Posted by Adam Gordon on Mar 16, 2010 in all, economy & finance, forecast filtering, history, policy, social change
Legislation is the route by which ‘the people’ (or powerful sectarian interests, take your pick,) influence the future. It is often underestimated as a future force, or viewed merely as legislators playing catch-up with technology or societal change. But legislation can be far-sighted, and profoundly shape outcomes.
In a fascinating recent development, John Kerry, Democrat of Massachusetts, and Richard Lugar, Republican of Indiana, introduced the Start-up Visa Act to the US Senate, as reported in Inc. magazine.
The legislation is a forward-looking bid to turbo-charge entrepreneurial venturing in the U.S. by attracting foreign entrepreneurs and connecting them to U.S. capital, therein driving new economic growth and local jobs. What’s really interesting is it goes against past common wisdom that recessions are ‘bad for immigration’ (as citizens demand job protection.)
If passed, the bill gives U.S. visas to foreigners who can raise $100,000 from an angel investor or $250,000 from a qualified VC firm. After two years, if the immigrant entrepreneur can create five or more jobs (excluding family), attract an additional $1 million in investment, or produce $1 million in revenue, he or she gets a green card (permanent residency.)
The only current option, the EB-5 business investment visa, requires immigrants to invest at least $1 million in the U.S. and employ 10 people.
Job creation
The National Venture Capital Association says 25 percent of America’s venture-backed, publicly-traded businesses, incl. Google, Yahoo!, eBay and Intel have been founded or co-founded by immigrants. According to Richard Herman, author of Immigrant, Inc.: Why Immigrant Entrepreneurs Are Driving the New Economy, nearly all U.S. job creation in the past 20 years has come from companies less than five years old.
The history of US immigration policy has been schizophrenic to say the least, with periods of great social openness followed by about-face door slamming. The slamming has always corresponded to economic downturns or anxiety thereto. But here we have the opposite effect. And we have legislators taking a forward view! Both proof that the future is sure to surprise us.
read morePosted by Adam Gordon on Feb 25, 2010 in all, decision-making, economy & finance, lifestyles & values, management, strategic foresight
Charlie Munger, Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment firm chaired by Warren Buffett, has a piece titled: ‘Basically, it’s Over‘ in Slate this week.
Charles Munger
First, let me say, what I like about investors (and managers and entrepreneurs) with long-term track records of success, is it means — it must mean, by definition — they have a high quality view of the future. Not only a high-quality view, but a high quality view that renews itself. There is no doubt that Berkshire Hathaway has consistently over time had a better view of the future than most expert forecasters, policy pundits, and futurists. The record is clear.
Anyway, Munger this week offers a parable about Basicland, a C18 Pacific island colonized by Europeans where: “Property rights were greatly respected and strongly enforced. The banking system was simple… Almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property… Speculation in Basicland’s security and commodity markets was always rigorously discouraged and remained small…
“(But) as their affluence and leisure time grew, Basicland’s citizens more and more whiled away their time in the excitement of casino gambling… Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called “financial derivatives.”
And so it goes on, telling the history of America and the route to the Credit Crunch, and potential for new misery going forward, via this parable. He uses the parable as parables have always been used, to say something in ‘make-believe-land’ that cannot be said (or will not be heard) in reality. The folly of Basicland’s citizens and government is much easier to acknowledge than our own. Scenarios of the future are similar in function, similarly allowing mental and institutional ‘permission’ to think the unthinkable and ‘say the unsayable.
The worst investor in America
Munger wouldn’t be the first to say: “Change yer ways or ye be doomed.” Isaiah and many before and since have said that. Nor would he be the first old white guy to espouse traditional ways of doing things. We factor that in. But he does look to basics and basics are important in having a high-quality view of the future. They signal the limits of the excess and reversion-to-the-mean imperatives.
I remember in the 1990s, when I was living in Washington DC, and Warren Buffet was “the worst investor in America” for missing out on the dot.com boom and Nasdaq bonanza. He just stuck to his guns saying, time after time, ‘there are no fundamentals behind these valuations (aka, this is just a casino) and fundamentals will prevail, which of course they did.
Now the brains at Berkshire Hathaway are saying that forums where risk, debt, currencies, etc., are up for speculation are ‘casinos,’ and their players therefore gamblers (rather than, as they would have it, ‘investors), and that they produce little fundamental value and fundamentals will prevail.
read morePosted by Adam Gordon on Feb 12, 2010 in all, economy & finance, failed predictions, management, strategic foresight
Two running business stories with foresight importance this week, both I realize brought to me by smartbrief.com (Smartbrief on Leadership) which I find a very credible news aggregation service. The first is a WSJ piece ‘How Lean Manufacturing Can Backfire.’
Toyota President Akio Toyoda, Feb 11, 2010. Pic: AP
Lean manufacturing creates efficiencies and shaves production costs by creating just-in-time — no inventory — systems, using common parts and designs across product lines, and generally squeezing materials, processes, and (inevitably) quality controls. This may or may not include pressing suppliers to lower prices, and therefore squeeze their own materials, processes, and quality controls. ‘Lean’ has been very much a core process and operations mantra for about two decades. To misquote a favorite saying, manufacturing companies have been adamant: ‘one can never be too rich or too lean.’
But now Toyota has had a slew of embarrassing recalls — the 2010 Highlander; 2008 – 2010 Sequoia SUVs; and 2009 – 2010 RAV4′s due to gas pedal problems. It has just recalled 437,000 Prius and other hybrid vehicles worldwide to fix brake problems. In 2009 it recalled Corolla, Camry, Vios and Yaris sedans due to faulty electric window-control systems.
The point of the WSJ piece is to implicate lean manufacturing in this. (It’s unclear whether it’s too much lean or too little quality control, but they are clearly connected.) Now, lean as an idea is not going to go away. Nobody is suddenly going to advocate ‘bloat manufacturing,’ but looking at the damage in reputation and bottom line that Toyota has soaked up, the company and others like it will obviously looking across their lines and saying to themselves ‘a bit of redundancy (fat, if you like) in the system will be cheaper than this.’ Thus the pendulum swings back from lean extreme to somewhere a bit more durable. A happy medium.
Maharaj Mac
In the other story, the Times reports how McDonalds is seeing benefits from localization of it’s menu, for example, offering the McItaly in Italy, the (non-beef) Maharaja Mac in India, the McLobster in Canada and the Ebi Filit-O (shrimp burger) in Japan. The pendulum effect here is that McDo became the mega-corporation it is based on global standardization and a ‘one-menu’ mantra from Cleveland to Taipei. It wasn’t just one menu, but each item had to be produced from the same stock, and in the same way. McDo fries were identical everywhere, that was the guarantee (and they were always called ‘fries’ no matter what locals called them.)
It is now become common cause among the global food companies (notably Starbucks and KFC) to work local options into their offering. One may think this is merely ‘think global, act local.’ The point is, it is an about-turn indeed from the ‘think American, act global’ that went before. What works best is in fact a happy medium.
What does this have to do with better future-thinking? Expect a recall sooner or later on forecasts that don’t see change resolving itself around a happy medium.
read morePosted by Adam Gordon on Dec 15, 2009 in all, economy & finance, emerging technologies, lifestyles & values, policy, politics of the future, strategic foresight, technology change
I have a fond little memory from one of the early multi-candidate debates in the last US election campaign. It was on prime-time TV: there were still about a dozen or so candidates in the running, including Obama and Hillary Clinton, each was standing behind a podium, and as the topic of climate change came up they were asked en masse: “So, who didn’t fly here today in a private plane, raise your hand?” The delegates all sheepishly kept their hands down but one – I forget which – raised his. “I came in yesterday,” he explained. (laughter)
So to the Copenhagen climate change summit, and all the luminaries and dignitaries and celebrities landing at København airport, many of them in private jets.
http://www.cph.dk/CPH/DK/MAIN
This tells us something about the future, and what it says is: ‘needs must.’ What are they going to do, row a boat to Copenhagen? Scale that up and you have the real, actual future. People will fly. In fact the entire new global middle class of billions will fly. And they will heat their homes. And they will eat meat, and so on. And any even remotely democratic system that tries to take away this will be out on its ear.
But we will of course move to cleaner, renewable, sustainable systems. How fast this happens depends essentially on money, which in turn depends on political will, which in turn depends on public concern. Money is required to fund new energy technology research, and — the core issue of Copenhagen this week — it is needed to buy off industrializing countries.
There’s no doubt that climate change (manmade or not) is real, and a real danger. But when scientists and academics are worried about it that means little in terms of changes to human practices. When the public gets concerned — as they now are — we get the possibility of fundamental change. This is true of the future generally, not just climate and the environment.
Between the public sentiment and the money lies political will. Essentially the political will of post-industrial economies on the one side, who find it politically easy, relatively, to pay the price of emissions constraints vs. that of developing economies which will be choked economically and therefore politically by those constraints.
Inequality
Correlating degrees warming with ecological and therefore social upheaval is important. But to think that is what the argument is about is to miss the point. The point is global inequality and its future, and how developing economies are not going to allow emissions constraints to further entrench it.
The future goes always to the most powerful side. That’s what power is for: determining the future. The sides are both strong in this dispute, so this battle will not be won or lost in Copenhagen this week. We are still in its early stages. The effects of climate change are incremental (unlike, say, nuclear holocaust) meaning there is plenty of room for postponement even if the planet can’t and won’t ultimately take it. And those who would occupy the moral high ground have burned public and private jet fuel to be there to do it, and will no doubt indulge in a bit of Smørrebrød and Frikadeller too. Needs must.
So expect the political clock to remain stuck as it has been for a while now, at ’5 minutes to midnight,’ while the issue smolders slowly without definitive resolution — until technology advances get human energy, finally, off fossil fuels and the problem works its way out of environmental and human systems.
read morePosted by Adam Gordon on Dec 4, 2009 in all, decision-making, economy & finance, failed predictions, Future Savvy, strategic foresight
Economists make a handy, if mildly irreverent, distinction between “freshwater” and “saltwater” economics. Freshwater refers to economic theory that rests on the efficient markets hypothesis — a belief in the efficiency and rationality of free markets. It is associated with Milton Friedman and the University of Chicago school. It was the thinking behind Thatcher and Reaganomics and still more-or-less holds sway today, or it did up until the credit crunch.
Keynesian or saltwater economics by contrast holds that free markets often behave irrationally and inefficiently, and therefore need corrective policy from government. Saltwater economists say people and institutions often behave in ways contrary to the general good, or in ways that can bring markets (on which they depend) to their knees. Sound familiar?
Anyway, a recent Knowledge@Wharton article comments: “Like a natural science, freshwater economics lends itself to complex, often elegant mathematical modeling. The freshwater view is that consumers, offered an array of choices, will select the one that is best for them — a straightforward assertion that can be neatly expressed in mathematical formulae.
“In contrast, many assertions made in behavioral economics are more challenging to express mathematically. ‘Behavioralists’ argue that consumers don’t always act in their own interests, especially when they fail to understand the choices on offer or succumb to irrational impulses involving those choices… but such impulses are inherently vague and difficult to define.”
Cognitive bias
In other words mathematically modeling the economic future is possible if humans and the markets they create are rational, but far less possible if we act irrationally.
Now, as elaborated in Future Savvy, the fact that humans make irrational choices due to many cognitive biases and heuristics is indisputable, not least since the work of Tversky and Kahneman. Biases and heuristics such as “anchoring,” “recency effect,” “personal validation fallacy,” “herd mentality,” and so on, in which people make irrational choices, are well documented.
That’s why mathematical projections of economic behavior are unreliable. The economy may be counted in numbers, but it is still a human system, with associated inefficiency and irrationality. Blow this little debate in economic forecasting up large, and you have the essential problem with quantitative forecasting of any type. It assumes, erroneously, a freshwater view of humanity.
Posted by Adam Gordon on Nov 5, 2009 in all, economy & finance, history, managing uncertainty, wildcards & black swans
In Monday’s Washington Post, under an Op-Ed headed ‘Could America Go Broke?’ columnist Robert Samuelson raises the prospect of the U.S. or another major economy defaulting on its national debt. Says Samuelson: “It’s still a very, very long shot, but it’s no longer entirely unimaginable. Governments of rich countries are borrowing so much that it’s conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse… The question is so unfamiliar that the past provides few clues to the future.”
Well, this raises the question of whether the past tells us anything about the future, and if so what? There’s a common wisdom attributed to Mark Twain (why is it that aphorisms are always attributed to Twain or Winston Churchill?) that goes: “History doesn’t repeat itself, but it often rhymes,” and this is the position that most educated future-thinkers would hold.
So what would the ‘rhyme’ be? From cases such as Argentina, Russia, South Africa, and many developing world countries over the past 50 years: lenders loose confidence in a country’s ability to repay on its national bonds and stop lending; the country is faced with a choice of drastic spending cuts (great social and humanitarian cost) or major tax increases (pointless, because it stifles business, therefore lowers tax revenue) or default. Going broke, into national “Chapter 11,” suing for time and ‘debt restructuring’ becomes the best among the bad options event though it pretty much ensures a deep and dark recession.
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Thinking the unthinkable
Could this be the future of America? As I’ve written before here and other places, after the ‘unimaginable’ Credit Crunch was ignored due to its ‘low probability,’ it’s a relief to know that remote but plausible outcomes with serious consequences are getting attention, at least in the Washington Post.
Clearly major economies are in a more precarious situation than they were 5 years ago. Too much debt is always precarious, for the smallest household or the biggest country alike. On the other hand, an economy’s size and enduring wealth counts too. As Samuelson observes, it created the unexpected effect in Japan’s case where debt at 200% of GDP (America’s is currently about 40%) should have raised the cost of its debt (lower confidence of repayment) but this hasn’t happened because domestic Japanese households and businesses rather than foreigners have easily (and confidently) bought the debt — and this may well hold true for the U.S. too. In other words, the rhyme may go this way.
The ‘more likely’ future is incremental raising of taxes and lowering of public service provision as Western economies incrementally claw their way back to stability. But at least this default wild card on the margins of plausibility has the oxygen of some attention and this is no bad thing. As with all good foresight work, it predicts nothing, but it does allow us to think through the roadmap to the outcome, and press for the right decisions now, in plenty of time and in a measured way.
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