Sunday, September 28, 2008

Globalisation ends in communism ..!

Let's cut away the politics and blather. The fundamental issue in a capitalist society is markets. It always was and always will be. But now the leaders of the world's largest market economies are currently debating plans for the state control of private finance that Stalin would have been proud to put before a committee of commissars in the heyday of Communism ..!

More than one banker has recently observed that the present crisis of confidence would be regarded as a proud achievement by just about any terrorist bent on bringing down the West. Apparently this is because our brainless leaders have allowed companies to become too big to be allowed to go bust. Moreover, such is the unimagined scale of the calamity that even oppositions seem powerless to oppose - because they realise that they too will have to deal with the shambles when it's their turn, as seems especially likely to be the case in the USA and UK.

So can someone please explain to TMP why Globalisation is frequently touted as a good thing, when it appears to be the root of this particular fiscal evil by not just permitting, but actively encouraging monopolies to exploit monopoly power to the apparent detriment of us all. Then by being too big to be allowed to go bust, a form of public ownership is required that can only bring a tear to the eye of Karl Marx and his chums.

An operating system that you cannot refuse

The globalised Godfather of the IT age, Microsoft, skilfully seized the monopoly abdicated by the slow-witted IBM, who were probably too distracted by antitrust issues than they needed to have been in the light of events. And so Microsoft very effectively smothered innovation in entire sectors of the world economy, and it has only been the accidental ascent of Google at a time when a tectonic shift in technology created the possibility of "cloud computing" that has curtailed Microsoft's effective ability to "tax" the world's IT users. Bill Gates very cleverly played the Mussolini card when he arrived on the scene at a time of some disarray in personal computing, and did the PC equivalent of making the trains run on time.

Such was the relief that here was a single vision and way out of the shambles that had been built around the original business personal microcomputer operating system - Digital Research's CP/M - that blind eyes were turned to all the basic rules of monopoly checks and balances. And Microsoft became the first truly globalised business of the intellectual property age.

The old warhorses of global manufacturing had never seen a single business dominate in such a thorough and effective fashion so quickly. After all, it took a lot of time and capital for Ford or GM build a car plant – or IBM a computer plant – in Europe. But in order to exploit local markets, low taxes and other EU incentives, Microsoft set up shop in Ireland in the space of a week or two, with no discernible cost or government scrutiny.

Ironically, this means that all the failed financial institutions have used Microsoft technology extensively in the operation and planning of their businesses – especially the ubiquitous Excel spreadsheet – in a series of "what if" scenarios designed to extract the maximum money for the least possible effort ...which usually means the greatest “manageable risk”. Accountants become so mesmerised by their fancy business models and spreadsheets that there is a tendency to fiddle and play with them until they get the answers they are looking for, without necessarily paying too much attention to the basic details of business (or reality).

Globalisation also seems to involve hiring managers from outside the operating country. The reasons for this practise may not be to get the best people for the job, but to get people who are isolated from their familiar associates and colleagues (and thus “approaches” from competitors in the country of origin), and isolated to focus solely on the company and its culture.

So where has all this wonderful technology and cultural diversity lead us? Into the biggest financial crisis in 80 years!

The economists' Excel spreadsheet models were run enough times to persuade them and their political leaders that the fairy money of inflated house values was somehow good for the economy. People with no hope of repaying on today's values would be loaned the cash on the spreadsheet analysis assumption that their collateral would continue to climb in value, until the amount outstanding would be covered by repossession time.

And in the “good old days” of 10% inflation, salaries would also have risen to make the monthly repayments seem more manageable in the overall scale of things. So then a smart banker invented "mortgage securitisation" - a posh name for selling these mortgage contracts to rather less smart bankers, who assumed that property values were always going to be a one way bet.

It was a scheme entirely built on confidence, because there was never any traceable connection between the value attributed to these mortgages and the value of underlying assets - if any. And those selling these "assets" appeared to be able to do so without any guarantees, because some even less smart insurers in the shape of Fannie Mae and Freddie Mac assumed large parts of the risk.

The real economy

And all the time this was going on, real businesspeople with real ideas about creating products, services and genuine wealth were being starved of funding because bankers the world over preferred to believe in the "investment sanctuary" value of property above all else.

Ironically, the house of cards is now also set to tumble at Microsoft, a trailblazer of globalisation. The mostly unchallenged monopoly of Microsoft's technology has been allowed to become so cumbersome and unwieldy that organisations that have grown dependent on it find themselves at the mercy of daily "security updates". These have created individual desktop computers with such delicately balanced setups that the act of adding a single new program or plug-in device is likely to bring the whole thing crashing down about the users' ears. Serious business are returning to more manageable solutions, and are delighted to find that many of them are now free - paid for by advertising. There is surely no way back for Microsoft in this new world.

Globalisation is not a good thing; it never was, and never can be. It run counter to human nature at many levels, but nevertheless it seems to have been permitted through the sort of tawdry expedience that finds governments "doing deals" with large employers (and taxpayers).

This type of dealing goes on at all levels of government - Tesco gets planning permission in return for some proposed "social benefit" - and the shopkeepers that kept a town supplied for hundreds of years, have paid humongous business rates, and employed local people in a rather more robust and ad-hoc manner than Tesco's regimented process permits, are put out of business, and told to get jobs as shelf stackers.

The older staff and eccentric characters without fashionable degrees in retail theory, IT, media studies and humanities that were once employed by these informal small businesses then retreat to the dole for the rest of their non-working lives. Worse, they discover employment as bin inspectors, traffic wardens or one of the many other non-jobs that are being created using public money to mop up those otherwise left unemployable by globalised businesses.

It is in the nature of globalisation that it creates and nurtures cabals and monopolies on the scale of government itself. There are/were many companies with larger turnovers than many small nation states, and these companies have the funds to buy influence in a number of insidious ways. The sight of retired politicians taking up well paid jobs in the companies that they previously "regulated" is an absolute scandal that must be ceased forthwith; there can be no excuse whatever for this practise.

These vast globalised companies necessarily operate with civil-service like infrastructures and process. In many cases globalised businesses are more complex than any government, since these organisations operate in many countries, not just one, and can play complex games with each country and its regulators to obtain the most favourable terms for taxation. But this huge inertia means that the scope for versatility and innovation is stifled at every turn, since an overall process of "negative feedback" is specifically designed to maintain the status-quo in such systems by reducing the risk from any change.

Companies such as Nestle have to resort to setting up their own "skunk works" with a specific brief not be behave like the parent behemoth, but to think entrepreneurially and creatively. Perhaps the one overall benefit of this system has been that many start-up enterprises have been set up to exploit the inability of globalised companies to think outside the box, because they can see a simple exit by being acquired by some leviathan that in turn becomes ever larger and more lovely with each morsel it consumes. And rather than the individual founders, it's generally been private equity and venture capital operators that have thrived from this.

This may in turn have contributed to the problems we now face, since the traditional form of financing small and growing businesses using "traditional banks" has all but ceased to exist, and so those banks that once had a very diverse range of customers and services - and the skills and experience to deal with them - have seen their key talent disappear off to private equity, leaving behind the dullards who understand the deeds of your house and how to use these to "invent" fairy money, but little else. As a consequence, they have been getting further involved with dubious mortgage instruments that have landed the world economy in the poo.

Another reason to downsize the behemoths is that globalised companies seem too willing to accept piles of rules and impositions that can only be handled by a company with an offshore treasury facility, and an HR department the size of a small town. Such barriers conveniently raise the bar for any competition, and the circle becomes ever more vicious.

However, the good news is that the same technology that got us into the mess also provides the means to enable these behemoths to be broken up into manageable units once again (remember the Baby Bells?) - and small enough to be allowed to go bust through inept management, without jeopardising an entire country or planet's economy.

A broader and more diverse range of (relatively) smaller companies will allow for more creative managerial talent to develop and be better showcased. Technology means that old notions such as "economies of scale" can be far outweighed by the benefits of diversity; bigger gene pools for talent means less incest, and that has to be a good thing.

The same thinking can rapidly downsize the grotesquely centralised EU, and then the remnants of the Westminster government. The decision and review processes must be returned much closer to the paying customers in their own communities where the immediate benefits of cause and effect can be properly exploited, with a huge increase in the efficiency with which money is used.

If there is a downside, TMP can't see it.

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