The Optimism Bias

Are you a glass half full or glass half empty person?

I read a couple of articles this week which both suggested that human beings have a bias towards optimism. Supposedly it is something that distinguishes us from other animals. Furthermore, capitalists claim it is a positive factor in business, since it makes us good at the creative destruction required for progress.

This got me thinking. Are we really optimistic? More than other animals? Our cat is certainly optimistic, always exploring, curious, living in hope. I don’t think I’m more optimistic than the cat. Still, that is what the research has discovered, and I’ve certainly evolved to be brainier than the cat, for better or worse, and perhaps my optimism is one reason why.

I certainly accept that a degree of optimism is healthy for us. The same research claimed that without our bias to optimism, we would all be depressed most of the time. I have certainly seen the converse of that. One of the things depressed people lose is their optimism. There is a certain inevitability of failure when failure is expected, and that is how depressed people tend to think.

Yet optimism plainly has its downside as well. If we all threw ourselves off tall buildings, in hoping that we would be OK, our life expectancy would suffer. Yet in many things we are a bit reckless. We go skiing, despite evidence from statistics and from our own eyes – how often do you see people carted off in ambulances, and what makes you think that will not be you next time? We place massive trust in fellow human beings every time we get into a car, yet it doesn’t stop us speeding.

Gambling is also pretty reckless, yet it seems to be a human urge that is hard to control. And I’m not even sure about the claim of the capitalists. I have seen crazy, reckless behaviour again and again in business. Almost every acquisition I have been involved in has become a sort of animal hunt that eventually tosses reason out of the window. And what about all those dot com business models that started with the wonderful naïve assumption, that if just one per cent of possible users became users, we would all be rich?

What about with relationships? Almost one in two marriages in Western societies now ends in divorce. Globally, a far large share than 50% ends in misery for one or both parties. Yet somehow we all think our own marriages are different, that those statistics don’t apply to us.

Then there is health. Much though the tabloids love to play on our fears by reporting daily about the dangers of some foodstuff or other, our behaviour usually suggests we believe we are invincible. How many people die each die without making a will? How many people (especially us men, myself included) don’t bother with health checks and would rather ignore symptoms than face up to them?

And our last great optimism is our faith. Even people with no religious belief like to think there might be something waiting for us after our death. Looking at the evidence, that seems heroically optimistic really. There seems to be even less evidence for another common belief, that somehow some God has chosen us individually from the crowd to look after.

Some of these examples of optimism are healthy, some less so. It is not so clear cut whether the net effect of all of them is good or bad, both for us as individuals or for our species overall.

There are other factors in play as well as optimism. Curiosity is generally good, if it doesn’t become envy or obsession with others. A sense of adventure, with limits around high buildings and the like, must be good too. Even faith has its advantages. Whether there is an afterlife or not, a belief system helps us to stay humble and recognise and accept our ignorance and relative powerlessness. It is also good to try to keep a balanced view of the bigger picture – there are cycles in life, and things will sometimes get better, sometimes worse.

On the reverse side, superstition or irrational exuberance probably have more downsides than up. You don’t meet too many well-balanced gamblers, and the partners of gamblers suffer even more.

What is clearly true is that a sunny nature is a blessing. Whether my own glass is half full or half empty, it is always more fun to be with people from the half full persuasion.

In business, I am not so sure. Optimism is all very well in the marketing department, but cold, hard numbers have their place too.

Are there difference between nations and cultures? Scandinavians are known to have a prevalence for depression and suicide. It seems to be accepted that this is related to light deprivation in the winters. Portuguese are also said to be a bit sombre, while some Latin nations are sunnier, and Americans are also known for their optimism.

One of my favourite bits of market research is about American optimism, and it goes a long way to explain US politics. When Europeans and Americans are asked what class or income bracket they belong to today, both groups answer quite realistically in accordance with the facts. But asked what class or income bracket they will belong to ten years into the future, Europeans tend to assume little change, while most Americans see themselves moving up a rung or two.

Now that is optimism. It explains why taxation of the wealthy wins fewer votes stateside. Does it explain US economic success? I’m not so sure.

Another group of relentlessly optimistic people are those who succeed in sales jobs. I read that the human characteristic most correlated with success in sales is the ability to be rejected on Monday yet still turn up smiling on Tuesday. If you are thinking of career in sales, or looking to recruit sales people, bear this fact in mind.

Again, there might be more than optimism in play. Fear of rejection may be lower in sales people. They may have the same degree of optimism about whether a sale will come off, but may have a different response to failure or anticipated failure, being ready to brush it off and move on.

I’m always careful about gender generalisation, but this last quality may be a male one. If so, it is a good thing, as us guys seem to have more things going against us than for us (listening, empathy, persistence, etc.), so we need some advantages. It might start with the dating game. Even nowadays, it is usually the job of the male to initiate the various phases of the relationship. That places us right in line for rejection. Yet we bounce back again the next day.

What is that? Optimism? Arrogance? Hardness? Whatever it is, the species needs it to prolong itself. And in the end, any optimism bias probably comes down to simple Darwinism. Which is one reason why I’m a bit sceptical about the claim that we have more optimism than other animals, cats or otherwise. They have to evolve too.

So perhaps we ought to wish for a cocktail of attributes. A sunny nature, and the luck to find others with a sunny nature. Some curiosity, sense of adventure, humility, recognition of ignorance. A dose of bounce-back-ability. But not too much recklessness or superstition.

Remembering Maggie-nomics

Mrs Thatcher has been in the news lately, because of the Meryl Streep movie. I’m looking forward to seeing it. She is polarising opinion once again, just like the 1980’s.

As did most twenty somethings at the time, I used to loathe Maggie. The way she seemed to be completely indifferent to condemning people to unemployment I found repellent then, and still does now.

Yet now I am older, I can see things are rarely so simple, and there were things to admire about Maggie. As a woman leader, she did a lot for female emancipation. And here are three other ways I admire her.

First, she challenged the establishment. Just like now, there was a consensus at the time, with the civil service running the show and little difference between the political parties. She refused to accept that, and challenged the orthodoxy of the day. Many of her solutions were poor, but she had the guts to rattle things about. We do not have enough courageous politicians, which is why people become apathetic about politics and sometimes look to extremes. Ed Miliband could take note. So could almost all leaders of the EU.

Second, she made clear decisions. I remember the week of the Falklands crisis in 1982, it was the week of my job interviews at Shell and other things in my personal life, and it all played out against this dramatic backdrop of the nation going to war. Maggie may have mismanaged the lead up to the crisis, but once Argentina invaded, there were only two choices. These were to accept the new situation, or fight without compromise. Maggie chose to fight, and did not flinch in the weeks that followed. Most politicians and advisors would have tried to triangulate, to compromise, keep options open, fudge things between the two choices. They would have failed. There are times when a firm choice is the only way. I’m not saying I defend the UK occupation of the islands, which seems to me like a historical anomaly. But I admire that choice.

Similarly, she showed the same decisiveness when taking on the miners. Again, most politicians would have wavered. She saw it through for better or worse.

My last admiration is of something she said when she first came to power, and which was widely scorned. She compared the UK economy to a grocery shop, saying that over time expenditure had to match income. Simple, homely economics, and at the time everyone thought she was naïve, including me. But perhaps instead she was brilliant.

We are in the middle of a global economic crisis. There are many excuses, explanations, accusations and solutions banded about, but possibly at its heart it comes down to Maggie’s grocery and to debt.

Debt can be marvellous, actually one of the most important engines to progress. It is a sort of multiplier, something which can speed things up, a sort of double or quits option which gives benefits when plans are good. Nearly all of us use debt, most notably when we take out a mortgage. We are taking a reasonable gamble with our future, believing that the asset value and our future earnings will enable us to achieve a triple benefit – to enjoy progress quicker in the form of a nicer place to live, to be able to eventually clear the debt, and potentially also to secure profit from the appreciating asset. Companies do the same thing all the time. It is the engine of a sound economy.

But the key word is reasonable. As an individual or a household, we have to assess the odds on our gamble. Will our income really rise? Will we able to afford the interest even in bad times? In short, do we have a credible plan to repay our debt, a plan which takes account likely negative contingencies?

If an individual or family overstretches, it ends up in the hell of negative equity and shot credit ratings, from whence there seems no escape, only loan sharks feeding off your carcass. If a firm overstretches, the shareholders eventually notice and lose confidence and bankruptcy beckons.

We can blame the banks. I love blaming banks. They are so greedy and stupid. It is shameless to lure less numerate people into the hell of debt, yet that seems to be their business model. I blogged before about the American bank that refused most Shell customers a credit card because their credit risk was not high enough. Evil. But still as individuals and families we get greedy and foolish too, and have to take our share of fault. For companies there is even less excuse.

But what about countries? The same basic logic applies. Use debt, but only for a value creating reason and with a credible plan to pay it back.

A credible plan comes in many forms. Maybe there is a demographic dividend coming to the nation, with a higher share of working age people expected. Maybe there are smart reforms, in education, or infrastructure, or employment law in the pipeline. Maybe there are natural resources to exploit. Or a competitiveness agenda.

Now look at the USA and Europe. No credible plan is in place. In fact, most trends make things worse. Yet the French have not run a balanced budget for seventeen years. The Italians let debt mount while competitiveness is only worsened by Zimbabwe and Haiti. The Americans have political gridlock. Nearly all these nations, except Germany, run a trade deficit year after year after year. No one really invests in education or infrastructure, only increasingly in pensions. It was pensions that killed Detroit and other corporate giants – it will slowly strangle our rich countries too.

The crisis should have been no surprise. We can, and should, blame the banks, but not only the banks. The whole system has got too far out of balance, with no credible plan to rebalance it.

Indeed, current plans make it worse. Austerity might balance the budget within a country for a while, but it will only make competitiveness weaker. Within the euro, devaluation is off the table.

What can be done? Well, we could reverse logic and look at countries running a habitual surplus. Trade, unlike personal debt, is a zero sum game. The post-war consensus (with largely fixed exchange rates, note) only started breaking down when Japan and then the Arab starts started building up structural surpluses, condemning the rest to structural deficits. Now the same thing is happening with China. At least the Chinese are ploughing their surpluses back in, though the West are fighting it, and even with that move the music has to stop sometime. It may seem a paradox, but structural surpluses in the end condemn us to instability.

Revaluation can help, and the Chinese would do well to let that happen. If this were individuals or companies, taxation policy would provide an equaliser – maybe surplus countries should pay some sort of levy to the IMF? Currently, countries are not even subject to any competition law – OPEC would never be permitted if the players were companies not states. In the end, this is one more argument against countries – if we were able to take a global approach, transfers and taxes could balance things out.

But, today, the only thing on the table is austerity. That will not work. By a strange irony, austerity was Maggie’s remedy too. She understood about the peril of debt with no plan, from her grocery analogy. She escaped, but that was less to do with austerity and more to do with the windfall of North Sea oil. Even so, some Maggie style challenging of the flawed establishment would be valuable today around the corridors of the G20.

The Tides of Life

Even though I am celebrating ignorance, I can still try to learn things. I was always amazed how in Scandinavia people built their homes right to the water’s edge. There is plenty of severe weather there, especially facing the Norwegian sea, so how could this be safe? And why was there so little tide?

Wikipedia helped a bit. I was a good read, but overall the conclusion is somehow that the tide varies because it does. I can understand how enclosed bodies of water like the Mediterranean or the Baltic have less tides than the oceans. But the other factors are a bit of a mystery, with the moon playing a role as well as something with the lovely name of bathymetry, which had me making mental models of splashing bath water.

Tides are just one of nature’s beautiful cycles. This is a twelve and a half hour cycle. There are of course daily cycles and monthly cycles. Annual cycles give us the wonder of seasons. It is often tempting for those of us who suffer winters to dream of perpetual summer, but the most common complaint of those who have moved is to miss seasons. I love the screensaver showing the daylight around the world, it is somehow peaceful and reminiscent of higher powers.

I can see why. Witnessing light in the sky after five last Sunday was compounded by a hint of a sunrise at eight on Tuesday, both signalling the slow return of daylight to our Northern clime, and giving a similar lift to my mood. Change signals renewal, and renewal is opportunity.

Most religions and beliefs make use of cycles. Most religions suggest a day for praying once per week and have an annual calendar. Whether superstition or not, the enduring practices are most likely the ones that work, that help people live their lives over many generations, so we should not discard them lightly. Feng Shui and the Aztecs are full of beliefs about long cycles. One day we might understand more about their value.

So, much of natural life follows the beautiful sine curve we witness in light each day and each year. Yet we tend to ignore the abundant messages for our business and personal lives. True, most things are complex and influenced by multiple sine curves of different height and length. But the old maxims that was goes up must come down, or what goes around comes around, are more true than we realise.

There was a lovely new item this week. Someone had found a connection between skyscrapers being built and economic crashes. For me it is a nice example of people’s folly over cycles. When are skyscrapers commissioned? When people believe good times will go on forever, when they make economic justifications on assumptions of extrapolating volume and margin trends. In the cycle, they are commissioned on the way up, opened at the top, and often seen as folly soon after as the cycle goes into reverse.

Not everything follows cycles, but it is smart in most cases to assume it, especially when something has an established history of cycles, such as national economies. Nigel Lawson and Gordon Brown both came to regret claims of abolishing economic cycles.

Look at the classic growth picture of a company, and you see a truncated cycle. Growth, slow then rapid then slow then negative. In theory a firm could go all the way to the bottom again before turning back to grow. In practice it gets taken over or goes bankrupt, so we rarely see the full sine curve in all its beauty. Cycles affect nearly everything – even Tesco today signalled it might be at the top of its long upward cycle.

The basic reason why cycles affect most things in economics is that there are usually countervailing forces. At the top, prices are too high and competition erodes margins. At the bottom there is spare capacity and opportunity for the smart. That is the root cause of many natural cycles too.

What is so lamentable is how bad most firms and governments are at spotting cycles. True, many sine curves overlap, and usually there are true trends (or cycles with longer frequencies) playing out alongside cyclical things. But we somehow miss the likelihood of cycles, despite ample evidence. And the result is empty skyscrapers.

An example helps to show why. At Shell I often had to analyse the plans of different countries, and recommend who should get extra capital and who should be cut back. I tried to fight it, but invariably the tendency was to shower riches on the successful and starve the failing. Usually that just meant silly skyscrapers and lazy management for those at the top of a cycle, and lost opportunities at the bottom. Most acquisitions were by overvalued firms of similar overvalued competitors, and divestments were of undervalued assets ready for a cyclical upturn. Smart investors, usually smaller, have taken advantage of this for years.

We did not always get it wrong. Once I was on a small project team trying to buy up tiny oil companies. We developed a little policy, which was to avoid companies with fountains in the yard, or similar monuments to vanity. You wouldn’t think this was much of a strategy, but it worked. And the reason is that the monuments tended to signal someone overreaching at the top of a cycle.

As a manager, there are simple things to do to help. First, try to differentiate between a trend and a cycle. Not easy, but history offers clues, as do analysis of real fundamentals such as Porters Five Forces and demographics. If in doubt, assume a cycle rather than a trend. Then, if you are on the cyclical upswing, tone down your investment assumptions, remember to harvest profits, and look hard at costs. In the downswing, do what you have to do to survive, make sure you have learned lessons and not making things worse, but look for cheap opportunities and signs of a cycle turn.

These same messages apply to all of us in our personal lives. How often do you have a day, or a month, or a year when everything seems to go right? Or wrong? Good news seems to come in waves, and so does bad. Maybe it is just random, but I believe there are natural cycles at work here too, even though you won’t get me signing up to astrology.

So what to do if things are going right? The same things. Don’t assume it will go on forever. Harvest, in the form of celebration and saving. And watch your behaviour – I am always at my nastiest and most intolerant when times are good.

And if things keep going wrong? Survive – stop what has to be stopped. Stop actions that make things worse – for example a bad diet or behaviour. But keep trying with the smart things, believing that the corner will be turned eventually. You’ll be surprised, it will. Keep planting, and some of those seeds will start bearing fruit. Maybe soon.

Of course, if you think things are going badly and nearly always have, you might have an expectation problem. Counting blessings is always a good thing.

So then, the beautiful cycles in nature may have other messages to help us. And the wisdom of elders and experience, whether in a religion or what seems just a superstition, might carry more value than we give it credit for.

Celebrating Ignorance

Many experiences over the holidays have opened my eyes once more to just how ignorant I am, indeed how ignorant we all are.

First, I am in the middle of reading a very long book called Shantaram. Thanks to Helen for the recommendation. Every so often you read something from a world totally different from the one people like us inhabit, and this is one such book. Set in the 1980’s in Mumbai, the author somehow finds himself among the slum dwellers and Mafiosi of the city, and describes vividly how life was in that place. My guess is that it hasn’t changed a lot.

Whereas Slumdog Millionaire invited us to a Mumbai as true as global audiences readily permit, this tale is Mumbai in the raw. How a country of a billion, a city of 20 million, or a slum of 25,000 somehow manage to make things happen is totally gripping. Furthermore, the book has more than its share of thought-provoking philosophy.

So here am I, smug in my cocoon, thinking I know how things work or could work better in the world, and even feeling a bit comfortable in my compass of values, and along comes this book to remind me how little I know. Thank you, Gregory Roberts, I am in awe. And then, consider this. Roberts is an educated Australian, and he surely tells his story from that cultural standpoint. Imagine, what we could learn and discover from an Indian perspective on the same tale. Perhaps in future we will be able to, so fast is modern technology changing our world.

Then the Economist Christmas issue offered its usual revelations, showing again how complex and diverse the world is, how history has shaped it, and how little I know about it.

Then I saw the film about the start of Facebook, the Social Network. I recommend this. While the story offers little in the way of suspense, or action, or visual content, the makers created something quite gripping and thought provoking. Even with artistic license, it is stunning to see how some very ordinary people managed to shape the world (and transform their own lives) with some very ordinary content. What potential we all have! What might open up for us all next? How we all struggle amid such ignorance!

Then the Economist added in some spice, in its first 2012 issue, with a wonderful discussion of new economic theories. It is clear that no-one really understands Economics, which makes it such a fascinating subject. Neo-chartalists, market monetarists, and an Austrian school have all developed separate theories which almost start from first principles. As far as I could gather, if one is right the other two are very wrong, yet each seemed vaguely credible, at least within a crucible of a single economy. Which is why I do think my own idea of removing countries is at least theoretically interesting, as removing that constraint could make any of the three more powerful.

These are just four examples. I don’t even want to start to try to understand the Higgs Boson. I’m constantly in awe of how the human body works, or the systems that make up our climate. The depths inside our brains are still almost completely unknown, but I am sure that within my lifetime, God willing, we’ll have made immense progress in fields like depression or empathy.

So my brain has been spinning, but spinning happily, as I ponder resolutions for 2012. I listened a homily on New Year’s Day which tackled the same subject. It started from the very sound position of counting our blessings. That is always wise. Then he suggested resolving small changes in our lives to make it slightly easier to count blessings, whether that be an hour of silence per week or some other way of finding more peace.

I’ll try this. And in my hour of peaceful silence, one of things I’ll remember to celebrate is ignorance. My ignorance, and the ignorance of humanity. I still love the theory of Oakeshott (see earlier blog), whereby our life philosophy should start from the concept that we know almost nothing, that in a short while we’ll know massively more than we do today, yet that will still be almost nothing. How true that feels, and how helpful. For example, follows of this philosophy are always alert to mistakes, always look to experiment and try to avoid closing off subjects.

Celebrating ignorance does not come easy in our society. Our parents pretend they know everything to us. At school we try to display what we know, not what we don’t. In business and politics it is the same: who easily confesses that they don’t know an answer? Certainly, it would not be a good way to be adopted as the Republican challenger to Barack Obama in 2012! We are taught to be a bit ashamed of our ignorance, to try to cover it up.

But I resolve to celebrate ignorance. That way I need not be ashamed, only curious. That way it will be easier to avoid worrying about things over which I have no control. That way I can become better at asking, at listening and at learning. I can wonder happily at the potential of mankind rather than become miserable at its manifest failings today. We will do our best, after all, and our best can be magnificent. This way I can find more peace.

Celebrating ignorance does not mean seeking it, quite the opposite. We can thirst for knowledge and improvement, and delight in the journey, knowing full well we can only scrape at the surface of our ignorance.

There is even a spiritual component to celebrating ignorance. I find it hard to conceive of a God who is all-knowing, looking down upon us as a sort of master-controller. But I can readily admit the converse – that humanity is breathtakingly ignorant, wondering in a sea of fate with precious little control. That is a good starting point for spirituality, I find, humble, and accepting of what fate throws at us.

So, at the start of 2012, I raise a glass for ignorance. Will you join me? My best wishes for 2012 whatever resolution you choose. May your journey on the sea of fate be a fruitful one.

The Post-Nation Era

Ever since coming up with the solution of abandoning countries in favour of global and very local governance, my head has been spinning about how it might work. But what has become clearer in my mind is the basic belief that it would work, or at least be a major improvement on what we have today.

I have started reading political statements and news articles in a different way. Never before has I realised that nations and their apologists did so much damage. Look out for policies defined in a national interest that are plainly against a global interest and arguably against the interest of the citizens of the subject country too. There are everywhere. Some are blatant – just read the obituaries for Kim Jong Il. Others are more subtle – look at the statements of European leaders around their recent summit. The worse an argument is, the more likely it is to be sold using a justification of national interest, and we fall for it!

So am I advocating a sort of big brother super-state? Well, I hope not. Though I have started to look again at one of the countries I had the privilege of living in during the 1990’s, namely Sweden. The place had a collectivist feel which I found strange at the time. Districts of cities had a lot of power, and people clubbed together readily on basic things. As an example, a typical apartment block had a common room in the basement for laundry, thereby saving electricity, freeing space in kitchens and creating social contact all at the same time, at the cost of a bit of time and planning.

Then the Swedish state was more intrusive than I was used to. We all had personal numbers and identity cards, and information about each other was readily available to all, for example income and tax records. Taxes were high, and very progressive, but then services were excellent too. My favourite example concerned affordable childcare facilities, whereby parents could both work while raising children. Also, people worked hard, but their hours showed a good balance between work and family.

Of course Sweden is also famous for its environmental leadership – with a clear understanding of common goods - and its generous overseas aid. Ten years ago, capitalists scoffed at the Swedish model, but they seem to have fine-tuned it a little now to promote growth and innovation a bit more. They tried a Tobin tax, but found that alone it was too costly. Even while I was there, the arguments against innovation seemed thin – as an example Swedish IT was always leading edge – but now the economy has become a leader again overall.

So Sweden may be a good model for future global governance. Lots of local democracy, within an accepted system of benign global rules. It is feasible. It even works to an extent in isolation, so imagine its power if everyone played by those rules.
What might those rules look like?

Start with the universal declaration of human rights, maybe strengthened a little with statements about gender equality and rights of children. After abolishing countries, we can also add in a right for full freedom of movement and residence. We just have to accept transparency in our affairs.

Next, create an economic policy for the world. Common goods, such as forests and natural resources, are owned commonly. One central bank runs a global monetary and fiscal policy with a single currency. Goals are full employment, global balance sheet (common resource) growth, stable prices including asset prices, a declining GINI coefficient, and fair outcomes for each generation. Taxes would focus on production and on redistribution.

Much tax would be collected or be immediately reallocated locally, to communities of say 100,000-500,000 people. Health, education, housing, policing and social care would be managed locally, and communities could also raise tax on property and consumption. Where I am struggling in the extent to which communities should be regulated. I want competition at this level, but not at the expense of human rights and wider goals. Ideally, there are a set of big rules about freedom of movement and human rights, but everything else would be the subject of local democracy. But a part of me would intervene too much. Why not outlaw smoking? Or gambling? This part gets tricky.

Companies would be registered and regulated globally, with no need for subsidiaries. Shareholders and workers would have lots of rights to prevent greed, and communities would encourage companies to locate in their areas. Careers are managed by individuals, with much freedom of movement, personal education and personal pension plans, and the right to variable working hours and styles.

There would need to be a lot of transition arrangements, but the EU experience shows that these can be managed.

There is a second type of community. We all have a residence community, but we are also free to join communities of interest as well, for example religions or languages. And families of course. This way traditions can be maintained and sensitivities can be managed, at least in theory.

Am I mad? Does this sound like communism, or at least collectivism? We all know what happened to communism, its inherent flaws. Would this system reduce corruption, ore make it worse? Would it stifle development? I don’t really know. But I do know we could eliminate armies and secret police. We could solve the current crisis in an instant. Climate change would be resolved. The millennium development goals would be achieved, indeed exceeded.

What about the people? Could we survive without our nations? For this one, look at football. When there are clubs, we don’t really care too much about countries. My guess it would be the same with governance, that given the chance to support a local team of people we identified with, together with other communities of global interest, we could easily dispense with the nation.

The sad thing is, I don’t think we are ready to try. We have all been brainwashed, and our elites have too much to lose. Even the most noble live experiment of pooling resources, the EU, is collapsing rather than thriving.

But I’ll continue reading articles and statements with my new lens. Try doing the same, you may reach the same conclusion.

Now I’ll retire to read my Christmas treat, the Economist. I’ve only read two special articles so far and already I’m captivated, the comparison between Martin Luther and Facebook was simply brilliant.

Happy Christmas and a healthy and peaceful 2012.

After Democracy - The World of John Lennon

Imagine there’s no countries, it isn’t hard to do, nothing to kill or die for, and no religion too.

How did countries come about? Originally we were individuals, then loose groupings, then tribes. The people who grouped us into countries were Kings, or Priests, or Landowners, all looking for ways to legitimise their established advantages. It enabled laws (initially on things like slavery and surfdom), taxes and tithes, trade, and borders – to keep people in, and to keep people out.

Now we need laws, and taxes. And we benefit from trade. But most of the rest of that list only do harm to development. And what if the good bits – laws, taxes and trade – could be managed within a single global country? Why not?

The start of this line of thinking was to look at the mess democracy is currently making. Democracy itself is not the problem – indeed it seems better than other systems – but we have allowed it to become misused.

A lot of this is about language, and the use of language to pursue tribal goals (for the modern day Kings of course). Democracy becomes associated with freedom. What sort of freedom? In some countries freedom becomes associated with God, a God who somehow is on our side.

I’m sorry to be blunt, but this is almost akin to fascism. Freedom is a relative concept, applicable only to insiders and within defined boundaries. How can we espouse freedom when we invade others, build fences, lock up so many citizens, allow an explosion of inequality, and allow our establishment to peddle lies?

Good concepts have been taken over for tribal ends here. It was interesting this week to read that Egyptians are not hankering for democracy and freedom, but for dignity and justice. These are better goals, and the system should be shaped to deliver those goals, rather than be the goal itself.

So what system best delivers dignity and justice? I think I would add a third goal, something about development - a sustainable positive evolution of living standards. That is a bit wordy, but it covers things like health (eg. infant mortality) and other such progress.

Let us learn from other systems that have lasted to course. Families can be functional or dysfunctional, but their strength is their compact self-support mechanism. A lot of our dignity comes from our family, at least when it works well. Families distribute blessings with some justice, and protect the weak.

Churches have perpetrated some of the worst evils on the world over the centuries. But, at their heart and when well-run, they promote values supporting dignity and justice. They help our sense of belonging, distribute blessings, and make us humble.

Companies allow development through innovation. They rape the world’s natural resources and have little sense of sustainability, and, unchecked, can lead to terrible inequality. Yet I would argue the best run companies do more good than harm. And we know that families, Churches and governments would have struggled to give us the internet or modern medicines. So let us embrace them.

So what about countries? Unlike companies, they rarely evolve. Few people change country, few countries perish or merge. Unlike families, their system of redistribution is inefficient, and, unlike Churches, their values are almost always tribal. If you doubt that, just look at David Cameron this week, defending a national interest over a greater good, and a national interest based on a parasitic sector of the economy driving shameful inequality, no less.

Elsewhere, we have Belgium that took 500 days to form a government, Greece and Italy where bankers have taken over, a USA where Gingrich might become president. And let us not just knock the West. Russia, DRC, or Venezuela or hardly role models. China has at least managed the macro-economics a bit better, but at the expense of dignity and justice.

No, countries, you are the weakest link, goodbye. Imagine what might have happened in Durban if everyone had not been constrained by tribal economic or political interests. Europe has got itself in trouble over the Euro, but let us celebrate the single market and Schengen as the wonderful drivers of dignity, justice and development that they have been.

Most of the economic mess comes from imbalances between countries. Each country tries to optimise its own affairs, and it is the structural imbalances that have resulted that led to the system clogging up. A single currency and central bank, like the Euro but backed up by a fiscal framework, could respond as required. Global austerity would never be needed. Globally, we could also have a balance sheet as well as a current account, with scarce assets valued, and, for example, a carbon price.

What I would propose is a global governance for global issues, run by technocrats using universal principles. We need one currency, one central bank, one monetary and fiscal framework, one energy framework, one supreme court and so on. There would be free movement for all, a single competition framework for business, and no trade restrictions. Then, within that framework only, allow communities to form and run their affairs using democracy, with powers to raise taxes. Using modern technology, we could change our chosen teams easily, thereby facilitating good competition. Things like health and education implementation, rubbish collection, police and fire and so on could all be managed very locally.

Great changes like this have traditionally only followed wars. This morning I looked up the visionary fourteen points of US president Woodrow Wilson in 1918, which sadly became watered down by inter-country rivalry. In the late 1940’s, we did a bit better, with some sort of UN, a global declaration of human rights and the Marshall plan. Sadly, as always happens, the existence of countries has meant we have backtracked from there ever since.

So there is little chance of a such a change without another war. The Economist this week had a chilling comparison of the current global economy and policies to the 1930’s. Hopefully, this one won’t need a war to sort out. But we can dream, like Lennon. Next exercise will be to dream up fourteen points for today, as a sort of global charter

My Favourite Course

I’m still thinking about what to do with democracy. Somehow, the main problem is that the concept of a country has become outdated. It is far too small an entity for some modern challenges, yet far too big for others. We have a vote, but only within this out-of-date bounadry. Keep the votes, but change the structure. More to follow.

In the meantime, I was gratified to read an article in this week’s Economist about Harvard’s MBA. They want to change the basis of syllabus and teaching away from one based on case studies towards more direct field experience. Hooray, I say.

The article brought back happy memories of a course I did at Shell in the mid 1990’s. That course has stayed with me, as the most fun and the most beneficial I ever did. I still use the lessons today.

The whole basis of the course was that we were split into teams of about four, and sent out as consultants to a small business for two weeks. The time spent with the small business was interspersed with some classroom content. At the climax of the course we had to present our ideas for our small business – to our teachers and the managers of the small business itself.

This was a neat idea. Once a year Shell took out an advert in a trade magazine looking for volunteer small businesses to accept raw consultants. It was potentially a good deal for them, as they got some fresh insights and at least some cheap labour for a couple of weeks, for free.

I was blessed in the business I was assigned to. My team worked with a Jewish butcher from the east end of London. They had a processing factory near Smithfield incorporating a tiny office, and a shop in Golders Green. The employed maybe twenty staff, and, like most small businesses, most of the leaders came from the same family.

We had such a laugh. The family really welcomed us. Their own relationships and business practices were bizarre and funny. The boss was constantly doing deals on his mobile phone (a new gadget at the time) and played a passing impression of Topol from Fiddler on the Roof. It was an insight into a totally unfamiliar world for us, and a privilege to be included. I will always remember doing a price survey and market research among the Jewish housewives of the Golders Green road.

I recall that one challenge the business faced was about the weekly cycle. Smithfield only had its best value meat on Friday, in time for weekend shoppers. During the winter, the firm had to buy meat, get it blessed by a Rabbi, process it and distribute it to stores, all before sundown, when Jews have to stop working. You don’t get that sort of challenge in MBA text books – yet it mirrors something very realistic for many businesses.

In the end, I think we gave the family something of value, though I have doubts whether they implemented any of it, such was the impulsive nature of the boss. But the gain for our team was immense. And the reason we gained so much was because the course directors sent us into the field and did not get in the way.

A case study is almost always from the point of view of the CEO, with defined parameters. Field studies expose a broad canvas of human actors with human issues. Just like real business.

A case study can be solved at leisure, in the time of the students. A field study has to respond to the tempo and distractions of the client. Just like real business.

A case study is constrained by a classroom. Field studies show the squalor and primitive conditions most real businesses operate in. For a load of pampered Shell kids, that was perhaps the biggest realisation of all. Real business is not usually like Shell business.

A case study has a financial and a strategic element. Only a field study can show up conditions where the cash needed to pay the wages the next week is the dominant consideration, yet somehow the business has to drive forward in that environment. Just like real business.

In a case study students have to convince learned professors of their ideas. In a field study, students have to gain credibility and influence among real decision makers, often with very different world views. Just like in real business.

Altogether, a field study offers potential a case study can only scratch at. So why has it taken so long to move from case studies? Well, the professors mainly. The former approach allowed them to show off their brilliance in the classroom. It allowed them to re-use material time after time. There was little risk of students coming up with angles and challenges that other students had not brought up before.

In a field approach, the professor cedes control. In a way, the professor becomes like another student, trying to understand the subject company and fit its challenges to familiar models. Hard work, that. And perhaps beyond the skills of most of the cosseted professors out there.

So well done Harvard, I applaud you, and I look forward to the day when a field based approach is standard practice and MBA students can emerge so much better qualified as a consequence. It doesn’t surprise me that Harvard professors required convincing before accepting this new experimental approach, and no doubt they will find other reasons to slow it down. But my guess is that this is the start of a whole new way of teaching MBA’s. And not before time. After all, some trainer at Shell thought of it twenty years ago.