Fat people & billionaires

Before the storm that we neither predicted nor prepared for

I started reading Nicholas Taleb’s The Black Swan in May last year.  I took it to the Delfest music festival where we’d been promised bluegrass and sunshine.  A hurricane tore down the camp and flooded the fields.  The book sank in the swamp, was bravely rescued, and has since dried out.  I started reading it again the other day.

Taleb’s central thesis is that we are much worse at predicting events than we think we are.  In fact we massively overestimate our capacity for prediction. Continue reading Fat people & billionaires

These exponential times

Faster innovation. More churn? But no egalitarian paradise.

1.  A plummeting Coasean floor means we can do more things outside of traditional organizations like businesses.

Here’s a question that I try not to ask in earshot of my bosses.  Instead of employing me on a salary, why don’t my firm put out a tender for every piece of work I deliver?  In an open market, with other people competing to perform broken down chunks of my job, my company could end up paying less.  Reassuringly for me, Ronald Coase explained why in The Nature of the Firm in 1937.  It is because of the additional transaction costs that my firm would incur – in particular of finding a contractor and enforcing a contract for every piece of work I currently undertake. We can describe these kinds of costs as the cost of cooperating.   Companies exist in order to manage these cooperation costs.  They do things like employ managers and pay for HR departments  – and create, for the most part, hierarchical organizational structures – because, for the activities that they’re engaged in, this is a more effective way of directing a workforce than an open market.  But of course this management has a cost, much of it fixed.  Firms exist, therefore, when the costs of employing and directing staff to undertake a particular activity are less than the potential gain from that activity.

But what if those cooperation costs exceed the potential gain of an activity?  Continue reading These exponential times

The beginning of the end…

I have had a lucky escape and narrowly avoided looking like a wally.  An online magazine had expressed a tentative interest in me writing something on Zimbabwe for them and I’d pitched the title: ‘Why there won’t be a revolution any time soon’.  You may have noted in my last postcard a certain wonderment at the alarmism churned out about the country given that business was then still booming.  I had been forming a point of view that saw the crisis here rolling along indefinitely.

 

In my defence it might not have been so far off the mark.  The western press have been shrill and this crisis has been going on for an awfully long seven and a half years.  A hyperinflationary economy tends not to be close to meltdown when there’s food on the shelves and power still flows.  Moreover, Zimbabweans usually anticipate a bit of political trouble around now, mid-winter.  The government likes to nip in the bud any grumbling unrest caused by power diverted from homes to wheat production and a spike in the dollar, but things soon return to normality.  And let’s not forget, because my consultancy job here (coming to an end in time for the start of autumn back home) gives me a good view of it, that the Harare Stock Exchange had been on an upward trend pretty consistently since January.  In one day in June it jumped 50%.

 

Naturally then, it was a bit of a shock to get a call from my boss as I was away on a business trip in Mozambique saying, “Maybe you’d better take your time in returning”.  Things had turned nasty.  Power wasn’t flowing – at least there were several blackouts every day.  The shelves were emptying.  “Damn”, I thought, “There goes that article”.

 

The cause of all this was a Eureka moment from the old man Mugabe who’d come up with a sure fire way to halt inflation.  He demanded that retailers charge less.  Forget supply and demand.  Forget the cost of your goods.  Slash your prices.  There’s a great rumour about the Price Commission (as sinister and Orwellian as they sound) turning up at a car dealer’s.  They slashed the price for Isuzu twin cab trucks to 15 million Zim dollars and promptly bought up the lot of them.  15 million Zim dollars works out as about fifty quid a car!

 

Now back in Harare it does look like this time things can’t return to normality.  Some businesses appear to have taken the attitude that if the old man is going to go down this route and force them to sell unprofitably, well, rather than duck and dive through as they have previous troubles, they’ll let their stock be cleaned out and shut up shop.

 

The result will be, and is already in the first industries to go, that supply chains collapse.  As this happens it will become evident that price-cut-by-edict doesn’t work (oh, really?!) and that the only option left will be nationalisation.  That indigenisation bill I dismissed in my last postcard?  Maybe I am looking like a bit of a wally after all.

 

All this is not a revolution.  But what it is is the crisis reaching a new stage.  It is likely now, although I’m steering clear of predictions, that this is the beginning of the end.  A period in which confidence won’t bounce back a little in the course of a general decline, but in which things will only get worse.  It might be for six months or a year, but by the end of it Mugabe will have gone.  The best case and probably likeliest scenario being a quiet shove from inside Zanu-PF (accompanied by assurances from the West via South Africa that he won’t end up in the International Criminal Court?).

 

When he does go the international community has an excuse to start lending the country money again and the inflow of dollars will stall hyperinflation.  Whether the new leader, groomed and enriched in corruption, will have the courage to effect the kind of long term change required is quite another question, but, going by the form of the higher echelons of the party so far, sadly unlikely.