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Skills Wars Are The New Trade Wars | Economics Explained

 

Economics Explained: Business Failure and Entrepreneurs

 The survival and success rates of new businesses can vary significantly depending on various factors such as industry, location, market conditions, management, and more. While I don't have access to real-time data, I can provide you with some general information based on historical trends and studies conducted prior to my knowledge cutoff in September 2021. It's important to note that these figures are approximate and can vary over time.

1. Survival Rates:

   • According to the U.S. Bureau of Labor Statistics, about 20% of new businesses fail within their first year of operation.
   • By the end of their fifth year, roughly 50% of new businesses no longer exist.
   • After ten years, around 70% of new businesses have closed down.

2. Success Rates:

   • Determining the success of a business can be subjective and depends on various factors, such as profitability, growth, market share, and individual goals.
   • Studies suggest that a significant percentage of new businesses may struggle to achieve sustainable profitability and long-term success.
   • Factors that contribute to successful businesses include a strong business plan, market demand for the product or service, effective marketing and sales strategies, financial management, and adaptability to changing market conditions.

It's important to remember that these statistics are generalizations and do not guarantee individual outcomes. The success of a new business depends on a multitude of factors, including the specific circumstances surrounding each venture. Entrepreneurship requires careful planning, market research, a solid business model, and continuous adaptation to improve the chances of survival and success.

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Despite the challenges and risks associated with starting a new business, many people still choose to pursue entrepreneurship for several reasons. Here are a few factors that motivate individuals to start their own businesses:

1. Pursuing Passion and Independence: Many entrepreneurs are driven by their passion for a particular product, service, or industry. They desire the freedom to work on something they love and have control over their professional lives.

2. Financial Opportunities: Starting a business can provide potential financial rewards. Entrepreneurs may see an opportunity to create wealth, generate income, or achieve financial independence by owning a successful business.

3. Flexibility and Work-Life Balance: Some individuals start businesses to gain greater control over their schedules and achieve a better work-life balance. Entrepreneurship can offer the flexibility to set one's own hours, work from anywhere, and spend more time with family and pursuing personal interests.

4. Innovation and Creativity: Starting a business allows individuals to bring their innovative ideas and solutions to life. They may want to introduce new products or services, disrupt existing industries, or solve specific problems they are passionate about.

5. Personal Growth and Challenge: Entrepreneurship is a journey that provides opportunities for personal growth and development. Overcoming challenges, acquiring new skills, and taking on leadership roles can be highly rewarding and fulfilling for many entrepreneurs.

6. Autonomy and Decision-Making: Some individuals prefer to be their own boss and make independent decisions. Entrepreneurship offers the autonomy to shape the direction of the business, implement strategies, and build a company culture according to their vision.

7. Job Security and Control: In an uncertain job market, starting a business can provide a sense of security and control over one's professional future. Rather than relying on a single employer, entrepreneurs create their own opportunities and have a certain level of control over their destiny.

It's important to note that while starting a business can be appealing for these reasons, success is not guaranteed, as it requires careful planning, hard work, resilience, and adaptability. Each individual's motivations for starting a business can vary, and the decision to become an entrepreneur involves a unique blend of personal, professional, and financial considerations.

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While starting a new business involves risks and uncertainties, it is not entirely comparable to buying a lottery ticket. Here are some key differences:

1. Control and Influence: When starting a business, individuals have a considerable degree of control and influence over the outcome. They can shape the business strategy, make decisions, and take actions that impact its success. In contrast, buying a lottery ticket is purely based on chance, with no control or influence over the outcome.

2. Effort and Skill: Starting a business requires significant effort, planning, and the application of skills and knowledge. Entrepreneurs must invest time, resources, and expertise to develop their business, whereas buying a lottery ticket requires no effort or skill beyond the act of purchasing the ticket.

3. Probabilities and Factors: The success of a business is influenced by various factors such as market demand, competition, industry knowledge, marketing strategies, financial management, and more. While the odds of success may vary, they are not entirely random like the odds of winning a lottery, which are typically extremely low.

4. Learning and Adaptation: Entrepreneurs have the opportunity to learn from their experiences, adapt their strategies, and improve their chances of success over time. They can acquire knowledge, seek guidance, and make adjustments based on market feedback. In contrast, winning the lottery is based purely on luck and does not offer the opportunity for personal growth or development.

5. Long-Term Potential: Starting a business has the potential for long-term sustainability, profitability, and growth. A successful business can provide a stable income and create value for its owners, employees, and customers over an extended period. In contrast, winning the lottery is typically a one-time event with no guarantee of long-term financial stability.

Success in business is influenced by a multitude of factors, including strategic planning, effective execution, market understanding, adaptability, innovation, customer satisfaction, financial management, leadership skills, team building, and more. While there are external factors and market forces that are beyond an individual's control, entrepreneurs have the ability to actively shape and influence many aspects of their business, increasing the likelihood of success through informed decision-making, hard work, continuous learning, and a willingness to adapt to changing circumstances.

Deciphering Modi's Communication Skills

 

Imran Khan alone is not to blame

Pervez Hoodbhoy in The Dawn

PAKISTAN’S mad rush towards the cliff edge and its evident proclivity for collective suicide deserves a diagnosis, followed by therapy. Contrary to what some may want to believe, this pathological condition is not one man’s fault and it didn’t develop suddenly. To help comprehend this, for a moment imagine the state as a vehicle with passengers. It is equipped with a steering mechanism, outer body, wheels, engine and fuel tank.

Politics is the steering mechanism. Whoever sits behind the wheel can choose the destination, speed up, or slow down. Choosing a driver from among the occupants requires civility, particularly when traveling along a dangerous ravine’s edge. If the language turns foul, and respect is replaced with anger and venom, animal emotions take over.

Imran Khan started the rot in 2014 when, perched atop his container, he hurled loaded abuse upon his political opponents. Following the Panama exposé of 2016, he accused them — quite plausibly in my opinion — of using their official positions for self-enrichment. How else could they explain their immense wealth? For years, he has had no names for them except chor and daku.

But the shoe is now on the other foot and Khan’s enemies have turned out no less vindictive, abusive and unprincipled. They have recorded and made public his recent intimate conversations with a young female, dragged in the matter of his out-of-wedlock daughter, and exposed the shenanigans of his close supporters.

More seriously, they have presented plausible evidence that Mr Clean swindled billions in the Al Qadir and Toshakhana cases. Which is blacker: the pot or the kettle? Take your pick.

Everyone knows politics is dirty business everywhere. Just look at the antics of Silvio Berlusconi, Italy’s corrupt former prime minister. But if a vehicle’s occupants include calm, trustworthy adjudicators, the worst is still avoidable. Sadly Pakistan is not so blessed; its higher judiciary has split along partisan lines.

The outer body is the army, made for shielding occupants from what lies outside. But it has repeatedly intruded into the vehicle’s interior, seeking to pick the driver. Free-and-fair elections are not acceptable. Last November, months after the Army-Khan romance soured, outgoing army chief General Qamar Javed Bajwa confessed that for seven decades the army had “unconstitutionally interfered in politics”.

But a simple mea culpa isn’t enough. Running the economy or making DHAs is also not the army’s job. Officers are not trained for running airlines, sugar mills, fertiliser factories, or insurance and advertising companies. Special exemptions and loopholes have legalised tax evasion and put civilian competitors at a disadvantage.

A decisive role in national politics, whether covert or overt, was sought for personal enrichment of individuals. It had nothing to do with national security.

While Khan has focused solely on the army’s efforts to dislodge him, his violent supporters supplement these accusations by disputing its unearned privileges. When they stormed the GHQ in Rawalpindi, attacked an ISI facility in Pindi, and set ablaze the corps commander’s house in Lahore, they did the unimaginable. But, piquing everyone’s curiosity, no tanks confronted the enraged mobs. No self-defence was visible on social media videos. The bemused Baloch ask, ‘What if an army facility had been attacked in Quetta or Gwadar?’ Would there be carpet bombing? Artillery barrages?

The wheels that keep any economy going are business and trade. Pakistanis are generally very good at this. Their keen sense for profits leads them to excel in real-estate development, mining, retailing, hoteliering, and franchising fast-food chains. But this cleverness carries over to evading taxes, and so Pakistan has the lowest tax-to-GDP ratio among South Asian countries.

The law appears powerless to change this. When a trader routinely falsifies his income tax return, all guilt is quickly expiated by donating a dollop of cash to a madressah, mosque, or hospital. In February, the pious men of Markazi Tanzeem Tajiran (Central Organisation of Traders) threatened a countrywide protest movement to forestall any attempt to collect taxes. The government backed off.

The engine, of course, is what makes the wheels of an economy turn. Developing countries use available technologies for import substitution and for producing some exportables. A strong engine can climb mountains, pull through natural disasters such as the 2022 monster flood, or survive Covid-19 and events like the Ukraine war. A weak one relies on friends in the neighbourhood — China, Saudi Arabia, and UAE — to push it up the hill. By dialling three letters — I/M/F — it can summon a tow-truck company.

The weakness of the Pakistani engine is normally explained away by various excuses — inadequate infrastructure, insufficient investment, state-heavy enterprises, excessive bureaucracy, fiscal mismanagement, or whatever. But if truth be told, the poverty of our human resources is what really matters.

For proof, look at China in the 1980s, which had more problems than Pakistan but which had an educated, hard-working citizenry. Economists say that these qualities, especially within the Chinese diaspora of the 1990s, fuelled the Chinese miracle.

The fuel, finally, is the human brain. When appropriately educated and trained, it is voraciously consumed by every economic engine. Pakistan is at its very weakest here. Small resource allocation for education is just a tenth of the problem.

More importantly, draconian social control through schools and an ideology-centred curriculum cripples young minds at the very outset, crushing independent thought and reasoning abilities. Leaders of both PTI and PDM agree that this must never change. Hence Pakistani children have — and will continue to have — inferior skills and poorer learning attitudes compared to kids in China, Korea, or even India.

The prognosis: it is hard to see much good coming out of a screeching catfight between rapacious rivals thirsting for power and revenge. None have a positive agenda for the country.

While the much-feared second breakup of Pakistan is not going to happen, the downward descent will accelerate as the poor starve, cities become increasingly unlivable, and the rich flee westwards. Whether or not elections happen in October and Khan rises from the ashes doesn’t matter. To fix what has gone wrong over 75 years is what’s important.

The Art of Strategy

 

Brain Power - Israel's Secret Weapon

Pervez Hoodbhoy in The Dawn

IS it some international conspiracy — or perhaps a secret weapon — that allows Israel to lord over the Mid­­dle East? How did a country of nine million — between one-half and one-third of Karachi’s population — manage to subdue 400m Arabs? A country bui­lt on stolen land and the ruins of destroyed Pal­estinian villages is visibly chuckling away as every Arab government, egged on by the khadim-i-haramain sharifain, lines up to recognise it. Economically fragile Pakistan is being lured into following suit.

Conspiracy theorists have long imagined Israel as America’s overgrown watchdog, beefed up and armed to protect American interests in the Middle East. But only a fool can believe that today. Every American president, senator and congressman shamefacedly admits it’s the Israeli tail that wags the American dog. Academics who chide Israel’s annexation policies are labelled anti-Semitic, moving targets without a future. The Israeli-US nexus is there for all to see but, contrary to what is usually thought, it exists for benefiting Israel not America.

It was not always this way. European Jews fleeing Hitler were far less welcome than Muslims are in today’s America. That Jewish refugees posed a serious threat to national security was argued by government officials in the State Department to the FBI as well as president Franklin Roosevelt himself. One of my scientific heroes, Richard Feynman, was rejected in 1935 by Columbia University for being Jewish. Fortunately, MIT accepted him.

What changed outsiders into insiders was a secret weapon. That weapon was brain power. Regarded as the primary natural resource by Jews inside and outside Israel it is an obsession for parents who, spoon by spoon, zealously ladle knowledge into their children. The state too knows its responsibility: Israel has more museums and libraries per capita than any other country. Children born to Ashkenazi parents are assumed as prime state assets who will start a business, discover some important scientific truth, invent some gadget, create a work of art, or write a book. 

In secular Israel, a student’s verbal, mathematical, and scientific aptitude sets his chances of success. By the 10th grade of the secular bagut system, smarter students will be learning calculus and differential equations together with probability, trigonometry and theorem proving. Looking at some past exam papers available on the internet, I wondered how Pakistani university professors with PhDs would fare in Israeli level-5 school exams. Would our national scientific heroes manage a pass? Unsurprisingly, by the time they reach university, Israeli students have bettered their American counterparts academically.

There is a definite historical context to seeking this excellence. For thousands of years, European anti-Semitism made it impossible for Jews to own land or farms, forcing them to seek livelihoods in trading, finance, medicine, science and mathematics. To compete, parents actively tutored their children in these skills. In the 1880s, Zionism’s founders placed their faith solidly in education born out of secular Renaissance and Enlightenment thought.

But if this is the story of secular Israel, there is also a different Israel with a different story. Ultra-orthodox Haredi Jews were once a tiny minority in Israel’s mostly secular society. But their high birth rate has made them grow to about 10 per cent of the population. Recognisable by their distinctive dress and manners, the Haredim are literally those who “tremble before God”.

For Haredis, secularism and secular education are anathema. Like Pakistan, Israel too has a single national curriculum with a hefty chunk earmarked for nation-building (read, indoctrination). In the Israeli context, the ideological part seeks to justify dispossession of the Palestinian population. Expectedly, the ‘Jewish madressah’ system accepts this part but rejects the secular part ie that designed to create the modern mind.

The difference in achievement levels between regular and Haredi schools is widening. While all schools teach Hebrew (the holy language), secular schools stress mastery over English while ‘madressahs’ emphasise Hebrew. According to a Jerusalem Post article, Haredi schools (as well as Arab-Israeli schools) are poor performers with learning outcomes beneath nine of the 10 Muslim countries that participated in the most recent PISA exam. A report says 50pc of Israel’s students are getting a ‘third-world education’.

The drop in overall standards is causing smarter Israelis to lose sleep. They fear that, as happened in Beirut, over time a less fertile, more educated elite sector of society will be overrun by a more fertile, less-educated religious population. When that happens, Israel will lose its historical advantage. Ironically, Jewish identity created Israel but Jewish orthodoxy is spearheading Israel’s decline.

There is only one Muslim country that Israel truly fears — Iran. Although its oil resources are modest, its human resources are considerable.

The revolution of 1979 diminished the quality of Iranian education and caused many of Iran’s best professors to flee. But unlike Afghanistan’s mullahs, the mullahs of Iran were smart enough to keep education going. Although coexistence is uncomfortable, science and religion are mostly allowed to go their own separate ways. Therefore, in spite of suffocating embargos, Iran continues to achieve in nuclear, space, heavy engineering, biotechnology, and the theoretical sciences. Israel trembles. 

Spurred by their bitter animosity towards Iran, Arab countries have apparently understood the need of the times and are slowly turning around. Starting this year, religious ideology has been de-emphasised and new subjects are being introduced in Saudi schools. These include digital skills, English for elementary grades, social studies, self-defence and critical thinking. Of course, a change of curriculum means little unless accompanied by a change of outlook. Still, it does look like a beginning.

Israel has shown the effectiveness of its secret weapon; it has also exposed the vulnerability of opponents who don’t have it. There are lessons here for Pakistan and a strong reason to wrest control away from Jamaat-i-Islami ideologues that, from the time of Ziaul Haq onward, have throttled and suffocated our education. The heights were reached under Imran Khan’s Single National Curriculum which yoked ordinary schools to madressahs. But even with Khan’s departure, ideological poisons continue to circulate in the national bloodstream. Until flushed away, Pakistan’s intellectual and material decline will accelerate.

Wicketkeeping Masterclass - Jack Russell

 

Bright star to black hole: the rise and fall of fund manager Neil Woodford

Rupert Neate in The Guardian

He was, the BBC declared in 2015, “the man who can’t stop making money”. He was the rock star of pensions and fund management, awarded a CBE for his services to the economy. But now, since Neil Woodford stopped investors from withdrawing their own money from his flagship fund, he is in the spotlight for all the wrong reasons.

His Woodford Equity Income Fund holds the pension savings and investments of tens of thousands of people. But it has been performing so badly that investors were withdrawing money at the rate of £10m a day.

-----Also read
It can be Hard to tell Luck from Judgment
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Last week, after 23 consecutive months in which withdrawals from the fund had been greater than the new money coming in, Woodford found he couldn’t realise cash quickly enough to meet the withdrawal requests – at least at a decent price. He closed the fund to withdrawals, leaving legions of investors angry and in limbo for 28 days.

In a YouTube video he posted on Wednesday to finally apologise to investors, he looked anything but the archetypal City fund manager, with his close-cropped hair and trademark casual jumper rather than suit and tie. In the video, filmed at his fund’s headquarters on an industrial estate near Oxford, Woodford said: “I’m extremely sorry that we’ve had to take this decision. We understand our investors’ frustration. All I can say in response to that is that this decision was motivated by your interests.”

Woodford said he had been forced to “gate” the fund because so many big investors were trying to pull money out that he wasn’t able to meet the demand. His funds hold unusually big stakes in smaller and early stage unlisted companies, which are hard to sell quickly.

The final straw had been Kent county council pension fund’s request to take out its £263m holding. The trustees of Kent’s pension fund – who had been trying to stem the losses Woodford had racked up for its 110,000 members – decided to pull out when it emerged at the end of last month that the flagship fund had shrunk by £560m to £3.77bn in just four weeks. At its peak the fund was worth more than £10bn.

Of the £560m lost, just under £190m was made up of withdrawals. The rest – more than £370m – represented yet further declines in the value of the investments held in the fund, which at the end of April was made up of stakes in 101 companies ranging from housebuilders such as Barratt Developments and Taylor Wimpey to logistics business Eddie Stobart and a large number of esoteric healthcare firms.

Under EU rules aimed at ensuring that funds which hold unquoted – and therefore potentially hard-to-sell – shares can retain their stability, these shares are permitted to make up no more than 10% of the portfolio. Woodford got around those rules, quite legally, by putting some of them into his separate, quoted Patient Capital investment trust – and taking Patient Capital shares into the main fund. He also listed some of them of the Guernsey stock exchange.

But the Kent fund had left it just too late: instead of getting its cash back, its request triggered Woodford’s suspension of trading in the fund.

The video apology, in which Woodford set and answered his own questions, followed months during which he had been dismissing the concerns of investors and financial experts about his fund’s prolonged poor performance.

In February, his Woodford Equity Income Fund was listed for the first time on a “Spot the Dog” list compiled by Bestinvest, which highlights underperforming “dog” funds. Bestinvest criticised some of his worst investments and described the fund as “a Great Dane-sized” new entrant to its list.

Just a few weeks later, Woodford told the Financial Times that the investors who were pulling out were making “appallingly bad decisions”, influenced by “a mountain of fake information and fake analysis” that “pisses me off”.

Neil Woodford apologises to investors in a still from his YouTube video last week. Photograph: Woodford Investment Management/PA

In December 2017 he said in an interview that they key to successful investing was to “have a sufficiently strong arrogant gene to back your judgment, back your conviction”.

That arrogance is now provoking widespread anger, not just from his investors but also among other fund managers, who say Woodford has tarred the whole industry with the same loss-making brush.

Last Wednesday the Financial Conduct Authority, the City’s watchdog, said it was considering a formal investigation into the fund, and the following day, Bank of England governor Mark Carney told an audience in Tokyo that funds such as Woodford’s (although he died not name him) needed closer scrutiny to lessen the risk of fire sales triggering market disruption. The Bank, he said, would start stress-testing funds to ensure they couldn’t threaten a system-wide crisis.

This is a staggering fall from grace for Woodford, who had been one of the UK’s very best and most reliable stock pickers. Anyone who invested £10,000 at the start of his quarter-of-a-century career at Invesco Perpetual would have seen their money grow to almost £250,000 by the time he left.

Mark Dampier, director of research at stockbroker Hargreaves Lansdown, declared in 2015 that Woodford was “arguably the best fund manager of his generation”. Just weeks ago, despite the growing cloud surrounding Woodford, Hargreaves told its clients “we retain our conviction in him to deliver excellent long-term performance” and reminded them that he had “built his career by investing against the herd” and “shown an ability to get the big calls right”.

Hargreaves’s customers had £2bn invested with Woodford at the end of March – roughly a fifth of all the money in his three big funds.

Only when the fund was gated did Hargreaves, which has heavily promoted Woodford at discounted fees, finally drop Woodford Equity Income from its influential “Wealth 50” list of favourite funds, which it marketed to its more than a million clients.

FacebookTwitterPinterest Bank of England governor Mark Carney has suggested that funds such as Woodford’s need more scrutiny. Photograph: Hannah McKay/Reuters

Asked if he regretted his support for Woodford and the controversial discount fee structure, Dampier said: “Our aim is to enable our clients to choose the best-in-class funds at lower fees. Our favourite fund choices have, for the most part, beaten their sector averages and benchmarks. Not every fund has, and we share our clients’ disappointment and frustration when they don’t.”

Other big backers have also deserted Woodford. St James’s Place last week took its clients’ £3.5bn to another manager. On Thursday another supporter, Openworks, did the same with its £330m.

Woodford fell into fund management by accident. He had never even heard of the business until he rocked up in London in the 1980s, sleeping on his brother’s floor while looking for a job. He had left school wanting to fly fighter jets but couldn’t pass the RAF’s aptitude test, and instead read agricultural economics at the University of Exeter.

In 1988 he joined Invesco Perpetual and built a reputation as a brilliant contrarian investor. When others piled into dotcom shares at the turn of the century, he decided against, and backed more traditional companies. He made huge gains when the dotcom crash came. He eschewed banking stocks before the financial crisis – and avoided that crash too.

He held big stakes in giant companies, whose chief executives needed to retain his support. In 2012 his criticism of AstraZeneca chief executive David Brennan was widely regarded to have cost Brennan his job, and his criticism of BAE’s attempted £28bn merger with Airbus was seen as one of the reasons the deal collapsed.

In 2014, feeling that he had outgrown Invesco Perpetual, where he personally managed some £25bn of funds, he set up his own firm, Woodford Investment Management. Within two weeks of launching, he had raised £1.6bn, a UK record, and this quickly grew to £16bn. In its first year, his flagship fund made a 16% return and Woodford, a devotee of veteran US investor Warren Buffett, was called the “Oracle of Oxford”.

FacebookTwitterPinterest Woodford is a keen student of the US investor Warren Buffett. Photograph: Andrew Harnik/AP

But since then things have turned sour. Over the past four years, investors in Woodford Equity Income have collected a return of less than 1% – compared with 29% for the market as a whole. Over that same four-year period, Woodford has paid himself some £63m.

In the 2017-18 financial year alone, which was a dreadful period for his funds, Woodford Investment Management paid a £36.5m dividend to a company called Woodford Capital. Woodford holds 65% of that firm, and his business partner Craig Newman has the remaining 35%.

Woodford, who has spoken out against the huge bonuses awarded to other fund managers, and to the bosses of companies he has invested in, declined to answer any questions about his own pay, or to elaborate, beyond his YouTube video, on the fund’s tricky situation.

The firm’s public relations officer asked the Observer to point out that Woodford had donated some of his pay to charity. But he was unable to state how much money had been donated, or to which causes. The PR person declined to comment when asked whether Woodford would consider pumping any of his personal millions back into the fund.

Those who know Woodford say he is “decidedly unflashy” and that it is “difficult to fathom where all that money goes”. Well, a lot of it appears to go on horses. He and his wife Madelaine have a few dozen top showjumpers training at a vast equestrian complex near their home in the Cotswolds.

The house, near Tetbury, was built on land the Woodfords bought for nearly £14m in 2013. They moved to the Cotswolds after a planning application to construct a dressage arena and 28-horse stabling block near their previous estate, in Buckinghamshire, was rejected following a row with neighbours. One of those neighbours, the BBC’s Jeremy Paxman, described Woodford’s planned addition as “enormous, unsightly and environmentally unfriendly”.

The Tetbury venue, however, got the planners’ green light and includes a full-size manège (dressage arena). Woodford, who came to the sport only after meeting Madelaine – a keen rider whom he married in 2015 – has put in the hours at the manège and now often takes part in eventing competitions on a bay gelding called Willows Spunky. 

Woodford’s other passions are fast cars and racing bicycles. He starts up the Porsche at 5am every weekday to drive to his fund’s minimalist offices on an industrial estate in Cowley, Oxford. At weekends he drives it down to the couple’s £6.3m glass-walled holiday home in Salcombe, Devon.

Woodford’s huge pay and luxury lifestyle haven’t gone unnoticed by his investors, many of whom are relying on him to be a safe pair of hands and to increase the value of their retirement or rainy day fund.

A comment on his YouTube video, by someone with the username Platoreads: “Arrogance, Incompetence, Complacency and greed: your name is Woodford! You have failed, Neil. Return the funds to your investors (including that £37m bonus you pocketed this year despite a disastrous performance in all three funds).”

Luke Hilyard of the High Pay Centre said: “This particular instance of an investor making tens of millions while losing money for ordinary savers raises questions about the governance of the funds and platforms channelling other people’s money into Woodford’s fund, and the regulatory oversight of the process.

“The case is also a microcosm of our wider business culture and economic system, where superstar managers in investment, banking, retail, commodities and other industries have been treated like gods and rewarded accordingly, yet ultimately have shown themselves to be highly fallible mortals whose success was always partly contingent on timing and luck.”

Woodford, who made his name at Invesco by backing big companies, but then switched to a new strategy of investing in smaller and unquoted companies in his own funds, has now pledged to change direction.

In his video he said he would now be targeting bigger companies, especially FTSE 100 stocks – even though only a few weeks ago he was insisting that his approach was the correct one and that the best investment opportunities were “absolutely not” in large companies.
Big bad bets

Woodford bought big stakes in many companies that performed very poorly. They include:
• Kier (construction) -74% in 12 months; Woodford funds own 20%
• Circassia (biotech) -74%; Woodford owns 28.5%
• Prothena (biotech) -36%; Woodford owns 29.9%
• Stobart Group -46%; Woodford owns 18.8%
• Redde (support services) -39%; Woodford owns 28%
• Allied Minds (technology) -31%; Woodford owns 27%
• Spire Healthcare -51%; Woodford owns 5%
• Utilitywise, energy broker that collapsed in Feb 2019; Woodford owned 29%

What Woodford investors say:
“I invested £60,000 three years ago and have lost over 20%. Luckily I sold nearly half my investment the week before the fund closed. I’m going to hold my remaining units until after Brexit as a high-risk bet.”
Simon, 51, Brighton

“I‘m getting married on 10 August and we’ve been saving for over two years. My final bill to the venue and suppliers is due at the start of July. If I can’t withdraw my money I’m going to be looking to beg, borrow or steal until I can get it released.”
James M, 28, Newcastle

“I inherited some money, and chose on a stocks and shares Isa, following suggestions from Hargreaves Lansdown, then watched the value dwindle. On 31 May I decided to take the hit and sell. The deal was shown as “pending” until Wednesday morning, but that disappeared and I was told I wouldn’t be able to sell my units. I don’t think I’ll be getting much back when trading opens again.”
Sally Williams, 53, London

It can be Hard to tell Luck from Judgment

Randomness often explains the difference between triumph and failure writes Tim Harford in The FT 


It hasn’t been a great couple of years for Neil Woodford — and it has been just as miserable for the people who have entrusted money to his investment funds. Mr Woodford was probably the most celebrated stockpicker in the UK, but recently his funds have been languishing. Piling on the woes, Morningstar, a rating agency, downgraded his flagship fund this week. What has happened to the darling of the investment community? 

Mr Woodford isn’t the only star to fade. Fund manager Anthony Bolton is an obvious parallel. He enjoyed almost three decades of superb performance, retired, then returned to blemish his record with a few miserable years investing in China. 

The story of triumph followed by disappointment is not limited to investment. Think of Arsène Wenger, for a few years the most brilliant manager in football, and then an eternal runner-up. Or all the bands who have struggled with “difficult second-album syndrome”. 

There is even a legend that athletes who appear on the cover of Sports Illustrated are doomed to suffer the “SI jinx”. The rise to the top is followed by the fall from grace. 

There are three broad explanations for these tragic career arcs. Our instinct is to blame the individual. We assume that Mr Woodford lost his touch and that Mr Wenger stopped learning. That is possible. Successful people can become overconfident, or isolated from feedback, or lazy. 

But an alternative possibility is that the world changed. Mr Wenger’s emphasis on diet, data and the global transfer market was once unusual, but when his rivals noticed and began to follow suit, his edge disappeared. In the investment world — and indeed, the business world more broadly — good ideas don’t work forever because the competition catches on. 

The third explanation is the least satisfying: that luck was at play. This seems implausible at first glance. Could luck alone have brought Mr Wenger three Premier League titles? Or that Mr Bolton was simply lucky for 28 years? Do we really live in such an impossibly random universe? 

Perhaps we do. Michael Blastland’s recent book, The Hidden Half, argues that much of the variation we see in the world around us is essentially mysterious. Mr Blastland’s opening example is the marmorkrebs, a kind of crayfish that reproduces parthenogenetically — that is, marmorkrebs lay eggs without mating and those eggs develop into clones of their mothers. 

Place two clones into two identical fish tanks and feed them identical food. These genetically identical creatures raised in apparently identical environments produce genetically identical offspring who nevertheless vary dramatically in their size, form, lifespan, fecundity, and behaviour. Sometimes things turn out very differently for no reason that we can discern. We might as well call that reason “luck” as anything else. 

This is not to say that skill doesn’t matter — merely that in a competition in which all the leaders are highly skilled, randomness may explain the difference between triumph and failure. Good luck plus skill beats bad luck plus skill any time. 

It is easy to underestimate how much chance is at play all around us. The psychologist Daniel Kahneman has recently been studying what he calls “noise”: the variability of judgments for no obvious reason. 

A wine expert blind-tasting two glasses from the same bottle will often rate them differently. Pathologists disagree with each other in their judgments of the same biopsy. More disconcertingly, they also disagree with their own prior judgments of the case. 

We rarely appreciate just how much inconsistency there is in the judgments we and others make, argues Prof Kahneman. It can hardly be a surprise, then, if past performance is no guarantee of future success. 

We should remember, too, that people often achieve outsized success by taking risks or being contrarian. When John Kay examined the forecasting record of economists in the 1990s, he noted that Patrick Minford, an idiosyncratic forecaster, would often produce the best forecast one year and the worst forecast the next. If the consensus is wrong, being an outlier gives you a high chance both of dramatic success and spectacular failure. 

We perceive all this randomness through a particular filter, too. Few people make the cover of Sports Illustrated after a run of mediocre luck. They appear after things have been going well, and if the good luck fails to hold then it seems like the SI jinx. More likely it is “regression to the mean”, or in simple terms, a return to business as usual. 

We begin paying attention only when someone is producing a remarkable performance. Genius followed by mediocrity is a story arc we all notice. Mediocrity followed by genius just looks like genius — assuming the mediocre performer gets a second chance. Not all do. 

So I wish Mr Woodford well. Perhaps he has lost his touch, perhaps the world has changed, or perhaps he has simply been unlucky. It would be nice to know which, but in such matters the world does not always satisfy our curiosity.

Why Brexit Britain needs to upskill its workforce

Simon Kuper in The FT

A British hospital director told me he was hunting for staff to replace foreign doctors and nurses leaving because of Brexit. He hadn’t found many qualified Britons queuing to replace them. In fact, he specified: “Not one!” 

You could interpret this as yet another cautionary tale about Brexit. In an age when the chief global business cliché is the “war for talent”, the UK is fighting a war against talent. But if I were a Brexiter, I’d say: Brexit should be the prompt for Britain finally to start training enough of its own talent. 

Obviously, I’m not arguing that every departing foreigner frees up a job for a Briton. Economists dismiss such reasoning as the “lump of labour fallacy”. Rather, I’m saying that if the UK wants to avoid economic decline, it will need to train far more of its own nurses, construction workers, bankers, architects, etc. For a country whose policy has always been not to educate the working class, that would be a reversal of history. It would come too late for the over-45s (the generation that actually voted for Brexit), but it could transform the futures of young Britons. And it’s doable. 

The British tradition is to educate each class separately, writes historian David Cannadine in Class in Britain. Even in the 18th century, posh males went to public schools and Oxbridge, whereas the poor were taught almost nothing. The purpose of education then, says Cannadine, “was more to teach people their place than to give them opportunities to advance”. His words apply pretty well to today’s country. The alumni of nine expensive “public” schools are now 94 times more likely than the average Briton to reach the elite, according to London School of Economics research. (The conservative Daily Telegraph reported the findings under the headline, factually accurate as far as it went, “Boys’ public school dominance over British elite has ‘diminished significantly’ over time”.) 

The UK — without any more wars of conscription and with few surviving factories or mines — now struggles to find a use for low-skilled people who live in places where they can’t perform personal services for higher castes (see this week’s cover story on Blackpool). 

Before Brexit, the rest of the country didn’t need these people. High-skilled immigrants staffed world-class British sectors such as the City and London’s creative economy. In healthcare, the UK developed a brilliant racket: let a poor country like Romania fund a nurse’s education, then underpay her to look after sick Brits. Low-skilled immigrants eager to work all hours for little money gave the UK cafés, carers and corner shops that seldom closed. Low-skilled Britons could have done these jobs, but mostly didn’t. 

The coming wave of British talent is largely immigrant too: the kids who have made London’s state schools the UK’s best, plus the offspring of Russian, Chinese and other foreign elites who fill the public schools. Many of these people would love to stay and make the UK richer. 

But Brexiters want to cut immigration. The obvious, if tricky solution: equip working-class Brits to do jobs from nursing to banking. “That’s the opportunity,” says Charles Leadbeater, a consultant who has long advised British governments on innovation and education. “I just think it won’t happen. It would require something like a wartime national mobilisation of people and skills. That would require state leadership of the kind most Brexiteers abhor.” 

Leadbeater points out that Tory Brexiter politicians — almost none of whom send their children to state schools — rarely talk about apprenticeship schemes à la Switzerland. Instead, their vision seems to be a low-tax, low-regulation Britain. 

Jonathan Portes, economics professor at King’s College London, adds: “The problem of UK vocational education has been known for at least a century. We’ve always neglected it. When I was involved in government we had a new skills strategy every two years, and none of them worked.” 

Anyway, executing Brexit will distract ministers and civil servants for years to come. “The government has neither the fiscal room nor the mental bandwidth to do much about skills,” says Portes. In fact, in August the UK removed the NHS bursary for people training to be nurses, midwives and speech therapists, among other professions. Students now have to fund their courses themselves, knowing they can expect a low lifetime salary. 

If Britain doesn’t upskill its workers fast, it will lose skilled jobs. It will continue to have the world’s best universities per capita only if it can find enough Britons to replace departing foreign academics. Much the same applies to finance or design. Meanwhile, low-skilled foreign fruit pickers have already melted away since the pound plunged. With few Britons queuing to replace them, much of this year’s produce rotted in the fields. 

So the most likely post-Brexit outcome is a Britain that cannot keep itself in the style to which it has become accustomed. The war against talent will probably leave the UK looking a bit more like today’s English seaside towns, or most of the country in the 1970s: culturally homogeneous, relatively poor and under-serviced. On the upside, housing should be cheaper. For many Brexiters, I suspect the trade-offs will be worth it.

In an age of robots, schools are teaching our children to be redundant

Illustration by Andrzej Krauze


GeorgeMonbiot in The Guardian


In the future, if you want a job, you must be as unlike a machine as possible: creative, critical and socially skilled. So why are children being taught to behave like machines?

Children learn best when teaching aligns with their natural exuberance, energy and curiosity. So why are they dragooned into rows and made to sit still while they are stuffed with facts?

We succeed in adulthood through collaboration. So why is collaboration in tests and exams called cheating?

Governments claim to want to reduce the number of children being excluded from school. So why are their curriculums and tests so narrow that they alienate any child whose mind does not work in a particular way?

The best teachers use their character, creativity and inspiration to trigger children’s instinct to learn. So why are character, creativity and inspiration suppressed by a stifling regime of micromanagement?

There is, as Graham Brown-Martin explains in his book Learning {Re}imagined, a common reason for these perversities. Our schools were designed to produce the workforce required by 19th-century factories. The desired product was workers who would sit silently at their benches all day, behaving identically, to produce identical products, submitting to punishment if they failed to achieve the requisite standards. Collaboration and critical thinking were just what the factory owners wished to discourage.

As far as relevance and utility are concerned, we might as well train children to operate a spinning jenny. Our schools teach skills that are not only redundant but counter-productive. Our children suffer this life-defying, dehumanising system for nothing.


At present we are stuck with the social engineering of an industrial workforce in a post-industrial era

The less relevant the system becomes, the harder the rules must be enforced, and the greater the stress they inflict. One school’s current advertisement in the Times Educational Supplement asks: “Do you like order and discipline? Do you believe in children being obedient every time? … If you do, then the role of detention director could be for you.” Yes, many schools have discipline problems. But is it surprising when children, bursting with energy and excitement, are confined to the spot like battery chickens?

Teachers are now leaving the profession in droves, their training wasted and their careers destroyed by overwork and a spirit-crushing regime of standardisation, testing and top-down control. The less autonomy they are granted, the more they are blamed for the failures of the system. A major recruitment crisis beckons, especially in crucial subjects such as physics and design and technology. This is what governments call efficiency.

Any attempt to change the system, to equip children for the likely demands of the 21st century, rather than those of the 19th, is demonised by governments and newspapers as “social engineering”. Well, of course it is. All teaching is social engineering. At present we are stuck with the social engineering of an industrial workforce in a post-industrial era. Under Donald Trump’s education secretary, Betsy DeVos, and a nostalgic government in Britain, it’s likely only to become worse.

When they are allowed to apply their natural creativity and curiosity, children love learning. They learn to walk, to talk, to eat and to play spontaneously, by watching and experimenting. Then they get to school, and we suppress this instinct by sitting them down, force-feeding them with inert facts and testing the life out of them.

There is no single system for teaching children well, but the best ones have this in common: they open up rich worlds that children can explore in their own ways, developing their interests with help rather than indoctrination. For example, the Essa academy in Bolton gives every pupil an iPad, on which they create projects, share material with their teachers and each other, and can contact their teachers with questions about their homework. By reducing their routine tasks, this system enables teachers to give the children individual help.

Other schools have gone in the opposite direction, taking children outdoors and using the natural world to engage their interests and develop their mental and physical capacities (the Forest School movement promotes this method). But it’s not a matter of high-tech or low-tech; the point is that the world a child enters is rich and diverse enough to ignite their curiosity, and allow them to discover a way of learning that best reflects their character and skills.

There are plenty of teaching programmes designed to work with children, not against them. For example, the Mantle of the Expert encourages them to form teams of inquiry, solving an imaginary task – such as running a container port, excavating a tomb or rescuing people from a disaster – that cuts across traditional subject boundaries. A similar approach, called Quest to Learn, is based on the way children teach themselves to play games. To solve the complex tasks they’re given, they need to acquire plenty of information and skills. They do it with the excitement and tenacity of gamers.

No grammar schools, lots of play: the secrets of Europe’s top education system



The Reggio Emilia approach, developed in Italy, allows children to develop their own curriculum, based on what interests them most, opening up the subjects they encounter along the way with the help of their teachers. Ashoka Changemaker schools treat empathy as “a foundational skill on a par with reading and math”, and use it to develop the kind of open, fluid collaboration that, they believe, will be the 21st century’s key skill.

The first multi-racial school in South Africa, Woodmead, developed a fully democratic method of teaching, whose rules and discipline were overseen by a student council. Its integrated studies programme, like the new system in Finland, junked traditional subjects in favour of the students’ explorations of themes, such as gold, or relationships, or the ocean. Among its alumni are some of South Africa’s foremost thinkers, politicians and businesspeople.

In countries such as Britain and the United States, such programmes succeed despite the system, not because of it. Had these governments set out to ensure that children find learning difficult and painful, they could not have done a better job. Yes, let’s have some social engineering. Let’s engineer our children out of the factory and into the real world.