On wealth versus well-being
Back in the Middle Ages, no-one took any notice of Copernicus when he said the Earth was not at the centre of the universe.
Stewart Wallis, executive director of London-based “think-and-do-tank” the New Economics Foundation and one of the thousands attending the World Economic Forum in Davos, can sympathise.
“I don’t mind being called an idealistic idiot,” he told Reuters, with reference to a philosophy he summed up as “the macro-economic text-books are works of fiction”.
Undaunted by the non-believers, he will continue to spread the word and in Davos addressed the assembled money-makers on the importance of “gross domestic happiness”, as opposed to gross domestic product. His new economics aspire to demonstrate “real economic well-being” through sustainable living, a focus on the local, not the global, and a more equal distribution of wealth.
The foundation’s latest survey of National Accounts of Well-being, based on around 40,000 interviews across Europe, found overworked, tired, bored and lonely Britons were near the bottom of the league. Increasingly, they might be ready to give new economics a try. To that extent, Wallis’ time has come.
But there is work to be done. Regardless of the world economic crisis, convincing the people of Davos, both visiting and permanent, of the need to jettison old economics remains a challenge. The Swiss in general come very near the top of the well-being league, with their perfectly groomed ski pistes, quantities of chocolate and discreet wealth.
In crowded Davos, keeping VIPs happy is no easy task
How do you keep VIPs — hundreds of them — happy?
You can’t, especially at the World Economic Forum. There’s no point in pulling that “Don’t you know who I am?” line here at the annual Davos gathering, which is attended by hundreds of the biggest corporate and political bigwigs.
Aides to Pakistan’s Prime Minister Yousaf Raza Gilani (including Commerce Minister Makhdoom Amin Fahim) and officials traveling with Kazakh President Nursultan Nazarbayev were visibly upset after they were refused entry into the opening plenary session. Before the same event, Senegal’s president Abdoulaye Wade and his aides were made to stand around for 15 minutes or so.
Later in the week, Belgium’s prime minister, Herman van Rompuy, was pushed aside by bodyguards to make way for British Prime Minister Gordon Brown.
Every morning, there are long queues at the security screening on the way into the conference, and CEOs who are used to whizzing past barriers must wait patiently for their turn like the rest of us.
“The forum has outgrown this place,” one participant told Reuters.
The answer, dear bankers, lies not in yourselves, but in Shakespeare
Many of the bankers blamed for the world financial crisis have been conspicuous by their absence from this year’s World Economic Forum in Davos.
They haven’t just missed conventional debate on how to prevent a re-run. They’ve also skipped the chance to hear Richard Olivier, theatre director and son of acting legend Laurence Olivier, draw comparisons between the masters of the universe and Shakespeare’s murderous tragic hero Macbeth.
“Macbeth didn’t set out to be evil,” Olivier told Reuters. On the face of it, he was the kind of bright, ambitious young man who could be trusted with big investment decisions. Equally, Lady Macbeth, who stands for “the familial culture of an organisation” thought she was just nurturing his career.
The positive role model is the low-key Malcolm, who, after all the bloodshed, quietly and without ego, ushers in a new order at the end of the play.
Olivier’s sessions in the Swiss ski resort have also focused on sustainability, with the help of Shakespeare’s comedy “As You Like It,” which distinguishes between the oppressive world of the court and the creative, collaborative forest.
“People cut off from nature will make unnatural decisions,” is the message it holds for the chastened business elite, says Olivier, whose company Olivier Mythodrama gives Shakespearean lessons in business leadership the world over.
He is suitably modest about audience reaction, but his wife Shelley Olivier says he receives ovations that would have made his father proud.
Risk Takers Anonymous
An eminent scientist who studies the brain and economics thinks that the financial industry in essence became addicted and insensitive to both risk and reward.
“The finance industry was adapting to the level or risk,” said Gregory Berns a professor at Emory University in Atlanta and a leader in the relatively new field of neuroeconomics.
“It is an insidious process, and you are not aware of it. You are addicted to returns, you are addicted to risk, you are addicted to cocaine – its all the same as far the brain goes.”
The part of the brain which is rich in dopamine is active in giving people a buzz when they do something they value. Getting money can give this buzz, as can taking risks. But sadly shortly after we reach a level of wealth we need more to get the same kick, just as we become used to the risk taking which formerly would have been exciting and might have caused us to trim our sails.
Berns describes the process of becoming habituated as like adjusting to a new level of light, at first it seems bright but then you adjust.
“You get used to it. The brain is constantly gauging relative amounts. The brain does not have a mechanism ever to be satisfied.”
The implication he said, is that the trader, banker or even small investor needs some structure from outside to impose limits.
Climate change – does business get it?
Climate change — and the need for governments to reach a deal in Copenhagen on limiting climate-changing emissions — has been one of the central themes of this year’s World Economic Forum in Davos.
And despite concerns that the economic crisis could push climate change down the agenda, businesses are salivating at the opportunities offered by going green.
Previously sceptical politicians and NGOs welcome business’s enthusiasm.
“Quite a lot of business has got it, and really understands that this has got to happen and are talking about really innovative things,” Barbara Stocking, CEO of Oxfam.
“If they’re that almost enthusiastic about making the changes then that makes me feel rather better than I did,” she told Reuters.
What do you think? Does business get it?
Government should act and support businesses to keep this issue in their minds always, regardless of economic crisis.
Banks to be disintermediated? or is that just replaced?
Is it actually distintermediation if the thing being disintermediated has ceased to function?
Henry Kravis of Kohlberg Kravis Roberts said in Davos that, as in essence banks aren’t playing their role of intermediating debt capital for buyouts, he would be going straight to the source, doing deals directly with investors who want to fund debt for deals.
Of course many of the institutions that used to fund buyouts, CLOs and CDOs for example, no longer exist and many like hedge funds have lower appetite. He acknowledged that leverage has “come down tremendously,” which might get the prize for biggest understatement of the week.
But, like Steve Schwarzman of Blackstone earlier in the week, he maintained that lower asset prices for deals originated now would help returns.
“You might be able to buy it with less leverage and you can still get the same returns because of the purchase price you are paying.”
I hope he means the same returns as old-fashioned vintage deals rather than the returns of 2006/07 originated ones.
Schwarzman earlier in the week on same subject:
Global Barter Stimulus for Global Economy
The world is experiencing an unprecedented global financial and economical crisis, which is threatening to lead many countries into a deep depression. All the major economical powers are seriously affected hence each country has earnestly rushed to devise an immediate stimulus program to pump her economy to avoid a depression. No doubt, any stimulus is better than no stimulus but the effectiveness of each stimulus program seems to be unpredictable due to the global scale of this current economical crisis and the complex interdependency of all the major economical powers, namely the major international trading partners. In this paper, the author thinking outside-of-a-box is proposing a global cooperative stimulus program to bring the global economy back to vitality. The central thesis of this program is to achieve the following two main objectives immediately and cost-effectively. The first one is to eliminate the credit problem now infested in global and domestic financial institutes, which is stifling all economical activities, most critical of all, the international and domestic trade and property financing. The second objective is to restore confidence quickly and globally to revitalize the international trades among major trading countries, which is the essential means to stimulate the economy of all trading partners, hence the global economy. The author calls this proposed program, The Global Barter Stimulus Program. (GBSP for short)
The GBSP proposes that the major international trading countries immediately convene to develop a stimulus program by simply pledging to barter goods and services from each other in a magnitude (dollar value) equal or more than 110% of the 2007 trading figures. This government-backed pledge has three goals:
1. Stimulate a growth economy for each participating country by mutual support,
2. Stabilize jobs in manufacturing and services by providing credit and liquidity to finance manufacturing and trades, and
3. Restore confidence in businesses, home buyers and consumers worldwide by engaging in a cooperative global economical stimulus program.
Like many international cooperative programs, there will be differences in opinions rooted in self-interest. However, this global economical crisis is so severe; hopefuly many countries would be more willing to participate to share the benefit of a rapid global recovery than to risk a long self-destructing economic scenario. In fact, this crisis may be an opportunity to bring countries together to soften the resistance of dealing with some of the global issues such as conservation of energy, global warming, product safety, work environment, epidemic disease control, etc. etc. United States being the biggest international trading partner is in a right position to initiate and lead this Global Barter Stimulus Program, which can be a more effective High Level Governmental Solution to the world’s economy than engagement in micro-managing various domestic stimulus packages.
The GBS program can be kicked off via a summit meeting of the top fifteen trading partners in the world.
( http://www.census.gov/foreign-trade/stat istics/highlights/top/top0811yr.html )
The organizing country prepares and sends an agenda and a proposed preliminary document of understanding on how to participate and administer the GBS program (GBSP Document) to all invited participants. Each participating partner may bring a delegate including other not invited country/partner as an observer.
Prior to the meeting each invited GBS partner/country is requested to prepare a Barter List (category, dollar amount, specific requirements and possible trading partners) which are essentially the goods and services each country pledges to barter with the goods and services from another country if certain specific conditions are met. The lists will be shared among all trading partners and made publicly accessible. During this meeting, first, invited partners review, discuss, revise and approve the GBSP Document, then, begin discussions and negotiations to barter until each country has bartered most of her listed barter categories with other countries. The end result of bartering and pledges guarantees a positive economical projection.
The GBS process should be made as transparent as possible as an effective stimulus program; press and observers are invited so the process may be televised globally for the benefit of the world. The GBS trade lists with government pledges are the essence of the Global Economical Stimulus. Each participating country will fulfill her pledge, hence will stimulate each partner’s domestic economy; collectively the GBS partners will stimulate the world economy. GBS can be sustained yearly to achieve long-term benefit.
Foot Note:
A physical venue may be selected for this program. For example, the $450M Bird’s Nest in Beijing may be an appropriate structure to house such a program so that a meaningful Global Bartering Stimulus will lead to a sustainable global economical growth and world development.
IFC
Overheard in Davos
One of the best things about Davos is the conversations you overhear. It’s like no place else.
Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:
“So, how much trouble are you in?”
The banker responded in what sounded like soothing tones but I couldn’t make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:
“The prices are very low, but there are no buyers!”
That’s it, in a nutshell.
Hank Paulson is not Gavrilo Princip, Lehman is not the Archduke Franz Ferdinand
Was letting Lehman go down the biggest mistake of the crisis? Many, including George Soros in the Financial Times, have argued that letting Lehman go down sowed panic to markets, consumers and businesses.
Not so fast, says Harvard historian Niall Ferguson, in an interview in Davos:
“My position is this is a typical error of historical understanding in which a single event is blamed for much more than it can possibly have caused. You can say ‘Hank Paulson is to blame for my troubles’ and if you can change one thing in the story it would have a happy ending.
It’s like saying if only Princip had not shot the Archduke Franz Ferdinand in 1914 there wouldn’t have been a First World War.
If you go through the events of September of last year you will find it incredibly hard to produce a counterfactual scenario in which it could have been possible to save both Merrill Lynch and Lehman. There is one bank which could be bought by Bank of America but there couldn’t have been two.
This is a crisis of too much bank leverage which began in August of 2007 and indeed had it roots far before. A bank leveraged 25-1 only needs a 4 percent decline in their assets to have their equity wiped out. And the notion that saving one investment bank could somehow have prevented or mitigated the crisis is a fantasy. The problem would have happened at some point somewhere else. There is a fundamental problem of bank solvency.”
Ferguson argues that without another buyer for one of the two, one would have needed to have been taken into a kind of Treasury conservatorship, as Fannie Mae and Freddie Mac were. But those were already quasi-government and such a move would have required Congressional approval, which given that Congress turned down the first version of the TARP, was not likely.
Davos 2009 Conference Shows The World At An Economic Crossroads……
http://wcgfairfield.blogspot.com/2009/01 /davos-2009-conference-shows-world-at.h tml
U.S. – They’re skint, they’re frugal, get used to it
Good session on the “Frugal American,” an as yet undiscovered species that is coming to a global economy near you.
You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That’s called a recession, but how long will this frugal thing last?
Ian Davis, the MD from consultants McKinsey & Co was blunt:
“Americans have no option but to be relatively more frugal over the next 10-20 years.” This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.
So who is going to pick up the ball on consumption? From the sound of the panel, it looks like some kid took the ball and went home. China was candidate one, but even if consumption increased there, as it will, its not likely to become the next America, nor should it be.
“We have to live with the frugal American. Think about how much wealth has been lost, half of world market cap” said Zhu Min, executive vice president of the Bank of China.
“You don’t have wealth, you don’t have liquidity, how do you come back? After a very deep adjustment … the whole world will be a frugal world.”
Well, a lot of the news lately has been about rebounding and reviving our economic growth. How about if we just focus on being consistent for once? Pay off some of this debt that we’ve accrued as a nation (and as individuals) and start acting like responsible people.
It is sad that we’ve reached this point, but I kind of enjoy the vision of the future I keep imagining. Imagine Americans riding motorcycles and bicycles instead of Suburbans. I always try to think about what I could do without, and most of the time, I realize that most of the things I own are tangential to my life. I’m as guilty as the rest, but I’m ready to make some changes. I even look forward to it.
It’s never too late to blame Greenspan
Alan Greenspan hasn’t been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year’s World Economic Forum in Davos.
Polish Finance Minister Jacek Rostowski yesterday:
“This was the failure of one of the key institutions in the world.” During the Greenspan era he said they continually met downturns and distress with easing and “eliminated fear.”
Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp:
“Alan Greenspan personally prevented some needed regulations being put in place. The free market fundamentalism we had was a mistake, to go the other way would also be a mistake.
We had excessively loose monetary policy and regulations on these aggressive loans were not put in place. There were Fed board members who wanted to do it, and Greenspan himself said the had too much belief in the market. …it was a global problem of excess credit led by the central bank in the U.S. but ratified by the central banks around the world.”
Maybe history will be kinder to his reputation as a jazz musician.
Greenspan is at the center of the financial collapse by, as has been pointed out, actively preventing regulation but also by fostering obfuscation, let us not forget how the esoteric geniuses at LTCM almost blew up the global financial system in 1998 while playing with exotic derivatives, before being bailed out by dear Alan.
I am utterly fascinated by this arrogant little man, who even after his own mess had spectacularly hit the fan shows up in Congress to admit being “partially wrong”.
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Resident Davos Expert
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When we were young we were told, “If wealth is lost, nothing is lost;If health is lost, something is lost;but, if charaacter is lost everything is lost.”
Our wisdom remains intact.That is what this dialogue- initiative ‘wealth Vs wellbeing’means to me.
It lets us think and whether we can undo money being the measure.Let money not be the measure of our well being.That appears the calling.
Let us also use little resources.Let us use little space but be close to each other.
In the final analysis naturally our well being must thrive, not the wealth.
Sam Anbazhagan