains’ are somehow restored.  China’s rapid growth returns and stabilizes. Mideast oil flows. American spending resumes.  And the euro is rescued by a grand compromise between the puritan North and irresponsible South. (This is the ‘lightning bolt’ in the Figure, a very tiny space indeed).

   Zones of failure are the 11 numbered areas, beginning with utter collapse (zone 1, none of the four bargains is rebuilt), ranging through, for instance, zone 10, where 3 of the 4  ‘bargains’ are rebuilt,  but China comes unglued. 

   Use this tool to build your own global scenario. Which of the four ‘grand bargains’ are likely to resume, and which are not? What is the timing?  Find your most likely ‘zone’.  Use it to build a future scenario. What does this mean for your career?  Your company? Your assets?   Faced with thick global fog, Tom Friedman may have helped give us a tool that disperses at least some of it. 

Innovation/Global Crisis Blog

 How Long Does It Take Obama To Turn On a Light Switch?

By Shlomo Maital

I don’t know how many people it takes in the Obama Administration to change a light bulb.  My guess is, about several hundred.  Because in the revolving door of appointments, his experts and advisors leave before they even learn what a light bulb is.   When Obama took office in early 2009, he was counseled by an all-star economic team that included Great Depression scholar Christina D. Romer, former Federal Reserve Chairman Paul A. Volcker (center) and former Treasury Secretary Lawrence H. Summers. All have since resigned.  They were replaced by lightweights, precisely at a time when innovative thinking is desperately needed.  Treasury Secretary Timothy Geitner has stayed on;  his departure would have been very helpful.  The wrong people left; the wrong people stayed. 

    The question now is, how long does it take the Obama Administration to turn on a light switch?  The answer: Two and one-half years.  Here is why.

     The core problem of the U.S. economy is the construction and housing industries. The core problem of those industries is simple: 

 By the last quarter in 2010, about 11.1 million homeowners, or 23 percent of all owners of residential property, owed more on their mortgages than their home is worth, according to CoreLogic.  The backlog of unsold foreclosed homes remains one of the biggest challenges for the administration in trying to boost a housing market still struggling to recover from its 2007 collapse.  A total of 657,044 homeowners have won a permanent modified loan as of June — a fraction of the 3 million to 4 million the administration had initially forecast, according to the Treasury Department.  In other words, only 6 per cent of those whose homes are “under water” have had their problem solved. Some 94 per cent have not. Great work, Obama!  Great work, Tim Geitner.

   In other words:  Almost a quarter of all houses are ‘under water’ (worth less than what their owners owe).  Many of those houses are empty, because their owners have walked away from them.  The banks who foreclosed have dumped them on the market, depressing housing prices.  The houses are empty, and do nobody any good.  Some people have lost their homes and have nowhere to live.  Entire neighborhoods in California are empty.   Until this problem is solved, there will be no economic recovery in the U.S. and there will be no significant fall in the unemployment rate (construction is highly labor intensive). 

     The solution:  A fresh start.  Create a government corporation that buys all the empty houses, or ‘under water’ houses, at market prices.  The cost:  Say, 11.1 million homes times an average value of $300,000, or $3.3 trillion.  Pay for the houses in special U.S. Goverment  30-year bonds.  Gradually over time, as the housing market improves (as it will), sell the houses, and recoup the funds needed to redeem the maturing bonds.  (The Government will make a substantial profit on this deal over the coming decade).   Rent the homes to the people now living in them, for modest rents, and offer them the opportunity to buy back their own homes over time.   

    The housing market faces a “second shoe” problem (waiting for the upstairs neighbor to drop the second shoe),  in the form of 11 million homes dumped on the market. By supply and demand, as long as that ‘second shoe’ of 11 million houses remains on the market, housing prices will never recover.  Get them off the market. The government is the only one able to do so.  Break the doom loop:  No jobs, no way to pay the mortgage, foreclosure, slumping housing prices, bad economy, no jobs, no way to pay the mortgage, etc….

   Why is it so hard to take decisive action to solve the under-water problem?  Why does it take so very long for the Obama Administration to turn on a light bulb?  Why has America been doomed to live in darkness, by an Administration that has disappointed not only Americans but people everywhere?    Why are so many Americans living ‘under water’ for so long they are growing fins and gills?   And why have those 11 million ‘fish’ not organized effectively to protest? 

    A Reuters report yesterday stated:  “The Obama administration is looking at options for reviving the housing market, an Achilles heel for the struggling U.S. economic recovery.”   Two-and-a-half wasted years, and Obama is still “looking at options”.  He may still be “looking at options” on Tuesday November 6 2012, when angry voters send him into early retirement.                    

Innovation/Global Crisis Blog

Business Leadership in Troubled Times: Oxymoron?

Why Restoring Jobs Requires First Restoring Trust

By Shlomo Maital

       Let us agree that the latest stage of the ongoing global crisis is the most worrisome.  Bank crisis became financial crisis, became economic crisis, and now – a crisis of suspicion. People everywhere have (rightly) lost faith and trust in their political leaders.  And leaders have lost trust in the people’s ability to hear the truth and accept bitter medicine.  Banks have lost trust in their lenders, people have lost trust in their banks.  Workers too have lost trust in senior management.  A study by Maritz shows that in the U.S. “… only seven percent of employees strongly agree they trust senior leaders to look out for their best interest, and only seven percent strongly agree they trust their co-workers to do so. Approximately one-fifth of respondents disagree that their company’s leader is completely honest and ethical, and one-quarter of respondents disagree that they trust management to make the right decisions in times of uncertainty.”

    We are learning that trust is the fundamental currency of global markets, not dollars.  Without trust, there is neither an economy nor a society.   

       Facing this vacuum of trust, business leaders have utterly failed to step forward.  In the U.S., facing a possible bond default, business organizations (like the Business Roundtable and U.S. Chamber of Commerce) screamed at Obama NOT to default – but offered nothing constructive on how to slash deficits and restore economic growth.  An editorial in today’s Global New York Times basically called ‘business leadership’ an oxymoron (internal contradiction). And I agree.

    A country is a business.  I address this question to business leaders everywhere.  If you were CEO of USA Inc., UK Inc.,   Germany Inc., Israel Inc., Greece Inc.:  What would be your competitive strategy, in the face of shrinking global markets, excess debt, over-leverage and political paralysis?  What would you do? And why?  And how would you communicate your plan to people, so they would understand and support you, and trust you?  Restoring jobs starts with restoring trust in our system.  Trust requires leadership.  We have neither. 

    Why is a nation’s turnaround plan any different from that of a business – except, it’s far more important and far more complex?  And where in the world are our highly-paid business leaders —  spending the vacation month of August on their yachts in the Mediterranean, replicating Obama’s ill-considered vacation, in the midst of turmoil, on Cape Cod.    

Innovation/Global Crisis Blog

You’ve Just Gotta Laugh!

By Shlomo Maital

  The latest issue of The Economist has three separate items that, unintentionally, bring a smile or even a belly laugh.

   Here they are.

   1.  China Eats America’s Lunch – Literally.    China has been eating America’s lunch for years.  By dominating manufacturing, China has taken away well-paying jobs from middle-class Americans, who now work at Wal-Mart for near-minimum wage.  Now, fittingly, China is LITERALLY eating America’s lunch.  A factory in rural Georgia, U.S., Georgia Chopsticks, is making 2 million chopsticks a day out of poplar and sweet-gum wood and exporting them to China.   (p. 53).  The company hopes to employ 150 people.   America is saying, eat our lunch China and…here, let us give you the tools with which to do it.

    2. Having achieved a Guinness Book of Records astronomical inflation rate, 230,000,000 per cent (that’s not a typo),  Zimbabwe ended it by abandoning its own worthless currency and adopting the dollar.  Now, Zimbabwe is worried, lest America’s irresponsible Fed print excessive amounts of money and destabilize Zimbabwe.  A Zimbabwean newspaper, Newsday, wondered on Aug. 10 whether “it was time for Zimbabwe to ditch the dollar, lest it import America’s macroeconomic recklessness.”  Pot calling the kettle black?  Well – who’s the pot anyway?  Can America learn fiscal and monetary responsibility from Zimbabwe?  Apparently, yes.  (p. 57).   

   3.  A special police unit in Stockholm Sweden handles protests in a unique way.  They have no weapons, no water cannons, no tear gas.  They are known as Dialogue Police.  They engage in philosophic dialogue with protesters, discussing the Manichean Ethic,  relativist morality, deontological intuitionism and utilitarianism.  My hunch is, they lull protesters to sleep.  (P. 45). This has huge possibilities. How about Lullaby Police, who sing protesters to sleep?  How about Economist Police, who teach segments of Econ 101, guaranteed to anesthetize an elephant?    

    Global crisis?  That’s a laugh.