Monetary rewards - a recipe for success ... or failure ?

Are monetary rewards the passport to 'success' or a recipe for 'failure' ... should a company incentivize its people to innovate? 

This great 10 minute clip does a fantastic job at answering the above questions ... 

The clip successfully highlights the fundamental flaws in traditional enterprises and economies, as well as the fallacy of "incentivizing" people using monetary reward too* ...

It also goes on to explain what really motivates people ... nb the idea that money is not a motivator is well known and has been for some time (well over half a century in fact) ... as Maslow, Herzberg, Deming (and myself) have all pointed out!

So why is it not prevalent in enterprises and communities all around the world today?

Is it down to ignorance? ... well partly, for instance most mainstream business schools are still teaching flawed and outdated practices! 

Is it down to apathy? ... well partly, given many of those who know better chose not to do anything about it. 

Whilst ignorance and apathy are partly to blame, IMHO the main reason for it is that those currently in power (and who apply Poweromics) like to use monetary reward as a way to 'control people' and to get them to do what they want them to do (whether it's best for customers/company/country or not). Politicians/bankers also deliberately use debt to control people and create compliance too (see 'debt slavery')! 

So it's not hard to see why it's not prevalent yet ... it's because those abusing power like to use it to control people for their own personal gain ... despite the fact that it destroys motivation, the performance of enterprise and the long term success of the country.   

* NB the City's drive to profit from speculation and their ability to profit from the buying and selling of shares are also problematic too. For instance, city bonuses drove 'fraudulent' types of 'innovation' and the creation of 'toxic' financial 'products' (e.g. C.D.O's, C.D.S's and Self-certificated mortgages). City bankers profited heavily from gambling using these products (e.g. creating pyramid schemes using other people's money) ... and left taxpayers to pick up all the losses (resulting in massive Government debt, tax rises and cuts to public services). The City also speculates with shares and profits heavily from the process of buying and selling shares too (nb with bankers again not risking any of their own money). This speculation results in the entire share stock of most publicly traded companies being bought and sold in less than a year, and   results in most executives being incentivized by substantial cash bonuses for creating short-term profit/results too (at the expense of long term sustainable success) - just like the bankers themselves!

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?

Building up a bigger crash

Whilst the Bank of England continues to print money to service Government debt, Banks are busy stoking up the next crash via another pyramid scheme (rewarding themselves huge bonuses in the process too) ... for instance, take a look this US article (as it also applies/relates to the UK too), as well some of the key additional points I've summarised below:

“Interest rates are close to zero; in effect the Federal Reserve is subsidizing the risk-taking and bond trading that has allowed Goldman Sachs to produce billions in profits and that infamous $16 billion bonus pool (analysts say it could grow as high as $20 billion). The Treasury has lent banks money, guaranteed Wall Street’s debt and declared every firm to be a commercial bank … They are all ‘too big to fail’ and so free to trade as they please—on the taxpayer dime.”

The Wall Street Journal reported Monday that Morgan Stanley has concluded that the amount of cash circulating in the global economy is at its highest level by far since the firm began tracking it 30 years ago. This vast wave of hot money can find no profitable outlet in production, so it is being pumped into stock markets and speculation on commodity prices and currencies. The result of a colossal global asset bubble that must sooner or later burst."

If the money taxpayers had provided to banks was steered into traditional banking only, and commercial banking separated from speculative trading (e.g. by Government's re-instating a Glass-Steagall type act), this type of behaviour would not be possible. Bankers would not be able to use government cash to underwrite short-term speculation to fuel their massive bonuses again, and they wouldn't be able to call upon taxpayers to fund their failure again either (i.e. once their current pyramid scheme collapses).

Commercial banks focus on lending to real 'wealth creators', to enterprises/institutions adding real value for others as well as to the well-being of the economy. Creating real wealth takes time, energy and resources, and is not a short term decision/investment/gamble. On the other hand, 'wealth manipulation', adds no real value, except to the bankers, traders and the already wealthy (who benefit further from this manipulation of wealth - particularly when it's taxpayers money being used to pay for all the failure). 'Wealth manipulation' takes very little effort in terms of time, energy and resources (e.g. beyond the passing on of 'pieces of paper') so banks see it a much easier (and 'profitable' way) of 'making money' from money (i.e. the velocity, and profit, from money is much greater), particularly when all the risk (i.e. failure) is taken on by someone else (the taxpayer).

... and it doesn't take a rocket scientist to work this out, so why have UK/US Government's chose not to heed such advice, and done absolutely nothing about splitting the banks up in this way? ... why have mainstream economists identified the fundamental flaws in the economic model? ... and why have the media been 'absent' in investigating this properly ... well it doesn't take a rocket scientist to work all these out either ...

and fail again it will ... but wow - decades more misery to sell news* ... and as the crisis deepens ... an attempt to create more wars to deflect people's attention away from the immoral/guilty ... so they can continue to quietly profit from the system ... and so the newspapers can sell more news ...

For this to change, Ignoromics needs to reduce quickly ... and Poweromics needs to be challenged too ... if apathy prevails for much longer, the outcome is pretty clear ... 'war'

* NB Good news/success doesn't sell (only bad news and celebrity does).

Why the Prime Minister hasn't learnt a thing

Gordon Brown said today he is "appalled" that some financial firms are continuing, and even extending, their bonus culture ... so why did he present an open-cheque book to them, bail them out with £100's billions of taxpayers money, and put nothing in place to stop this from happening again? ... for instance why has he not pushed for the introduction of a new Glass-Steagall type act to separate commercial banking (supporting wealth creation) from investment banking (supporting wealth manipulation) again, given the removal of this was a key factor in the financial crisis in the first place?

Mr Brown also refused to blame Britons for their level of rising personal debt during his time as chancellor and prime minister, saying the vast majority of debt had been the result of the "legitimate aim" of people trying to buy a home ... a "legitimate aim" to have a roof over ones head - yes ... but to have to take on huge personal debts to do this - no! ... and this would not have happened if the Government had ensured a steady & sufficient supply of housing (ideally driven by a Land Value Tax too), rather than 'promoting' self interest/greed and house price inflation/speculation.

The problem is the Government do not know how to create real wealth ... they only know how to manipulate wealth, and letting landowners profit from land whilst bankers profit from loans ... and what's even more worrying is that the Prime Minister's comments today show he hasn't learnt anything from this crisis! ... so how could we ever believe he is the right man to fix it?

Double Dip - Double Quick ?

Following on from my previous posts (1,2 for instance), take a look at these recent reality checks from other groups today ... about what we may see in the future too.

Recovery - House prices rising ...? irrelevant ...? a false dawn ? ... and the TUC rejecting claims of recovery too, suggesting we could see a "double dip, double quick" ... with unemployment escalating to 4,000,000 (not 3,000,000) ...

... and there is nothing to say this won't happen, or in fact for it to get much worse than this, unless the Government starts to invest effectively in innovation, creativity and enterprise that can add real-value in far more effective/sustainable ways (e.g. not gambling, investment banking, and property speculation), which can also support public services, as many of my additional posts (e.g.1,2) have also pointed out (including the one below) ...

"... 21st century management practices double the value-adding capability and halve costs both at the same time - but because it's 'lean' in terms of management (and 180 degrees different to traditional management!), most 'leaders'/'managers' either fail to understand it or choose to ignore it, and prefer to stick to what they know* ... most 'leaders' and 'managers' don't mind change, so long as it doesn't change how they lead and manage ... but unfortunately that's what's now needed ... don't expect to see it in a hurry ... but you'll see successful nations/enterprises doing it ... Sir Gus O'Donnell (head of the Civil Service) has known this for years, but has failed to do anything about it ..."

Posted on Stephanomics blog (post 31).