How 'Good' is Britain?

Quoting Aristotle, and following on from my last post, the following question is now partially answered ...

Aristotle said ...  "The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice*"

And this week Robert Peston, one of the few in the BBC bold enough to question what is going on, this week highlighted the "Valueless Banking Boom", following figures released by the Bank of International Settlement, which show global foreign exchange turnover rose 20% to $4trn per day on average (yes, that's each single day) in April 2010 compared with April 2007.

"A sum equivalent to the entire output of the global economy is traded around once a fortnight on currency markets ... and what's more, London's portion of this business has increased even faster, by 25%, so UK based banks' share of forex business is a market-leading 37%.

As for over-the-counter interest rate derivatives (transactions that are largely bets on the direction of interest rates), these rose 24% globally to $2.1 trn ... and Britain's share of these trades was a striking 46%, up from 44% in 2007.

Many might well dispute that the great banking meltdown of 2008 happened because of this explosive growth in financial trading - but the trading certainly didn't prevent the crash.  It is clear that bankers are being allowed to continue to gamble unabated, without the fundamental problem being addressed (i.e. bankers' gambling being separated completely from ordinary citizens' savings).

And there is a massive disconnect between a global economy that has less than doubled in size over 12 years and - on the other hand - OTC derivative transactions that have increased eight fold while foreign exchange transactions have almost trebled in value. What's more, as I've pointed out before, the global economy was growing quite as fast in the 1960s when much of this financial business barely existed.  

So those (like me) who can't see the point of all these financial trades may have a point - unless, that is, you believe the enrichment of financial traders and hedge fund managers is a social good in itself.

Which is why, some would say, it's slightly odd that when no less an authority than the chairman of the Financial Services Authority, Lord Turner, questions the social utility of much activity in financial markets, and also suggests that it might be no bad thing to levy a tiny Tobin tax on all this frenetic trading in electrons, well it's curious that the chancellor of the exchequer (who could use a bob or two) doesn't lick his chops and demand a bit of that."

Well it's clear that immorality/corruption runs deep, and at present with whatever 'colour' of Government is in Power (n.b. ironically the last Government arguably lead the way to this path of immorality - 'led' by politicians who hid behind supposed religious beliefs), and none of them are going to challenge anything that serves their own vested interests ... even when it's clearly at the expense of everyone elses'. 

From a society (and moral point) of view, separating gambling from traditional banking is a 'no-brainer', but current leaders continue to choose not to do this.  From a society and moral point of view, restricting (and taxing) trading/gambling, and investing resources into activities that add real value (the reason for currency) is also paramount, but current leaders choose not to do this either.  Clearly the hidden hand of 'power' exerts major influence on those seen to be in 'power' (e.g. Politicians) and only truly honorable, respectful, courageous and strong 'leaders' will resist this and do what is right ... and the current set of Politicians are rapidly proving they have none of these qualities (particularly the first, and arguably the most important, two).

My previous reference to the article below explains/expands on this point ...

"Introducing tighter regulations for bankers or politicians does not raise their level of maturity, morality or their ethics, it just limits what they can get away with. No, it is the type of people, the Ethnocentrics themselves, that have to go. Worldcentric people by definition and by their nature would not have abused the old regulations, let alone need new ones. Anyone below Worldcentric on the “chart” should not be selected or elected into positions of leadership in politics or big corporations, not just banks. Fewer people would fit the bill and that would limit our choice, and so it should.

The second of the two issues was the failure of commentators to seriously question the capitalist economic system that has proved to be so fragile and unjust. It has brought wealth to half the world while the rest starve; it thrives on excess consumption and the inevitable emissions, and it seriously retards the evolutionary development of individuals and cultures. Bankers and politicians alike strive to prop up the old failing system which they abused, because they know no better.

However there is also a groundswell of more conscious or ‘worldcentric’ people who will no longer tolerate the old order and they will become ever more vociferous until the ethnocentric majority of politicians are discredited, ousted and replaced. Some commentators will reread if not resurrect Karl Marx, but the way is forward not backwards. A new economic order is essential, one that puts people and planet before profit".

To answer the question we need to go back to Aristotle ... noting we are recognised as the nation leading the way in profiteering from currency, instead of making it from the process which currency was meant to serve. 

The immorality of such action is clear, and those who conspire to allow this to happen are not 'Good People' and need to be challenged ... and it will take 'Good People' to join together to do this**

... so "How Good is Britain?" ... well the evidence suggests not good I'm afraid ... and in the future ... well we shall see (i.e. will "Good" people do nothing, and be complicit in evil). 

And as I also referred to in my last post, Aristotle referred to the 'Evil of Ignorance' ... IMHO Apathy (i.e. Type 2 Ignoromics***) can be referred to as 'evil' (as it is both complicit with and an accessory to evil), but Ignorance (Type 1 Ignoromics***) is arguably less so (as it is neither complicit with nor an accessory to).

* Avarice - Extreme greed for wealth or material gain.

** 'For evil to flourish, all it needs is for good men to do nothing' [Edmund Burke 1729 - 1797]

*** Ignoromics = People are either effectively ignorant of the situation (Type 1 - Ignorance) or not prepared to take responsibility to make sure it changes for the better (Type 2 - Apathy).

Removing the destructive target driven culture

In the blogosphere I often see posts from others which go a long way to explaining what's going on around us right now ... and what could also be done to change things for the better. Many are well worth sharing with you here too, as they chime very well with this blog; including the following one below (from a new blogger to the BBC):

At 2:32pm on 11 Dec 2009, Russell Branch posted:

"Wealth generation comes from adding value for which people are prepared to pay. At its most fundamental, this is indeed from making, growing or creating things - converting raw materials into something which has a perceived monetary value. This value can be found in intellect, objects and "things", or indeed services such as provision of health, safety or protection. It depends upon the kind of society we want to live in as to how we rate and value these various things.

However, the current society we live in is governed by a ruling class who have taken central control over so much of our life through a target driven culture that the values are being skewed, or lost, in the name of political dogma. In our working lives, it is a truism that "what gets measured, gets done" but this simple fact belies the cost of the measuring! As one example of this out of thousands, and its repercussions: -

(Note, I came to know know about this following a conversation down the pub :-) , and I am making no statement whatsoever about the validity or not of this particular target)

There are new minority recruitment targets for the fire and safety services (document is here). In itself, this is not necessarily a bad thing. But just think what this implies.

At some high level, this has been decided as a "target". It has necessitated the compilation of the figures as a first cost. But take this down to a local recruitment level. It is now necessary for someone to collect, collate and report on the outcome of every recruitment interview, and someone else to help make a decision on recruitment based not only on "the best person for the job" but also on their race, creed, colour or sexuality. This will also probably add in extra time in legal consultations to protect the service from accusations of bias from both the majority population and the minorities, plus additional training for the interviewer in removal of bias. Thus, two or three extra people are needed, all of who are taking away money from the ability to pay for front line service professionals.

As another example: my ex wife was an admin manager in a health trust. For every target handed down from a centralised decision making process, it was necessary to employ administrators just to prove that the targets were being met. In the NHS, there are hundreds of targets. For every three lower grade administrative assistants on £15K per year, count this as two young nurses on £22.5K per year, and just think a) how many more front line service providers could be employed or b) how much money could be saved, if the target culture was severely dismantled and local accountability handed back to local NHS services - plus all of the civil servants who collect all of these reports and collate them back into statistics for politicians to selectively quote as proof of their prowess.

Major savings are possible at the stroke of a pen ..."

And my comments to the above - "absolutely - I couldn't agree more ... what we need is 21st century management practice which would introduce "systematic & effective bureaucracy stripping" ... replacing league tables/targets, removing all the non-value added activities currently destroying the effectiveness of front line services, and redeploying resources to provide more front line services, as well as to supporting front line staff to systematically improve the level (and types) of services provided ... e.g. take a look my recent post here, as well as my book all about this too.

Squeezing budgets - a Leanomics (and Economystic) view

On Stephanie Flanders recent blog I was asked a question about the squeezing of budgets, and some of the challenges ahead, and in response I wrote:

'IMHO your questions/insights are good. The government (and politicians of all colours) are void of ideas and/or unprepared to take on the challenges ahead in any robust way (nb the main things in Gordon’s toolbox seem to be QE, inflation and spin). IMHO the fundamental problem we actually face is one of outdated leadership & management practices (e.g. in terms of politics, economics, service and enterprise).

There are lots of ways companies & nations will ‘grow’ in the future, but outdated leadership / management practices mean most ‘leaders’ haven’t got a clue how to do it, and the majority of ‘leaders/managers’ will have to ‘unlearn what they have learnt’ in order to access the ‘world of opportunity’ of opportunity that actually exists. The idea of somehow hoping/relying upon a immediate/massive resurgence in manufacturing is also flawed, as is the concept of considering products and services in isolation of each other.

In terms of public sector cuts, IMHO given the level of crisis now faced the only robust solution (both in the short term and the long term) is to rapidly introduce 21st century lean management practice … to continuously, and systematically, remove all non-value adding activities and divert all of our taxes/resources to value adding activities. When enterprises start to do this, most initially find between 40-90% of all time / resources are actually being wasted (and as you can probably imagine with public sector services this tends to be at the higher end of the scale!).

Leaders/managers need to learn how to support front line staff to continuously improve the way the work works (and how to systematically challenge/remove all the barriers to providing value in more effective ways). This process invariably releases resources (a lot of resources!), but the ‘key’ thing is what you do with the resources released. Front line resources released need to be re-invested into improving / increasing the services provided. Managers supporting front line staff to continuously improve how value can be provided are also kept, but the remaining ‘leadership’ and ‘management’ (i.e. who don’t understand the work, create barriers instead of removing them, frustrate front line staff and prefer to ‘manage’ targets / league tables / people rather help/support people) need to find something else to do (e.g. work out how to add value!)

Resources released from front-line services are used to continuously improving the level of value provided and to identify/provide more effective services too (yes – more services – hence the term ‘more for less’). Meanwhile management has to change fundamentally (i.e. to lean management), with far fewer managers carrying out very different work – e.g. supporting front line staff continuously improving the work and systemically removing every barrier in their way of doing this (e.g. the plethora of bureaucracy and flawed policies – nb top line figures for the number of pen-pushers/bureaucrats is just the tip of the iceberg and most current policies are designed to generate waste, not remove it). You can think of this as a systematic ‘bureaucracy stripper’.

Lean management also needs to be applied to Government policies too (nb the bottom up continuous improvement described above would drive this anyway) … for instance changing the vast array of complex tax structures/credits which has resulted in a culture of dependency and armies of paper pushers to ‘check/process’ them all. It would also introduce robust, fairer, and much simpler taxes such as a Land Value Tax (referred to earlier). It was also remove the flawed and outdated targets/league table culture introduced by this Government … for instance take a look at my recent post here.

Lean management is already starting to be applied by forward thinking police forces/hospitals (with dramatic and positive outcomes – 30/40% improved outcomes in terms of time, resources, service quality, staff moral…). Change is coming, but it has been held back/stifled by all the policies/barriers put in place by this Government (e.g. league table/target culture).

Millions of jobs are going to be lost in the short term whether we like it or not … given this we need to make sure we lose the non-value adding ones and reinvest time/resources released from front line services to provide more and better services, so we can start to get back on track and avoid ‘cutting/slashing’ the actual services provided (like countries such as Singapore have done) … we also need to offer the majority of ‘managers’ released training in 21st century leadership and management practice! IMHO the youth of today should also be given the opportunity to separately learn about 21st century leadership & management practice too (e.g. within school), as it would expose them to the actual world of opportunity still out there, and expand their leadership and entrepreneurial qualities too.

Based on Deming’s work, I successfully decoded 21st century leadership and management two years ago, as well as the system diagrams describing the above (P219-223) … for those interested in learning more about this you can always read my book online (via Google books) here …

NB the ‘losers’ – the leeches/managers who add no value, fail to listen/learn, have no interest in helping/supporting anyone (eg like to please their boss, rather than customers / front line staff) and have no interest in learning/applying 21st century leadership & management. The other losers will be those who like to ‘obtain lots more wealth’ but by ‘adding no value’ ...'

Squeezing Budgets - The challenges ahead ...

Stephanie Flanders recently blogged about when and how to squeeze the budgets ... which raised lots of comments, including my own (post 4) below:

'We need as a matter of urgency to cut out the bureacratic leadership/management that add no value and create all the waste/frustration at the front line.

We need to systematically support front line workers to remove 40-80% of the time/resources tied up dealing with failure demand and carrying out non-value add activities, and re-invest their efforts into INCREASING, and CONTINUOUSLY IMPROVING the services provided.

We do not need to 'cut' services (we can increase them), but we do need to radically change (and reduce dramatically) current 'leadership'/'management', create 21st century leadership and management and install 21st century management systems* (nb it's 180 degrees opposite to what we currently have - these systematically remove waste, whereas current systems systematically create it!).

... therein lies the challenge ... and therein lies the future ... other nations have done it ... take a look here for instance ... but in the UK the toxic mixture of ignorance, arrogance, ineptitude and greed will mean the UK will avoid taking decisive action, wait until the last minute and have to try to pull itself from the brink of the abyss ...

* 21st century management systems are decoded in book for instance'.

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A fellow blogger (glanafon) in a subsequent blog then posted the following:

"Leanomist, your one of these 'economystic' types I believe - So :

David Blanchflower favours inflation as a way of getting rid of the debt. I can see the argument for this as it spreads the load, hits savers, so takes money from people who have money. I start with DB because he has at least got it right saying - problem coming - when on the BoE committee.

DB is against cuts due to the unemployment issues. I can see this also. However what he has failed, from what I can see, is to explain how funding the public expenditure prop needed via borrowing can be sustained or how the inevitable cuts are to be phased in. Or how phasing cuts in later makes any real difference if growth is to remain very muted.

Inflation may get rid of the debt, which clearly helps, but it does not get rid of the size of the public sector which is now too large following a contraction in the economy. If there is little growth - the Japanese lost decade - then the public sector has to contract.

A total tax take - direct and indirect - of 43 to 46 percent, mainly 46 percent, has been in place for decades suggesting that 46 percent is a long term ceiling otherwise it would have been breached under pressure a long time ago.

So DB is gambling on growth from what I can see, that has to be his position. But if this is the japanese lost decade that doesn't work, again from what I can see.

Assuming the banking sector is not going to grow at any great rate, the suggestion has been manufacturing takes up some slack. As Kudospeter posted at number 29 'Manufacturing as a percentage of GDP in the UK for the following years were: 1971 31.7% 1981 26% 1991 21.% 1998 15.4% 2003 12.7%, ie an almost straight line decline. I cannot see this trend reversing so where is the growth to come from. Housing percieved wealth has been used as the engine to push individuals expenditure and borrowing and that engine has blown up.

So how can public sector cuts be avoided. I cannot see it. Can't say I like it but I can see it coming. I can't say I know where things are now but a near 10 percent drop in the size of the economy from peak has been mentioned. That was during a time when the public sector was reproted as expanding still at 2 percent. So the hit has been in the private sector and much bigger than 10 percent, much bigger. So the public sector sooner or later has to follow that stat, unless there is quite dramatic growth.

Meanwhile we are close to 1 million young unemployed with an education system pumping the young out every year. OAPs are demanding they work longer which will reduce job release back into the economy.

Now we have Gordon saying he wants to commit to halving the debt, although as usual nobody really knows what he is referring to other than hinself. Halving the debt can onlt mean a mix of inflation - repayment - taxation. All of which are designed to extract money out of the economy. Taking money out of the economy means its not there to be spent.

So Leano can you tell me have I missed anything much in this ..."

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which i will try to respond to in my next post ...

University education - who 'pays' ?

The Confederation of British Industry (CBI) today stepped forward to say University students in the UK should pay more for their loans and accept higher tuition fees as "inevitable".

The National Union of Students attacked their report as "gross hypocrisy" from the "fat cats at the CBI". The Association of Teachers and Lecturers attacked the proposals as "arrogant and elitist".

In my view the CBI is once again promoting the wrong strategy, and Robert Peston has today done a fantastic job in challenging this position in his blog ... and points to the issue of inter-generational social justice the CBI ignores ... I've included a few of his comments below:

'... More by luck than desert, the generation of Lambert, Balls, Laidlaw and even Peston have had it pretty good ... we had free university education ... we have saved for a pension over the many years of a bull market and when companies and the public sector felt obliged to offer gold-standard final salary pension schemes ... we managed to get on the property ladder before house prices became ludicrously inflated...

... It was our generation which royally messed up the economy with the inadequate governance that led to the credit crunch and the worst global recession since the 1930s ... but we're - on the whole - alright Jack, thanks to the accident of when we happen to have been born ...

... but those leaving school and university today face an altogether bleaker future: a drought of jobs; a bewildering and unappealing set of options for saving and investing; over-priced residential property (even after the "correction"); relentless fearsome competition from India, China, and so on ...

.. and there's the costs of providing a health service and welfare state to sustain an older generation ...

... so some may well argue that as and when a new government decides to make cuts or increase taxes - to fill the hole in the public finances created by the current generation - its first instinct should probably not be to penalise students ... shouldn't the older generation bequeath them something other than debt?'

and in response to his blog I added:

'Well put - an excellent article again ... and many great comments from bloggers too. IMHO setting a target of 50% of people going to university is a joke, the CBI comments are a disgrace and the Government need to think very carefully about what they choose to do in this area ...

... for instance young people also have a choice where they live (n.b. they can move anywhere in the EU without restriction), and if hard-working young people move out of the UK to work elsewhere then there will be few value/wealth creators at all here in the future and no-one to pay the taxes necessary to subsidise any public services at all (or to pay off any of the debts) ... and the whole system will continue a downward spiral ... until widespread protest/social unrest hits the streets ...

Instead of passing more debt on to future generations, what about introducing a new tax - a 'Land Value Tax'* (which a number of other countries currently have) ... as it's known to be particularly effective at targeting rich landowners who own most of the land, assets & wealth ... as this group can more than afford it, it can't easily be 'passed on' and they also can't avoid it - unlike most/all of the other taxes aimed at them**! ...

... It would raise large amounts of tax and would allow other taxes to reduce as a result. It would also push landowners to make more land available for housing - which would partly tackle the over-priced residential property market we still have too. A small fraction of this tax revenue could be used to subsidise free tuition fees and provide maintenance grants (e.g. more 'means-tested' grants) for future generations of value/wealth creators (e.g. so long as they are UK residents and continue to stay in the country) ...

... Let's also reduce the number of students going to University from the stupidly high target of 50%, support proper vocational apprenticeships and scrap/replace all the poor quality courses we see today e.g. most of the very expensive, and yet completely flawed, MBA programmes ... which teach students 19th century management practices instead of 21st century management practices (i.e. outdated courses, which partly got us in this mess, and which are often referred to as 'Maybe Best Avoided' - even without all the debt)!

* take a look at http://poweromics.blogspot.com/2009/08/land-of-free-but-whos-paying-for-it.html for instance.

** NB the Government have allowed 'land' to be one of the very few things exempt from inheritance tax too!

'Land' of the 'Free' ... but who's 'paying' for it ?

I've often referred to the folly of wishing for (and relying upon) house prices to rise again, as for most people this simply equates to 'paper wealth', not 'real wealth' (as everyone still needs a roof over their head), and it creates a huge (and totally unnecessary) financial burden on our children, and our children's children (e.g. because every month a huge proportion of their hard earned money has to go straight to the banks in interest).

Whilst this clearly starves people of their own money, it also constrains their standard of living, their freedom and choices, as well as their natural creativity & ability to innovate too - which could otherwise have been put to good use in creating 'real value' for others ... for their community, as well as creating products & services that are tradable all around the world (which creates more 'value' and 'prosperity' for a nation).

At present most people do not realise what's going on and they simply join the 'treadmill of life', looking to buy a house, taking on huge debt and having to desperately look for ways to pay it back (e.g. through any 'money for nothing' scheme they can see themselves, such as more property speculation, using buy-to-let-schemes, for instance). The problem with this (besides all the ethical ones) is that 'wealth manipulation' does not add 'any real value' (or wealth) to an economy / nation, or increase a nation's overall well-being & happiness ... and it doesn't reduce a nation's trade deficit or level of borrowing either (in fact it makes all of them worse) ... and just like any 'pyramid scheme', it's now starting to collapse, big time, and it has the ability to take the 'whole nation' with it ...

So how have we got to this? Well, there are many steps that have taken place, but arguably one step in the wrong direction took place in the UK during the late 80's/90's (under Margaret Thatcher) as she tried to introduce the Poll Tax. Do you remember all the demonstrations that took place as a result, the fact that it led to Margaret Thatcher eventually losing her job, and that it was updated/changed to a Property Tax instead (that's still levied today)? It turns out that the changes Margaret Thatcher made were still highly significant - as a land tax (or Land Value Tax) would have worked entirely differently in 'economic terms' to a property tax - as one taxes land ownership, whilst the other taxes people based on the value of a property (and not the land itself) ... which we need to understand further ...

Land Value Tax is well known and arguably one of the simplest, fairest and best methods of taxation, as it taxes all land ownership based on it's potential value, based on it's natural position/resources and the community/amenities placed around it (e.g. people, jobs, transport, services) ... which are placed their by us - the Community (hence the original, and true definition, of a 'Community Charge'). It deliberately separates the 'value of the land', from the value of a 'property' (i.e. the basic bricks/mortar) on that land so it can tax land, and not the building - which is effectively the opposite of what we have now! By taxing land ownership (not the individual tenants or property) it also drives landowners to seek better 'economic' use of any land they own (instead of simply hoarding it and watching the value of their land grow without doing any work at all) ... and it has numerous more positive aspects too ... for instance when implemented properly the land tax itself cannot simply be passed on to those who live there, or who 'use' the land, because of the overall environment and the natural 'economics' that's created, as it simply taxes land based on it's 'economic value', and if landowners seek to pass on this tax, then people & enterprises are able to adapt and move to where the 'economic' conditions are more favourable (and the landowner has to pay the tax whether they are using it to it's full potential or not !) ...

A Property Tax (i.e. based on the size/value of a property) naturally moves the focus of attention away from adding value and switches it to 'asset speculation' instead. It also arguably avoids one of simplest forms of taxation (e.g. it cannot be avoided, it stops asset speculation/hoarding, and it arguably provides one of the most 'natural', 'ethical' and 'fairest' forms of 'economics' known to mankind). The avoidance of land tax, coupled with the fact that 'land' is one of the very few things left that is still not subject to 'inheritance tax', has made wealthy land owners pay far less for 'owning land', to 'hoard land', and to pass on land/wealth to future generations (without the risk of inheritance tax) ... so they can also continue to make money from it without doing anything at all (yet another example of 'wealth manipulation' instead of 'wealth creation').

One could argue that a Conservative Government would naturally want to do this as the party is well known to be 'sponsored' by the very rich, who are clearly the small minority benefiting greatly from such steps. However, when Blair/Brown took over they did very little about it, in fact they complicitly supported house price inflation, as coupled with banking (nb mainly 'asset speculation' and 'wealth manipulation' again), became their way of 'building' economic 'growth' without apparently having to work hard or creating lots of real value (and by two 'leaders' who preached to us prudence and who were supposedly brought up in the 'ways of the church')! One clear (and arguably callous) example of this was when they deliberately changed the Bank of England inflation target to one which specifically excluded house prices ... to allow house prices to continue to rise unchecked (i.e. as interest rates would no longer have to rise). Hence the 'illusion of wealth' was extended a lot longer, which will make the fall much deeper and greater now.

Real wealth is created by building new homes, not the price of existing homes going up. The bricks and mortar in themselves should arguably normally depreciate as they get older too, though the land value may grow (which is another good reason for separating the two). Yet the current system continues to incentivise landowners to hoard land and benefit from its continual growth in value (at very little cost - nb the low ceiling deliberately put in place with the property tax) and often without using it. Insufficient supply of housing, due a mixture of hoarding, demographic changes and increasing marital breakdowns (nb which are often related to money and stress!), means basic 'economics' (i.e. supply and demand) will make prices of property more than they could/should be, but arguably the main reason for all of this was to raise tax but i) to avoid a 'Land Value Tax' (so as to mostly ignore the real 'economic value' of land), and ii) to favor 'wealth manipulation' over 'wealth creation' ... and until both of these are reversed, things will only get worse ...

Value creation will continue to decline and unemployment will grow, borrowing and trade deficits will continue to get worse too ... all that will continue is wealth being transferred to the landowners, the bankers, and the already rich, whilst everybody else pays for it in their taxes, mortgage interest and their worsening quality of life (and for generations to come) ... so who's 'paying for it' - well it's pretty clear that good and otherwise hard-working people & communities are ... in terms of their well-being & happiness, the 'spare' money they have to spend, and in the 'freedom' they have and the 'choices' they are able to make ...

Solutions do exist, but those currently in 'power' will try to 'fight' any such change. In many ways we face a battle that 'transcends nations', and circumstances will continue to get worse until more people start to take proper notice, realise what's actually going on, and decide that this must change ... in the future we need to reward 'wealth creation' not 'wealth manipulation', and we need to move away from the toxic mix of Poweromics & Ignoromics we currently have today ... to a much wider, much fairer, and far more holistic form of 'economics' ... which I call 'Leanomics' ...

Land Value Tax should arguably be introduced early on (nb places like Hong Kong, Denmark, Singapore, Taiwan and Australia already have it and it works very well), so that it can replace, or at least dramatically reduce, other arguably less fair forms of tax* ... such as taxes on jobs/employment [Income Tax, National Insurance Contributions], taxes levied on enterprise [Corporation Tax] and taxes paid for providing goods/services (i.e. real value!) to others [Value Added Tax] and all the other 'stealth taxes' [e.g. road tax, congestion charging**] for instance too ...

As can be seen here, Leanomics is based on an entirely different 'values system', and one that focuses on (and rewards) ...

"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"

... a system very different to one the UK has right now, but ones that other nations (particularly smaller nations and those in the far east) understand only too well ...

* It is also worth noting that these are all set to rise dramatically in the future (VAT increases etc have already been announced), not reduce, to pay for all the current failure!

** If you're perhaps wondering where 'carbon taxes' fit in, and why I've included road tax and congestion charging as 'stealth taxes' here too, you may also want to read this.

Leanomics - It's all about 'value' ... and 'values'

As is often the case with Stephanie Flanders' blog, the most interesting observations are often in the comments rather than the initial post, because of the type of questions asked and all the insightful comments that result ... because of this I thought I'd join together an important thread here (which actually started from one of the observations I made in my previous posts about economists, the 'failure of economics', and about asking the right questions & finding the real answers ...).

The discussion moved on to the defenses/resistance to change put up by 'traditional establishments', and then onto the ins & outs of 21st century management ['lean management'] - and more specifically 'value management', ... as well as their underlying 'value systems', which also underpin 21st century 'economics' (i.e. 'Leanomics') too ...

Contrary to popular belief "Lean is NOT Mean", or about "Cost reduction" ... and Leanomics isn't about these either ... in fact they are about the complete opposite ... they're about "value", "prosperity" and "growth" ... which is something our nation (and our enterprises) desperately need more of right now ... e.g. take a look at the definition of Leanomics 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.

and at the valuable thread of discussion below ...

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... glanafon said (Post 146) ...

"127 leanomist ... you are looking at a protective behaviour towards a model by those involved in the building of the model, in this case an economic model. The more it is attacked the greater the resistance to criticism. It reaches the point where critics are dismissed out of hand and ridiculed.

Coupled with vested interest it can have a devastation effect. It blocks progress. It develops faux science. It is also present in other sectors, in my opinion it is present in medicine. Actions and policies are taken and there is then hostility to any objection ...

I do not actually believe the problem is economics, although it seems to me that economics has major flaws. The problem quite simply is those with the job of regulating, of being corrosive in assessment of the commercial sector, lost that perspective. Simply, HMG came to depend on the financial sector revenues, therefore it de facto became partners with the financial sector profit and that eroded the regulation role ... It is generally said in cases of domestic abuse or violence that somebody knew what was going on somewhere and tries to raise some sort of alarm, however muted.

It is obvious that with the bubble, which seems to be based on systematic abuse that somebody knew what was going on, and there is plenty of data about people warning. There is anecdotal evidence and reports by journalists of graphs at the treasury and BoE. There are published comments of concern. There are a lot of clever people working in the sector and it is inconcieveable that questions where not raised. They were swamped by the model believers and vested interests.

Critically HMG were the problem, they were lax. this is why Brown is politically dead. Everybody in there heart knows he was part of the game and the game has failed. There is no escape for him. It is a sad case because I do believe he genuinely wanted to build infrastructure and services. However one cannot trust effective monopolies and what look to be near cartels and effectively that is what he did. That is why what ever is said as a political strategy has little impact.

Business has one desire, to create monopoly and exploit. It has to be balanced by regulation. It becomes more difficult when business becomes multinational, because logic says the regulation has to become multinational, and no solution has been implemented todate.

It is only fright that is controlling business not HMG.

BTW Darlings recent plead for the banks to play ball, as he sees it, on loan costs. I understand the issue is that the smaller the loan the high the risk of default. In other words credit ratings are failing, because only a high credit rating will get a high value loan. The outcome is that consumer purchase volumes cannot, well are unlikely, to grow in the near term as many are based on low value loans.

Mr Darling seems to be slow to learn that his drive by shooting was not stringent enough for his needs, and that at the end of the day he should have seized opportunity. That is what a business would have done. Left to their own devices the banks rebuid their bottom line not the economy. It is to be expected. It is however typical of the dichotomy of the infrastructure role of banks and the commercial risk taking activity of the banks. Logic suggests that the infrastructure role should be split off.

There remain major problems in the UK hosting multinationals with an individual book larger than the host, the UK, and the UK taxpayer being the lender of last resort in an ad lib Ponzi scheme. eg RBS for one. That is inescapable ..."

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In response I wrote (Post 161) ... "I agree with a great deal in your post. The only bit I would personally tweak is the following: 'Business has one desire, to create monopoly and exploit' and change it to ... '20th Century enterprises have one desire, to create monopoly and exploit' - as 21st century enterprises see/do things very differently ... and operate using very different 'value systems' - hence the link to a "new economics" ..." and glanafon agreed (Post 163).

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A fellow blogger (Post 171) then added ... "Post 161 leanomist - Now there is a sweeping statement! Fortunately or unfortunately (depending upon your position) 21st century enterprises (whatever they may be!) are more than outnumbered by those operating in the 'present' economy..."

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To which I replied (Post 186) "... 'Unfortunately 21st century enterprises are more than outnumbered by those operating in the 'present' economy' ... I agree with the statement above - but it's changing times and those that are (e.g. Toyota) will survive (and prosper), and those that do not, will not (e.g. GM - $170bn bankruptcy). History says "Happen it will", and we haven't really started yet - we don't quite know how long the overall process will take, but this time appears to be shortening rapidly by the day ... and those enterprises/nations who ignore this (which many of course will!), will do so at their peril I'm afraid ... as unfortunately ignorance in this case is not 'bliss' * ...

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glanafon then added (Post 188) ... "The question for me is can the old ways change. I have my doubts. You are talking about whole new structures and cultures and values that need to be introduced. I was involved in trying to introduce new ways of doing things in old companies on two occassions and it was unbelievably hard work.

Embracing the new was not something that came to mind. Even though it gave a 10+ percent improvement in operating efficiency which went straight thru to the profit line it was fought every step of the way. At the second outfit I recommended setting up a detatched fresh new start operation rather than trying to change from within. They ignored the advice, failed to grapple with the inbuilt cultural problems and are now a fraction of the size they were. Ego got in the way. Of course there is no data to prove the alternative because it never happened.

To me it remains the central problem that structurally many businesses are just not suited to the forthcoming environment. Can adaptation occur fast enough. It is more likely there are pleads for special treatment and funding to try and prop up what has gone on before in a reduced size. Big has to act small, which demands flexibility and responsiveness and a high degree of networking. This applies to businesses big and small.

You mention the Japanese automakers. They introduced a new way of working in the 60's, Just - in - time, highly flexible focused production. If you take a look at the prodcuts they introduced the idea of flexibility in response in models. A common floorplan and running gear has different upper bodywork and interiors, allowing quick new model introduction and critically smalled volumes per model, targeting niches in the market.

It all is a bit basic now but if it is compared with the production in the UK at the time the diffence is startling. The UK production was monolithic and sequential in process, very slow to take to market. The UK production could not respond in time. That was not the only problem, subsidised plants elsewhere in the EU did not help.

It has nothing to do with how hard a workforce works or how efficient they are, it comes back to how smart they work and whether they are undermined by a low wage zone..."

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I then added (Post 193) ..."I agree with what you've said here again. Most enterprises will fail ... because their current 'leaders' will fail to lead*, will fail to change, or will fail to change quick enough ... (and the starting whistle has already been blown!)

The future primarily involves a fundamental change in 'leadership' and 'management' practices, and most will fail to do this (in fact, as you say, many will try to resist this - as it's opposite to what they currently do and to what's got them to where they are today) ...

History tells us this too I'm afraid, as your comments quite rightly point out, and 21st century management practices go way beyond just a few techniques like the ones mentioned** (e.g. in-built quality, just-in-time) ... in fact the entire management system has now been virtually decoded (that's what 'Lean World' is about) ... the problem is that history is set to repeat itself again (viz a viz Dr. W. Edwards Deming, a US Citizen, being largely ignored by the West but his work being rapidly embraced by the East - e.g. Japan) ..."

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A fellow blogger (Post 208) questioned the example of Toyota and the likelihood of their future success ... "leanomist brings forward the example of Toyota. Will they survive the 21st Century? Only time will tell. Are they better managed than their competitors? Well that is debateable. There does not appear to a sustainable competitive advantage over their local or global competitiors gained by Toyota ..."

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so I responded by adding (Post 211) ... "The success of Toyota is already there for everyone to see (e.g. compare their situation with the demise of GM - a $170bn bankruptcy) ... they have still got a lot more to do, but they know this already and have everybody working everyday to improve these things too (nb their philosophy is one of continuous improvement - and one of their common phrases is 'no problem - is a problem'! ... if only more UK 'leaders' were willing to take such an approach and systematically expose all problems faced ... so they can be removed / solved ... we would frankly not be in the mess we are in now).

As far as decoding the management system is concerned, I think you'll find it does (as that's what other people have said - e.g. CBI/business school deans) and it also defines what a 'management system' actually is - and how it also applies to every type of enterprise (service/production, big/small, public/private) as well as civil service departments and entrepreneurial enterprises too ... however, I'm not here to educate, or to persuade anyone on anything - individuals need to be curious and start to find more things out for themselves (and look into what's already happening*) ...

To this end I hope more people do become more curious about the changes already going on around them ... because our future economy depends on it ... 'leadership' and 'management' practices are already starting to change, and 'leading' enterprises / groups are already starting to benefit from this (including a few key leading NHS hospitals / UK police forces !) ... and creating much better outcomes for everyone as a result ...

For our economy to turn around it will take the concerted effort of many, and not the reliance on just a few ... In the 21st century survival is not a given, as history also tells us that those who are left behind will find it very difficult to catch up ... "

and gave another reference to an interview with GE ... "You might also want to look at GE - a company who are now starting to move to the next phase of 'lean management' maturity/practice (and who are also referred to in the book) ... e.g. there are quite a few clues in Robert Peston's recent interview with their new Chairman/CEO, but you probably need to know where to look (as Robert didn't necessarily ask all the right questions - e.g. about their fundamental practices) ... nb GE are arguably at second generation maturity, and they are a production/service company too ..."

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They responded (post 221) by saying ... "Firstly let me agree with you that leadership and management are major elements of both our existence and future. How that management is implemented is still up for debte and you will find the argument is still hotly contested in both academia and in practice.

Since 1950, GE took a corporate strategy decision to base the whole of their organisation upon what Porter describes as Overall Cost Leadership. This strategy demanded that all of GE's actions and plans were dedicated to being the lowest cost provider in their various market places. It should be noted that this strategy goes far deeper than any 'normal' cost reduction exercise. They were so sure of the advantage that at the end of each Annual Report they published not only their targets for the coming year but also the basis of their system. Perhaps they were quite safe to do so as there can be only 1 cost LEADER and any newcomer would have a lot of catching-up to do! Perhaps a 'hidden' advantage in the strategy was that competitors equated Low Cost with both Low Quality and Low Price. As GE proved this was a fallicy. I only make this point to show that GE has been an innovative organisation for many, many years and that their success/failure is not solely due to "lean management".

You really cannot claim Toyota as a success by comparing them to GM. Part of Toyota's market success has also been due to the failure of GM, Ford and Chrysler rather than their own efforts. There are many similarities in the collapse of the US auto industry to the death of the UK motorcycle industry. So will Toyota be successful in the 21st century? Well let's compare them to say Nissan, Honda and what may emerge as the Euro car industry in say 10 or 20 years.

One of the things that I feel sure of is that this crisis has finally cracked-open the US Corporate model. Many things will flow from this in terms of management and organisational structure, finance and maybe even ethics! My hope is that effectiveness replaces cost-efficiency. In the UK, I would love to see organisations put the CUSTOMER back at the heart of their decision making i.e. a return to true marketing philosophy.

That there are many different approaches to meeting the future can only be good.

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and one of the original bloggers (glanafon) added (Post 224) ... "the idea of being the lowest cost provider is an anathema to me. Why on earth would anybody want to have that title. All you attract is the nillionaires, nil in the wallet but talk like millionaires and ponce and preen. They are the wallies who helped pump up the bubble on credit. Its all about being valued, simple as that. If something is valued it is given value and commands money. The ever present demand for cheaper and cheaper goods promoted by consumer oriented business is self harming for those businesses, as a strategy it just devalues the goods. Insane. A reduction in consumer affluence, or credit if you prefer, will increase the value of goods and ensure people are more careful with purchase and use. If all that drives things is cost then logically you would never use any bag other than a supermarket plastic carrier bag and you would never drive a car younger than 10 years old, both can be perfectly functional. It is about soul. Thats also why many businesses are in trouble - they are looking at the wrong target..."

and glanafon went on to say (Post 236) in response to a comment directed towards them ''...'YOUR costs are only of interest to you. However, if you can manage your activities so that your products and services match your competitiors BUT cost you less then you have already earn't a major element of profitability.' ...

You are miles away, or the rum is particularly good. I have no interest in having competitors. We have no direct competitiors. That is the whole point of what we do. We made the market. It is an internet based business. It is independent of location. It is in some respects a niche market we serve but it is a growing niche in a multicultural market which is part of an estimated population approaching one billion worldwide. How many customers do you want. As soon as you have a competitor you have some snivelling git saying they can offer a faxsmile of what you do but just a 'bit' different and 'cheaper', sort of like saying here is a marzipan or sugar mouse instead of a real live one, its much cheaper. Our website is monitored from the far east and elsewhere from the internet data reports from the IT guys but we are both too specific and too flexible in what we do. They cannot compete because they are not set up to do so, they are inflexible, unadaptive and slow, and unethical. We have had sustained (failed) attacks on our website trying to gain data. We have a custom and expensive website to avoid that sort of thing.

''Don't care what strategy you choose, if your succesful you'll still "attract is the nillionaires, nil in the wallet but talk like millionaires and ponce and preen." ''

We can spot 'em a mile off. They are dangerous because they influence marketing returns unless you know they exist. They are not a problem as far as we are concerned. We only supply on prepayment unless we know the individual, many are repeat purchasers. Simple. We make, flexibly and adaptively, and supply direct worldwide into a lifestyle market, objects that are valued, that was the objective, it eliminates the middle man and cuts overhead, we provide value. We network into the communities that our customer base is centred on. It is more difficult to set up but it eliminates as much dependency on other parties as possible and gives immediacy of contact with the marketplace. We have placed two low key adverts in our entire process that is how much we do conventionally in marketing terms. We are the subject of discussion on Facebook and forums, some foreign language ones, and word of mouth. I've said before - take the book out, look at the rules and write down the inverse, because the old rules are dead. Then try and do it, and keep doing it till it works.

The price is set by the customer in any business, not the business. With much of our output we are told the price is not an issue, please just do it. We control costs and do not overcharge, it is an ethical decision and also a defensive one. Once trust is lost it is never regained. We are trusted to provide something of high value at a fair price. It is an honour. We are in growth and profitable. We regard cost, profit, and money transfer as the means of enabling supply. How many businesses can say that...."

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A new blogger (BankSlickerminustheR) decided to join the discussion now too, by adding (Post 241) ... "I worked for Toyota for 4 years (in engineering), after that length of time you get an inkling of their philosophy.

It is, first and foremost, an engineering company run by engineers (how novel!)

Secondly, the work force never stop working. They work 'til they drop'. The company excuse for these conditions is that they could not afford their 'cradle to grave' social system otherwise. All employees have to save their holidays over a 5 year period to cover bouts of sickness.

Thirdly, and this is obviously a cultural thing, the far East Asian attitude toward self and group being the total opposite to the Wests'. It's not a case of 'what can my company do for me'...but more 'what can I do for my company/society'.

Lastly, their manufacturing facilities, and the personnel working in them, are King. Their product engineers spend many years working in the developing departments and are then regularly rotated to experience the manufacturing environs. Everyone knows what everyone else does, or more importantly, what they should be doing. But remember...those in manufacturing are the Kings.

...and of course, I could not endorse more...your final paragraph 'production and employment as the essential elements of the economy rather than the financial industry.'

PS I recommend the book 'The Toyota way' - think of it as the 'Total Manufacturing' equivalent of 'Total Football'. Toyota took Dr. Deming to their hearts. They would literally rather die than make something of inferior quality.

I'm pretty sure they will be around for another 70 years. I can recommend their cars too! ..."

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Whilst I had also added (Post 242) ... "21st century lean enterprises focus on VALUE, value as defined by the customer - NOT COST ... and GE have been rapidly moving towards this type of working over recent years (part of what their new Chairman/CEO hinted at in his interview with Robert Peston) - they're a company which has picked up the winds of change, built on where they were, and are starting to take themselves to a new level ....

Simply focusing on being lowest cost risks a downward spiral towards commoditization (and outsourcing to the lowest labor rate economies etc), which in the vast majority of cases is 'fools gold' (hence I agree with glanafon's previous comments in Posts 222/224 - who really wants to chase that goal?)

21st century lean enterprises focus on value management, not cost management (which is where GE are now going ... and employing some simple & clever ways to do this too - which are referred to in 'Lean World'), they also focus on long term goals, and as you quite rightly say effectiveness (rather than simple cost-efficiency), which is underpinned by a pervasive philosophy of innovation & continuous improvement, channelled by a robust strategy and underpinned by the application of strong ethics & a robust 'values system'.

There is much more besides, but I think you'll find most of the things in the 'wish list' are actually already in there* - including far more effective customer focus and an innovative market philosophy which applies 21st century marketing practices (nb glanafon's Post 236 refers to a number of these, and many of attributes the above too).

I'm not looking to expand on this much more on this blog, because those who are curious will hopefully go find out more about 'lean' themselves ... I'm starting to feel like I'm starting to summarise the book 'Lean World' now, which is not the purpose of this blog (those who are interested can read it online, take a look at Deming's work and/or the book "The Toyota Way' for instance). I hope this helps to tie some of the discussions we've been having together here, and that it's managed to remove a few of the most common misconceptions ..."

[* NB a 'management system' is well-defined and very different to 'management styles', and the terms 'leadership' and 'management' also require simple and more robust definitions too. PS Nissan & Honda also apply Lean Management, but Toyota are recognised all around the world as the true 'world leader' - nb one of their key differentiators is that they can now launch new cars twice as fast, and at half the cost, of their competitors (e.g. I believe they've launched 5 new models this year alone). Toyota do have weaknesses however, and still have much they need to do (so you are quite right - they have to address these to stay ahead)...] .."

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The initial blogger who questioned Toyota then said (Post 246) "... as an amusing aside (especially for BankSlickerminustheR), there is always the Moulinex experience. As part of an economy drive many years ago Moulinex required all of their directors to find major savings in their respective departments. The production director had a bee in his bonnet about the amount and cost of flex attached to their products. Therefore he ordered a 10% reduction in the flex.

At the next meeting he proudly announced that he had made a major saving only to be told by the marketing director that all of the saving had been lost due to the increased number of returns - on the basis that the flex was not long enough!

A true story? - well maybe! But it proves to me that a truly succesful organisation attempts to marry all of the skills without creating KINGS. It also proves that a CEO who spends the majority of his time in his own boardroom or those of The City is NOT doing his job"

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To which I replied (Post 248) ... "thanks for the Moulinex example - a good example of 'traditional management' in practice! ... and as you (and BankSlickerminustheR) quite rightly say, the 'kings' are actually the front line staff (not the CEO's) ... and again a very big difference between 21st century management & traditional management [cf glanafon's post 236 ... "take the book out, look at the rules and write down the inverse, because the old rules are dead ..."]

As BankSlickerminustheR also said, if you are interested in Toyota and manufacturing I would definitely recommend Deming's work as well as the 'Toyota Way' - 'The Toyota Way' is indeed 'Total Manufacturing' and it highlights many of Toyota's core principles and values too.

IMHO one of the major challenges we really face, and I've alluded to this in the past (e.g. the history of Dr. Deming, Japan, Toyota)*, is the fact that the UK/US (i.e. the West) are unlikely to pick this up as quickly or as effectively as the Far East, which some of the additional comments made here arguably allude to too ...

e.g. BankSlickerminustheR (post 241) wrote "... Thirdly, and this is obviously a cultural thing, the far East Asian attitude toward self and group being the total opposite to the Wests'. It's not a case of 'what can my company do for me'...but more 'what can I do for my company/society'..."

21st century economics (i.e. Leanomics**), and 21st century management (Lean Management) are founded on 21st century 'values systems' that are generally more natural/prevalent in the Far East (than here in the West) ... and IMHO we ignore this at our peril ... [as the current 'economics' already favors the Far East, and the West is already in serious trouble!] ... and hence this is something I'm keen to blog about ..."

ie. hence this blog - as well as the very definition of Leanomics itself too ....

** 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.