Business 'Gurus' are still way out of date ... but are slowly catching on!

Gary Hamel, a supposed well-known 'business guru' (from the United States) recently dropped in and talked to Peter Day's "World of Business" programme on his latest UK trip to visit to the London Business School.

Peter Day started by referring to all the soul-searching going on following the credit crunch... e.g. with regard to the ways banks work, markets work, and the kind of values/purposes of companies operating in such markets ..."

Day then went on to highlight how people are starting to challenge conventional wisdom on how businesses operate ... and suggested 'behaviour' currently appeared rather 'shabby' ... referring to a lack of trust ... 

Hamel started by discussing the 'values crisis' ... and the fact that most CEO's focus almost "exclusively on shareholders and making the numbers, with everything else going to hell". 

He went on to highlight how the web is starting to bring transparency and accountability, and said "we have to call them to account for the underlying values they bring to business ... particularly the banks ..." and said "we cannot have leaders of institutions whose primary motive is greed ..."

What we are now seeing (e.g. Egypt) is how people can mobilise ... if they choose to ... but Hamel noted how people are currently too complacent (i.e. apathetic) ... he said "people need to call leaders to account ... demand more transparency ... and demand more from them as consumers ..."

Peter Day referred to the need to address the lack of trust in business, and the fact that efforts currently focus too heavily on quarterly reports and short term profits. Hamel went on to describe the challenges ahead ... e.g. the need for honor and courage ... and the need to refocus on innovation and the production of value (looking beyond short-term profit) ... as well as a business environment where people become accountable for how they treat others, the environment etc ... (i.e. the role of enterprise in the wider world).

Hamel also referred to the lack of responsiveness in organisations, and the fact that innovation often involves taking money away from traditional activities, in order to invest in the future (which top-down organisational structures fail to support)! He said alternative approaches are becoming "clearer now" ... ones which involve empowering people, allowing people to collaborate and innovate, with all the data (and decision making powers) they need, and with everyone accountable (and rewarded) for their actions ... but he said we are being held hostage by 100 year old beliefs.

Most of the leaders of very progressive organisations, if they went to business school (and most of them didn't), have thrown most of what they learnt out! Hamel went on to say "There comes a point time in human endeavour, and I believe we are there in management now, when we have to go back and challenge first principles ... and old models" ... as such models had not had to face up to challenges such as ... changing very fast, being socially accountable, or innovating systematically ... 

Hamel referred to the need for a paradigm shift, siting fundamental shifts in understanding within other disciplines in the past. For instance, Hamel highlighted how "there was no way of understanding the sub-atomic world by starting with Newtonian Physics, and it had had to go through a fundamental paradigm shift" ... and he concluded "that this is also going to have to happen in business" ... (NB the shift in understanding will not come from business schools themselves, as they are 'wedded' to existing doctrine, which is also 20-30 years out of date)!

He referred to the need for a new management model and governance model, and said most people teaching in business schools now know that "what they're teaching in business schools isn't relevant now". Hamel also said that they are trying to find out "where to go next", and went on to say that they may not lead the next revolution ... "it might come from managers themselves, and/or from people in social sciences and biology, who have a lot more to say on this [than business schools]" ... (indeed ... it has, and will continue to be, developed by forward-looking people who are commonly referred to as "creative outsiders", and whose ideas are almost always initially ignored/rejected)! 

Hamel said new models are still kind of fuzzy ... but Peter Day quizzed him about the bankers and the "perils they are leading people into" ... Hamel said he was still "amazed at their state of denial", with groups such as Goldman Sachs being pulled up in front of US Congress, "for selling toxic products to their customers, whilst betting against these products on the other side"!

He said "people can't be passive anymore" ... and made it clear that current leaders/executives are "living on borrowed time" ... 

Hamel is beginning to catch on ... but this knowledge (and much more besides) was uncovered (and made available to the world) a number of years ago (21st Century Management in a Lean World) ... and the World of Economics is also heading for a similar paradigm shift too (i.e. towards Leanomics) ... though a small, greedy (and power hungry) minority, who currently exploit (and profiteer from) the existing (and failing) system, will fight tooth and nail to resist such paradigm shifts ... and in this way Hamel is actually right ... people can't afford to be passive (i.e. ignorant or apathetic) anymore ...

IMF report raises risk of civil wars ... due to the imbalance of Power

As the aftershocks of the financial crisis continue to reverberate through real economies and government budgets (particularly in the West), it is becoming increasingly clear how the gap between the extremely rich and the poor is playing a major role in the crisis. Economists from the International Monetary Fund (IMF) now acknowledge that, while dysfunctional financial markets caused the crisis in an immediate sense, its deeper cause was inequality.

Banks took on financial assets whose risk they had no real way of assessing correctly. At the heart of these assets were mortgages in the so-called 'sub-prime' market – basically high-risk mortgages made to poor people with insecure and low-paid jobs. When these people started to default on their mortgages in large numbers in 2008, the whole complex (and fraudulent) system of securitised risk unravelled very quickly and dramatically.

An underlying question is why the sub-prime market arose in the first place, and the answer in part lies in the stagnation of incomes in the bottom half of the income distribution in the US (and also in the UK) since the early 1980s. A number of factors drove this, including the introduction of new technology. New technology (e.g. IT) has nearly always been targeted at cutting costs and getting rid of manual labour (increasing unemployment and squeezing wages), instead of using it to free up staff and unleash their (untapped) potential to continuously innovate and grow.  (NB the former is a blunt application of Poweromics, whilst the latter is a good example of Leanomics ... it's also worth noting that very few enterprises, or economies, will successfully find they 'cut their way to sustainable success').  

Michael Kumhof and Romain Rancière, the authors of the report Inequality, Leverage and Crises, pick up the theme of stagnant incomes at the bottom, but link these to the huge increase in earnings at the top, which provides the other half of the story. By 2006, the top 1 per cent of taxpayers in the USA received almost one quarter of all income in the US (see chart below). 

The wealthy needed to invest their money somewhere, and in Kumhof and Rancière go on to say: 'The key mechanism is that investors use part of their increased income to purchase additional financial assets backed by loans to workers. By doing so, they allow workers to limit their drop in consumption following their loss of income, but the large and highly persistent rise of workers’ debt-to-income ratios generates financial fragility which eventually can lead to a financial crisis'.

As a consequence the size of the financial sector, as measured by the ratio of banks’ liabilities to GDP, ballooned*, with the crisis characterised by large-scale household debt defaults and an abrupt output contraction (as in the U.S.)

During the build up to the 2008 financial crisis, the worlds of the rich and the poor were connected, but through the need to lend on the one hand and the need to borrow on the other, and IMF paper argues that the extreme gap between rich and poor was an underlying cause of the crisis (with its obvious parallels to the late 1920s - when the Roaring 20's was followed by the Great Depression) - see chart of Male Annual Earnings in the US below.

The paper goes on to explain how 'the crisis is the ultimate result, after a period of decades, of a shock to the relative bargaining powers over income of two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population' and argues 'because crises are costly, redistribution policies that prevent excessive household indebtedness and reduce crisis-risk ex-ante can be more desirable from a macroeconomic stabilization point of view than ex-post policies such as bailouts or debt restructurings'.

The paper concludes by suggesting 'Restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis.' and warns of "disastrous consequences" for the world economy if workers do not regain their "bargaining power" against rentiers. 

The International Monetary Fund (IMF) also warns that "dangerous" imbalances have emerged that threaten to derail global recovery and stoke tensions that may ultimately set off civil wars in deeply unequal countries (nb we can see this already starting to play out today**). 

Despite all the rhetoric and spin, in reality the UK (and US) Government chose to bail out the banks with tax payers money (allowing the rich bankers to profit heavily from gambling once again), whilst passing the cost of the bailouts onto poor and middle income households, in the form of job losses, higher taxes and reduced services ... Indeed, worse still, in the UK we have the Tory Government trying to suggest the way out recession is to cut the top rate of income tax to the rich ... and to restrict the rights of ordinary people to strike ... both quite the opposite of what the IMF suggests in its report ... unless they're trying to promote civil war that is!

* The situation was also made worse by Fractional Reserve Banking, with bankers pushing to increase lending in order to profit from money (created out of thin air)!

** With the current unrest in Egypt, it was interesting to hear the potential hypocrisy in which the UK/US told Egypt's leaders to return the internet/mobile communications to its people, and to respect these as basic human rights ... as I understand both Governments' have similar strategies planned if they face similar levels of unrest!

A 'cultural shift' is required ...

Liam Fox, Defence Secretary, said today that "the Strategic Defence Spending Review alone will not be enough to sort out problems facing Defence". He went on to highlight "the need for a full review of how the MoD is run", and the need for both structural reform and a cultural shift, to ensure efficient provision of defence capability and the generation and sustainment of operations.

The review and reform includes two broad principles that will be followed: 

1. Structural reform involving re-organising into 3 pillars, policy & strategy, the armed forces and procurement & estates, to make the decision stop the constant over-specification and re-specification of projects, which have resulted in so many cost overruns and programme delays ...

2. A cultural shift, to a 'leaner' and less centralised organisations, combined with devolved processes which carry greater accountability and transparency ... 

Both of these are to driven by a hard-hitting steering group Defence Reform Unit of internal and external experts who will "guide the hard thinking and challenge pre-conceptions" ...

He said "fundamental assumptions" about tour lengths and intervals for armed personnel must be challenged "taking into account the varying pressures on our personnel resulting from widely varying missions".

"We need to review all our current practices to ensure that we are using our greatest asset - our people - to the best of our ability."

He said he was not intending to merge the armed forces but would "consider whether the current senior rank structure across the services is appropriate ... We cannot demand efficiency from the lower ranks while exempting those at the top."

It appears that a little Leanomics may filter in here, challenging the status quo, and ensuring money gets steered to where it should be, and away from 'bureaucracy and failure'.  Let's see if he gets it right, involves front line staff and the right people who really understand '21st Century Lean Management Practice' (both inside and outside of the MoD) and delivers ... or just gives top jobs to his 'mates' and fails to create a real 'Lean' culture.  

Reforming the Banking System ... Simple

Here's how a simple reform to the banking system could save us £200 billion each year...

Every year up to £200 billion of new money is created and spent into the economy. Most of us would assume that this new money is created by the government, or at least an agent of the state. In reality, this new money is created by the private banking system as debt, and lent into the economy. Between 2000 and 2009, £1,225 billion of new debt has been created by the banks.

Read that again: in the last 10 years, the banks have created up to £200 billion per year, lent this into the economy as mortgages, personal loans and credit cards, and are now living off the interest*. This is what laid the foundation for the debt crisis that is crippling government and society right now.

If you find this hard to believe, ask an economist. They'll call this process the 'money multiplier' or 'credit expansion' but they really mean the following: private companies (banks) create money, lend it into the economy, and collect interest on it. With the exception of the loose change in your pocket, this is where all our money comes from now - the creation of money as debt by private companies. Ever wondered why we are in so much debt?!

There is no good economic or practical reason why governments permit the banking sector to create new money while the government itself cannot fund adequate healthcare or education for its people. The banking system only works in this way because the law that makes it illegal to print your own £5 notes has not been updated to apply to the digital, electronic money that now makes up £97 in every £100. This loophole, in conjunction with a fundamental flaw in the design of the banking system, means that every single loan that is taken out actually creates brand new money. (In computing terms, making a loan is more like 'copy and paste' rather than 'drag and drop').

So when David Cameron says that 'there is no money', what he means is this: "we've handed the keys to the printing press to private corporations, and now we are dependent on the banking system to issue the nation's money supply". So to pay off the debt we need money, but we can only get money if we go into debt. Good luck solving that one Dave!

But there is a way to change this. There is a way to avoid the tax rises and spending cuts that currently seem inevitable. In fact, there's even a way to do the opposite - cut taxes and increase spending at the same time - and end the recession in one fell swoop... and here's how we make it happen: 

Put simply:

* Make a few small tweaks to the banking system to prevent commercial banks creating new money every time they make a loan.

* In place of the banks, set up an independent agent of the state (such as the Royal Mint or the Bank of England) which would be responsible for creating the additional money that the economy needs each year to keep running smoothly.

* Add the newly created money to total government revenue, where it can be used in the same way as tax revenue, or can be used in place of tax revenue to reduce the tax burden.

Doing this would open up a huge range of options. The money that was previously used to generate huge profits for the banks will now come first into the hands of the elected government. It can then be used to raise the income tax threshold, reduce regressive taxes that hurt the poor, increase investment in public services and infrastructure by up to 30%, fund interest-free lending for government bodies or local councils (saving 70% compared to PFI), or a combination of all of these.

So this is how a simple reform to the banking system can avoid cuts in public services and save us up to £200 billion a year (i.e. 30% of the tax bill - the equivalent of removing income tax and council tax completely). There are a far more benefits on doing implementing such a reform too.  If you're thinking that it's easier said than done, there's a 20,000 word manual on exactly how it can be done, plus a fully drafted model bill at The Proposed Bank of England Act ... and  if your head is now spinning and you need a plain-English explanation of how this monumental con-trick works, and why it's destroying the economy, you'll find it here and support from James Robertson's recent newsletter too.

The current financial system doesn't work - that should be obvious to everyone. But so far no-one is looking at the root of the problem. That needs to change. Head to one of the sites above, sign up for the newsletter and they'll keep you updated as the campaign picks up speed...

Adding such reforms to the implementation of a Land Value Tax would go a long way to fixing our broken system and introducing simpler and fairer systems** - e.g. where 'adding real value' is what's rewarded.  Will those in 'Power' do it ... well the small but highly influential minority (who are benefiting greatly from the current system - and practicing 'Poweromics') will fight 'tooth and nail' to ensure the current systems remain, so they can continue to profit from them (at the expense of society as a whole).  

There is currently a 'lot of talk' about 'liberty' and importance of providing 'power to the people' but whilst banks, and those in position of power, avoid such reforms they seeking to continue to deliberately control people's lives and hold society to ransom, the antithesis of real liberty and the actions of people devoid of any moral values (i.e. Practitioners of Poweromics).

The idea nothing can be done is so wrong ... the idea that the few people who are really in 'power' won't 'allow it' to be done is far closer to the truth! ... and this is set to continue for a little while longer yet ... until more people realize this that is ... which is continuing to accelerate - thanks to those who still have a moral compass and an interest in things that go beyond just them themselves (hence my links to their good work too).

* a subsidy that costs each of us over £4,000 every year!

** Leonardo Da Vinci once proclaimed "Simplicity is the ultimate in sophistication" - a saying dear to my heart (as well as Leanomics) ... e.g. if your proposed 'solution' turns out not to be 'simple', you should take a little more time ... and look a little harder!

House prices wilting - a little more reality creeping in?

In recent months new channels (including the BBC only yesterday) and papers have been reporting the 'return to growth' of house prices ... based on a mixture of 'hope' and 'flawed economics'.  Today, following the Halifax figures showing them falling the BBC has had to report the situation slightly differently ...

UK house prices wilting in summer

House prices are falling in part because of more properties for sale. UK house prices have fallen slightly in the early summer compared with the start of the year, a survey has found.

Property values dropped by 0.6% in June compared with May, following a 0.5% fall the previous month, the Halifax said. This meant prices in the second three months of the year were 0.1% lower than the first quarter.

More properties coming onto the market and less activity from house buyers has caused the fall, the lender said. The average home in the UK is now valued at £166,203 according to Halifax figures.

The typical property was still 6.3% higher than a year ago, although the figures point to the house price recovery faltering this year.

Martin Ellis, housing economist for the Halifax, said that the figures were not a great surprise. "This pattern is in line with our view that house prices will be broadly unchanged over 2010 as a whole," he said.

"A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

"An increase in the number of properties available for sale in recent months has helped to reduce the imbalance, relieving the upward pressure on prices."

He said that the continued low level of interest rates continued to keep demand steady. The Bank of England's Monetary Policy Committee is widely expected to announce later that it is to keep the Bank rate at 0.5%."

David Smith, of property consultants Carter Jonas had previously told the BBC "where house prices go from here is difficult to predict because there are so many factors at work at the moment ... the fallout from the Budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix".

He is right, except for the predicted future for house prices (e.g. take a look at the standard curve for any 'asset' above - we are just going past the 'return to normal' point).  In fact the only thing that will slow the second decline is the realisation that supply of new property under the last Government was allowed to consistently lag well behind known demand (helping to 'inflate' prices and provide a 'feeling of wealth') ... but to everyone's cost.  If you currently feel you are a beneficiary of this, please think again ... e.g. think about the 'hand' you have dealt to your children (and grand children) and all young people today (and how long those clever enough to spot this are likely to stay in this country as a result), about how much you (and everyone else) have actually paid in your lifetime to banks (e.g. double the value of your mortgage) and bankers bonuses (and inflated estate agent fees), the fact that you only actually recover any actual 'profit' when you die and when it's of no use to you (as you still have to live somewhere), and the fact the Government plan to fund your old age care by selling your house to pay for it (as they don't have the cash to do it any other way)!  Speculation and investment in property also does nothing to improve the massive trade imbalance (and our ability to fund the nation's public services) or halt rising Government debt ...  etc etc

The new Government do not appear to be planning anything with regard to easing constraints to building new property either, which will maintain the long term imbalance between supply and demand, and will obviously reduce the speed and final level of decline.  They have also reduced the top rate of capital gains to help the 'speculators' who benefited greatly from property speculation in the past, to maintain people's interest in property, and to once again reduce the speed and final level of decline. None of these things solve any of the real problems however, and just wait until public sector jobs are slashed and interest rates start to increase (due to the rising costs of imports e.g. petrol prices up 30% to £5.30/gallon).

A little more reality still needs to creep in I'm afraid ... and 'flawed economics' (Poweromics - self interest, and greed) needs be replaced by a 'new economics' (Leanomics - based on value, values, trust, honesty, responsibility and respect). Nothing else will do ... as nothing else will work.  Where do you think the millions of jobs are going to come from to reduce the trade deficit, reduce Government debt, and pay for public services?

Damned if they do, damned if they don't?

Stephanie Flanders recently posted the following blog - "... In many ways, the argument over the right way to support the global recovery here at the G20 summit in Toronto is the mirror image of the debate at the London Summit last year.

Back then the argument was that governments needed to act together to prevent another Great Depression. Now the worry is that they will hurt the recovery if they withdraw that support all at the same time.

But there is one crucial difference. In April 2009, any student of economic history could tell you which policies would maximise the chance of recovery - or at least minimise the chance of economic catastrophe.

The hard truth about today's situation may be that there is no perfect mix of policies that can guarantee a strong recovery after a financial crisis this severe, and a run-up in sovereign borrowing this large.

Put it another way: we could be damned if governments do cut borrowing rapidly - with the global economy still fragile - but we could also be damned if they don't ..."

I replied by saying ... "Countries need to acknowledge that traditional 'economics' has failed, was far to narrow in scope (and effectively a toxic mixture of Poweromics* and Ignoromics) and is now effectively dead ...


... and a new positive and broader form of 'economics' is now required (e.g. Leanomics - based on 'adding real value', as well as values such as trust, honor, responsibility, respect) if we are going to come 'Out of the Crisis' and realize true prosperity and (sustainable) growth.  

Dr W. Edwards Deming predicted this over 20 years ago, writing two books entitled "Out of the Crisis", and "The New Economics: For Industry, Government, Education".  His foresight was incredible ... and my work (including my own book ' Lean World'), and Leanomics, build upon his profound insight ... and there's a great deal to do if we are to going to not only survive ... but prosper.

Masters or Servants?

Nick Clegg, the Liberal Democrat party leader, unveiled five proposals to control "the bonus culture" in the City. Clegg said there should be "no rewards for failure" and called for a "top-to-toe" overhaul of the British banking system (including an end to "morally obscene" salaries and bonuses).

"The problem started with the banks so the solution must start with the banks too," he said at the party's daily news conference yesterday, and he said the public should feel that "never again are your everyday savings held "hostage" by people in the City.

The Liberal Democrats' five-point plan to reform the banking system would:

1. Limit cash bonuses to £2,500 annually, with any bonuses in excess of this figure to be paid in shares which could not be sold for five years
2. Ban board directors from receiving bonus payouts
3. Extend the Financial Services Act so loss-making banks were not allowed to pay bonuses
4. Ensure the names of all banking employees earning more than the prime minister were published
5. Lead to directors of banks being fined if their institution broke the industry's code of practice

These five steps would "transform the culture of greed which continues to disfigure the banking industry in this country" and ensure the banking system became "the servant, not the master", Mr Clegg said.  

The party's Treasury spokesman, Vince Cable, said the UK was "still in a major economic disaster" and that "The country is now poorer than it was before the banking crash and what we need to be focusing on is how we prevent it happening again” (echoing many of the posts on this blog).

Mr Clegg said it would reveal a "new approach" to a financially-stable economy, based on equity not debt, "where we learn as a country to build things again, not just bet on things on computer screens in the City" … from a leader who may well yield significant influence/power in a few weeks time this is good to hear, but he will need to think more carefully about the steps needed to successfully transition from an outdated and flawed economy (Poweromics) to a 21st century value adding economy (Leanomics) … and just like President Obama made clear, we must ensure the banks pay taxpayers every penny back (and make sure investment banks are separated from commercial/high street banking too).

In my humble opinion, Vince Cable appears to be the closest to identifying what a successful 21st century economy needs, having also hosted sessions promoting the introduction of a Land Value Tax (to replace unjust/unfair taxes) for instance. The Liberal Democrats also want to completely overhaul the archaic (19th Century) voting system, so MP’s properly represent (and are held accountable to) the people they are supposed to serve. 

If you’re relying on others to help you – good luck – you’ll need it. Labour are relying on spin and clearly cannot be trusted e.g. this week Brown stood up to tell us there will be no more income tax rises … but he said that last time, and watch out for National Insurance everyone, which is just another name for the same thing (n.b. they’ve given no guarantees on this one and Brown has also raised it before) – why did the press (e.g. the BBC) not ‘press’ him on this…?  As for the Tories, Cameron has said he wants to give people ‘power’ (e.g. by letting parents set up their own schools – more of a gimmick than a practical solution), but at the same time has no desire/interest in changing how MP’s are given power or wield (e.g. profit from) power.  Instead the Tories want to slash public spending, change inheritance tax laws to favour the rich … and would vehemently oppose changing/removing unfair taxes and replacing them with a Land Value Tax (as the Tories represent, and are heavily backed by, all the rich land owners/bankers profiting heavily from land without adding any value at all). 

The election provides an opportunity to allow a little more common sense to filter into our Economic/Political System (e.g. values, fairness, justice) and if this happens our failing economy may actually start to turn around.  If it does not it will simply continue its downward spiral (don’t be fooled by any apparent ‘recovery’ – as the Government simply postponed all the ‘pain’ until after the election) until the situation gets so dire that people finally decide to do something about it – but at this stage it’ll probably be too late to successfully turn things around (NB I do not support any political party and like most people hold the vast majority of MP’s in contempt – however I do care about people’s future, the state of the economy and the level of democracy in the UK).

Let’s see what the next few weeks hold …

Traditional 'Economics' is dead - and a 'New Economics' is emerging

Stephanie Flanders recent asked for the "New name for a New Economy', when in reality the question should have been about a "New name for a New Economics" ... so I pointed out the huge insights Dr. W. Edwards Deming offered to the world nearly 20 years ago (and from which Leanomics and my book 'Lean World' are founded), and as the discussion continued some commentators questioned whether a "New Economics" is here now, or even needed, so I posted the following:

"... IMHO 'a New Economics' is not here yet, but it is starting to emerge - and following on from my previous post ...

'Economics is the social science that studies the production, distribution, and consumption of goods and services' (Wiki).

IMHO Just like other 'sciences', 'economics' (as defined above) has been functionalised, is too narrow in scope and is effectively dead. The failure all around us now is testament to this. It fails to account for the values (and/or the lack of values) people uphold, their beliefs, the political systems, leadership and management practices, the environment, the intrinsic motivation within people and social relationships that exist.

The fact that we are comparing ourselves more and more to basic animals (i.e. species with very low intellect) arguably shows how low we have now fallen, and how moral values have been progressively jettisoned from the field of play. The fact that economics today is more about how people make money from money (wealth manipulation), rather than adding any real value (wealth creation), is also testament to this, and the purpose of money as a basic bartering system has been almost completely forgotten. This is the world of Poweromics, which is still very much in operation today, with no moral/ethical values, standards or rules, and seeks to manipulate the system for ones own gain ... and it has failed the vast majority ... but has successfully transferred yet more wealth to a small minority - the already wealthy (even from those not yet born - eg spiraling Government debt due to bailouts/failure).

Ignoromics will gradually reduce as the majority of people's lives get much worse ... but Government's will no doubt create wars and blame other people, to divert people's attentions/anger away from themselves, the real villians & from what's really going on.

Some countries are already challenging Poweromics and turning themselves around, kicking out Poweromics (e.g. poor leadership, management, corruption) and using lean management practice (and Leanomics) to improve overall well-being and to create a sustainable prosperous 'economy'. Those that fail to act will fail to survive, and will die by their own ignorance, arrogance and ineptitude. Those current leaching off the others like a plague of locusts will also eventually destroy all the fields they are feeding off, and/or will find a new resistant strains that 'repel attacks' ... and those places where Leamomics starts to thrive will have no time/interest in 'parasitic organisms'.

'Leaders' looking to deflect blame, rather change the system (as well as the way they lead/manage), will be given short shrift soon ... and IMHO that time is not very far away"

One of the original commentators went on to say ... "I hear some college professor at Oxford is to give a huge chunk of his future earnings to a new charity - that's what I call a real change of behaviour but how many will or can really afford to follow his lead?"

To which I commented "This is just a small/individual example of Leanomics I would suggest - it's worth noting more young people/graduates are starting to shun the traditional corporate world ... as they also see the world very differently too ... and they are unlikely to remain on a 'sinking ship' either" ...

Economists - new clothes or no clothes?

Stephanie Flanders today posted on a blog entitled the 'economist's new clothes'. Whilst starting a little debate, it choose to refer to the 'latest spin', rather than address the revolution in 'economics' we are likely to see. Hence adding the post (75) below:

IMHO traditional 'economics' is 'too narrow' in scope and also 'out-of-date'. It has also 'failed' hard-working people and is now effectively 'dead'.

But attempts to improve it, change it or widen it, will always be resisted. Dr W Edwards Deming, a creative outsider and a real 'leader', uncovered the "System of Profound Knowledge" and referred to the need for a "New Economics" (over 20 years ago) ... but, when terms are so out of date new words/definitions are needed, and for that reason, and for those interested, I am continuing his work ... using the definitions below:

* Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

* Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

It is worth noting virtually everything fundamentally centres around 'people' and the 'values' they uphold. It is also worth noting that Ignoromics is what allows Poweromics to flourish, and in my view this summarises the current (and widened) definition of 'economics' that prevails today.

Why not take a look at what 'leaders' everywhere are doing (e.g. your boss, company, service provider, government, politicians, media ...) and look at how many people understand this and/or prepared to do something about it ... I think you'll find its small ... albeit steadily growing (helped by the internet, and recent activities of banks/MP's etc).

IMHO the battle of the future is really one of values, and given the above definitions, can be simply summarised as ...

Leanomics v Poweromics & Ignoromics

For those interested I hope this is helpful ... and I would certainly recommend the work of Dr. W. Edwards Deming ( as well as http://poweromics.blogspot.com ) as a good starting point for looking into this further ... people are still amazed (and learning) how profound his insight actually was ... e.g. he told us far more about the future of economics than Richard Thaler in his lectures and book (I went to one of his lectures in London around the time of release of Nudge). I think you'll find people are still flocking to the latest incremental ideas, not more revolutionary ideas, yet only the economies moving rapidly to the latter will survive and prosper e.g. Singapore's turn-around - http://poweromics.blogspot.com/2009/10/asking-questions-doing-things.html

Whether people like it or not, the clock is ticking away and time is rapidly running out for most economies.

... I also added the following post referring to a previous bloggers (post 74) comments ...

"... Sheer self-interest or FUJIA !! So long the steerers can gain relative to the rest, they will carry on being motivated !! It doesn't matter what the price of beans is, if someone has more beans than someone else, he is relatively wealthier !! ... It's all relative, as Einstein was alleged to have said !! :-) ..."

I couldn't agree more - one of the main drivers of "poor moral values, self-interest and greed" (see post 75) is ENVY ... which drives/motivates people to want more than someone else, particularly those they compare themselves with, hence the term 'keeping up with the Jones's' - it's not absolute wealth that bothers most people, but relative wealth to those they continually compare themselves with, which drives poor moral values, self-interest and greed.

IMHO only a return of 'fundamental values' (e.g. trust, honor, responsibility, respect) will turn around 'economies' in a sustainable way now, and time is on no-one's side.

Asking questions ... Doing things differently

In a recent Stephanomics blog, entitled 'Why them and not us?', a fellow blogger referred to Singapore, and Lee Kuan Yew, when he was Prime Minister of Singapore, describing 'their education institutions as producing highly "talented" but unquestioning "sheep", even amongst their PhDs !!

Since he, himself, and his wife are both empire Scholarship students to Cambridge, they were trained to question rather than meekly accept "perceived" wisdom. It was his questioning of the then status quo that led him to take Singapore from one of the most corrupt, totally resourceless (except for its people) little island nation into one of the "Tiger" economies of Asia and a prominent player on the world stage.

On the way, he challenged to twin "holiest of beliefs" that "bureaucracy had to be corrupt and bloated" in order to work !! Singapore now has a lean and mean bureaucracy that is uncorrupted (or else :-)) and that is also one of the most efficient in the world !!

The greatest tool of any "thinking" person is to test the truth of anything and not accept on blind faith !! All else is merely liturgy and regurgitation of teachings !! ...'

IMHO this comment provided a unique ray of sunshine (amongst the dark & heavy clouds of confusion), so I decided to respond to it by adding ... 'a great post, highlighting the success created by those nations who question and challenge the status quo, as well as the actions of bloated, centralised and corrupt 'command and control' government.

Your post points out how Lean government is the future and it also shows how successful nations are already going down this path. I spoke to the Singapore Minister for Information a few years ago about this, and he re-enforced their strategy to embrace modern technology in order to connect with their people and to help them go down this path.

The only thing I would challenge in your article is your statement 'lean and mean' ... as whilst they are arguably starting to apply 'lean', 'lean' is not 'mean' (except to those leaders/managers who want to stay well away from the front line and prefer to tell people what to do, instead of going to the front line, asking questions and helping them to improve the way things work). 'Lean and mean' may be a catchy catch phrase used by the media, but a true 'lean philsophy' is actually quite the reverse (hence the reason for the first chapter of my book 'what is lean?') ... as it's all about people, value and values, and bringing about a continuous improvement process that involves everyone, where leaders and managers support people and help people in the process of continuously improving how value is provided (cf not trusting them and telling them what to do), founded on fundamental values such as trust, honor, responsibility and respect.

Singapore is starting to do this, and at the prestigious ITU Telecom World conference in Hong Kong back in 2006, the head of strategy of the ITU agreed it was a great idea but pointed out that he couldn't see it happening in the UK. With the mindset, corruption, and misuse of power shown by the UK government he was definitely right, and until this changes in the UK we are heading for the scrap heap*, and will look in awe and wonder at the success other nations will achieve. Traditional economics is dead and traditional politics is about to die (i.e. Poweromics). In successful nations of the future a new form of politics (Lean government) and economics (Leanomics) is already starting to emerge, based on a robust set of values, including trust, honor, responsibility and respect (http://poweromics.blogspot.com/2009/06/leanomics-v-poweromics-ignoromics_01.html) ... just as Dr W. Edwards Deming predicted over 20 years ago.

Whilst some nations prefer to ignore it, others are starting to talk about it, and some are already doing it ... and guess which one of these applies to the UK?

David Clift

Author of 'Lean World' and a Future 500 Leader

* none of the current parties/leaders are likely to do this either - take a look at http://renegadeeconomist.com/blog/big-questions-hot-handle.html and my subsequent post to see why.'