Dealing with Debt

This past long weekend we visited Pennsylvania and spent a couple of hours around the Amish communities there. I wasn’t all that sure about going beforehand, having qualms about voyeurism, but it turned out OK. We found a house laid out in Amish style with a non-Amish guide, and learned a lot without feeling we were prying.

 

Amish live according to specific traditions originating from parts of the bible. One key is self-reliance, and one result is that connections into the home are not permitted, hence no central heating. That seemed a major sacrifice without a lot of positive compensation, but for many of the aspects I could really see the point.

 

Simple living, family and community, no ostentation or seeking advantage or difference (hence almost a uniform), staying close to the land and nature. These things may seem a bit old-fashioned, but there is some attraction to a life without some stresses we impose on ourselves nowadays.

 

So this week I’ve been noticing all the things where the Amish are smarter. And top of my list is attitude to money.

 

The Economist had a couple of relevant articles to help. Seemingly, up to a quarter of Americans have no bank account. That doesn’t generally make them Amish, that would be OK, it usually makes them miserable. Dealing in cash, pre-paid cards, and all too often pay day loans and bottom feeding sharks. The next article also bemoaned the awful maths ineptitude in most people, completely ill-fitting to the complex financial affairs we all have to face these days.

 

And, as soon as we embrace what is out there, it is complicated. And, sadly, it is filled with temptation and potential for disaster. And the dice are loaded against the weak.

 

During lent, we listen about temptation. I always find the reading where Christ is tempted by the devil interesting, as it reveals where most temptation lies. Christ is offered the chance to pull a trick, to abuse power, and to show off to others. He is tempted by hubris and short cuts, not deadly sins (though one may lead to the other). I am tempted the same way. I think most of us are.

 

And what temptation! Take my regular trip to Costco, the warehouse type supermarket near us. The first thing I notice is that everything is massively cheaper than in the local supermarkets. Not 10% cheaper, as I usually saw in Europe, but 30-50%. But I have to buy in huge quantities – there is no such thing as a tub of butter, just a gallon container of the stuff.

 

So immediately we see unfairness and temptation. The unfairness comes that to get into Costco at all you need some sort of reputable standing and to pay a fee. Then, unless you have a car, a large fridge, and a whole family to feed, the place is not for you, so most poor people have to pay 30-50% more. Then the large sizes make it too easy to spend a lot, and then later consume (and throw away) a lot.

 

Finally, every single day there are people at the checkout lines trying to sell me a credit card. Now, thirty years ago in some countries you could not even pay for groceries with a credit card, the logic being that everyday expenses should come from ready money not credit. But now the credit card is pushed down my throat. We also, by the way, receive several items of mail each week flogging us store cards or credit cards.

 

Now, why do credit cards want me as a customer? It is not for the merchant fees, they just pay for my standard credit and their costs. Their goal is to get me into debt, so I start to rack up their exorbitant interest charges. Temptation lurks.

 

Now look at Chase, my bank. There are five large branches along our one mile stretch of Queens Boulevard, each with a staff of 8-10 inside. What are they doing? One or two are sitting behind a counter for regular transactions, while the rest are waiting with business cards to lead you to a booth for some consulting. So that is 30 people, paid well and on commission, within one mile, working for one bank. My little deposit account is not paying for them. What is? Debt, and its consequences.

 

Then, watch the TV and the movies. Every family is perfect to look at. Most movies have some sort of fantasy element and a happy ending. A lot of TV is celebrity based or reality shows encouraging us to think we are all-powerful. Every advert encourages us to keep up with our neighbours, be good to our families or ourselves, feed our egos and our hubris. I have yet to see a car ad in the US which actually tells me how much the car will cost. There is one that will get me a girlfriend, many that I can drive away for nothing and pay nothing for a month or two, but all I have to pay for in the end, month after month, not to mention the insurance, repairs, gasoline.

 

The UK is better, but not much. There, every second advert is for online betting. Check out how many premiership teams advertise online betting on their shirts. That is a lot of money from a lot of punters, many of whom have got into debt and are increasingly irrational and desperate in trying to get out again.

 

We used to have things to reduce our temptation. We lived our lives in small communities and close to our families. The bank manager was a local pillar, acting as a brake on unjustified spending. Now he is the worst tempter, and many of us live alone away from our families, among others facing the same social pressure to spend to keep up.

 

Even politicians have a role. Maggie Thatcher gave her famous speech about treating the economy like her grocery shop back in 1979, but now when Cameron plans a speech encouraging people to pay down their credit cards, he is forced to rewrite it because the treasury needed to maintain demand levels. The government also needs the gambling revenue. How disgraceful, compared for example with Brazil, where welfare hand outs are tied to education.

 

One trend that will help in a small way is gender equality, since ego and denial tend to be worse in men while nurturing family seems to appeal more to women. The micro-financing in Asia is a wonderful thing.

 

Once you are in debt, it seems to me almost impossible to escape. Just like with nations, the spending habit is hard to slow, and simply dealing with mounting interest becomes a challenge.

 

Worst of all, debt is one of those invisible burdens, that no one talks about. Sufferers feel they are alone, the only one, and become ashamed. The lack of maths skills makes it even harder to respond, and denial sets in, followed by desperation. Banks do not help at all. Lottery or gambling nearly always makes things much worse quickly. The only way out I know really is an interest free loan and good advice from family or a close friend. Which again discriminates against those starting near the bottom. The Economist has another campaign going about equality of opportunity: here is another modern curse making inequality worse.

 

So, what do I recommend. If you are in debt, first of all, face it, don’t deny it. Write down your outgoings and do something about them before it is too late. Stop giving gifts and treats, even if people will notice and you will feel bad. Talk to good friends, you will find fellow sufferers and hope. Be honest with your parents and in-laws, maybe they will help. Cut up those store cards and only spend on credit when you absolutely know you can pay it at the end of the month.

 

Conversely, look about your friends. My guess is that a surprising percentage could have debt problems. Try to ask them. Try carefully to coach them. If you have some spare cash, offer to help. Do it before it is too late, as this spirals out of control so quickly.

 

At a wider level, the Economist applauds the UK for putting personal finance into the national curriculum, and so do I, but also notices a weak correlation with success where that initiative has been tried elsewhere. My view is that this menace has to be faced across many dimensions. Education is important, but, just like smoking, obesity, discrimination, marital abuse, and the other areas where progress has been tough, we need a social response as well to change norms and expectations. This has to come out into the open, lose its stigma, and be faced head on. It takes years, but can work in the end.

 

What about banning the temptations? Well, that is tough. I do think in the US it should be clear what you are paying for things, even including the tax on everyday items. And the sooner we realise most bankers are crooks doing the simplest job in the world and rewarding only themselves, the better. But we cannot regulate away technology completely.

 

Otherwise we would all become Amish, and, much though I see their point, I would not recommend that. However, I do wish Christian Churches would invest more effort into areas like this, which after all Amish show us is part of biblical teaching, and focused less narrowly on issues like contraception and abortion.

Wonderful Golden Rice

The front page story of the Guardian Weekly this week about GM food was remarkable in many ways.




Firstly, the content of the story brought a warm glow to my heart. After years of battles with regulators and agencies, and false starts with the science, it appears that GM food now has the immediate potential to improve world health.



A small infusion into rice seeds used in the Philippines this year will create a rice crop with marginal different properties to the regular crop. But those properties will give young kids nutrients they otherwise lack and give protection against some killer diseases. Indonesia and Bangladesh are set to follow suit next year.



It is like all those years ago when we started getting Flouride in our drinking water. Simple. Barely noticed. Low cost. And revolutionary in its effect.



I can also hope that medically enhanced food might suddenly explode in impact, as producers have positive examples to quote and countries are shamed into copying their neighbours’ good sense. Although global health has been one of the major success stories of my generation, there is so much further this can be taken. A happy story indeed.



But perhaps even more remarkable than the content was its location, on the front page of GW. For GW has been tireless in its scaremongering about GM food over the years. I must have read fifty articles on the subject, and all the previous forty nine have pained Monsanto as some sort of pantomime villain and raised the spectre of poor countries and their farmers in hoc to globalised big business. Oh, and the risk that these modified foods would somehow affect food chains and kill us all.



(That last risk always seemed a bit farfetched. After all, our food chains are so well regulated. For example, imagine how remote a possibility it would be for horsemeat to get confused with beef. What? Oh? Whoops.)



Even more remarkable still is the tone of the article. Far from simply describing the happy news and its potential impact on kids around the world, the article focuses on how long it has taken to reach this point, and apportions quite a lot of blame to over-cautious regulators and scare-mongering lobbyists.



To his credit, someone called Mark Lynas, a founder of an anti-GM movement, has publicly apologised for his prior opposition. He admits that the effect of his and other groups has been to slow the implementation of beneficial science. Countries have blocked research. Talented individuals have avoided the field. Regulators have been over-cautious. Focus has been on risks alone rather than a balance of risks and benefits. Monsanto and others have been forced into a defensive stance rather than a promoting one.



It is to its credit that GW includes this article so prominently. Yet it cannot bring itself to take the final steps. Unless you believe that its regular readers will all know full well the history and therefore see some self-criticism, there is not the slightest tone of direct apology in the article, and still less any attempt to improve in the future.



And it is almost as if GW can’t bring itself to believe its own story. An inside page has John Vidal commenting under the headline “Hard to trust GM in grip of global giants.” Yes, hard indeed. GW proves that.



I can only imagine the debates that went on in the editorial team deciding how to feature this story. Well done to the editor, who I assume insisted on front page treatment for the potential more embarrassing but more honest and more uplifting angle.



I look forward to more such articles. The Guardian has excellent journalists, and a good approach at times of getting underneath a story. It remains a good read. It and its ilk also do provide a valuable brake on some genuine threats. For one, Rupert Murdoch and his cronies were goliaths brought low by the David of the Guardian. And GW refused to shut up about climate change, no matter how few copies that sells these days.



But the GM debate does offer lessons to GW, and it would do well to try to heed them.



One lesson is about the profit motive. It is true that capitalism has its ugly side. But, as Churchill said of democracies, it is the least bad system we have got. Without the profit motive, Golden Rice would never be produced, and we still would not have Flouride in toothpaste and I would probably have dentures by now. The profit motive attracts resources and provides capital to invest. With sensible regulation, it usually works. Alternatives such as Government intervention and Communism usually don’t.



Yet in GW profit is an evil word. Especially short-term profit or large profit or global profit, as if somehow we should restrict capitalists to local playing fields with small benefits that they have to wait a long time for.



And this lazy categorisation creates lazy, unbalanced journalism, time and again. GM food is not the only own goal: just within the energy sector, look at nuclear power, gas fracking, and biofuels. In each case lobby groups given oxygen by people like GW have placed Europe on the wrong side of progress, to all our detriment.



Another lesson is to look at benefits as well as risks. A bias for optimism makes for sunnier stories and happier readers, and in my experience is often justified. Humans are wonderful creatures who can achieve things that often feel like miracles. Too much of the time, GW is looking for villains not heroes, exploitation rather than breakthrough. This point is well made by Lynas, who quotes a regulatory system dominated by avoiding small risks, rather than ready to offset small risks against quantified large benefits. The journalists and lobby groups have fallen into the same trap.



Finally, always propose practical alternatives. There is a lot of “why oh why” in journalism, and not enough active advocacy of real alternatives. Instead of starting with evil Monsanto, start with the issue of stunted growth and childhood disease. How can we improve child health? That way things like GM can appear as a potential solution, albeit with caveats to address, rather than a hazard to be avoided.



This last lesson can apply in climate change articles too, as well as economic ones. In climate change, we are often fed a diet of doom, with the proposed solutions wildly unattainable or impractical. Start with the issue instead of the doom, and maybe solutions exist that are palatable. The people trying to manipulate climate are somehow distasteful due to links with climate denial and big business, but if they have solutions we should embrace them anyhow.



Perhaps such an approach would rob GW of its passion and its appeal. Personally I don’t think so. More balance, more solutions, more honest apologies and more rethinking of positions might just lead instead to better journalism, and the ability to offer readers more sunny stories. And, much more important, better nourished kids in the Philippines and elsewhere.

Leaders and Legacies

The Economist, as usual, has produced some thoughtful stuff to coincide with the annual junket to Davos – shall we call it the 1% club? Schumpeter talked cynically about two massively overused words, global and leadership, debunking conventional wisdom on both.




My favourite part of the Schumpeter article was a quote from Abraham Lincoln that I had not heard before. “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”



Isn’t that a lovely quote? It brought it to mind while watching the movie Lincoln this week, and, with the reasonable assumption that the movie bore some relation to the truth, it is clear that he passed his own test. He was able to stay humble, continue to see a big picture, yet drive messy, practical change.



A key word is legacy. People with power usually become driven by legacy, sooner or later. It is not always a bad thing. A sense of history can inspire great achievement. But it is dangerous, because it also encourages the negative things associated with power: dogma, lack of listening, corrupted motives.



Look at Tony Blair. Arguably, he was driven by legacy from the start, as he reformed the labour party and drove towards peace in Northern Ireland. But history will partly remember him for a less positive legacy, that of the Iraq war. True, we do not know how much discretion he really had when he supported Bush (another man tainted by legacy, that of completing Dad’s work), what trade-offs really were available to him. But you only have to listen to interviews from the time to understand that legacy was driving him, at the expense of a rational consideration of pros and cons and advice.



Sometimes the greatest legacy is left by those who never give the word a thought. An example is Fred Turner, subject of an obituary in the same edition of the Economist. By the way, I love Economist obituaries. But I suppose you had already guessed that.



Turner was a sort of COO of McDonalds, before the term became popular. He had a simple passion and belief that never altered. He was the one who designed the operating standards for McDonalds, and then imposed them through a system of training and monitoring worldwide. He was never far from a restaurant, and would inspect and cajole and improve from the beginning of his career to the end, always ready to get his hands dirty and truly placing his whole empire at the service of the customer.



Is that leadership? In my view, sure as hell it is. This guy made things happen. He would have refused any invitation to star in business case studies, or to attend Davos (unless it was to inspect the local McDonalds). I have met a few other leaders like that in Shell. They tend to be rather myopic, not always broadly educated, but intensely commercial and driven. The whole Shell leadership system spits these people out, but sometimes they thrive there anyway, and thank goodness they do, for the place would collapse without them.



The downside of the Fred Turner type of leader is that they will seldom ride a wave of change, or be able to respond to new trends. As an example, he would have been completely the wrong guy to deal with the health revolution and its backlash towards McDonalds.



I have just finished a book about a Tudor Fred Turner. Wolf Hall was Hilary Mantel’s first Booker prize winner, and I will shortly embark on the second one. The novel sees Tudor history through the eyes of an extraordinary hero called Thomas Cromwell. He came from the bottom rung of a hierarchical society to rise to the second most powerful man in the land, and did it through hard work, toughness, bloody mindedness, and a ruthless commerciality. I recommend this, it makes great reading.



Many of the characters at Davos have impressive back stories. Yet how many are suited for their leadership roles, right now? How many have prospered in adversity and been promoted to a power their character is not suited for? At a guess, most. And certainly most who seek headlines, seek acquisitions and game-changing departures from core strengths. A failed legacy beckons. Steve Jobs has been the dangerous exception to prove the rule: there is not space in business for many of those miracles.



One test of a humble leader who can cope with power is who he surrounds himself (or herself) with. It becomes lonely at the top, and harder to listen to the necessary dissenting voices to keep wilder ambition in check. Leaders who cannot work with inherited teams raise a red flag, as do those who promote acolytes. This is usually easy to spot, even at a distance.



In this respect, I like Barack Obama’s recent appointments. He recognised early that he could not do everything himself, and appears to have recruited wisely. He uses Biden as a short-term fixer and deal-maker, ugly work but sometimes necessary. Then at the state department he chooses an internationalist, at defence someone ready to challenge Pentagon dogma and even face up to Israel, at the CIA someone wishing to put drones on a more sustainable footing, and at treasury a wonk who will work all night on budgets and deficit reduction plans. Not a bad team for a workable legacy.



Contrast with David Cameron. His Europe gambit has a history feel about it as well, but for all the wrong reasons. For me it misses the big picture, and is a play for power, content and timing dictated only by internal factors. Well done Miliband for not being bounced into a copycat promise.



Angela Merkel, on the other hand, has a keen sense of history but is more of a Cromwell or Turner, always working for small advantage. So far, she has received few plaudits for her handling of the Euro crisis, but for me she has put in an exemplary performance, calm, incremental, but effective. No Davos style speeches, just a tough job well done.



My economics classes at school came at a time of German and Japanese dominance in business. Without getting prejudiced about it, my teacher cautiously cited World War two. The losers had to start from scratch, and so had little unproductive legacy and newer infrastructure as advantages.



Looking back, I wonder if the real advantage at the time was a mental one, or humility? Big power plays and thoughts of personal legacy were, for good reason, out of fashion at the time, while leaders were careful to avoid a cult of personality and to surround themselves with balancing voices. Japan has faltered since, but the Mittelstand has enjoyed a second renaissance. Not many Mittelstand CEO’s bother with Davos, or have household names, or change their business model on a whim.



In the next years, we will learn about Chinese leaders. Hopefully they will give a better example than the Davos crowd from the developed countries. I don’t know enough about the Chinese character or history to be able to predict, but I do sense it will be a question to define how the world can move forward in the next decades. Another trend will be emergence of female leaders, and more mainstream characters than the few who have made it to the top so far. With that trend I have some optimism, for the macho legacy non-listening stuff does feel rather male.



So, how can we judge a leader worth following? A lot will depend on the situation – you don’t necessarily need a Fred Turner in an innovative part of a cycle. But look out for that sort of ugly winner behind a visionary front person. Otherwise, check for humility, a vision untainted by personal legacy considerations, and a willingness to listen. Oh, and a lack of any desire to visit Davos.