Category: Business

More French Anglo-Saxon Bashing

Pres. N Sarkozy

“Do you know what it means for me to see for the first time in 50 years a French European commissioner in charge of the internal market, including financial services, including the City (of London)? I want the world to see the victory of the European model, which has nothing to do with the excesses of financial capitalism.” (As quoted by The Daily Telegraph.)

“Victory”? So we were at  war, then? Oh dear ….. you are 60 years out of date old boy, or perhaps 500 years! Does Agincourt still hurt so much?

One has for some time had the feeling that Europe’s leaders are a mediocre lot, with “statesmen” being very thin on the ground. Unfortunately, this impression has just been reinforced by Nicholas Sarkozy’s outrageous, finger-wagging gloating about the appointment of Michel Barnier to the EU post of  Internal Markets Commissioner.

From this lofty position this mighty expert on world financial markets threatens to regulate the City to “European” (aka French) “‘standards”.  The rationale will be to avoid another financial crisis by “reining in” the banks. The not-so-hidden agenda will be to sap the vitality of London so that Paris and Frankfurt in particular can cream off some of the rich pickings.

This is stupid and reprehensible for a number of reasons.

Firstly, any cutting-off of the City at the knees will not result in financial firms emigrating to sclerotic, over-regulated, pretentious, high-cost, overblown Europe but to the USA or elsewhere. True, the US is reeling at present, but I for one won’t bet on the mighty beast remaining on its knees for very long. And when it does rise up again, Europe will still be the same old bureaucratic, state-interfering, suffocating, high-tax business and financial environment that we know and hate.

Moreover, Sarko’s diatribe is extraordinarily partisan. If London’s City is a world financial centre, then this is to Europe’s advantage as much as Britain’s.  Sapping its vitality will hurt Europe, ensuring that more financial business flows elsewhere. In the electronic age, it is not fine French wines or German Wurst that will keep these companies in France or Germany.

And what sort of pro-Europe message are such comments going to send to ordinary British voters, who all polls suggest would actually vote to leave Europe if given a choice, which of course they will not be? Britain has lost almost all its once-mighty fishing industry, still pays to support French farming, has almost no indigenous motor industry any more … but at least we have the City. If Sarko’s hatchet-man gets his way, it will be regulated to its knees …..

Sarkozy’s comments were the most prattish, partisan, nationalistic and stupid comments ever made by one of the principal leaders of Europe. And apart from anything else, Barnier has to swear to uphold the interests of ALL EUROPE when taking up his post; the fact that he is French should be IRRELEVANT. The nationalistic cynicism of Sarkozy’s comments are breathtaking. There have  been frantic efforts by Barnier himself to backtrack in recent days, as London seethed at Sarko’s comments. But you can’t undo the past. Sarkozy said what he said; one has no reason to suppose he didn’t mean it.

Yes, there have been terrible excesses, but not all the City is to blame. And German and Franco banks hardly kept their snouts  out of the trough, almost ALL European banks having been clobbered,  so inter-connected is the banking world. And I for one haven’t forgotten the shameful fiasco at French Credit Lyonnais a few years ago, nor the recent £5 billion loss ($8 bn) by a rogue trader at Société Générale two years ago.

“The European Model”? It is laughable ……. Continental Europe has nothing to teach us about creating a healthy economy and sustainable jobs.

Sadly, Sarkozy’s narrow-minded nationalism have been matched by the stupefying incompetence of the British government in failing to block the appointment of Barnier, a well-known regulator à la française and the last thing Europe needs. We need reforms, yes, but throwing the baby out with the bathwater was never a good idea, and nor is it now.

And Mr President – less of that finger-wagging please …..

By Chris Snuggs

Let’s Introduce Obama’s Left Hand to his Right

To post or … what to post?

As I was perusing the business press this morning, an article caught my eye:  “That would make a great post!” I thought to myself.  I continued reading through the rest of the articles, intending to go back to the one that piqued my interest to compose a comment.  Of course, when I went back, I could not find it!

Trouble internally

But in the process of looking for that particular paragraph, I noticed something troubling. Something that, should my students’ papers include the same, would bring their score down by a full letter grade, if not more.

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Natural selection, at work?

I want to be like you!

Recently there was an event at which Bill Gates and Warren Buffett answered questions from students of the Columbia Business School in New York. I referred to the event recently when writing about Warren Buffett.

So why were these students interested in Messrs Gates and Buffett? It is, of course, because they are successful.

While different people define success in many different ways, we can be reasonably sure that, in the context of a business school, most of those business students would categorise Gates and Buffett as being among the most successful people alive.

So what did the students ask about? Well, of course, they asked about success! The questions were of two main types.

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Paul Krugman’s Endless Ego

A small challenge to a Nobel prize winner in Economics!

In a recent New York Times op-ed, Paul Krugman continues his boundless quest to become the “it” guy in the world of economics.  I have taken issue with his command of basic economic facts in the past — a gutsy, if not insane thing to do given the man was awarded a Nobel Prize in Economics.

Krugman accepting the Nobel Prize

This post is more about ego than economics, however.

In this op-ed, Mr. Krugman says (and I kid you not),

…But after the debacle of the past two years, there’s broad agreement — I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll — with Mr. Turner’s assertion that a lot of what Wall Street and the City do is “socially useless.” And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits. What’s not to like?

Well, I disagree with the idea that what Wall Street does is socially useless.  And I am not on the financial industry’s payroll.

Nope, I’m just a simple economist, using my head, training, and experience to consider this idea, map out the pros and cons, and analyze the logical end-game of such a tax.  I conclude that it is a really bad idea.

Why?  There are lots of reasons, but I will mention only two.

  • One, raising taxes reduces private economic activity, which will curtail growth, reduce tax revenues and increase the deficit.
  • Two, taxes distort the price signal between suppliers and demanders of goods and services, including financial capital, reducing economic efficiency.

His reasons?  Other than citing one academic study (while ignoring the many others that reach a different conclusion), he gives no economic reasons for his views.  Instead, he make claims. He claims, for example, that “socially damaging behavior … caused our current crisis.”  He says that the financial services industry is “bloated” and needs to be cut down to size.   He says that the new tax is okay because it raises revenues for the government which, he claims, should make us all feel better about the deficit and, apparently, the size and nature of government spending under Obama. And, the lamest of all, for no other reason than to hide behind their skirt, he claims the existence of some phantom majority, apparently to create the impression that anyone with a different view is clearly in the minority.   A tactic that should be beneath a Noble Prize winner, but one that runs through his work with increasing frequency over time.

But, Mr. Krugman, I so disagree with you.  And even in an op-ed piece — perhaps especially in an op-ed piece – I believe that one needs to reign in an ego that would parade claims as facts, especially when each of those claims is disputed by your fellow economists, none of whom stooped so low as to imply that you were paid for your views.

By Sherry Jarrell

Mind over Matter: does it matter?

An example of how we really do own our lives.

We were invited to our friend’s 25th Wedding Anniversary on Saturday, 21st November.

English pub

It was in a local pub and they had invited many friends, some of whom we had not seen for many years.

One friend had started his own architect business, built it up over the last 10 years and, although he had lost a large amount of work because of the recession, things seemed to be picking up.

I mentioned that my work had dropped off dramatically since the summer. He said:

Well, Jon. You can make your own mind up what you do. You can either decide you’re going to go bankrupt or you can decide that you’re going to succeed –  in spite of everything.

For some reason, that short conversation had a huge impact on me and I realised that it really is mind over matter and once we make our mind up about something, good or bad, it tends to happen.

By Jon Lavin

Why the Anger over U.S. Executive Compensation?

Pay and the Free Market

It came up again in conversation today:  someone was offended and upset over the level of compensation of some senior executives in the U.S. economy.   I have to admit I just do not understand the anger. And I have a fundamental lack of respect for the arguments that have been served up thus far in support of the position.

I have tried to resist drawing the conclusion that the anger is born of envy, but I am very close to throwing in the towel on that one.  Why should we begrudge anyone who earns a healthy salary, especially in an economy that provides each of us the opportunity to aspire to the same?

Even if there were reasonable ways around the practical issues and costs associated with legislative caps on salaries — how to set them, who sets them, using what measures, what value judgements — it simply makes no sense.  It is the antithesis of a competitive market economy where individuals have the incentive to learn, grow, work hard, and succeed.  It ignores the role played by capitalism in creating a strong and vibrant private economy that provides endless opportunities for all who want to put in the hours and the effort to succeed.

U.S. corporate governance rules provide the framework for determining the compensation for senior executives, and it works remarkably well.  Each shareholder, or owner of the company, gets one vote on material issues such as reorganization. The Board of Directors is responsible for hiring and firing senior management on behalf of the shareholders.  If the shareholders do not like the decisions of the board, including those that set the level and form of compensation for senior management, they have at least two, very effective choices. They can either sell their shares in the company or they can vote to replace the board members.  The board can take several steps if, after negotiating the compensation package for senior management, the executive fails to perform. The board can withhold the bonus, renegotiate the terms of the contract, or fire the executive.  Then the long, mostly objective arm of the competitive labor market will determine the market-clearing value for the skills and experience of the recently fired executive.

One thing I’ve never quite understood is why the market doesn’t seem to exact more punishment on senior executives who run their companies into the ground.  Maybe there is an old boys network that looks out for ex-executives; maybe my observations are biased; maybe I notice only those cases where failed executives rise again.  But it’s an empirical question, in any case; we can gather data on the issue and study it objectively.

Regardless of the conclusions of such an analysis, however, decisions about executive compensation must remain in the labor market where your ability to produce economic value still reigns supreme over your ability to curry votes and political favor.

By Sherry Jarrell

Remarkable people: Tim Smit

The Eden Project in Cornwall, England

To lead the project which took an old clay pit in a remote corner of the UK and converted it into a world class environmental visitor attraction is a tremendous achievement.

Homo sapiens? A game show!

Tim Smit had some fun with the business community at the 2009 Annual Convention of the UK Institute of Directors. Everyone, including he, was in their best business attire, but very few people could get away with crumpled shirt and jeans!

However, he has a serious message about the environment (1:55) and he knows a thing or two about people as well!

Monty Python: is there intelligent life on earth?

For fun, and on an Australian tack, Eric Idle is not so sure.

By John Lewis

Remarkable people: Warren Buffett

What does Bill Gates admire about Warren Buffet?


On this blog about integrity, and in these difficult economic times, it is particularly poignant to note that Bill Gates cites Warren Buffett’s integrity. This was during a recent event at Columbia Business School in New York City, see below.

While many of the questions from MBA students and the answers from Gates and Buffett are not new, Buffett’s brief witty and topical comments provide considerable insight into his thinking.

It is particularly interesting to get a sense of how the world is viewed by people with their perspective. When asked about the outlook for America, both Gates and Buffett answered that it is very good. Warren Buffett even offered any of the MBA students $100,000 in return for 10% of their future earnings. Later, he increased the offer to $150,000, if they received training in personal communication skills!

Watch them together on CNBC at Columbia Business School, New York City on November 12, 2009.

Maybe you are interested in further information about Warren Buffett, if so you are not alone. The BBC, among others, have taken a strong interest in him recently.

You might like to read and view some recent stories on the “Oracle of Omaha” including:

Despite a setback in 2008, Warren Buffett’s long term investment success is without question.

By John Lewis

Government Spending and jobs! Uh? What jobs?

Government spending isn’t what it is made out to be.

The headlines are full of claims about the number of jobs created or saved by the stimulus package, the impact of the Cash for Clunkers program on U.S. output and, the latest, the reduction in the deficit from the proposed U.S. health care reform legislation.

What total rubbish!

Government spending is just that — SPENDING.  It does not, can not, never has, and never will CREATE any output, economic wealth, or job.  The only way — and I mean the ONLY way — that profits or wealth or a new job is created is through a business.  Businesses are the only entity that can hire labor and capital and combine them in such a way as to create a product or a service that society may decide is worth more than it costs.

And that spread between the cost of production and what society is willing to pay is economic value; it is the generation of profits that then enables the taxes that the government collects to spend on the goods and services it thinks America ought to consume.

Private industry is the job creator.  Not the government.   And this is not wishful thinking, or a political point of view, or a theoretical model.  It is an unmitigated, irrefutable fact.

By Sherry Jarrell

The rights of the child

A reminder of the United Nations (UNICEF) Convention and a second view from yours truly.

On November 12th I was the author of a Post called Our next generation featuring the young Jessica Watson from Australia who is on course to try and win the record for the youngest person to sail, solo, unassisted, non-stop around the World.  Here’s a part of what was said:

Jessica Watson2
Jessica Watson

Jessica Watson is a teenager.  She is hoping to break the record for the youngest person to sail solo, non-stop and unassisted around the World.  Whatever modern materials and technology can do to make sailing easier, sailing solo for weeks on end is grindingly tough at any age.  She’s a wonderful example of the next generation!

Jessica left Sydney Harbour on October 18, 2009 sailing her sloop Ella’s Pink Lady. Her course is an estimated 23,000 nautical miles requiring her to be roughly 230 days at sea.

You can see that the tone of the Post was supportive.

However the comments that the Post attracted were critical of the pressures and influences that may have been brought to bear on this child.  For at 16 ‘child’ is what Jessica is.  One of our regular contributors pointed out that under the terms of the UNICEF Convention:

The Convention on the Rights of the Child is the first legally binding international instrument to incorporate the full range of human rights—civil, cultural, economic, political and social rights. In 1989, world leaders decided that children needed a special convention just for them because people under 18 years old often need special care and protection that adults do not.

(My underlining)

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