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Archive for the ‘Capitalism Explored’ Category

Sustainability: The Lazy Option

Friday, November 25th, 2011

In software development, it is sometimes said that the lazy developer is the best developer. She knows when to code longer in order to reduce future work – making systems that fix themselves, at slightly larger initial cost, saves her time (and therefore money) in the long run. It also reduces “firefighting,” or sloppy fixes made in a rush when a system is noticed to be down at a critical time.

She avoids the effort, and the stress, for her future self: future her is lazy, so present her must be proactive. This is the very definition of sustainability; building things to last, not just for the present, quick buck.

Sustainable = Lazy

The same strategy could work for most businesses. If you train your staff well, early on, and foster/maintain a thinking, pro-active atmosphere in your office, you’ll need to spend less on management and other overheads going forward, and have less HR headaches. And your customers will be happier because, compared to your rivals, you’ll provide faster, better customer service.

The same could be said for most other aspects of a business. An initial investment of time/money/effort can improve time/money/effort situations further down the line. There’s a strong business case for sustainable business practise in almost every situation.

So, why are most businesses not lazy enough?

Unfortunately, we don’t live in a sustainable business culture. And this has a lot to do with an irritating piece of economic theory: the comparison of present and future worth via accumulation functions.

Basically, this means that people value Jam Today more than Jam Tomorrow – putting the Jam in your cupboard* until tomorrow means it loses economic value. This means that you have to make a certain amount of return on your Jam (typically more than you’d get out of investing the Jam somewhere and getting a return) in order for economists to think there’s any point to your having the Jam.

Their logic is perhaps clearer when thinking about a business – there’s no point to doing business if you could make more money by selling it and putting the money in a savings account.

However, the logic is ridiculous by any sustainability measure. We made Jam with our strawberries so that they would last.

Economics needs to start properly accounting for the rocking increase in efficiency obtained by spending half an hour last week thinking about the problem – building a model of economics that doesn’t rely on fossil fuels for growth but grows out of better analysis, technique, information sharing and quality.

We need to stop powering our economies with finite resources and start powering them with brains. By being lazy.

* or fridge, if you’re insane and don’t understand the point of jam.

The Black Hat Defence

Thursday, June 2nd, 2011

What is a black hat?

A black hat is an awkward kind of person. They’re the troll, the class clown, the devil’s advocate. Their job, whether self-appointed or not, is to critique, toy with and interrogate someone from an arbitrary, hostile point of view in order to test how well they understand their own views, actions and decisions.

The cartoon above contains a character who embodies this spirit, who regularly does terrible things to reveal other people’s weaknesses and is generally feared and loathed in his world for it. In this encounter he meets a black hat for black hats, and is rightly terrified.

This phenomenon is well used in industry; whether its software engineers peer reviewing one another’s code, managers going over their employees work in an annual review, or companies bidding to run huge government contracts panel-reviewing their delivery models – everyone checks their working, in one way or another.

Sometimes it works

Academia is the prime example of black hattism working its magic – there is always an academic willing to take any damn position, whether they really believe it or just for the notoriety, and academics fight to the death forever. Of course software engineers, seeing themselves as pseudo-academics, are quite happy to be merciless in their criticism too, and routinely are in their self-formed collaborative groups online. Managers actually have a financial incentive to do down their employees come annual review time, since the review almost always feeds into pay rises, and a high-performing but low-cost team is very much in their (or their boss’) direct financial interest.

Sometimes not so much

However there are plenty of cases, especially in industry and government, where hearing a regular robust criticism of your thoughts and actions is not the default way of running things. Senior politicians and business executives rarely expose their own working practise to scrutiny at all, let alone their strategic decisions. Even the government bids aren’t properly scrutinised, because it’s not in the companies interest to spend tens of thousands more on wages to redo all the work they’d just finished.

In government departments, civil servants work off points systems. Taking initiative is not rewarded; instead, each role is mapped out from on high, and your performance is judged within a bunch of predefined criteria; reviewers aren’t allowed to appreciate wider benefits, internal efficiencies and out-of-the-box thinking at all. These points are the basis on which people are promoted to a new role, with new criteria. People aren’t encouraged to think they are encouraged to sit there and get on with it. This is also the experience of the many many people employed up and down the country in jobs that don’t require degrees (well, some of them do, but only because of degree inflation – you don’t actually need a degree to do the job.) This is a massive waste of brain power and talent, and we aren’t being as efficient, as productive or as awesome as we could be, because people aren’t even allowed to black hat their own work.

Essentially I think there is not enough black hattery, devil’s advocacy and general listening to of critical ideas in the world. This is partly a problem with pride, and partly a problem with culture. But we’re going to have to get better at it or we won’t get very far at all. Black hat teams should be made up of hand-picked-but-random groups – someone from the canteen staff, someone from IT, someone from accounts or HR and finally someone from the actual department who you’re testing, and making sure that you have a mixture of newbie and veteran employees, high level managers and staff from the “trenches”. That way you’ll have the maximum diversity in expectations, life experience and way-of-thinking, and at least a sprinkle of knowledge from a relevant discipline.

This is how Markets are supposed to work

I am very confused why companies, particularly the capitalists at the top of them, don’t understand that more criticism is better, not worse. If someone has found a hole in your plan, great – they’ve stopped you falling into that hole! Now stop feeling hurt because a twentysomething woman was cleverer than you, and get on and do what she said! Black hatting should be standard practise at every level of every organisation, all the time, and implementing other people’s better ideas should be a no brainer.

Markets are built on the principal that someone else is trying to beat you. They are watching your every move and will pounce and scoop up half your market share if you make a single mistake. In that situation you not only want everyone working at their most performant, which you only get by regular black hatting at every level, but you also want to have a bunch of black hats of your own who only see what the enemy see – lock them in a building down the road and pay them to tell you exactly what their strategy is, given your latest move. Not only the clash of collaborations, companies, whatever but also the clash of ideas within those collaborations is what makes markets strong, and superior in every sense to top-down planned and designed systems.

This is how Governments are supposed to work

For a political blog getting this far before really laying into politicians must be something of a rarity. In case you’d forgotten for a moment, this principal is identical to the reason we have both elections and parliamentary debates. Politicians are supposed to argue publicly, criticise one another’s ideas mercilessly, and then vote in a chambre based on how many of them were convinced. Of course, thanks to parties and whips, this almost never happens, but it’s nice to have a target to work towards nonetheless.

Similarly, at election time they argue and argue for weeks on end, and eventually people are allowed to vote them in or out, based on who they judged to be the winner of the arguments. It’s a shame they then immediately set about surrounding themselves with advisers who agree with them.

The Black Hat should be a new defence in libel suits and employment tribunals

There are too many companies willing to sue their critics – I’m thinking of Simon Singh and the Homeopaths in particular – or even take out an injunction to hide their incompetence and irresponsibility – I’m thinking of Trafigura – and there should be a legal defence against these unjust attacks on free speech and thought based on black hat theory. It is not cool to slag people off – that’s just plain libel – but a detailed criticism of an organisations operations at any level, whether by a former employee or a journalist, is a legitimate attempt at improving the workings of that organisation by definition, and should be defensible against either libel or, almost worse, an attempted dismissal. Whether the criticism occurs verbally, junior employee to senior or to a meeting, in a company-wide document, like a memo, or in the national press, companies should not be allowed to sack or sue people, and journalists should not be in breach of injunctions, for well applied constructive criticism.

Loyalty vs. Black Hattism

Finally, a quick word about the Labour party and it’s tendency for loyalty, no matter what. There was a blog post recently where one brave Labourite climbed the barricades and hoisted a flag of rational argument. The result? He came very close to being disowned.

Now I’m not going to get into whether Mr Bozier was right or wrong – that’s ultimately a debate for Labour to have amongst themselves – what is interesting is Labour’s reaction to a dissenting voice speaking against the party line; a party line that the base is particularly fond of too. When you get a post on Lib Dem Voice arguing something unpopular sure you get grumbles, and arguments, and a clash of ideas in the comments, but you don’t get people telling each other to leave the party.

Labour need to learn from black hat theory – they need to open up their conference to debate once more – and start generating fitter, stronger, faster policy, and generally being more tolerant about people throwing political ideas around on the net. Then they might actually have something to talk about in debates, instead of the constant faux-fight that we see week in week out. I’m glad the Lib Dems are in government at the moment – and thus having a far greater impact on policy than before – it’s just a shame the official opposition are nowhere near as effective.

A Cheaper Stimulus

Saturday, March 26th, 2011

Nonlinearity

Let me first point out what I mean by nonlinear, because I’m using it in a technical sense. A nonlinear function is a mathematical expression that feeds into itself, e.g.

f = x^2 + 3x + f^\frac{1}{2}

Now, it may be that something like the above can be easily re-arranged to give you a linear equation (where you have a straight f on one side at some xs on the other,) but assuming you can’t this is a nonlinear equation; you can’t find f when given x without iterating through your calculation lots of times, and seeing if you converge on an answer or not.

So, a nonlinear thing, is something that feeds into itself and converges to a value, rather than just being simple, or linear, to solve. Economies are nonlinear: activity (jobs, and salaries) gives people spending power, which stimulates more activity (people hired to make stuff to sell to the people will salaries), and confidence breeds confidence. In short the economy feeds into its own equation.

Keynesian Stimulus

Next we need to understand Stimulus. The economic left love to talk about the ideas of a Liberal Peer from the 1940s called Keynes, and his economic theory (from back in the 30s, when he was a civil servant) concerning how governments could fix economic problems (like the great depression of the 30s.) They often confuse what Keynes actually said with a modern narrative, so let me pull out the differences briefly.

Modern Keynesianism is the idea that a government should constantly spend money in order to keep an economy running, regardless of the economic circumstances. Thus the world supposedly divides into “big state”/Keynesian politicians, who want the government to raise lots of taxes to pay for constant stimulus; and “small state”/Neo-conservative politicians, who want to keep taxes to an absolute minimum and let the Market do its thing.

As you can see there is no difference between the two in terms of economic stimulation of the economy; either the government takes a load of money out of the economy and injects it somewhere else, or it leaves the economy to get on with it. There is no net money going in or out, and as such neither really does much, assuming a healthy economy.

Of course if the economy slows down, the government tax receipts go down. This means the “big state” government can’t afford to pay for all its staff or projects, and so it must either cut spending or borrow money to keep spending it. The “small state” government will also have budget problems, but on a much smaller scale, because it wasn’t taking very much in tax, at least compared to the “big state” government.

Now, in the midst of a recession, is where Keynes’ theory really applies. It says that, because economies are non-linear, government can borrow money in a recession/depression and spend it*, stimulating activity and jump-starting the process.

Note that the Keynesian Stimulus is temporary, and debt fuelled. It explicitly adds money to the economy over a fixed period of time, and hopes that people will have the confidence to spend that money and stimulate more activity. You don’t need to keep adding the stimulus, because the self-feeding equation should be building up again (assuming your stimulus was big enough to work, i.e. to give people the confidence to spend.)

A Cheaper Stimulus?

So, the coalition narrative is that Labour didn’t pay off enough debt during the boom, so there now isn’t enough overdraft-headroom for a Keynesian stimulus. Given the size of the stimulus that would be required, this is possibly true, but I’m not going to get into attacking or defending the ConDems (today, of all days, March the 26th).

One way to stimulate nonlinear growth is to inject money, as we’ve seen. But another way is to inject confidence. One of the things I looked at in my last Capitalism Explored post is what the point of a company is; the conclusion being not to make a profit but to do stuff; produce a good, provide a service. If the government is serious about basing its forecasts on massive private sector growth, then it needs to inject confidence into the economy on a monumental scale; and that means getting people to do stuff, themselves, in small private ventures all over the land.

It isn’t a case of pandering to big companies to get them to create jobs for you. Neither the government nor the people should be fooled by that implicit assumption in our national political discourse; don’t let the “fat cats;” whether politicians or venture capitalists, be the roadblock to growth that you can make, yourself, at home, by creating your own job (and possibly, later, jobs for other people too) by starting a small business or social enterprise to meet a need in your area. Now I appreciate that this will not be for everyone, but it doesn’t need to be everyone to have an effect. Running companies (whether for profit or not) is hard to do well, so only a small number of crazy people will ever want to take the plunge even in good times, let alone bad.

But this is where the government’s action in the stimulus comes in. Not just in Enterprise Zones (although those will be good places to start) the government needs to provide the resources people need to find out about starting their own small enterprise. Sample forms, example cashflow spreadsheets, free advice and drop-in centres, an agressive advertising campaign selling the package to people. This will cost far far less than the Keynesian stimulus, especially with modern communication technology as it is, and if it’s well-executed it could yield similar results in increased economic activity, and result in a more diversified and flexible country for us all, more immune from the ebb and flow of particular global markets, and less exposed to the kind of debt contagions we’ve seen still echoing through EU economies since 2008.

I will go on, in another post, to explain why social enterprise trumps profit based ventures in this field, in my opinion. I believe whichever model people choose though, that this stimulus, if applied correctly, could be a way of making a big society, run for and by local people everywhere, grow up out of the ashes of the coalition’s painful, damaging, sometimes-necessary public sector cutbacks.

* Keynes was non-specific about what to spend it on – literally anything would work, he argues. One example is burying money: pay civil servants to head out onto public land all over the country and bury pound coins. People will then set up enterprises to dig up the coins; pay each other to do it, suddenly everyone wants to buy a shovel, and so on, and at the end of it all they’ll have pound coins with which to buy stuff that people make.

More nuanced thinking tells you that it might be good to have a useful national asset at the end of the stimulus; so order the building of football stadia or new roads; rather than churned up fields you have useful things that facilitate further economic activity later, and assets that the state can sell to pay of the debt it incurred building them. This thinking is why there are many abandoned sports facilities all over the developing world; because they chose football stadia over roads when there was no economic substructure to support an entertainment-based football industry.

Capitalism Explored Part 1: What are companies for?

Monday, January 31st, 2011

Thank you for your input in part 1, all! If you think I’ve misquoted you, please comment and correct me.

I had several offers of explanations for the purpose of companies. Alas, I didn’t state my parameters as precisely as I might have; several people gave answers aimed at the legal entity of a “limited liability company” – to incentivise enterprise by reducing the personal risk in starting a business – correct, but not what I was driving at.

Someone also mentioned the role of companies in absorbing (“internalizing”) externalities- which I will have to try and read about (I thought they were so named because companies externalized* them…most of the time.)

I was trying to get at the purpose of private enterprise more generally; and a couple of people gave explanations along those lines. One guy pretty much summed up the short version of what I’m about to say here.

No-one gave the “obvious” answer that I want to refute- that companies are there to make a profit. I guess that’s what you get for asking Internet geeks instead of normal people.

My opinion is thus: companies are there to do stuff, and do it well. They are the capitalist monomer; the links in the supply chains that make the (capitalist) world, in all it’s complexity, work. They made the device that you’re reading this on, suppied the energy powering it, and likely the chair you’re sitting on too.

All that capitalism asks of you to do whatever you want is that it is useful; that overall it costs the economy less than the benefit people gain from it. All you have to do it break even, and you’re in business.

Sure most people will find greater value in job security, choosing where to live or being able to “switch off” after a hard day of doing something you don’t much like. But if you want to live to work, rather than work to live, then capitalism has provided you with the perfect limited liability legal framework with which to express your creativity.

What companies, or rather the people who invest in companies, tend to focus on too much in today’s world, leading to an (apparently illusive) popular conception that all companies want is money, is return on investment (ROI). This may mean increase in business value or profitability (and thus dividends.) This focus, especially on share prices, has damaged the way companies are assessed and ranked; not for the quality of their products, nor for internalizing externalities (like taking on extra costs in order to be Carbon neutral while still charging competitive prices,) but for how much they pay their CEO and how many costs they can cut by worsening factory conditions for their (usually indirect) employees.

Stockbrokers have forgotten what companies are there for; to do stuff, and do it well, not mess around maximising short term profits to the detriment of quality and long term sustainability. Of course it is usually possible to do both, but “business” needs to realise that while ethics may come at a cost, sustainability is just good business sense (in the medium and long term).

So, two things to take away: firstly, don’t let laziness stop you doing what you love; start a business and do it or join one already doing it in your style; that’s why we put up with capitalism in the first place.

Secondly, don’t believe the hype, reward companies who do things the way you like (whether that’s lowering prices to enfranchise more of the population, or by making high quality products that bring you delight,) by buying from them, working for them, or recommending them to your friends; don’t let the cityboys have the last word on what people should do with their lives, and how.

* Apologies for the American spelling, but the world spells economic jargon in American, not English. Seriously, Google “uninternalised externalities”, you’ll see what I mean.

Intro: what are companies for?

Tuesday, January 25th, 2011

Please comment below with what you think private companies are for. I’m writing a series of posts but I need some user input first!

Thanks, I’ll email anyone who comments when I post an article.

The Relevant Article