The Case for Business
The Evolution of Know How, Discovery & Accumulation, Continuous Innovation
Balanced Balance Sheets, Markets & Subsidiarity, Privatisation & Modularisation
The theory of Evolutionary Economics -
Evolutionary History Timeline =
13.6bya Big Bang -- 4.3bya Earth -- 2.4mya Apes -- 100,000ya talking -- 10,000ya writing -- 10 years ago Daniel Whelan!
Empirical Science, Complex Adaptive Systems, Consilience, Universal Darwinism -
Thermodynamics - Emergence Feedback - Computer Simulation - Molecular Biology - Neuroscience - Evolutionary Psychology - Economic Anthropology - Game Theory - Biological History
One whole throbbing shebang & caboodle was evolving, Darwin's process of natural selection - copy - vary - select ... nothing else was going on.
Know How evolved; dispersed, incomplete & tacit, discovered through Emiprical Science and accumulated in diverse cultures growing @ 3% pa compound ... nothing else was going on
Know how progressed through Physics, Chemistry, Biology, Physiology. Psychology, Economics ... and Cultural Obsolescence ...
A pre-existing inherited variant with a survival advantage in the local environment will always increase in population frequency as alternative variants die out, this changes the environment which then inevitably feeds back and influences the survival chances of any new variant.
The Neo-Classical economists produced an avalaunch of innovative ideas ...
The unleashing of a process of technological & institutional innovation involving the generating & testing of a diversity of ideas which discover & accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency.
The practice of Evolutionary Economics - Balanced Balance Sheets & Profitable Projects
1 Adaptive Efficiency - Trial & Error Experiments ... at the coal face by Commercial Companies, a process of Natural Selection, copy/vary/select ... adapt or die? ... QED
2 Enabling Environments - Torts ... Honesty ... Social Institutions, Liberal Democracy and Commercial Companies ...
3 Cooperative Synergies - Trade ... Hard Work ... Synergies of Specialisation & Scale ... What's your 'trade'? What do you do better than your competitors?
4 Survival Know How - Technology ... Trift ... Continuous Innovation discovered & accumulated in profitable projects through so bills could be paid, Balance Sheets balanced and bankruptcy avoided ...
Money was a superb measuring system and unit of account which facilitated trade and was a store of wealth over time. Money could not be created out of nothing. Money had to be earned through hard work, honestry & thrift. Successful financial institutions grew in size as the 3-6-3 system allocated savings to investment in profitable projects which generated an income stream. Capital was funded from shareholder subscription, deposit taking & issuing debt.
Money helped economic growth but could not drive economic growth ... the driver of economic growth was the creativity of the human brain driven ultimately the 2nd Law of Thermodynamics!?
Personal responsibility for synergies of specialisation & scale. Caveat Emptor. Due Diligence. Stick to the knitting, mind your own business, get on with the job ...
- Structural Reforms help to avoid bureaucratic kluge, parasites & predators, tyranny & oppression, bribery & corruption
enabling investment - liberal democratic culture of mutual benefits, fairness of shares, resentment of cheats in health, education, environment, law enforcement & defence. Equality and the rule of law - no grandiose ego trips and kleptocratic swamps
privatisation - creativity, innovation, susidiarity & modularisation for better mousetraps. Innate & adaptive moral sentiments & bankruptcy, it is profitable to cooperate - no bad behaviour
intelectual property rights - incentive systems for creativity, innovation, susidiarity & modularisation for better mousetraps. The magic of property, patents, hard work, honesty & thrift & the resentment of cheats - no tragedy of the commons
fiscal discipline - you can't create money out of nothing - no free lunches & imbalances and tax, borrow & print spiral
free & fair trade markets - economic growth, compound interest & synergies of specialisation & scale - no costly gluts & queues, protectionism & WTO tariffs
low marginal tax rates - after tax returns & bankruptcy - no poverty & incentive traps
market interest rates - market prices - no price fixing, stimulus & money printing
market exchange rates - market prices - no imbalances, bubbles, mercantilist manipulation & theft
foreign direct investment - open for business, equity in profitable projests & torts, trade & technology transfer - no lethal debt
deregulation - it must run on our machines, remove the blockages and let the blood flow - no bureaucratic kluge, 'i' dotting, 't' crossing dirigsm & red tape from oppressive Bishops, tyrannical Princes, dictatorial Generals & corrupt Bureaucrats
Focus on savers & borrowers, assets & liabilities and balanced Balance Sheets. Use simple rules of thumb; markets and torts, accountancy rules.
Housing and business. Building societies. Investment banks. Bitcoin payments system. Direct peer to peer. Rainy Day Funds and Insurance Clubs with skin in the game.
No licensed monopolies, no guarantees, no subsidies, no price fixing.
Simplify tax. Stabilise the measurement systems ... predicting the future was a mugs game?
The Case for Business ultimately rested on the alternative to commercial failure and bankruptcy. When the money ran out and bills couldn't be paid it was impossible for business trading to continue ... immunity from treachery, 'caveat emptor' and 'due diligence' had to be baked in ... the dice were loaded in an arms race to confront -
parasites & predators
tyranny & oppression
bribery & corruption
NB in the short term National Governments can print money and choose to turn bussinesses into zombies but the long term the evidence from empirical science prevailed -
'Oxford University researchers have discovered the
densest element yet known to science.
The new element, Governmentium (symbol Gv), has one neutron, 25 assistant neutrons, 88 deputy neutrons and 198 assistant deputy neutrons, giving it an atomic mass of 312. These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called pillocks.
Since Governmentium has no electrons, it is inert. However, it can be detected, because it impedes every reaction with which it comes into contact.
A tiny amount of Governmentium can cause a reaction that would normally take less than a second, to take anything up to 8 years to complete. Governmentium has a measured half-life of 4 term years.
It does not decay, but instead undergoes a reorganisation in which a portion of the assistant neutrons and deputy neutrons exchange places.
Inexorably Governmentium's mass will actually increase over time, since each reorganisation will cause more morons to become neutrons, forming isodopes. This characteristic of moron promotion leads some scientists to believe that Governmentium is formed whenever morons reach a critical concentration.
This hypothetical quantity is referred to as the critical morass.
When catalysed by money, Governmentium becomes Administratium (symbol Ad), an element that radiates just as much energy as Governmentium, since it has half as many pillocks but twice as many morons. The ubiquitous element Bureaucratium (symbol Bu) is well known and less radio-active but similary dense'.
'How did you go bankrupt Mr Smith?' - 'gradually and then suddenly, Sir'
On 3rd Feb 2020 in Greenwich some of the fog of business innovation was lifted by an unlikely historian when Boris spoke on Science, Technology and Free Trade -
The Glorious Revolution of 1688 launched the Idustrial Revolution, the 1707 Act of Union and the Scottish Enlightenment of Adam the Smith as Moral Sentiments underpinned wealth creation and led David Ricardo to understand the mathematics of comparative advantage & free trade and led Richard Cobden to activate Parliament and repeal the Corn Laws.
Sovereignty in 2020 cleared some of the kluge from broken parliaments and opened up exciting opportunities for free trade & leadership in the moribund World Trade Organisation. From 1982 the Uruguay Round squashed global poverty & inequality but the benefits were squandered by the abject failure of the Doha Round as backsliding French & USA farmers turned to Mercantilism & protectionism ... and hopeful China cheated.
For America haters, and many were still around, Trump's mantra of 'America first but not America alone', made no sense. But America was a trading nation and a sovereign independent UK must have an umuffled voice & leadership role for the synergies and mutual benfits benefits of global trade ... a social catalyst for a commonwealth of free trade which 'included in' Europe, America, Japan ... and more.
Leadership based on rising standards, never a bankrupt race to the bottom, rather thriving science based targets for citizens rights, laws of the land, climate change, waste ... and education, health & security second to none ... rather than squalid tariffs, non-tariff barriers, subsidies and state squabbles over who owns tax revenues ...
We have no truck with cherry pickers we plan to grow more & better cherries!
Innovation, hitherto unconnected connections -
'productivity & 'industrial revolutions' processes of self sustaining economic growth, unleashed through discovery & accumulation via the methods of Empirical Science and Culutral Obsolescence?
'social animals' were dwarfs standing on the shoulders of giants as Promethian Individuals gathered together in Cooperative Groups as flip flopping emotions of excitement & fear weeded out failures
'innovative animal spirits' enhanced Wealth Creation through Exchange Trade and Synergies of Specialisation & Scale in goods & services & ideas as incumbents were constantly bypassed by technology upstarts and global competition
'torts, trade & technology' from Trial & Error experiments established sucessful Custom & Practice, as 'know how' was dispersed, tacit & incomplete and came before explanetory Scientific Theory grew the compouding knowledge base
'losses loomed large' as emotional bias sought to reduce change, risk & uncertainty via the doom & gloom of 'Project Fear' ... put a sock in your megaphone and get it done?
'bureaucratic kluge' in bureaucracies & monopolies tended to stifle competition & innovation ... but patents & copyrights tended to protect bureaucracies & monopolies ... authoritarian creep?
'precautionary principles of better safe than sorry' tended to stifle innovation & diversity as regulation not only increased compliance costs but also by saught to reduce change, risk & uncertainty hindering optimistic opportunity ... unintended consequences?
'intentional planning' & 'picking winners' was a woven webs of guesses and counter productive
'level playing fields' & 'ever closer union' and economies of scale from Nation States tended to stifle innovation with Democratic Deficits as global competition made the world safe for diversity and new policy ideas ... gales of creatitive destruction exposed protected zombies?
The Nobel Prize winners in Economics always disagreed as the same bits of economic science easily led to different policy implications 'cos of the unfathomables -
flip flopping emotions of excitement & fear
complexity, change, conflict & scarcity and
uncertainty, risk & diversity
The parasites & predators were always around ... the Price Fixers were undeterred ... tax, borrow & print became the easy option and companies became Zombies.
Open for business means 'removing blockages and let the blood flow' by pass
'restaints of trade' and 'restrictive practices'
never ever picking winners, protectionism, free lunches ... the bills must be paid ... pay the cost of a crap!
The Flawed Business Model - Unbalanced Balance Sheets - Unprofitable Projects
'Too Complex to Manage' & 'Too Big To Fail'
Davos Men & Wall Street Moguls, powerfull men manipulating economic outcomes?
Or pulling strings and pushing levers & the fallacy of price fixing?
The 'Spin' or 'Fake Noos' perpurtrated by the soothsayers was no match for the economic realities of copy/vary/select of Darwin's 'natural selection'. Discovering & accumulating synergies of specialisation & scale in profitable projects -
'Economics is about how the global economy really works. A story of us all, billions around the globe whose interactions and decisions underpin our fates'
Dharshini David words in 'The Almighty Dollar' told of a fun romp around the globe, all about meddlers & price fixers portrayed as parasites & predators who tried to steal rent dollars in a vain attempt to avoid the hard work of wealth creation ... but always must end up incurring the shocking wasteful costs of gluts or queues and lower economic growth.
NB Annuit Coeptus 'God favours our undertaking' and Novus Ordu Seclorum 'new global order'.
World Trade Organisaton started as a 'club of inspired folk with innovative ideas about how to organise Profitable Projects & synergies of specialisation & scale - empirical pragmatism, custom & practice' -
1. Free Trade - no barriers; market prices and supply & demand
2. Fair Trade - no discrimination; locally and internationally
3. Competition - no local and international monopolies
4. Enforcement - transparency & surveillance of national policies & practices & sanctions
5. Structural Reforms - transition to markets
The WTO followed the Doha Round and ended up in the abject failure as folk everywhere tried to Price Fix & Micro Managed Trade to their own advantage in a mire of Political Correctness and Red Tape -
Imbalances - gluts & queues
Distortions - dead weight burdens
The myth of ‘Power’ & ‘Control’ became 'Influence & Distortion' as the WTO once again messed up big
time as Northern Rock
savers & Chinese real estate investors followed their yens for survival
at the coalface.
To understand Evolutionary Economics we have to processes -
Torts, Trade & Technology - synergies of specialisation & scale
Hard Work, Honesty & Thrift - billions of global folk doing billions of global deals
Parasites & Predators - rent seeking Bishops, Princes, Generals & Bureaucrats
$s = measurement system for storing value, measuring value & lubricating trade = global glue
$s printed = outweighed the productive output of the USA, 50% of the $s store was held outside of the USA. Such high external demand makes it impossible to devaue the $?
Texas - 'pile 'em high sell 'em cheap' - Walmart
$s measure Economic Growth = 3% compound growth of 'know how'
$s measure Profitable Projects = discovery & accumulation of Synergies of Specialisation & Scale
Bankruptcy = weeding out failures to make space for growth
Zombies = credit & subsidies from political cycles of bribery & corruption in return for votes = tax, borrow & print
Margin & Speed = no unpaid bills & no bailed out zombies
Supply & Demand = no costly gluts & no costly queues
Opportunity Costs = alternatives forgone
Real Wages = output MV = PT
Taxes = output
Absolute Advantage = synergies of specialisation & scale via work in Pin Factories or total output declines. Specialise in your best niche & trade = skills, aptitude, education, resources, climate, land, labour, capital, technology, trade, torts?
Comparative Advantage = more synergies of specialisation & scale via work in your chosen trade. Specialise in your relatively better niche & trade = skills, aptitude, education, resources, climate, land, labour, capital, technology, trade, torts? Everybody benefits more than interest groups suffer ‘cos total output growth increases. Everybody participates as folk everywhere have different endowments = different opportunity costs.
NB Sustained Innovation pays the bills = total output growth
China – 'cheap sweat shops manufacture Barbie
Dolls' - Confucian Culture & the Legacy of Communism nurtured a hierarchical
bureaucracy and frustrated individual property ownership and innovation. One
country two systems, catch up scale but innovation & specialisation?
$s surpluses accumulate in the Peoples Bank as local Renminbi price fixed = $s stolen from USA innovative companies and Chinese consumers
$s surpluses accumulated went back to the USA as Government Bonds and funded deficits, real estate bubbles and zombie companies and unproductive unprofitable projects.
Mercantilist Gold = real wars? = $s accumulate as paper promises not in production ‘know how’
Trade Imbalances = trade wars? = $s accumulate & valuations are distorted
Fixed Exchange Rates = currency wars? = $s accumulate & Imbalances as costly gluts & queues
Productivity = marketable output per man hour
NB Folk try to fix prices to their own advantage = total output decline
Nigeria – 'teeming millions embroiled in tribal
bribery & corruption' - Population Explosion, Infant Survival & Tribalism.
Importing Indian rice.
$s surpluses from China invested in the New Silk Road infrastructure = ‘control over oil’ via lethal debt
$s surpluses from Unilever invested in Profitable Project equity = 'mutual benefit' via market development
$s surpluses from oil distort and ruin the balanced development of the economy as tribes fight over the spoils. Plenty of dollars but no electricity, dire roads and an absence of manufacturing inputs.
$s for balanced trade = trust & acceptability. Oil revenue down = $s too low. Food imports down = $s too high
State Monopolies = no diversity for copy/vary/select, 'natural selection' of innovations China’s inability to innovate?
Risk & Reward = bribery & corruption as an alternative to hard work, honesty & thrift
Rent Seeking = tribal fiefdom fights Muslims & Christians over rents and tax revenues
Black Market FX = no gluts & queues
NB Lethal Debt & Profitable Equity
India – 'Mumbai cultural diversity &
sophistication and Bangalore information technology' - Population Explosion,
Survival Food & Green Revolutions. Infrastructure needed for
$s from exports (rice) required for essential imports (roads).
Balanced Industrialization = Torts Trade Technology = Hard Work Honesty & Thrift = vote with your feet. But nationalisation, regulation, subsidies & dependency = scourge of Indian Businesses.
Market Prices = determined in global markets, if prices 'fixed' in Nation States = gluts & queues and inequality result
Subsidies = French Farmers ‘dump’ below cost subsidised food and distort markets
Specialisation = niche technologies in deregulated Bangalore IT = ‘big data’, internet, mobile, cashless payment services = leapfrogging to 3rd IR in services.
Tax Avoidance = no cash = no taxes but value store continues through traditional gold hoarding and $s.
Cultural Gravy Train = Indian CEOs of Adobe (Shantanu Narayen), Alphabet/Google (Sundar Pichai), IBM (Arvind Krishna), Mastercard (Ajay Banga), Microsoft (Satya Nadella), Pepsi (Indra Nooyi), Reckitt Benckiser (Rakesh Karpor, Laxman Narasimhan), Smith & Nephew (Namal Nawana), Unilever (Nitin Paranjpe) ...
NB Authoritarian Socialism, Bureaucracy & Red Tape scourge of Indian Businesses.
Iraq – 'Black Gold $s fund
weapons for tribal civil wars & annexations' - Mercantilist gold OPEC cartel
distorts industrialisation and economic growth.
$s accumuate in oil reserves
Market Prices = $s price of oil determined in global markets with high demand from industrialisation = difficult to price different qualities as price of kerosene influences price of bitumen = haggles = cartels = taxes = futures & derivatives reduce volatility of speculators, rumour and middle men & guessers
Competitive Devaluation = $s valued by trust as other currencies jockey for non existent advantage
Gold Standard = stability & trust and Bretton Woods = $s track record of balanced industrialisation and an independent printer = checks & balances, separation of powers … Dinars do not equal Rupees
Bribery & Corruption = tribal fiefdom fights Sunni & Shea over rents & tax revenues
NB Winner’s Curse Dutch Disease.
Russia – 'iron curtains & Berlin walls'
$s don't accumulate in basket cases
Unbalanced Industrialisation = State sponsered weapons & oil bags of customers for Kalashnikovs & MIGs and American foes
Defence & National Security = legal defensive bullets & illegal offensive bullets ... they are not labelled
Perestroika & Glasnost = too little too late = collapse and enter the oligarchs = store money in London = inequality = no middle class bulge = broken economy = aspirations of back to the USSR = US sanctions
Trade Sanctions = isolation better than war = downward spiral
NB Glasnost & Pereskroka revert to Authoritarianism
Germany – 'from the ashes of hyper inflation and
the devastation of war, like Japan, the Marshall Plan funded a manufacturing
power house, an economic miracle, supercharged by a contrived low Euro FX
$s accumulate in Germany's economic miracle not the French farmer subsidies
Euro FX = imbalances & inequalities = half baked Euro = real incomes the one & only adjustment mechanism for low productivity as Euro value determined by global supply & demand = Germany up Italy & Greece down. $s & gas pour in from Russia into Deutsche Bank and real estate.
Balanced Books = Euro budget has never balanced rules ignored = Borrowing = < 3% GDP and Debt = < 80% GDP
Subsidiarity = 10th Ammendment = privatisation = vote with your feet = wages sticky and jobs move from zombies into government bureaucracy funded by debt rather than non-existent taxes ... immigration, urban treks, iron curtains, walls and bribery & corruption as immigrants flock to jobs in Germany leaving skills gaps back home. Good but unskilled welfare destitutes also arrive as things deteriorate back home. Immigrants also grow old.
NB Euro distortions and Democratic Deficits.
City of London – 'comparative advantage at the
touch of a button as global $s converge on the City, a financial centre, a
niche specialisation in finance for trade with a long fraught history of
learning from mistakes' - 1214 Magna carta, 1345 Edward III, 1600 East India
Joint Stock Company, 1637 Tulips, 1720 South Sea Bubble, 1929 Crash, 2008
$s accumulate in liquid funds for investments in global profitable projects
$s accumulate in bubbles
Moral Hazard & Adverse Selection = trust & confidence, stability with asymmetric info = guesses, excitement, fear = cycles = but 3% compound growth in 'know how'
Inflation = too much money = Greenspan 9/11 slashed interest rates & China funded deficits
Deregulation = 1986 opened up competition in ancient specialisations in funding for innovative technology which reduced cost and increased quality – speed, reliability, choice, liquidity, specialisation scale … who you know became what you know open for Joe Sixpack.
Derivatives = creating money out of nothing = value substitutes = CDO & CDS = $s from expectations of real estate price increases that didn’t exist
NB Comparative Advantage in Global Capital funding for Profitable Prjects
USA – 'Checks & Balances, Separations of Power &
Supreme Courts' = global trust Almighty $s.
$s accumulate overseas and national 'manipulation' become impossible
Interest Rates = 'data dependent', the humbling of the macho managers as markets beg to differ. QE narcotic = asset prices rise & helicopter drops = inequality = Why bother tax? & print? Why pay borrow? Why save print?
Productivity = GDP measurement problem = know how + entrepreneurs + land + capital + labour + technology + torts + trade + hard work + honesty + thrift. Inflation = excitement. Deflation = fear.
Complex Adaptive Systems = interconnected, intertwined - morally, politically & economically = same one whole happenings
NB Authoritarian Creep from 10th Ammendment & subsidiarity.
US and China were in a potentially 'fatal embrace', a
Is Beijing’s readiness to finance America’s burgeoning fiscal deficit waning? China could not dump Treasuries without pushing up yields (and thus reducing capital values), leading to big losses on its holdings. If the proceeds were repatriated, the losses would be compounded by a surging Renminbi and a falling dollar.
The pool of domestic and foreign savings supporting what is perceived to be the world’s safest collection of assets is so great that the Chinese divestment is no more than a blip.
Alternative havens for Chinese official reserves are less than compelling. There is a limit to how much the gold market can absorb, while the eurozone sovereign debt market is fragmented and relatively illiquid. Moreover, a growing share of eurozone government debt shows a negative yield, unlike the US
An unintended consequence of interdependence was the global financial crisis. China’s excess savings, which were reflected in the build up of its official reserves, were an important contributory factor in the US credit bubble, whose collapse in 2008 came close to precipitating a 1930s-style depression. Everything about economic interdependence is double-edged?
Meanwhile China continued to -
- Steal technology.
- Fiddle Balance Sheets.
- Import cheap jobs.
- Save 'Fake Money'.
NB Globalisation & Broken National Politics
Bishops, Princes, Generals & Bureaucrats = 'men of system' and top down price fixing macho managers
Cultural Osolescence = 'passing the buck' of historical failures to others = 'arrogance ingorance & mythical power'
Personal Responsibility, Education & Training = 'get it done' by bottom up social networking
The Flawed Alternatives to Commercial Business - Zombies
Business or Bankruptcy? Cooperation or Compromise? Influence or Power? Ostracise or Banish?
The bills have to be paid.
John Kay outlined a fascinating yarn about lethal debt in 2015 - 'Other People's Money: Masters of the Universe or Servants of the People'.
A flawed business model emerged from arrogant price fixing based on tax, spend & print policy for inflation & rising asset prices -
to invest in money itself, government debt, mortgage debt & commodities.
A zero sum game, profit at the expense of others, who were less smart. Rent seeking. Bridges to nowhere ...
But where was the income stream? What happened when prices declined?
The fake money system was a ponzi scheme where fake profits paid for large bonuses and lower costs of capital. Stealing from other people and future generations.
Balance Sheet valuations became a problem. True and fair was a judgement, nothing necessarily illegal, it could be just a mistake or self delusion.Prudence for a rainy day avoided bankruptcy but there was now a Principle / Agent problem, 'I'll be gone, you'll be gone'.
The Bezzle from embezzlement fraud often involved years which elapsed between the crime and the discovery. During this time The Bezzle gain can be enjoyed by two parties and nobody has lost.
The Febezzle was a mistake but functionally equivalent to the Bezzle. The gain occurred in the interval between the creation and destruction of the illusion. During the interval two people enjoyed the same wealth ... until the bubble burst.
The sequence - loans produced income streams which banks sold to someone else, they passed on the risk at a discount and pocketed the profit now. Securitisation enables marking to market valuations ... if there was a market (LTCM). Or marking to 'model' if there was no market. But the loan was worth something or nothing.
When the bubble burst you discovered the guy you sold the loan to had borrowed money from you to buy your loan! Counterparty risk! The risk had not been passed on after all.
From prudence to recklessness. From fear of bankruptcy to excitement of risk. Caveat emptor and due diligence had been eroded in a frenzy of excitement.
The febezzle was not overt fraud but it was immoral if it was understood ... but it was not understood - 'It is difficult to get a man to understand if his job depends on not understanding'.
Interdependency in a complex adaptive system generates fragility & instability ... unraveling Lehman will take decades as nobody knows who has lost how much to who and when ... and fear (like excitement) was contagious, the whole system became a risk averse zombie.
Not too big to fail too complexly interconnected to fail.
The evidence of history revealed that social activity quickly became too complex to manage and the management systems routinely collapsed ... however cooperative synergies continued to create wealth.
Software engineers knew the solutions to systemic complexity lay in simplification, modularity & redundancy to accommodate the inevitable cycles of failure.
Robust biological systems evolve diversity, copying mechanisms and natural selection.
Balance Sheets measured the Weight of the Ox
'In 2008 the measuring scales broke. The 'wisdom of
crowds' was at hand to guess the Balance Sheet values.
What became important was not the pedigree & track record nor the nutrition system & flow of innovation ... but rather guessing what other people would guess other people would guess!
Complex statistical computer models were developed at great expense which financial advisers sold to value guessers at inflated prices.
Unfortunately the ox died, preoccupied folk had forgotten to feed it'
End Note - Who spoke up for Business & Empirical Science?
But Mercantilism was still alive and well in 2008? Trade was sooooo good a wheeze that, inevitably, in the absence of checks & balances and separation of powers it was turned into a political football as everyone tried to claim credit for 'winning'?
The Balance Sheets of Trade had to balance, every deal had to be paid for ... otherwise no deal ... a deficit on current account had to be balanced by a surplus on capital account. But when trade imbalances became large in 2008 inevitably problems occurred ... large surpluses of $s from Chinese current account were invested in North American real estate and a 'bubble' followed as night followed day. The Chinese consumers and American businesses lost out on lots of great deals ... the $s would be better spent on Apple software and Tesla batteries?
Blame Games soon turn to hatred as Mary Barton knew ... and it was easy to misunderstand business & Complex Adaptive Systems -
everything depended on everything else - (Darwin's Conjecture)
brains couldn't cope with complexity of multi levels of iterations - (Theory of Mind)
It was hoped that the WTO would be a great manifestation of how profitable projects that needed no supernatural tax funding could create wealth from which everybody mutually benefited.
But the Doha Round became a political football and not a champion of business?
Focus on business -
Good politics must be good economics ... otherwise how could such survive? Good economics must be evolutionary economics ... businesses that didn't create wealth went bankrupt and released valuable resources ... what was the alternative ... intelligent design?
Successful business must be good economics ... as productivity and real wages rise with lower business taxes & deregulation to drain the swamp of bribery & corruption and the associated waste
Folk vote with thier feet and join clubs of their choice.
Free to choose but not free to harm others.
Richard Dawkins explained about rowing in 'The Selfish Gene, Chapter 3, Immortal Coils' -
Rowers, Genes and Businessmen
One oarsman cannot win the race; eight specialist colleagues are needed. The boat is a cooperative venture. By definition luck, good and bad, strikes at random. Many good oarsmen get into bad company but an oarsmen who is consistently on the losing side is not unlucky, he is a bad oarsmen. On average the best oarsmen tend to be in the winning boat. One of the qualities of a good oarsman is teamwork.
An oarsman ... or gene ... or business man ... or woman ... who cooperates well will tend to have a selection advantage in the population.
Richard Dawkins explained about business in 'The Selfish Gene, Chapter 12, Nice Guys Finish First' - the dice were loaded
Synergy, Genes and Businessmen
What really happens is that the gene pool becomes filled with genes that influence bodies in such a way that they behave 'as if' they made complex, if unconscious, cost/benefit calculations.
Businesses coped by following very simple trial & error rules of thumb where competence was not comprehension ...
discover your product or service that was wanted when sold at a price which cleared markets
bankruptcy sifted out the failures
A simple rule of thumb ... a 'evolutionary game' of 'social tit for tat' ...
FT 15th August 2017 -
'Millennia of evolutionary coding was stronger than any technocratic fiat'
But perhaps -
Bishops, Princes, Generals & Bureaucrats always pushed bureaucratic kluge, parasites & predators, tyranny & oppression, bribery & corruption?
Checks & Balances, Separation of Powers and Torts, Trade & Technology failed to drain the swamp of bureaucratic kluge, parasites & predators, tyranny & oppression, bribery & corruption?
The 10th Amendment (devolution subsidiarity) failed to guarantee independent free choice and stop authoritarian creep ?
'The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people'.
The 14th Amendment (everybody protected) failed to guarantee others were not harmed as 51% screwed 49%?
'No State shall deprive any person of life, liberty, or property without due process of law, nor deny any person the equal protection of the laws'.
The war on egregious terror failed to make the world safe for diversity?
How on earth do you encourage folk to vote with their feet and join a club of their choice?
Listen to my mate John Faulkner and understand Kewill Systems.
Read a story about business ... about hard work, honesty & thrift under the soap pans in Apapa.
NB Diverse Trial & Error Experiments
Ingnorance = 'a woven web of guesses' no one had the knowledge to 'get a grip' & micro manage = Derek Holdsworth / Xenophones
Empirical Science = experimental failure was the way to success (adaptive immune systems) = Mike Cowan / Richard Fynman
Decentralised Markets = experimental failure was the way to success (price mechanisms) = ???? / Adam the Smith
The Fatal Conceit = the calculation problem and the necessity for diversity, the right left brain flip flopping emotions of excitment & fear = Fredrich Hayak / Moral Sentiments
Case for Business, the vehicle for speeding up natural selection?
Where did all these 3 worders fit in? -
'surplus or bankruptcy' - 'trade know how but print widgets' - 'free & fair trade' - 'vanity sanity or reality' - 'competition for customers' - 'price fixing/regulation distortions' - 'strategy or tactics' - 'cooperation not compromise' - 'conspiracies & fake noos' - 'investment after tax' - 'privacy hinders interaction' - 'empirical science & liberal democracy inevitably collide' - 'Washington bureaucrats v 10th Ammendment', 'authoritariam creep & impeachement' - 'Brussels bureaucrats v. democratic deficits' - 'structural reforms & subsidiarity' - 'Westminster bureaucrats v. polarised parliaments' - 'sumpreme courts & brexit' - 'China bureaucrats v. USA diversity & innovation' - 'education & compound interest' - 'experimental immune systems'
Animal Spirits = 'flip flopping emotions of fear & excitement'
Adverse Selection = 'would you buy a 2nd hand car from this man' = due diligence, caveat emptor
Moral Hazard = 'if it's free put me down for two please' =
Opportunity Costs = 'there's no such thing as a free lunch' =
Fatal Conceit = 'by the time you've worked it out the numbers have changed' =
Lethal Debt = 'I promise to pay the bearer' = 'I have a government guarantee'
Economics = 'Science of Choice' = 'why did nobody see it coming?'
John F Kennedy =
'I believe that inalienable rights come not from the generosity of the
state, but from the hand of God, residing in each and every one of us'.
The Nature of Value 2020 Reith Lectures
Mark Carney, Governor of The Bank Of England 2013-2020, went back to basics, his theme -
'how do we get what we value' ... 'doing well by doing good' ... 'more virtue leads to more money' ... 'social good and financial interest must converge long term' ... 'if it doesn't make sense, it doesn't make sense' -
HRH answered her own question-
'Why didn't somebody see it coming?'
'We must respect deeply held differences!'
1. From Moral Sentiments to Markets Sentiments
It all started with Adam the Smith and in Glasgow during the Scottish Enlightenment with an understanding of The Theory of Moral Sentiments & The Wealth of Nations. From an Industrial Revolution to a Sustainable Revolution.
We know the price of everything but the value of nothing valuable life giving water is almost free low utility gold is very expensive.
How do we get what we value?
Values were a beginning - standards of good behaviour mediated by moral sentiments & a bad conscience instincts of 'resentment of cheats'
Value evolved as just desserts in exchange markets instincts of 'fairness of shares' ... 'my kingdom for a horse'
Determinded by competing costs of financial capital & value of human capital with associated valuation problems on Balance Sheets
Social Interactions generate synergies of specialisation & scale unavailable to selfish 'laisez faire' goods markets ... 'truck barter & exchange' it is profitable to cooperate
Social Memes are also exchanged as meaning & ideas of social capital
Neoclassical subjective value comes from the eye of the beholder and not from labour and not from state regulation but bum free markets assumptions
State necessary corrective intervention - monopolies - market collapse - market abscence -
externalities - irrational decision bias - erosion of institutions & culture
- flattening the value curve we pay the average price but get the extremes
which cannot be priced ...
Parasites & Predators, 'as soon as there are stocks there are thieves'
Milton Friedman freedom to choose but not free to harm others, 'maximise shareholder value conforming to the basic rules of society embedded in law and in ethical custom'
Money Illusion, 'can't buy me love' 'it's the thought that counts'
Moral Sentiments don't erode they blossom synergistically, no State fiat demanded NHS volunteers, the dice are loaded
State Leviathan emerged following public pressure for 'compassionate' outcomes ... 'fairness of shares' and 'resentment of cheats' ... demands for intervention -
Such physical impossibilities became lawful State aspirations.
Markets were blamed for the chaos as parasites & predators ran amok as immunities from treachery were eroded.
Markets can price what society values - Unilever focus on long term sustainibility, purpose becomes profitable by taking problems out of broken politics to become oppotunities for enterprising business. Unilever's long term sustainability depends on satisfying global customers ... and global customers indicate they wish for free & fair & sustainable trade which does not abuse human rights to choose without harming others.
2. From Credit Crisis to Resilience
Physics envy, the last time I looked happenings were a tad more complicated than that ... 'extraordinary popular delusions and the madness of crowds'
3 lies of finance -
'this time is different'
'markets are always right'
'too big to fail'
In 2008 Washington Concensus reigned supreme. Then from global boom to system bust. The G20 moved from the big print to avoid imminent collapse & catrastrophe to promoting selfsustaining cooperative synergies & economic growth thru structural reforms to eliminate flaws and consolidate resilience. The big print avoided armageddon but was never inflated away and became an easy option for continuing policy, structural reforms were forgotten.
Legitimacy of Central Banks came from system resilience but there were unknown unknowns in an unknowable future -
'if it doesn't make sense, it doesn't make sense' = no need for hard work, honesty & thrift we're on a global roll economic growth
'you can't buck the market' = when fear sets in panic follows, markets cannot clear, so how do you identify bubbles for self correction when folk aren't rational and flip flop between excitement and fear. .
'let them eat cake' = crowd trouble follows exploding lethal debt as financial engineering made it easy and Chinese savings made it cheaper
'rainy day funds' = became investments in what I think that you think what he thinks is the correct value, risk cannot be eliminated
'parasites & predators' = ubiquitous 'as soon as there are stocks there are thieves' immunity from treachery essential
'lethal debt' = became easy credit & usury
So expect cycles, expect panic and expect parasites & predators.
Resilience from synergies of specialisation & scale economic market cooperation -
moral sentiments = soial behaviour & social culture (hard work, honesty & thrift)
structural reforms = investments in profitable projects & not lethal debt
reserves = safe failure
immune systems = cyber safety
aligned incentives = long term sustainibility
Understood by copy/vary/select process of 'natural selection' -
personal responsibility = social empathy ... good behaviour
diversity = ignorance ... nobody knows ... so keep your options open
innovation = progress ... experiments ... weeding out failures
social trust = stocks of social capital ... vote with your feet & join a club of your choice
responsibility, solidarity, integrity, prudence ...
pay, codes & regulations ... won't cut the mustard
moral sentiments, social culture, custom & practice
Regulation cannot protect from failure when fine print became an excuse for compromise not a principle for cooperative good behaviour.
3. From Covid to Rennaisance
Leviathan developed idea of the nanny state's duty to protect folk from violent agression which has been extended by popular demand to unemployment, ill health, financial stability, privacy, environment & pandemics ... welfare state benefits and NHS ...
The state protection failed so wot next?
As covid struck compassion trumped finance which was put on 'life support' to save lives ... unimpeacheable? Folk were deprived of their freedom & livelihoods. The deal obedience for protection? But no protection no deal ... would you buy a 2nd hand car from this man? Trust evaportrates as parasites & predators erode 'fairness of shares ' & 'resentment of cheats'.
Covid isn't fair as it targets age, pre-existing conditions, black skins, obesity ... but not young, healthy, white, svelts
Lockdown isn't fair as it targets hospitality workers & computer illiterates ... but not hospital workers & nerds
Lockdown is easy toget into but difficult to get out of.
They are not alternatives, there is no trade of between life and work ... vaccines are needed from hard work asap.
Cost benefit analysis can't work for life QALY -
fatal conceit the calculation problem
everyone is different the aggregation problem
moral sentiments always win and can't be ignored
Lockdown folly -
costs mounted for future taxpayers
inactivity led to health probelms
inequality rose - more unfairness more cheats
The genes/memes did their cost/benefit analysis thru trial & error over long long time
village shop ... responsibility, community, solidarity, fairness ... education, don't hug grannie
vaccines & theraputics ... warp speed; discovery, testing & production
scarce investment resources into education, skills and production productivity ... not redistribution but rather regeneration
those with previous experience SARS worked better
the village shop worked better
Unilever's purpose worked better
But self isolating against climate change is impossible!
The zero sum compromises of the broken state has failed, Cooperation in global companies, positive sum, long term, sustainable production.
Question not the good or bad outcome but rather what is the better way of taking decisions?
4. From Climate Crisis to Real Properity
1749 Glasgow Adam Smith and moral sentiments 2021 Glasgow COP26 - think Unilever sustainbable growth ... just like resilience
GDP and prices don't value values -
clean living and
... yet ... but it's coming because of the tragedy of the commons demands -
property rights and
Elinor Ostrum cooperative solution
flattening of values we are custdian for the next genertion will pay OK Boomer stay woke
Fossil fuels CO2 -
Net zero the answer -
engineering - technological innovations electricity scale
up hygrogen fusion batteries electric cars Tesla
CO2 'R'educing, 'R'eusing and 'R'ecycling & 'R'emoving from the atmosphere
political - net zero consensus 'how dare you!' Unilever were making it work! tax rules efficiency
financial - sustainable funds drive anticipators like Unilever share price palm oil and Port Sunlight obey rules we are guests in Nigeria
Economic Growth is a must. Value must reflect values.
Unilever has shown the way -
'R'eporting - tracking funds follow purpose. - TCFD
'R'isk management - tipping points out of spreads into palm oil and vegetarian butchers and marine harvest and tissue culture
'R'eturns - deliver values invest in Good Energy PV cells Heat Pumps Beyond Petroleum clean funds all through the market = innovation, investment and profit,
Market to net zero is happening with a virtuous cycle of back to Adam Smith ... will China follow?
Covid has confirmed when there's a will there's a way.
Personal responsibility shareholders determine share price
From problem to opportunity
Get it done! Grasp opportunities! 'Comparative Advantage' and 'Unilever Sustainability'!
Free & fair trade = global sustainibility (economic liberalism) maximum cross-border economic exchange (no protectionism) where everyone pursues whatever activity they can do best to secure synergies of specialisation & scale.
Our market research suggests that global customers don't want production moved in order to circumvent regulations that codify existing democratic preferences -
treat workers fairly (slave labour did't work)
protect the environment (plastic fishes, city smogs, covid evil didn't work)
bills paid by innovative, efficient production (protectionism, unlevel playing fields didn't work)
Unilever's long term sustainability depends on satisfying global customers! Remove the blockages and let the blood flow.
1. Start with Ignorance then try Darwin's 'natural selection' -
Copy ( learn - trial & error, discovery & accumulation, weeding out failures)
Vary ( diversify - different folk, at different times, in different places, with different social interactions)
Select ( synergies - specialisation & scale)
2. Unfinished Business - 3% pa growth of 'know how' compound!
Sooo ... after you've paid the bills ... forget the short term ... and mull ... Unilever, Apple, Microsoft, Amazon, Facebook, Google and Tesla ... ESG or bankrupcy!?
back to evolutionary economics