Fishy Bonuses

March 29, 2009

 About the time of the AIG bonus payouts scandal in the USA, the word of the day on 16 of March 2009  in http://dictionary.reference.com/  was Cormorant a gluttonous or greedy person.

The ornithological version of the Cormorant is a very widespread sea and  freshwater species which, as may be inferred, has a voracious and greedy appetite. The Great Cormorant can dive to considerable depths, but often feeds in shallow water on a wide variety of fish prey. The  New Zealand subspecies is the Black Shag or  Kawau.

Some Chinese fishers tie fishing line around the throats of Cormorants, loose enough for them to catch fish but tight enough to prevent swallowing. The tethered bird is reeled in and the fish disgorged by forcing open the bird’s beak, which triggers the regurgitation reflex.

This method of new business acquisition has similarities with the rather fishy system which operates in the world of finance and insurance internationally, especially in the USA and the UK.

AIG executives recently received billions in bailout money to allow the company to survive. Then the company turned around and gave over US$150 million of this taxpayer largesse to its executives in “bonuses” for dragging the company under water and almost drowning in it.  No one appeared to have their knuckles rapped, no one was stopped from going past go and certainly no one went to jail.

Of course AIG executives don’t have a monopoly on individual bonuses. They have long been part of the subterranean and murky world of big finance.

Bonus, from the Latin word for good, means something given or paid over and above what is due. It is a much vaunted way of increasing output and is obviously based on studies of donkey propulsion and the respective motivation properties of the stick and the carrot. (Sophisticated schemes consist of the carrot being affixed to the stick with a nearly invisible thread as in Oriental Cormorant fishing. The same beak reflexology comes into play).

The trouble is that it is doubtful whether bonus systems are efficacious.

As the new wave of behavioural economists point out, while “rational choice” orthodox economists have long addressed the question of to what extent workers are primarily motivated by personal gain, most studies appear to show that linking productivity to pay doesn’t increase it, that even if it did managers are unwilling to enforce the schemes, and that the managers are probably right because such schemes undermine teamwork.

The one kind of pay scheme that tends to increase individual productivity is profit-sharing-but this is a problem for the rationalists. Why, rationally, would one worker increase their effort when the extra revenue they generate will be split with everyone else in the company?

The answer is that computer turbocharged mathematical modeling is no substitute for the observation of how people actually act-not that that can be a pure scientific method, because the observer modifies what is observed.

What is being observed now is a democratic distaste of top-heavy, individualistic management bonuses.

In 1932 , during the Great Depression, an event receiving a lot of attention recently,  the “Bonus Army” consisting of  43,000  World War I veterans and their families marched on Washington, D.C.  They demanded immediate payment of Service Certificates granted to them in 1924, but not due for payment until  the rather prescient  year of  1945. The Anti-Bonus Army in the USA and elsewhere is now gathering strength in far greater numbers.

The designers of selfish and extravagant bonus schemes should reflect on what has happened to the nesting areas of Great Cormorant breeds. The locales of choice for nesting are cliffs or trees. The latter are eventually killed by the Cormorant droppings.

There is an admonitory phrase about connecting one’s sanitary habits too closely with one’s nest. The admonition is doubly applicable where the nest eggs of others are also at stake.

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Saving our bacon

March 15, 2009

As we search for new markets for our value added primary products at a time when protectionist shutters are closing, it is worth reminding ourselves of the exemplary story of how refrigerated mutton saved the country’s bacon in the 1880s and beyond. 

The first shipment of frozen meat was sent from New Zealand to England in 1882. It was a turning point for sheep farming and for New Zealand’s economic history.

Less well known in the frozen meat business is the pioneering role, more than 250 years earlier, of English aristocrat Francis Bacon, scientist, philosopher, author and controversial statesman. He belongs to the pantheon of scientists killed by their own experiments.

Bacon is, of course, mainly known for developing an inductive methodology for scientific enquiry. At a time when religious dogma smothered rational enquiry he demanded a rigorous procedure for finding out about the natural world and solving problems, like extending the use-by-date of food.

His enthusiasm for a personal experiment in food technology lead to his premature death. In April 1626 he was journeying through the snow with the physician of Charles I when he had an intuitive urge, triggered by the avalanche of raw material at hand, to experiment with snow to preserve meat.  The coach was stopped and a live fowl purchased, dispatched and immediately stuffed with snow in order to see what would happen.

The deceased bird, which deserves to be more famous than John Cleese’s parrot, got her almost immediate revenge. Chilled and ill by experimenting in and with the snow, Bacon died at Highgate within a few days, not before writing up his experiment  touching the conservation and induration of bodies” with fingers so disjointed with sickness that I cannot steadily hold a pen.”

While he left debts of £22,000, Colonel Sanders and the sheep farmers of New Zealand, among others, were left very much in his debt.

Almost four centuries later, an empirical approach to scientific research in the areas of climate change, stem cell growth and genetically modified crops, to name just three areas, has sometimes run into fundamentalist opposition in the United States and closer to home.

There is no absolute scientific truth about anything because our knowledge keeps evolving, but if scientists become the servants of politicians, rather than the savants of the  economic and political process, science becomes hamstrung in ways which Bacon would abhor.

President Obama has made an early declaration in support of the scientific method with his statements on cell-stem research.

In this country, the Crown Research Institutes are under close scrutiny from the new government in terms of the bureaucratic costs of scientific output. The pre-emptive suggestion made recently by AgResearch, itself recently amalgamated  with Crop & Food, to further amalgamate with Lincoln University, is interesting in its timing as well as its bold concept.

If it proceeds, will a new blend of academic scientists and their agri-business colleagues prove to be a rash experiment with fatal consequences for both parties? Or will it provide the right mix of blue skies and economically imperative research to help save our bacon in the fast chilling global economic climate?


Shaking All Over in 2009?

March 15, 2009
Once we stop shaking all over and scolding Americans, we will recognize the tremendous potential this new century offers the people of the world.”  Bruno Argento                                                                            

 

Cautious optimists or realistic pessimists? 

 

According to New Zealand Reserve Bank Governor Alan Bollard, the economic downturn is deeper and longer than he had earlier expected “but the bottom is just a few months away”. (The Press, 13 March). 

 

The world’s economy is much more of a basket case than 3 months ago when the Governor made his previous Official Cash Rate cut, accompanied by an even more optimistic prognosis. With only one financial lever to pull- and one that is designed to cope with rampant inflation not financial and economic melt down and deflation he has to adopt a note of cautious optimism in public.

 

Some take an even more positive, if self-interested, stance.  Kendle Langston, MD of a home building company, says that we are bombarded with depressingly bad news on a daily basis but there was a lot happening that is positive, with interest rates going down and the availability of builders. With a true Bob the Builder can-do attitude he says “It’s a good time to build”. 

 

Are Pollyannas starting to outnumber Jeremiahs? Or are both simply an expression of our usually secret schizophrenia made more visible in shaky times?

 

2009 Will Be a Year of Panic was not a headline in the daily press but of one of two thought-provoking articles in the January edition of Seed Magazine by Bruce Sterling and his alter-ego, Bruno Argento. Bruce, a realistic pessimist living in Austin, Texas, is impressed by people’s behaviour during massive panics. “They rarely believe or admit that they are panicked. Instead they assure one another that at last the wool has been lifted from their eyes….”

 

 

As 2009 opened, American financial institutions were deep in massive, irrational panic. That’s bad, he says, but it gets worse. “Many other respected institutions have rational underpinnings at least as frail as derivatives or bundled real-estate loans. Like finance, these institutions are social constructions. They are games of confidence, underpinned by people’s solemn willingness to believe, to conform, to contribute. So why not panic over them, too?”

 

But if we really want something to really worry about, he says, how about considering some of the real crises confronting us such as the changing climate and the state of national currencies. Let us be really worried by the antics of those business and political leaders who  “Go from the gut—all tactics, no strategy—making up the state of the world as you go along! Stampede wildly from one panic crisis to the next.”

 

Downunder we have looked askance at the wholesale dispensing of industrial strength Viagra to corporate near corpses in the Northern Hemisphere. The view from deep in the heart of Texas is not reassuring. “2009 will be a squalid year, a planetary hostage situation surpassing any mere financial crisis, where the invisible hand of the market, a good servant turned a homicidal master, periodically wanders through a miserable set of hand-tied, blindfolded, feebly struggling institutions, corporations, bureaucracies, professions, and academies, and briskly blows one’s brains out for no sane reason.”

 

We can do better than this says Bruce.

 

Bruno Argento agrees. Bruce’s “twin brother who lives in Turin” is an urbane cautious optimist. For him, America is a harshly competitive, highly individualistic society. In Italy things will also be more precarious, not just for those wearing blue collars but for many of the formerly wealthy.  But there is already more solidarity, not of the Polish ship-yard variety, but a community feeling of benevolence to those who have lost their jobs or their businesses.

 

This fellow feeling brings with it the opportunity to see eye to eye on major global economic issues such as currency flows and the ageing population. “Once we recognize precarity as an existential threat for all, we will find the means to deal with it… Shorter work weeks give us the chance to rejoin civil society, to re-establish trust with neighbours turned strangers…”

He thinks the year ahead, the second in the true 21st century, is best approached as a learning opportunity.  Once we stop shaking all over and scolding Americans, we will recognize the tremendous potential this new century offers.  “The sun still shines, the grass still grows, we are still human. If we stopped pretending to be puppets of an invisible hand, we … might see that life is sweet.”

No doubt all of us from time to time manifest the range of emotions expressed in this delightful and insightful duologue. Where on the attitude scale shall we choose to make our own default setting of pessimism or optimism?

One thing is for sure. It won’t be all over by Christmas.

 

 

 


Search Me

March 8, 2009

Sir Francis Bacon, that Renaissance proto-scientist, said “…we either know a thing ourselves or we know where to find it”.

Six centuries before, at a time of the blossoming of the Islamic Golden Age of Science, it is recorded that Abdul Kassam Ismael, Grand Vizier of Persia in the tenth century, carried his library with him wherever he went. The 117,000 volumes were carried by 400 camels trained to walk in impecable alphabetical order. 

If you were the Grand Vizier or at least one of his functionaries, this mobile store of analogue information made finding stuff easier and saved money on overdue library fines.

Knowledge power to the people only started in the 15th century when Gutenberg developed mobile type to replicate documents hitherto laboriously copied by hand. (Centuries before the first movable type, made of  porcelain, had been used  by the Chinese and that was followed  in Korea with a metal version. In both cases the enormous Chinese character set made it impractical. 26 letters floating in a simplified alphabet soup was a different proposition).

It was only with the development of public libraries in the 19th century and the concurrent publication of modern encyclopaedias, a development from the 18th century dictionary, that access to information was  democratized-so long as you knew how to read.  More and more people were, in fact, becoming literate because of the imperatives of the industrial age. Production slowed if people couldn’t tell the difference between the on and off switch and got caught in the assembly line. 

In the last 40 years, with the operation of Moore’s law and the increasing digitisation of  print, aural and visual information,  anyone with a digital device, and the inclination can instantly search their own digital camel train without walking even a mile for it. This includes the free do-it-ourselves Wikipedia and now even the online but not quite free Encyclopaedia Britannica. 

However, retrieving 34,900,000 items on “Camel” in 0.21 of a second is an overabundance of riches. Without pin pricking it is easier for the said camel to go through the eye of a needle than it is for us to sort the dates from the detritus. The logic of the logarithm produces instant information log-jams and we need to be aware of erroneous zones and commercial distortions. 

As an alternative to sheer quantity we can choose other filters, which are not necessarily objective but can provide an interesting perspective on things. 

One such filter is, of course, Arts and Letters Daily http://www.aldaily.com/  the brainchild of Christchurch-based academic and writer Dr Denis Dutton. This simplifies access to a  fascinating smorgasbord of  ideas and information by providing  tantalising bite-sized tastes of essays and articles.

Another, perhaps less well known, is Brasscheck, which aggregates YouTube- type video excerpts with strong takes on political and economic affairs. Here is the link to current post on the 21st century Battle of New Orleans: …Welcome to New Orleans September 2005. The forerunner of America 2009. http://www.brasschecktv.com/page/36.html

Brasscheck items are likely to scare the camels. They are  based on searching questions, not catalogued answers and, like Camels, they have a distinctive flavour. They provide much food for thought and indigestion as the economic crisis plays itself out in the corridors of power and the boardrooms of influence.


Back to the Future

March 7, 2009

Despite the recent vogue for futures thinking, the further out we look, the more problems there are in predicting or planning, as the current economic crisis demonstrates.  Crystal balls have clouded over and normal reception will not be resumed for some time yet.  

 In times of crisis there is a natural but dangerous tendency for time horizons to shrink and for the focus to be on survival in the here and now and the immediate future. Attendees at the recent Jobs Summit in Manukau had to operate inside a two year time horizon set by the government, which will conveniently coincide with the run-in to the next election.

Faced with first a surreal and now a very real crisis, which has revealed seismic cracks in the capitalist egg less than two decades after the Berlin Wall came down and the flags of the market economy went up in some unlikely countries,  people in leadership roles feel the need to do something, and do something quickly.

With varying degrees of gusto and confidence political leaders around the world are propping up financial institutions ranging from the venerable to the venal and providing transfusions to whole industries, even if the consequences don’t appear to be thought through.  For their part, business leaders  are busily engaged in downsizing, rightsizing and circumcising their workforces and taking other cost-cutting steps to demonstrate action. 

Whatever the Summit may achieve, in the end it is individual organizations from across the private and public sectors that have to find their own way through rough economic seas and make tough decisions.  Perhaps the best we can do is to recognise the inevitability of turbulence and equip ourselves, our colleagues and our organisations to be agile, flexible, responsive and adaptable as the unknown unfolds.

In the natural environment the analogy is that we need to enhance biodiversity and encourage locally robust ecosystems because this will give the best chance of creative adaptation to new and unpredictable circumstances. For both public and private sector organisations this means encouraging diverse approaches, fostering creativity and innovation and developing collaborative skills, including action planning and reflective learning.

 This puts the focus and onus on each work team in each organisation to adapt in its own way to rapid economic, technological, and social change.  

However, just when there is a premium on innovation which saves money and makes money, there are severe psychological pressures on those who are supposed to be innovative. This is especially so in companies that have restructured or are about to do so. In what was definitely not a text book case study one American company recently texted DCM to its culled pink-slippers.  Some  hapless recipients even incurred the text cost.

 Sometimes the redundancy axe falls on the very people who have the experience and the thinking skills to help navigate an organisation through the turmoil.  Those who remain employed have to pick up other roles and falling morale and job uncertainty work against the very kind of risk-taking that innovation entails.

 Precipitate action, without truly engaging the people who will be affected in one way or another, is literally counterproductive to the long term viability of organisations.  Beware of premature exhortation.