Tighten your seat belts. Good overview of next installment of the financial crisis

I am optimistic but

attend to the facts

I think we live in oddly optimistic times, but only if we attend to the facts.  Financial facts can be hard to come by and its very difficult to find the whole picture laid out in one place.

The Huff has a summary of the financial crisis in April 2010

  • our total national debt as you and I understand it – what we owe not just what the government owes
  • how much is underpinned by China
  • what China wants done and what IMF is doing RIGHT NOW

The Huff’s general message is tighten your seat belts.  The critical ideas seem to be

  • Debt repayments due in April 2010
  • Chinese/IMF proposal to introduce SDR’s – in short an international reserve currency which allows countries with surpluses to hedge their bets across countries looking for bailouts (us)
  • Where (and to whom) our money has gone (we really should get back what is left)
  • A crisis due in the next month or so (hang on to your seats)

We can afford what we create

The golden rule of economics and politics

It is all that we need to know really.  We can afford what we create.

Our plan of work tells us what we can afford

And from the golden rule ~ we can afford what we create ~ we have two other rules.

It is better to work with others than alone

None of us can create everything we want, or need, to afford.  It matters that we belong to a bigger group or tribe.

The collective to which we belong tells us what we can afford.  Our family, our company, and yes, the country, the sovereign state to which we belong, define what we create and our lifestyle.

When I am writing, someone is creating the electricity that powers this laptop.  While another person is making my washing machine (running in the background), I am looking for easy-to-understand writing on our economy that cuts through the obfuscation delivered by politicians.

The system matters.  Our place in it also matters.  But the whole,  the collective, is what we must keep our eye on.  Where we draw the boundary matters.  Because we can afford what we can create. Who is weBetween us, we create what we can afford.

Draw a circle around who we trust, and who lives and breathes because we live and breathe, and we have defined what we create and what we can afford.

If that circle is too small to define the lifestyle we want,  there is our first task.  Widen the circle. Widen the  magic circle of trust.

We need leaders who instinctively read that circle and work with our neighbors, suppliers and customers to widen our system.

Tell me what you are going to do.  Economics will follow.

The second rule that follows the golden rule is that value comes first.  We can check the economics afterward.

The clear writing economist, Ann Pettifor, makes this point well.

The central bank in each country should set the money supply to match the economic capacity of a country.

She doesn’t like using a household or small company as an example.  So let’s use a giant multinational.

When a giant company needs something done, and they are pretty certain it will work out, they put up the budget and let the managers and workers get on with it.  Money comes first in time.  But profits, and worrying about profits comes last.  Paying back the investors comes last.  We will recover our money provided we only put up the amount of money that the work was worth.

But we will never make money unless we have the money to bring a team together and get going.

The skill in managing, and financing, a major investment is understanding what venture is worth.

Before you tell me that business does not work like that.  It does.  Don’t confuse where you work with successful companies and successful public service.  I’ve consulted to them.  I’ve led in them.

I have two rules:

  • What do you want to do?
  • After you’ve told me, we’ll run the numbers to make sure it is economically viable.  If not, we go back to question 1.  What do you want to do? We begin with the value.  We begin with what you want to create.  Economics follows.  If you want to do it, we will back it.

We can afford what we can create

These are our questions.

What can we create?

Who do we create it with?

What is our potential that we are not using?

To find our potential: ask people.  What do you want to do?  When that is on the table, we’ll run the numbers.  If the numbers hold together, we back their plans.

The golden rule and Britain’s government deficit

Ann Pettifor puts this story in the context of Britain’s government deficit(which is large but not nearly as big as the bank bailouts).  She is standing for parliament but don’t let that dissuade you.  She writes clearly.  That alone is a good reason for electing her.

The collective, Britain, defined by the reach of the Bank of England and the reach of the pound sterling, has potential.   Fund it.  A simple message.  Fund what we can create.

The only question that I ask, and I’ll go to her blog now to ask the question, is how quickly will we recover the money?  I think I would like to see the numbers run by month, quarter and year.  Then I would feel more comfortable.

Then my trust would increase  Then the collective strengthens.

Sometimes economists (and lawyers and accountants) forget that everything they do depends upon us believing it.  Yes, the outer boundary is the reach of the pound sterling.   The real boundary is our belief in each other.  Some people call this belief ‘confidence’ but that is the wrong measure.

Confidence  is self-efficacy.  The correct measures is collective self-efficacy.  The question for that is “Do I believe that you will do better economically this year?” When we answer yes to that question, then we will boom.

But first the question of timing.  I must ask Ann that.

For now I am thankful for finding that quotation.  Simple.  Pithy.  We can afford what we create.

Followed by my two rules.

  • People matter.  Who is we.
  • We’ll check the economics after we have decided what we want to do.

P.S.  I googled “we can afford what we create” and I didn’t find any other reference to it.  Did Ann coin this phrase or is it a well known economic expression?

Multiplicator effects – key to the economy, key to our business success

Multiplicator effect

I sat down this morning to ponder the multiplicater effect and what it tells us about management in the new age of knowledge and information.

This is how I look at it.

In the 1900’s

In the olden days, business was like a household budget. Money came in and money went out.

The way to get a bit richer was to take the job you did and get someone to do parts of it more cheaply than you could do yourself.

Let’s imagine I was a cobbler. If I could get you to stand in a line and one of you put on the soles, one thread the laces, and so on.  I could pay you each less than I could pay myself. And I could keep the profit that each would make if he worked for himself.

We used simple arithmetic and success was mainly about keeping the change.

Confusing housekeeping with economics

This business model leads to weird behaviour. Everyone believes that a one pound coin is indivisible. Either I have it, or you have it. And we fight to the death over it.

National wealth does not work like that. Indeed, company wealth doesn’t work like that.

Stock turn is important in shops. I don’t want to buy stock and having it sit on the shelves. I want it in and I want it out and the money banked. Circulation is the key. Not hoarding.

In a town, the same applies. When we fight over the one pound coin, we are wasting time and energy. Let me buy something from you with the coin. Then let you buy something from the next person and they from the next and ultimately someone buys from me. That one pound serves many of us. The more people served by the same one pound coin, the healthier the economy.

Installation art

I keep threatening to put an GPS device in a pound coin to follow it as it moves in the wild. If you would like to collaborate in that project, do get in touch.

In the 2000’s

In the modern business world, few of us are like the cobbler with a skill which can be broken into parts, each of which can be done by someone less skilled than us for less money than we would do it ourselves.

Adam Smith and the division of labor

In this day and age, that model of division of labour is a nonsense. Yes, it made perfect sense in the 1800 hundreds in Scotland when Adam Smith said that we can make more pins when we each made part of the pin. And maybe this rule-of-thumb is still true when we are making pins.

Today’s products are more complicated than pins

But in today’s world, we are often making something a lot more complicated than a pin. We’ve moved on. There isn’t any one person who has made the whole of what we are making. There isn’t any person who knows how to do everything. In truth, if we put a 1000 elves in with Santa we wouldn’t be able to draw or visualize exactly what we are making

We are like the blind men describing the elephant. I think the elephant is his trunk. You think it is his tail.

The elephant knows he is an elephant, of course. But he has no way of communicating with the blind men We have to wait until the blind men get the concept of a possible elephant and start communicating with each other. Then they can work out there is an elephant and what it looks like.

You cannot fool all of the people all of the time but there is no end to the people who will try

Now there are plenty of people out there trying to pretend that they know how to make a pin and hoping to delegate part of it to you. Notice well though, that they will be reluctant to give you a good contract that goes beyond chance.   They have no market for that pin. (Sorry people who make real pins ~ I know you are real.)

Before you part with an hour of your time, ask them for their sales report

The point is not that the heaven has finally fallen on Chicken Licken. The point is that the world is making bigger things than pins. When you hear someone claim that they understand the whole elephant and you should play a small part at the trunk for a pittance, ask sweetly to see the sales reports. They won’t show the report to you because it doesn’t exist.

Listen to those who want genuinely to collaborate

But when someone says, hey, I feel something interesting in front of me. What do you feel? Do you think there is any connection between what you feel and I feel? THEN, we have a show.

When we network our skills together, then we can make something that we cannot see alone.

This is not the age of division of labor

Division of labour aimed to do things faster and cheaper. Today’s world is about networking specialist labour to do something no one person or company can do alone.

This is the age of connecting with other skilled people

This is not the age of division of labour and making smaller and smaller things. This is the age of networking skill and making bigger and bigger things.

To be practical

As a career coach and work psychologist, I put my practical cap on and ask: what does this mean in practice?

  • The essential career tool of today is a set of modular pieces of work which have the potential to link up with others. I say potential because other people may not have work ready to link up.  We do our work anyway but rather than just do it, we do it in a way that has potential to link up with others so they can see where they could join in.
  • The essential career management tool of today is to be adaptable and do whatever work is available without losing sight of our skill base. The test of any task is not whether we are paid for it but whether we are willing to put it on our website for others to link up to.
  • The essential selection criteria for inclusion in a permanent team will be
    • number of modules we have available for others to use
    • the diversity of modules (are we able to clean the floor and do the accounts as readily as paint a Picasso)
    • the readiness at which we create modules in new situations (rate and diversity)
    • the connections we make with the team and importantly are now possible between other team members without our presence!
  • The ethics of selection come down to whether a person’s connections will be richer by working with us (do they become more creative and are they involved in richer sets of connections?)
  • Pay is likely to be more equal with money paid into development funds to pay for capital when it is needed and the opening up new opportunities. Where there are differentials they are likely to come from being central to a network because the pound moves through us more often (we buy and we sell). People who only sell should receive less.
  • Ranks of professions might change. Lets imagine we paid a toll to a receptionist each time we walked through the door. We might be come reluctant to have a receptionist. Indeed, this is a test of a division of labour philosophy operating. We may not need the service if we had to pay more for it. Let’s imagine the hospital workers mentioned in a paper today who create a lot more value than they take home. What if they decided to run a hospital and just hire the doctors and nurses around them. That makes sort of sense to me!
  • In the olden days, training meant starting with a small task and growing into the ‘owner’. Obviously the tasks in our early career will be small.  But what if the goal was to move increasingly into the centre of a network where we are able to work with a wider number of people?  Have the pound coin pass through us more often? What if the goal was to increase whom we are able to work with on a project of value?  What if I took a person into a room and said: take two people, figure out what they can do and figure out, not what you can sell to each of them, but what you can take/buy from one, transform and pass on to the next. It’s what entrepreneurs do, of course. But what if the entire training process was geared to the capacity to detect and executive collaboration?
  • Jane McGonigle lists the qualities of projects that have this magical capacity which I restated here I would look for these multiplicator competencies in someone’s portfolio and help them find opportunities to broaden their experience in new ways of working.

The beginning is the ability to do modular work that has capacity for collaboration. To be potentiated, so to speak, to collaborate. A change of focus but an important one. Learn to be a multiplier rather than a taker.

Are we done ‘bargaining’ about the financial crisis? I wish, but I don’t think so.

Denial, anger, bargaining, depression, action & the financial crisis

This time last year we were definitely in the first of the five stages of grief.  Denial: we couldn’t quite believe that the bankers had blown a hole below our a waterline.

A year later, economists at least, have moved on.

The Governor of the Bank of England said

The sheer scale of support to the banking sector is breathtaking. In the UK, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy.

To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.” (Governor of the Bank of England, in a speech, 20 October, 2009. )

Yes.  One trillion pounds sterling, 66% of the UK’s annual GDP of 1,4 trillion pounds has been put aside to mend the hole, lest it sinks the entire ship of state.

I don’t think the man and woman in the street quite grasps the size of the hole.  If they did, they would have stormed thelife-boats.

Professional economist are beginning to look at alternatives

The economists are beginning to debate seriously though.

Do we cut back hard to pay down our national debt – for which you and I must read – government debt?  Should the government stop spending like we might when we’ve just had an overseas holiday and put too much on the credit card?  Cut out all the luxuries till we have paid off our excesses?

Or do we need Keynesian economics to get out of this?  That is, should we spend money from the center to create a ripple effect?  For example, should the government spends 100 pounds on a new school, who pays the builder who pays the suppliers and who pays their suppliers who pay the supermarkets and who ultimately pays me.  All of us take part and we all pay tax and don’t claim benefits?

Ann Pettifor’s talk on Keynesian economics is 20 pages long.  If you are not an economist, put aside a couple of hours to get through it. It is worth the time.  First, it is clearly written.  You will understand the issues. Second, it is well written. It is nice to know that someone in England can still write a great speech (though she appears to live and work out of the States now).

Where are economists on the grief cycle?

So the economists are beginning to look at the facts.  What stage of grief are they in?  We need to know this so that we have a sense of how long the dilly-dallying will go on.

  • None are really proposing action.  The actions of others, yes, but not their own.  But they are along the track.  I would say the independent economists are around the bargaining stage – if we do this, it will be alright!
  • The Governor of the Bank of England, though admirably witty, seems to be further along around the depression stage. I do hate writing that.  It feels like tempting fate.  It’s relevance is this. It’s important to have a sense of when we will move collectively out of the state of shock and deliberation.  And it is important for younger psychologists reading this to store away a sense of how long community’s take to recover psychologically from extreme shocks so they are better able to lead when shocks happen in the future as they surely will.

We are gathering ourselves for action

We are still waiting for the leaders whose plans are not contingent.  We are still waiting for the leaders who say this is what I am going to do. This is what I am wholly committed to doing ~ so much so that I don’t have to say I am committed.  You see it in my eyes. You see it in my focused attention.  You see it in my invitation to join me.

We have a way to go.

CHECK OUT RELATED POSTS

Surprise! US is not overborrowed. But does it have Growth Story?

If you have even the slightest interest in living in the manner to which you have become accustomed, can I recommend you find 5 hours to watch these three videos of 12 economists talking what is happening in the US financial system and its dealings with the rest of the world?

I am just a lowly psychologist so I try to boil down economics to actionable rules of thumbs that we can use.  When you are done, I’d be interested in your take of mine.

1.  Find your growth story . . . and stick to it!

Find an industry that you enjoy, find the bit that is growing, and grow with it, wherever it takes you.

2.  Help you kids find their growth story

Invest in the things they love to do and take them on holiday to parts of the world where growth is happening.

Think abut a good trip to Brazil, Russia, China or India once in three years, rather than a time-wasting, resource-frittering holiday every year.

And if they have any inclination for languages, help them by doing their homework with them.   It may help when you talk to you grand-children who might be living in another country!

And may be include Arabic on you list of possibles.  Bang on the door of the mosque in your neighbourhood and ask them to include your children in their after-school activities?

3.  Remember that money is losing value as much as houses are losing value

Unless you have a lot of it hanging around, this is a good news story for you. Investors will want to invest in your growth story.

Don’t be desperate for their money. You have something as rare as hens’ teeth.

Bring in investors who believe in your story as strongly as they believe in returns on their capital.

And then write a tight contract for them!  This is a borrower’s market, whatever the mass media tells you.

4.  Learn the numbers and ask your MP and business leaders hard questions

The more we show that we know the numbers, the quicker they will get down and dirty with them too.

Let them watch 5 hours of videos on economic more often than we do.  That’s their job, after all. Let’s get our money’s worth!

5.  Vote with your ballot and your feet for people and firms with growth stories

Question the panic about government borrowing.

It may be different here in the UK – I wish we had a forum like these 12 economists here.  Common sense tells us, though, that we will only get out of our mess with a plan – a plan for getting out and moving along with growth stories in Brazil Russia India and China.

We don’t have to eat and drink ourselves silly to keep up. But starving ourselves and living in sack cloth won’t make us any richer either.

Government borrowing is only a problem when don’t have a plan to make businesses better over the next 5, 10, 20 years.

We want a growth story!  Can we start a fashion?  What will happen if we ask everyone you meet, what is your growth story!

Little known secrets about what a work and organizational psychologist will do for you in a recession

My job is to help you find forward momentum

I’m a psychologist. What this means, in short, is that you come to see me when you feel frustrated and it is my job to help you find a way forward.

Clinical psychology, social workers, lawyers & doctors

For some people getting out of a bad situation is complicated.  Quite often they are in extremely difficult circumstances and they need social workers, doctors, lawyers, etc. to help them solve practical problems.

They may also have lived in difficult circumstances for so long that they no longer recognize easy circumstances.  Helping them unravel their view of life and live an easier life is the work of clinical psychologists.

Work & organizational psychologists

Most people who come to see me are not in a bad situation.  They are at one of the normal turning points in life where they have to make a decision and they do not have sufficient information.  These turning points are often frustrating and scary, but they are essentially about questions like which organization should I join?  Or, how do I improve my status and my income?  Psychologists like me work less like clinical psychologists, who work with what is in your head, more like social workers, doctors and lawyers.  We help you understand and manage the external world, and in particular the world of organizations and work.

Indeed, we are quite often work for organizations rather than individuals and when we do, we are architects of systems.  We design selection systems.  We design disciplinary codes.  We design bonus systems.  HR systems are just formalized ways of making a lot of personal decisions about what we are doing and where we are going.  When we design the systems well, we give people an easy framework to make their own decisions well.  And we also strengthen the organization, by providing a place where we live and work comfortably and easily.

Work & organizational psychologists ask a lot of questions about work & business

To design good systems, we need to know a lot about jobs and business.  Of course, we don’t know as much as the people who run the business and who have worked in it all their lives.  Businesses and technologies change fast too.  So we are less in the business of knowing, and more in the business of asking questions.

Learning about the financial crisis

I started writing this post this morning after I read a post from the redoubtable Alice Cook, who provides a graph showing that financial debt has grown disproportionately to consumer and corporate debt in the UK.  I knew that generally but didn’t have a graph at my finger tips.  So thank you.  I like to have data stored away neatly.

Personal action during the financial crisis

I am amazed, though, that anyone is amazed by these figures.  Like many people, I feel that the managerial classes in the UK have a lot to answer for.  They should have known these figures intimately and acted accordingly.

The trouble is that blaming others is pretty useless as a psychological technique.  Professionals & business leaders may be to blame.  We might be right to hold them in contempt.  And personally, I wouldn’t feel unhappy if they were prosecuted.  But blaming others doesn’t help us feel better, and more importantly, it doesn’t help use get things right.  So I’ll leave that to others.

As a psychologist, what I have to say is this.

Until we are all a lot better informed, we will simply lurch from one crisis to another

Listed below are the bare bones of an information system that I am used to having at my disposal.

  • Trends in our industry
  • Current economic figures supplied monthly by our bank
  • People around me who read the figures
  • Key figures pertaining to our industry
  • Data on databases so that computer savvy people (including youngsters) can play with data and ask questions
  • Key figures that show the strength and resilience of our business
  • Key figures readily available so computer savvy people can play with them and ask questions

It is true I have not seen this information being made freely available to employees since I have arrived in the UK but I’ve lived elsewhere where a key player in the provision of information to people in business has been, ironically, British-listed banks.

If we want to get out of the biggest mess since the great Depression, we are going to have to do something. And to do something, we have to begin.  The first steps I will tell you, being a psychologist, is to ask questions.

Some easy no-cost first steps that individuals and small business owners should take

You have a computer and internet?  So let’s go.  If you haven’t already done it, it’s time to set up your own economic intelligence system.

FIVE steps will do it.  Set up folders on your email, feeds reader, bookmarkers and hard drive,  and a page on your blog.

1. Google Alerts.  Set up Google Alerts for your industry.

I have alerts for UK jobs and UK GDP and use a ‘rule’ to send them straight to my “intelligence” folder in email.  I read them once a week or when I need a break from other tasks.

2.  As you find useful blogs, subscribe in your feeds reader.

I scan these at my leisure and make a point of reading The Economist on Thursday evenings.

3. Bookmark articles you might want to come back to.

One big folder works better than many little ones.  Bookmarks saves you Google-time when you want to re-call something.

4.  Save useful graphs, data and pictures on your hard drive for the presentation you will make later!

5. Blog from time to time to organize your thoughts.

Then make an index of useful posts on a separate page where your readers can find all your writings on the future of your industry and local economy.

So will being economically-savvy help?

Keeping an eye on the economy does not stop other people from being foolish, of course.  And it can also make you feel panicky when you see a trend that no one else seems to care about.

I find that understanding the economy is like knowing the motorway ahead is congested.  I have created choice for myself.  I can keep driving and join the throngs inching along and losing their tempers.  Or I can pull off, and take a longer route through the back roads.

Neither may be a great outcome and it is also possible to put far too much effort into deciding the best alternative.  But I prefer a leisurely drive down the back roads enjoying the country view than boiling with frustration on an ugly motorway.

And I quite happy to leave behind badly run organizations for a business venture that is smaller and more likely to be here tomorrow.

Follow the good money

If you haven’t already done so, begin.  Spend a few hours a week following the economic data.  It gets easier.

And if we all do it, we won’t be routed by unscrupulous managers, at least for a while.