The Markets do not need certainty
There has again been a short period of drift and volatility in ‘The Markets’ recently.
And yet again we have heard the old refrain:
“Markets hate uncertainty”.
This we assert is yet again a misused turn of phrase. It is not uncertainty that markets hate, because inherent within market processes and market operations is the principle of uncertainty. This is also known as - Information Asymmetry.
So, if it is not uncertainty that markets hate, then what is the missing ingredient that delivers these periods of volatility?
We believe what markets require above all else is:
Structure.
Yes, structure and clear operating parameters, in other words a framework within which to operate is the key.
Whether that structure and framework is delivered via regulatory mechanisms or liquidity or a political landscape that sets the parameters in terms of policy guidelines and fiscal and monetary controls, it does not matters.
Remove the nebulous shifting and drifting borders and put in place a framework that sets the framework and outline of the playing fields and markets respond positively to these signals.
Refrain from doing the work of ‘framework establishment processes’ and markets and their participants become ‘restless souls’ aimlessly drifting within the ‘nebulous fog’ of uncertainty, clearly waiting and anticipating the regularity that structure delivers to the ‘Market’
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The Value of the Synthesist (as opposed to the Analyst)
We had some very rewarding conversations recently with business partners and peers regarding the Value of Synthesis versus Analysis.
Synthesis we believe to be a ‘higher level’ skill and experience set than traditional analysis. Synthesis requires a natural ‘incubation period’. Very few people are natural ‘synthesists’. You grow and mature into a ‘natural Synthisist’.
Analysts can be taught. In fact a very lucrative business education industrial complex has been built on the back of ‘creating a production line of analysts’. We call them Business Schools churning out master’s level analysts with the three-letter MBA title behind their names.
Don’t get us wrong on this one. We are not criticising MBAs or the Business Schools that produce them. Far from it; because we believe that part of the ‘evolutionary process’ of ‘incubating a mature synthesist’ is having a deep and fundamental understanding of analysis and the factors that contribute to making a good analyst.
Two of the key words we used in the above paragraphs were:
- Incubate
- Mature
We pause to reflect on these two words, because they are part of a natural evolutionary cycle.
Synthesis is a development process. It doesn’t just occur overnight. The process takes many years, many forms, much frustration, heart-ache, high failure rates, desperation, etc. We hope you understand the philosophical underpinnings of the argument.
The drivers that help define and shape good synthesists are many fold, however, two of the more basic building blocks include:
- The Tyranny of the Status Quo
- The Language of the Artist
What do we mean by these two concepts?
The Tyranny of the Status Quo
Mediocrity, lack of risk taking and proper risk management, a ‘level playing field’, universal access, no economic ladder to climb and a social ideology that creates an amorphous mass of despair is what drives the tyranny of the status quo. It is the antithesis of Innovation and Creative Thought. It is the Socialist ideology that drags us all down to the lowest common denominator.
The Language of the Artists
We believe it was Peter Block who claimed in that business life has become ‘infected’ with the language of the Engineer and Scientist. We ‘Business Process Reengineer’ this and that; we ‘Reverse Engineer’ this or that process. We contain, seal and measures finite risks and processes, much like a scientist would work in a ‘Controlled Laboratory Environment’.
But what we really need is the language of the artist and philosopher. We require poetry, motion, flow and creativity in order to establish the correct environment for innovation to ‘spring forth’ naturally and spontaneously.
Even though you would think this to be a natural phenomenon, it is very difficult to achieve in the ‘controlled environment’ of Shareholder Value Creation, due to the narrow focus on hard facts and cool numbers, underpinned by the ‘negative risk management cycle’.
In an article we recently published in a boutique Risk Management Training and Consultancy’s Quarterly Risk Update, we referred to both the positive and negative risk management perspectives.
Negative risk management is “[the] approach in an organisation that is designed to prevent the downside consequences of a transaction, such as (1) mitigating a potential loss or (2) the cost of not complying with regulatory requirements”, whereas in positive risk management “the upside is managed in conjunction with a risk based approach to general management. This is the starting point of Enterprise Risk Management”.
Financial Controllers and CFOs have to ensure that shareholder value is continuously created and then as measured and reported within the framework of Internationally Accepted Financial Reporting Standards and the generally ‘rules based approach’ to compiling those Financial Reports.
This is not a simple task and should we ‘interfere’ here with the language of the artist and philosopher in this process, we are certainly dead set on the course that will lead to ‘confusion, value destruction and financial ruin’. But aren’t we there already?
Has the most recent ‘crisis of confidence’ in the financial system as practiced by the ‘Financial Engineers’ and ‘Quant-type’ mathematicians and scientists not just proved that the old paradigm does not create value, but is still subject to ‘deep-rooted and fundamental’ long-term business cycles?
And yet what do we do? We blame the ‘selfish and selfless’ market capitalists for the problem, rather than address the basic condition that drive the imbalance, namely the ‘imperfect market’ that we create with over burdensome regulation, control and ‘dare we mention the term again ‘financial and business process (re-)engineering’.
We continuously oscillate on the pendulum between the free and ‘planned or controlled’ market forces.
Until we recognise the fact that our policy interventions, ill conceived regulatory frameworks and processes and the financial reporting and ‘engineering’ standards help drive the market mechanism to points of ‘disequilibrium’ where the natural ‘clearing mechanism’ of matched supply and demand cannot function normally; then we will just have to accept the consequences of the natural ‘boom and bust’ economic cycles.
To have ever utter the immortal, nay, ‘notorious’ phrase “we have abolished boom and bust” was not just arrogant but utterly naive and demonstrated a lack of a basic understanding of market forces in the ‘planned and controlled’ market economy camp.
Therefore, to conclude this brief post on the Value of Synthesis, we challenge mature ‘incubated’ professionals to step up to the challenge of redefining the new economic landscape by utilising the language of the artist and philosopher and to practice just a little bit of ‘Loony Intelligence’ in the process.
For further information and more in-depth discussion on this subject, please contact us by clicking this link:
Where is our competitive advantage?
Competitive versus Comparative advantage.
What is the difference?
Comparative advantage is attributed to David Ricardo and is an economic law which states that a market actor (individual, firm, region or country) has the ability to produce goods and services at a lower opportunity cost than another actor or market participant. This is a relative term as even if a market participant has a higher opportunity cost than another participant, by concentrating its efforts in the area where it has the least opportunity cost disadvantage it can still compete and produce output that would benefit its wealth creation possibilities.
Competitive advantage on the other hand is the theory of concentrating one’s efforts on producing the highest quality goods and selling them at the highest possible price. It has a purely price maximising focus with the hope of resulting in wealth creation. Therefore, note the subtle difference in approach where comparative advantage tries to maximise wealth creation, competitive advantage has wealth creation as a by-product of focusing on maximising price.
One can argue that comparative advantage has value creation at its centre, whereas competitive advantage has a more short-term profit driver motive behind it. Competitive advantage is attributed to Michael Porter in the 1990’s whereas comparative advantage has its roots in early 19th Century economic philosophy.
Now that we have the definitions out of the why, we can focus on the question of competitive advantage in UK plc. We are specifically interested in this aspect as a short-term approach is potentially needed to drag us back to the growth path we abandoned a few decades ago. Yes, it is our contention that growth and wealth creation is linked to underlying fundamental economic output and not monetary economics and financial engineering driven.
For a clue we might look at some of the major ‘Industrial Complexes’ dominating economic activity in the UK at the moment.
The usual suspects tend to be the Military Industrial Complex, but there are others include the Financial, Prison, Sports or Healthcare Industrial Complexes.
The phrase ‘Industrial Complex’ refers to all the organizations involved in the construction, operation, and promotion of that specific industrial complex.
In the UK the NHS alone as part of the total Healthcare Industrial Complex current employees around 1.2 million people, excluding all the pharmaceutical and other medical devices and facilities construction services and accounts for over £108bn or around between 8 – 10% of annual GDP (Gross Domestic Product), up from 3.5% of GDP back in 1949, when the National Health Services started. Putting this in ‘constant prices’ terms the NHS in 2006/2007 accounted for 9.6 times more in expenditure as it did back in 1949. Up to 1999/2000 the NHS total healthcare cost had risen by 582% versus 1949, but between 1997/98 and 2007/08, real-terms expenditure rose by 82%.
The question we beg to ask is if the total NHS cost in 1997/1998 was below £53bn and in 2006/2007 it was £104.7bn, have we experienced a doubling in “Value For Money” over that 7 year period?
This question is off course open to debate and interpretation and more importantly political expediency.
However, we believe that there are many advantages to be gained from revitalising the Healthcare Industrial Complex, by applying innovation and an outward looking market driven focus and mentality to this important economic activity driver.
In future series of this introductory article we will explore some of the Innovations and opportunities the Healthcare Industrial Complex offers UK plc in driving both growth and wealth creation in Britain.
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The “Harsh” Market
It is true. This is not a playground, kinder-garden experience…
As we don’t live a purely Command and Control or 100% Free Market environment we have to constantly adjust our actions and interactions with the market around us based on factors such as:
Geography
Jurisdiction and cultural norms
Experiences
Sophistication levels
Access points
Openness
Image via Wikipedia
There are many other factors to add to the list above, but we are referring to the behavioural aspects inherent in any market interaction.
One of the greatest challenges facing the political class in the UK at the moment is the Truth or Dare conundrum.
We are specifically referring to the urgent need to cut public sector spending, yet the painful reality that it is:
a) Very difficult and not politically expedient to admit the ‘Truth as seen by any politician’ (see the ‘Forces of Hell’reference uttered by Alistair Darling on trying to speak the truth
b) People cost money (and a lot of money)
c) Efficiency savings are akin to an admission of guilt and proof of mismanagement
Most public sector jobs are not subject to ‘market-forces’ at the best of times, therefore the automatic adjustment mechanism and signal that ‘price’ sends is not a factor in the equation.
What do we mean by this?
In a free market driven environment, price is the single most important signal and measure against which both suppliers and ‘demanders’ (consumers) measure value. In the absence of all other qualitative factors, price has a very important role to play in ‘clearing the mismatch between supply and demand.
So when we experience either a supply or demand shock, as the Credit Quake of 2008 – 2009 has proved; we need to face harsh realities and make serious behavioural changes.
We are still not able to face up to the difficult ‘adjustment phase’ that both ‘deleveraging’ and the new economic reality, post-election 2010 has in store for UK plc.
Many a household across the length and breadth of the UK (and beyond) has had to come to terms with the stark realities of the ‘market mechanism’ and adjusted their behaviours and ‘prices’ to move towards a new economic equilibrium, yet the public sector has not had to face this tough reality.
Maybe because the Public Sector in Britain now accounts for between 52.1% – 53.4% (depending on which economic Think Tank’s research you believe), the crowding out of the private sector and ‘loss of touch’ with the economic reality of market mechanisms has been softened.
However, irrespective of who governs Britain and runs UK plc after the ‘expected’ elections in May 2010, the winner will have to make a few very hard choices:
- How to reduce the dependency on and of the Public Sector and bring the percentage that the Public Sector ‘consumes’ of GDP to below 40%
- How to ‘financially engineer’ the public debt and bank guarantees the current administration dished out in 2008 – 2009 (Anywhere between £200 – £350 Billion)
- Run the country along more traditional market disciplines,
Therefore managing the country along market principles as opposed to a ‘socially engineered’ artificial egalitarian level playing field.
The ‘ladder’ exists for a reason in the true market environment, to help set aspiration and make the system work in order to ensure progress, growth (over the long-term) and advancement.
This all favours innovation as a driver for feeding the need for progress, growth and advancement.
In our next article we will continue our theme of Innovation, with part 6 of the series.
Let’s keep on ‘following the money’ on this occasion
Image via Wikipedia
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Increased Friction Costs
We start today’s article with a cry for a return to common sense and a reduction in the unnecessary Friction Cost in the economic system (especially here in Britain).
Friction Cost, in economic terms is defined as:
- The implicit and explicit costs associated with market transactions.
- The total cost, both direct and indirect, of a transaction after commissions, interest rates, taxes, research, time, and other expenses. (Financial Dictionary)
What we will be focussing on today is the ‘hidden cost’ element of Friction Costs. As in definition 2 above, it is the Total Cost, including the economist’s ‘Opportunity Cost’ than needs to be considered in this discussion:
We start of the debate with a quote from Dean LeBaron:
“Market inefficiency exists because we do not root out their basic causes. These causes are easy enough to identify, if one looks with enough dispassion and rigor.”
As we are entering a politically charged season, we want to remind everyone of the key word in the above quotation:
Dispassion
We believe that too many decisions and arguments are framed in the ‘emotionally charged world’ and that too few dispassionate thinking and analysis is applied to the really big questions and problems facing us today…
Let us briefly focus on an example of what we mean by ‘hidden costs’:
This is a criticism of British legislative fervour and spurious targeted ‘efficiency’ gains. This leads to sub-optimal solutions.
Our actual real life example:
By April 2011, most businesses and individual subject to the ‘Self-Assessment’ tax regime must file online, irrespective of size or individual circumstance. Nothing wrong with these facts so far. However, we are still embroiled and faced with legacy Information Technology systems that cannot cope with the 21st Century IT revolution and government collection tax collection regime aspirations.
A typical example is where certain legal entities (Limited Liability Partnerships) are forced to file online, not with the HMRC’s system and software, but have to purchase additional commercial software to file (An example of a friction cost, that is not very clearly recognised).
Further to this, should the entity actually comply and file their tax return online and in time, the legacy systems at the HMRC, does not automatically recognise this fact, even though an acknowledgement of receipt has been issued by the HMRC’s system.
The actual Tax Return submission is acknowledged, but not the physical filing of the data. The consequence is that a penalty notice is sent to each partner (another friction cost) and has two consequences:
- HMRC and The Treasury has made a false penalty determination, but the revenue gets recognised in the HMRC’s accounts, therefore falsely inflating the tax takes
- The business has to incur another Friction Cost as they have to respond to the penalty determination and dispute the claim.
Therefore a compliance costs has escalated into an opportunity cost as the individuals in the firm have to allocate time and resources in dealing with more unnecessary compliance mitigation work by refuting the spurious penalty determinations.
When will we recognise in this country that the process should not be:
- Create a target
- Legislate the target
- Then build the solution process
- Beat up the citizens for not being able to comply
But Should be:
- Build the solution
- Integrate the solution
- Test the solution
- Create the target
- Legislate the target…
This way we will create a new culture of efficiency, compliance and citizenship that respects and endures the necessity of tax regimes to deliver wealth creating opportunities for all willing and able participants in the system.
Should you experience any taxation compliance challenges, please do contact us on theMarketSoul ©1999 – 2012
(Click the name for a link to your email client)
Further themes and related issue to the above debate are:
- XBRL compliance
- Annual Accounts submissions at Companies House
The Great Money Deception – Part I
We will interrupt our series of articles on ‘The Trouble with Innovation’ and begin to weave in between those conversations, a more fundamental argument to help enlighten the debate and understanding around the differences between ‘Monetary Economics’ and ‘Real Economics’.
The basic themes of this series of articles will be around growth and shrinking in the economy, value and money measurements.
This will be a layman’s guide to understanding the differences and principles of Monetary Economics. We realise that in casual conversations with finance and business professionals, there is a basic misunderstanding of what Monetary Economics is and how it impacts on the broader or ‘Real Economy’.
Image via Wikipedia
Our quick and ready definition of Monetary Economics is this: Money and currency is only a temporary measure of value.
More sophisticated definitions include the Wikipedia definition as: “Monetary economics is a branch of economics that historically prefigured and remains integrally linked to macroeconomics.[1][2][3][4][5][6] It provides a framework for analyzing money in its functions as a medium of exchange, store of value, and unit of account.”
Image via CrunchBase
Another definition is: “An economic theory, the proponents of which argue that economic variations, such as changes in prices and output, are primarily the result of changes in the money supply. (Thus, the Federal Reserve Board is the most important economic policymaker in the country.) Proponents of monetarism believe that changes in the money supply precede changes in other economic variables, including stock prices, and that a rational policy calls for moderate, steady increases in the money supply.” (See the link monetarism).
economics (Photo credit: Sean MacEntee)
Now we can get bogged down in definitions and we realise the dangers of always taking the top two or three definitions offered by Google search at face value.
An example of a textbook definition of monetarism is: “a range of views which emphasise the role of money in the operation of the economy system”. At this point we need to mention that it is a contrast to Keynesian economics, which is being applied in various degrees in most Western governments at the moment, in order to support the Economic System as a whole.
However, Michael Foot, an ex Labour Opposition leader in 1983 made unhelpful comments such as: “monetarism is a worldwide disease” (The Economics of Taxation, Prentice Hall, 7th Edition, we linked to the 9th Edition).
Turning to an analysis of the Wikipedia definition we focus on the key phrases of ‘measure of value’, ‘store of value’ and ‘unit of account’.
Nowhere in this definition does it mention measurement of output or production, the key building block of the real economy.
Therefore, we conclude this first introductory article by making the clear distinction between money as a measurement tool and unit of account and real output or production being the building blocks of economic activity.
In the next instalment of this article we will define output, activity and production and then start making the stark contrasts between what monetary and real economics really are.
Let’s get the basics of economic language right and move on towards a better appreciation and understanding of the intricacies and interplays of economic discourse and activity.
theMarketSoul ©2010
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The trouble with Innovation – Part 4
Risk! This will be the main theme of this part of the series we are investigating. As highlighted in part 3 Risk Management and Sustainability are key factors to consider in unleashing Innovation and creativity in the organisation’s life cycle.
However, in the word life-cycle we already have a clue as to the inevitability of decline and ultimately the death of the enterprise, per se.
In the current climate, Risk Management has a pure Compliance and Regulatory connotation.
We assert that there are two sides to the Risk Management coin:
A Negative and Positive approach to Risk Management. In the negative worldview, risk is associated with mitigating and loss prevention strategies, namely compliance and regulatory requirements in addition to downside risk alleviation.
A Positive Risk Management framework would look to the up side and Value Creation potential of enterprise governance frameworks.
The overall philosophy and practical application of the model is embodied in a sound risk management framework underpin by the convergence of Internal Auditing and Financial Controls and the Value drivers inherent in the Value Based Management approach, namely
(1) Creating Value
(2) Managing Value
(3) Measuring the Value created
The focus in measuring and managing for value and thus superior organisational performance is encapsulated in performance and investment drivers such as:
- Sales Growth
- Operating Margin
- Cash Tax rates
- Fixed Capital Investment
- Working Capital Investment
- Cost of Capital
- The Planning Period
Creating Value
The departure point in creating value ultimately has to have Innovation as one of the factor inputs required to create Economic Value in any organisation. This in combination with other economic factor inputs such as capital, land and labour are the foundation building blocks of any organisational sustainable growth approach.
Therefore, combining resource inputs such as capital and labour with innovation, in the right mix and during the right time frame are the sustained growth drivers in any organisation.
In the next article in this series we will address the next step in the Value Based Management framework, namely ‘Managing Value’ and the further step of ‘Measuring the Value created’.
theMarketSoul ©2010
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The trouble with Innovation – Part 3
In this part of our discussion regarding Innovation, we want to turn the focus to the UK market place and some unsung heroes, some tirelessly working in the trenches, others ‘fishing in the ocean of opportunity’ at the moment, not being ‘on assignment’.
We are referring to Independent Consultants and Senior Interim Managers. How exactly they fit into the innovation debate will hopefully become clearer very soon.
And the main issues and theme we need to explore is that of Trust.
Part of the challenge most Independent Consultants and Interim Managers find themselves facing is the fact that engaging assignments and workflows don’t always flow or fit together. The challenge is that when on assignment, they are not feeding or seeding the pipeline enough for when the current assignment ends and when the assignment has ended, their next role or project might be weeks of months away from coming to fruition.
There is in effect no clear matching of supply and demand in the market place, as most assignments and engagements are won on relationships and not pure experience, skills and competencies.
That is particularly true if you ‘swim down the narrow channel’, by this we mean only follow one strategy in procuring your next assignment; which generally means you speak mostly to Executive Search or other Recruitment Consultancies.
It is in this area that we feel very little positive innovation and engagement has occurred over the last few years.
Now we acknowledge that the internet has potentially speeded up and shortened the entire recruitment cycle significantly, however, is this innovation or just advancement?
Our assertion is that the internet was pure advancement, not innovation in this sector.
It is furthermore our belief that most searches and matches occur on a pure issue of timing and serendipity alone. There is no effective clearing house to match skills to needs in a way that clears the market effectively and efficiently. For this we evidence a report commission by ExecutivesOnline in September 2009 (see ExecutivesOnline Interim Management Trend Update) in which it was found that 48% of Interim Managers where ‘Not on Assignment’ as of September 2009, the euphemistic phrase for being out of work. If there were such a ‘clearing house’ the unemployment rate amongst Interim Managers and Independent Consultants would have been markedly lower, but probably higher than the national Unemployment rate, due to a variety of other socio-economic factors, including luxury factors such as choice, to mention but one.
Sustainability and risk management and more specifically innovation in these two critical business management areas are what we desperately lack at this key juncture in our economic cycle. We will address these two themes in further in future articles.
To conclude our assertions made in part 3 of our exploration on the trouble with innovation is that now there should be an opportunity created to more effectively match supply and demand in the labour market. However, there is a fundamental disconnect between public sector and private sector and permanent and temporary work. This statement is a blatant generalisation, however public sector and permanent employment does not conform to pure market driven principles, where tenure is protected, to some extent, from external market forces. On the contrary many an independent consultant has had to contend with the shock of a new equilibrium and have realised that to ‘stay in the game’ they have had to adjust their prices downward, sliding back down the supply curve, in order to try and find the intersection with the demand curve. An oversupply of consulting and interim management talent has ensured that the market clearing price for services have been adjusted markedly lower, than was the case before the credit quake of 2008 – 2009.
So what we are looking for is innovative new business models that will ensure the exploration of a new and sustained equilibrium and market for talent and talent matching in the future.
theMarketSoul ©2010
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What do you do?
One of the comments we picked up on during the CeBIT 2010 fair was this:
Image via Wikipedia
At around 80% of the exhibitor booths it is very difficult to figure out what the company does or sells.
Now we might split hairs over the accuracy of the 80% estimate, but we want to focus on the underlying theme in the message. Are you making it clear exactly what you do?
And this is exactly where we run into some major difficulties. There are a multitude of issues and factors to consider in marketing what we sell or do.
However, what we have experienced in the past is that it is mostly a process drive issue. If you sell only one or two products or service lines you focus almost exclusively on the customer or client. Transform the organisation into a multiple portfolio product and services supplier and the situation is vastly different. It has something to do with the organisational life-cycle. Mature organisations are so often tied up in bureaucratic inward focussed processes that they lose sight of the ultimate objective of serving their customer base as effectively as possible with internal processes promoting efficiency.
However, what tends to happen is that the customer gets neglected, the sales message distorted and the internal political processes and empire building takes over. Egos drive the internal bureaucracy, the buck gets passed from silo to silo and the organisational drift away from value creation is well and truly established.
And not focussing on the key sales message of what we offer our customers and the consumers in large is very evident in your display and ‘sales pitch’ at exhibitions and fairs.
Therefore, go back after the event; think about the core purpose of value creation, value management and value measurement the mantra of Value Based Management and combine this with a Risk Based Approach to managing the processes and get everyone in the organisation to understand and apply Value Based principles so that you can serve you true constituency, namely your customers first.
This will please the shareholders as economic value gets created and the other stakeholders will benefit in proportion as long as the focus is in the right place.
Remember that a Value Based Management approach has a key value driver focus and it is both a skill and art in getting the balance right. In future articles we will elaborate on the seven key value drivers which underpin the Value Based Management approach.
Image via Wikipedia
We want to conclude the ‘What do you do?’ question with a short note on performance management and bonuses. At a broad level part of the issue underlying performance bonuses is that the focus is mostly on divisional or individual business unit performance, rather than on enterprise performance. Again the epitome of the silo and bunker mentality. Unless the enterprise can thrive and is sustainable, it does not matter how successful the individual business unit or division is. Successful business units can always be divested of if the choice is made by the executive leadership team and then the unpleasant consequences of dancing to new master’s tunes are an inevitable opportunity cost to individuals.
So rather than fall into the trap of financial underperformance, wasted energy and frustration, ensure that we understand Enterprise Value Creation and Enterprise Value Measurement, to ensure longer term sustainable business practices.
Image via Wikipedia
theMarketSoul ©2010
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The Trouble with Innovation – Part 2
theMarketSoul decided to talk to some delegates and attendees at CeBIT 2010 with respect to the problem and challenges faced by Europe in particular, regarding Innovation.
The statements made in the previous blog post did not go down well with the mixed German, Belgium and Italian (see The Trouble with Innovation – Part 1).
To recap briefly we stated that Europe did nor posses two critical factors to cradle and encourage innovation, one being a common language and two a raw capitalist model that pursued profit above all else.
With the pure profit motive there is a problem in any case and we will address this in later discussions, suffice to say we will make a distinction between profit motive and creating value. From an economic perspective we believe strongly in the superior notion of ‘Creating Value’ over the pure profit motive and the current credit quake (Comments from a lay-economist on the credit quake 2008) has created the opportunity for us to reflect and re-evaluate our current economic models.
However, to return to our Innovation discussion the defence the Europeans put up against our controversial statements were this:
Agree with the language issue, through heavy accents, disagreed partly with the profit issues, however we had not discussed anything regarding Protectionism.
True, we hold our hands up to this accusation.
Image via Wikipedia
So to throw or lob stones back across the Atlantic pond to our US cousins; the States very, very fiercely protects its own market and interests. Intellectual Property and property rights are very well developed and ingrained in the psyche of the American nation. But the logical question to our European colleagues are this: So why do the Americans protect their IP and Innovation so well, but we tend to give it away, losing out to both the Americans and Chinese in the process?
For this we weren’t presented with a coherent argument yet, so it is a theme we shall explore further other the next few days, whilst attending the CebIt 2010 trade exhibition.
Europe does have the framework and platform in place in order to coherently create and then enforce property and Intellectual property rights, however, integrating culture and therefore nation state laws into a single European framework is not any easy endeavour and should not be attempted without a clear focussed vision. Therefore, we treat all the issues with kid gloves and the Lisbon Treaty and ratification processes most countries adopted does bear serious questioning and potential legal challenge. We are not aware of any serious tests in this arena, but acknowledge our ignorance and would appreciate further clarification, should we have the wrong end of the argument in our grasp.
Image via Wikipedia
Therefore in conclusion of this post, we have invited two questions to be clarified:
- How can Europe better protect its Intellectual Property and Innovation from leaving the Greater Continental Europe?
- Are there any legal obstacles in the European integration project that hinders Innovation protection and enforcement of IP and other property rights?
We look forward to finding out the answers over the course of the next few days, whilst on our Continental European jaunt.
theMarketSoul ©2010
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- Will 2012 see the end of the Cold War over Intellectual Property Rights? (computerweekly.com)
- Intellectual Property Laws Damage Innovation (insideview.ie)
- On ACTA, U.S. Media Turned The Other Way (themoderatevoice.com)
- From fragment to framework: a live EU initiative (ipkitten.blogspot.com)
- SOPA, Incentives and Efficiency (truthonthemarket.com)
- Why can’t I copy money? Is that censorship?: Thoughts on framing SOPA and PIPA (lawrenceserewicz.wordpress.com)
- Intellectual Property Rights Protection in Asia Discussed in Most Recent Report Published at MarketPublishers.com (prweb.com)
- Thousands across Europe protest against ACTA (pdalbury.wordpress.com)
- ACTA – Money tries to write more laws – not for the people – but for the money (cyberwaves.wordpress.com)
The trouble with Innovation – Part 1
Today we address one of the critical and key factors of production, it is a factor we have severely neglected addressing earlier in this forum. It is about Innovation.
Speaking to a few delegates and attendees at CeBit 2010 we found that most people view Innovation as a key driver in advancement. Yet we have a big problem with innovation in Europe.
Our model is broken!
If we investigate some of the underlying factors ‘driving’ this problem, we would point the finger at the social experiments we embarked on over the last two centuries in Europe. The simple fact is that we just did not get on with each other. There are two ways of accumulating wealth very quickly, one of them being to steal it and the other is to trade activity to get it. However, in both choices you side require a lot of the other factors of production, namely land and capital and labour.
If neither of these two options are open to you then you need to follow the slow road of progress. But here is where Innovation comes to the fore as an enabler.
The USA is a far better incubator and fertile soil for entrepreneurial and innovative development.
Image via Wikipedia
In Europe we lack the cohesion of two factors that drove American innovation:
(1) A common language (English) and
(2) a common goal (making money).
Irrespective of the language issue, we treat ‘raw’ capitalism with disdain and suspicion in Europe, whereas the States embraces this with open gusto, so much so that the current administration is frustrating its efforts to burst forth once more as a power house of growth.
Now we are not advocating abandoning regulation per se, what we would ideally like to see is innovation in the Regulatory space too, where regulation is thought through on an end to end basis, with due consideration for the law of unintended consequences that knee jerk regulation sets in motion.
So the hope in Europe now is this: We have been building the platform for collaboration for a while now, with the EEC, EC and EU experiments and we now have continuity at the top with an appointed President and Foreign Secretary.
Lets bury the hatchet and utilise the platform of collaboration in order to launch and harness the power of ‘Innovation Incubation’, thereby eliminating the wasted effort and duplication of processes currently taking place and shaping our European hinterland.
Let’s explore these ideas further in future posts.
theMarketSoul ©2010
Related articles
- These 16 Countries Are Leading European Innovation (businessinsider.com)
- More and Bigger Europe…Is that what we really want? (themarketsoul.com)
- Does Europe have what it takes to be an internet innovator? (cnn.com)
- The New Factors Of Production And the Rise of Data-Driven Applications (forbes.com)
- “Alexander Field, Greg Clark, and Optimism about the Current Unpleasantness” (economistsview.typepad.com)
