Monthly Archives: December 2012

More on management

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In my previous post I made a rare foray into management, having just finished [amazon_link id=”0446571598″ target=”_blank” ]The Org [/amazon_link]by Ray Fisman and Tim Sullivan, which applies the economics of transactions costs and information asymmetries to real life examples of organisations from the one-man craft business Urban Spectacles to the US Army. Today I learned of a forthcoming book that sounds like the ideal (wholemeal) companion to it, [amazon_link id=”0691132798″ target=”_blank” ]The Handbook of Organisational Economics[/amazon_link] edited by Robert Gibbons and John Roberts. I’ll try to review both over the Xmas holidays. It’s great to see some serious economic analysis, both academic and more popular, encroaching on the terrain so extensively occupied by non-rigorous and faddy management books.

[amazon_image id=”0691132798″ link=”true” target=”_blank” size=”medium” ]The Handbook of Organizational Economics[/amazon_image]

The challenge of management

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I’ve been reading a superb forthcoming book on management (yes, such a thing can and does exist), [amazon_link id=”0446571598″ target=”_blank” ]The Org: The Underlying Logic of the Office[/amazon_link] by Ray Fisman and Tim Sullivan. I’ll save my review for a bit closer to publication date in January.

[amazon_image id=”0446571598″ link=”true” target=”_blank” size=”medium” ]The Org: The Underlying Logic of the Office[/amazon_image]

But meanwhile, the discussion in the book on information flows within the Org reminded me of the brilliance of Edward Tufte on how information is presented. Most Orgs use Powerpoint of course. Tufte is a sworn enemy of Powerpoint. Here he is on how Powerpoint contributed to the Columbia disaster, while his brilliant book [amazon_link id=”0961392126″ target=”_blank” ]Visual Explanations [/amazon_link]has a powerful account of how a properly presented graph might have prevented the Challenger disaster. (All his books are brilliant.)

Tufte’s Challenger graph – extrapolate the line to the left to estimate roughly how much damage might be caused by the actual launch temperature

[amazon_image id=”0961392126″ link=”true” target=”_blank” size=”medium” ]Visual Explanations: Images and Quantities, Evidence and Narrative[/amazon_image]

Good management, like good decisions of any kind, depends on using information wisely. And that depends on how the flow of information is structured and then presented, given the limitations of our perception and reasoning abilities.

Actually existing utopias?

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I’m pondering what to write about Erik Olin Wright’s [amazon_link id=”184467617X” target=”_blank” ]Envisioning Real Utopias[/amazon_link], for a debate in the New Year over at Crooked Timber. The book has a few examples of ‘real utopias’ – the Mondragon co-operative, Wikipedia – but only a few. It set me pondering about putting utopianism into practice. Of course, the internal contradiction of ‘real utopias’ is intentional. Thomas More knew no such societies were possible when he wrote the original [amazon_link id=”0140449108″ target=”_blank” ]Utopia[/amazon_link]. As in so many socially progressive movements, the Victorians were the real pioneers. Robert Owen is one of my favourites, manager of a Manchester mill and a member of the Manchester Literary and Philosophical Society before going on to turn New Lanark into a ‘real utopia’.

I’ve not read much of Owen’s work, and that a long time ago, but found certainly in my youth found it hard to disagree with any sentiment he expressed in [amazon_link id=”0140433481″ target=”_blank” ]The Social System[/amazon_link] (1826): “To train and educate the rising generation will at all times be the first object of society, to which every other will be subordinate”. And in New Lanark he put into practice his view about the importance of early intervention, more than a century and a half before this truth was rediscovered in modern policy: “The Institution has been devised to afford the means of receiving your children at an early age, almost as soon as they can walk. By this means many of you, mothers and families, will be able to earn a better maintenance or support for your children; you will have less care and anxiety about them, while the children will be prevented from acquiring any bad habits. and gradually prepared to learn the best”. (Address to the Inhabitants of New Lanark, 1816). New Lanark didn’t close as a working mill until 1968.

Although I can think of other utopias, imagined ones of early modern times and actual ones in Victorian times, existing modern ones are hard to find examples of. Any suggestions?

New Lanark in the 1950s, from http://www.undiscoveredscotland.co.uk/lanark/newlanark/index.html

Find me some economists who support my views

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At the end of last week I did a talk based on the [amazon_link id=”0691156298″ target=”_blank” ]Economics of Enough[/amazon_link] at the Netherlands Environmental Assessment Agency (PBL) followed by a workshop at the Netherlands Scientific Council for Government Policy (WRR). It’s always interesting to present to new audiences because of the varying expertise and viewpoints they bring, and it also gave me a bit of an insight into the institutional structures of government in a country I don’t know all that well.

[amazon_image id=”0691156298″ link=”true” target=”_blank” size=”medium” ]The Economics of Enough: How to Run the Economy as If the Future Matters[/amazon_image]

The themes from the book I highlighted in this case were: (a) that there is a challenge of sustainability in several domains, not just the environment. After all, the financial system was literally unsustainable and stopped working. Addressing one element is likely to involve the others, because there is a common thread in the lack of attention paid to the claims of the future; and (b) that economists and other experts need to do a far better job in measuring stocks of assets as well as flows and telling in an accessible way the tale of the extent to which current consumption has involved running down natural capital and building up financial and other debts.

The audience asked lots of perceptive questions, and challenged parts of my talk – especially my contention that ‘zero growth’ is neither desirable nor possible. So many people think of GDP growth as purely material – more designer handbags and big cars – whereas it is largely intangible in the advanced economies and anyway much more about innovation, new services and products, than about stuff. But this is a debate where environmentalists and economists are likely to continue to disagree. One of my interrogators, Wietske ter Veld (a local and regional politician and teacher of environmental sciences) kindly sent me her take on economists – and politicians, below. I would have to agree with her that we’ve got a long way to go on the political economy of policies to achieve long-term rather than short-term aims.

© Wietske ter Veld

A re-set proposal for the Euro

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It seems a bold mission, to propose a solution to the Euro crisis in 80 pages. All the more so when the authors of The Euro in Danger: Reform and Reset, Jagjit Chadha, Michael Dempster and Derry Pickford, compare the present situation in Euroland with Lord Palmerston’s verdict on another European crisis: “Only three people…have ever really understood the Schleswig-Holstein business – the Prince Consort, who is dead; a German professor, who has gone mad; and I, who have forgotten all about it.”

This short book or long pamphlet also acknowledges that, as in the old joke, if you wanted to get to a sustainable Eurozone currency union, you wouldn’t be starting from here. It has some extraordinary charts, including one recording the movement of Target 2 balances, another showing the movement of unit labour costs – the message of every one of them is a story of dramatic divergence between the core and the periphery since 2009.

Nevertheless, the authors argue that the Euro should be saved, and they have some proposals for doing so. Their suggestion is what they describe as the ‘reset’ option: the peripheral countries should be allowed out temporarily in order to return as members when certain conditions, including those elusive structural reforms in labour markets, had been met.

Meanwhile, the book argues, the monetary union of the core Euro states should be strengthened, with steps towards full banking union and the ECB to act as a classic lender of last resort in future crises, an independent fiscal monitoring body, and a European Sovereign Bankruptcy Court. The authors would also ban certain derivatives transactions including the ‘Tobashi swaps’ used to hide the scale of Greek and Italian sovereign debt (widely sold, the book reports, by Goldman Sachs, Morgan Stanley, JP Morgan Chase, Deutsche Bank, Bank of America, Merrill Lynch, Nomura…..).

As for the ‘reset’ option, this would require temporary departure for the Eurozone and devaluation before joining a crawling peg against the Euro, a haircut on sovereign debt, monitoring of fiscal policy by an independent body, and increased reserve and capital requirements for domestic banks, as well as economic reform.

Reading about such details always makes me feel about as well-informed about the Euro crisis as I am about Schleswig-Holstein. The one thing that’s perfectly clear to me is that the peripheral countries will need to default in some form, as their debt burdens are unsustainable. Others who are more expert than I am will be better placed to evaluate the specific proposals in this book. It does all seem entirely level-headed, but one has to wonder about the political feasibility of sensible reforms.