Thoughts on 2014 – Moral Hazard PLUS – Part 1

Reflections on 2014

As a behaviourally focused economics publication we have been very quiet and inactive during 2014. A year of reflection and introspection, however, we are ready to resume service, with vigour. And what better way to start than with a reflective piece and thoughts on the biggest risk we believe are developing under the surface without warning. Our concluding theme of 2014 is that of moral hazard.

As Margaret Thatcher once said: “There is no society”; we state today that there is ‘No Moral Hazard’; in fact there is only Moral Hazard PLUS.

We believe that there is a strong correlation between QE (Quantitative Easing) and economic moral hazard developing a new strain, mutating like an unseen virus.

QE might have saved the financial system of the developed world, but it it only provided a shot in the arm and acted as a stimulus for sustaining moral hazard.

Economics follow a flow and cyclical pattern, as discussed in our article entitled ‘Information Age Irony‘. These patterns and flows weave themselves into the fabric of our lives and affect individual economies in different ways.

It is important to understand where and how economic cycles develop and flow and how much influence they have on our general economic activities on a day to day basis, but we should not become overly obsessed by them, as they can be short-circuited from time to time by policy and policy-maker’s actions, wherever individually or collectively.

In part 2 of this article we will focus on the revelations of QE and the underlying threat of moral hazard returning on a grander and more catastrophic scale, if it goes unchecked and misunderstood.

© theMarketSoul 2014

Technical Default Options – US Government Shutdown Analysis (Part2)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

The real challenge and issue:

The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.

Breakdown of political party representation in...
Breakdown of political party representation in the United States Senate during the 112th Congress. Blue: Democrat Red: Republican Light Blue: Independent (caucused with Democrats) (Photo credit: Wikipedia)

What are the consequences:

Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.

And yet, no Creditor Nation of the USA seem in the least bit prepared for the hard bargaining the USA Treasury officials will engage in when the technical default moves into a more serious phase.

This is commercial war on a scale we have not experienced for quite some time.

And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.

The western front of the United States Capitol...
The western front of the United States Capitol. The Capitol serves as the seat of government for the United States Congress, the legislative branch of the U.S. federal government. It is located in Washington, D.C., on top of Capitol Hill at the east end of the National Mall. The building is marked by its central dome above a rotunda and two wings. It is an exemplar of the Neoclassical architecture style. (Photo credit: Wikipedia)

What next?

Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.

theMarketSoul ©2013

 

Dysfunctional, “Disinterested” and Disenfranchised

…and some would add it is a Disaster!

The fact is that in a Digitised Economy with control as the key behavioural modification tool utilised in organisational context; the more ‘control’ and micro management we apply, the more dysfunctional, disinterested and disenfranchised employees and collaborators become.

Now the terms employee and collaborator used in such close proximity should create a slight twinge of cognitive dissonance, but do we really pick up on the subtleties of the situation? Possibly not, however this thought piece is an extension of our initial thoughts on [the Future is collaboration], publish a week ago.

Logo Open Source Initiative
Logo Open Source Initiative (Photo credit: Wikipedia)

With collaboration and an Open Source or purely OPEN philosophy to achieving value creation for individuals and society in large, the biggest ‘contractual challenge’ of the beginning of the 21st Century is the revolution in the engagement process.

No longer a process purely dominated by an HR focus, but more around our key concept of CLUSTERS OF SKILLS & EXPERIENCE.

Creating the environment and framework that supports the ability of market participants to ‘cluster’ around skills bases and then for willing procurers of those clustered skills to engage in such a market is the cornerstone of the Digitised Economy in the third wave of ‘Industrialised Revolution’. In fact the word Industrial Revolution is a disingenuous statement to make, as the third wave of prosperity should be called the DIGITAL EVOLUTION.

Open Source Media Framework Icon
Open Source Media Framework Icon (Photo credit: Wikipedia)

theMarketSoul ©2013

Symbolism and more…

Behavior change (James)
Behavior change (James) (Photo credit: James BonTempo)

A recent assignment at a customer in London made us sit back and wonder: ‘How important are symbols in corporate life to your experience or interactions in a corporate environment?’

A lot has already been written about the subject of symbols, rituals and culture in organisations. Our own contributions on [culture] and [behaviours] are embedded in the linked terms.

Gesture, attitude, behaviour
Gesture, attitude, behaviour (Photo credit: Marc Wathieu)

What we are focussing on today is a question of the small symbols and gestures individual participants in organisations make. A misspoken word in frustration, jest, malice or innocence can have enormous impacts on others, without us even realising it.

How often do you pay attention to these outward signs and symbols of behaviour that affects interactions with and behaviours towards others?

theMarketSoul ©2013

The Future is Collaboration

The future of work and engagement has already begun. That is stating the blatantly obvious, but are we really prepared for it, yet?

A Spinning Jenny, spinning machine which was s...
A Spinning Jenny, spinning machine which was significant in the beginning of the Industrial Revolution (Photo credit: Wikipedia)

Here is a little taster of what we think the future of work will look like for most individual participants in the labour and skills supply market.

The key is that the industrialised ‘factory’ and production line models are now slowly but surely falling apart. The expectation for grown up individuals to turn up 5 days a week and sit at ‘battery hen‘ cubicles and perform tasks a ‘production line’ manager allocates and oversees are numbered.

The slow revolution was unleashed in the third industrial revolution or rather the digital age revolution at least 20 years ago when personal computers become more prevalent. We wrote about this HERE.

This image was selected as a picture of the we...
Clusters (Photo credit: Wikipedia)

The fundamental problem today is that no one has yet effectively resolved the ‘contracting’ and hence TRUST problem of delivery on a large scale. We can do it effectively on the micro level, with freelancers selling there individual skills on small tasks and projects, where the risk of failure or an adverse outcome is mitigated. However, we have not yet evolved far enough up the trust hierarchy to fully outsource mission critical projects to ‘clustered’ skills and solution provider hubs, in remote and distant locations, far removed from the core.

Some of the critical inhibitors are these:

  • Immigration policies
  • Commercial legal frameworks
  • Fiscal constraints

Some of the important contributors are:

  • Digitisation and speed of the Internet
  • Platforms where suppliers and demanders of services can be matched
  • A common global business Lingua Franca

These are only a few of the factors either contributing or detracting from moving the revolution on in significant leaps and bounds.

Therefore, to conclude this first stab at a look at the future world of work, we hypothesis that the future will have large groups (what we will call CLUSTERED SKILLS HUBS) of skills pools bidding for contracts to supply services and solutions to leaner and meaner multinationals in cross border transactions and flows that are worth trillions of dollars annually.

Right now, we can’t see any major G20 sovereign government dealing effectively with this challenge, to ensure that they contribute and facilitate the move towards the new future of COLLABORATION.

theMarketSoul ©2013

An Ownership Revolution is required

We have been following the G20 ‘get those naughty multinationals in the tax tent’ debates raging for a few months now, with amusement we have to add; here at theMarketSoul and have the following short thought piece to contribute to the debate.

We know the ‘outrage’ really is all about the what the OECD calls the ‘general erosion of the tax base’, which in our opinion is just a distraction for proper structural reforms in the western democracies contributing to the G20 and OECD coffers.

English: The logo of the Organisation for Econ...
English: The logo of the Organisation for Economic Co-operation and Development (OECD). (Photo credit: Wikipedia)

The real issue is the power of civil society structures, such as multinational corporations, versus nation states. We constantly get an earful on how undemocratic corporations are from a liberal social leftist media and how dangerous unfettered corporate power is.

Yet, multinationals are far more democratic, in both structure and performance, than any sovereign government will ever be. If the corporate governance structure is correctly set up, then every corporate entity has an annual AGM at which point the corporate leaders have to resign, on a rotational basis, depending on individual Articles of Association or Memorandum ofIincorporation provisions (depending in which jurisdiction the corporate entity ‘resides’). How often does a sovereign leader stand down, in comparison and leave it to the popular vote to be re-elected? Certainly not on an annual basis, as is the case for most corporate leaders.

Civitas Foundation for Civil Society logo
Civitas Foundation for Civil Society logo (Photo credit: Wikipedia)

This leads us to the real thought piece of this article, namely the fact that corporate ownership and access to corporate ownership should really be extended to as wide a base as possible, rather than a few ‘monied’ or opportunist participants in the market.

Legislation around employee share ownership schemes are still very cumbersome and rules, rather than principles driven.

The real revolution we require is not around a new tax base or recapitalizing democratic bankrupt nation states; however we require a revolution of democratic corporate ownership to sweep the length and breadth of the land, in order to spread the risk, add additional wealth creation opportunities (and hence a widened wealth tax base) for smaller, leaner and meaner governments to address. This a cry from civil society to the inner ‘goodness’ of political society to sit up, take serious stock and work on longer-term solutions to the erosion of their tax bases, rather than the usual headline grabbing short-termist market distorting interventions the G20 governments are so infamous.

theMarketSoul ©2013

Behavioural Consequences – The UK Bond Market Rigging Scandal

Health Warning: The UK Bond Market rigging issue is all behaviourally driven. We express a personal opinion in this post and do not endorse or condone breaking any jurisdiction’s sovereign laws.

We would like to contribute a very short thought piece on this issue. Our premise basically goes like this and is grounded in behavioural theory:

2012 Behaviour Matrix copy
2012 Behaviour Matrix copy (Photo credit: Robin Hutton)

Take away any sensible incentive (by over regulating the market participants) and you create the disincentive for cheating behaviour to manifest. Simple.

It is a natural competitive behaviour to ‘cheat’ or try to cheat a system that becomes ‘badly’ designed, as in the case of the highly over regulated bond market and an environment of very low yields.

We find is amazing that the popular press only tend to focus on one side of the equation and distort the real issue and underlying drivers that lead tot cheating behaviour.

Illustration for Cheating Français : Illustrat...
Illustration for Cheating Français : Illustration d’une antisèche Español: Ilustración de una chuleta Deutsch: Illustration zum Schummeln (Photo credit: Wikipedia)

The rule of law should be the overriding guiding principle and helping to design markets and market participant behaviours based on properly incentivised interactions is part of any regulatory system. In the recent past, we have forgotten to bear this in mind…

…and then we act surprised when market actors (participants) misbehave?

theMarketSoul ©2013

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