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Monday 9 March 2009

A failure to control the animal spirits


 

 

By Robert Shiller
Published: March 8 2009 18:34 | Last updated: March 8 2009 18:34
Bromley illustration
 
Lydia Lopokova, wife of the economist John Maynard Keynes, was a famous ballerina. She was also a Russian émigré. Thus Keynes knew from the experience of his in-laws the horrors of living in the worst of socialist economies. But he also knew first-hand the great difficulties that come from unregulated, unfettered capitalism. He lived through the British depression of the 1920s and 1930s. Thus Keynes was inspired to find a middle way for modern economies.
 
We are seeing, in this financial crisis, a rebirth of Keynesian economics. We are talking again of his 1936 book The General Theory of Employment, Interest and Money, which was written during the Great Depression. This era, like the present, saw many calls to end capitalism as we know it. The 1930s have been called the heyday of communism in western countries. Keynes's middle way would avoid the unemployment and the panics and manias of capitalism. But it would also avoid the economic and political controls of communism. The General Theory became the most important economics book of the 20th century because of its sensible balanced message.
 
In times of high unemployment, creditworthy governments should expand demand by deficit spending. Then, in times of low unemployment, governments should pay down the resultant debt. With that seemingly minor change in procedures, a capitalist system can be stable. There is no need for radical surgery on capitalism.
 
Adherents to Keynes's message were so eager to get this simple policy implemented, on both sides of the Atlantic, that they failed to notice – or perhaps they intentionally disregarded – that the General Theory also had a deeper, more fundamental message about how capitalism worked, if only briefly spelled out. It explained why capitalist economies, left to their own devices, without the balancing of governments, were essentially unstable. And it explained why, for capitalist economies to work well, the government should serve as a counterbalance.
 
The key to this insight was the role Keynes gave to people's psychological motivations. These are usually ignored by macroeconomists. Keynes called them animal spirits, and he thought they were especially important in determining people's willingness to take risks. Businessmen's calculations, he said, were precarious: "Our basis of knowledge for estimating the yield 10 years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing." Despite this, people somehow make decisions and act. This "can only be taken as a result of animal spirits". There is "a spontaneous urge to action".
 
There are times when people are especially adventuresome – indeed, too much so. Their adventures are supported in these times by a blithe faith in the future, and trust in economic institutions. These are the upswing of the business cycle. But then the animal spirits also veer in the other direction, and then people are too wary.
 
George Akerlof and I, in our book Animal Spirits (Princeton 2009), expand on Keynes's concept and tie it in to modern literature on behavioural economics and psychology. Much more clarity about the psychological underpinnings of animal spirits is possible today.
For example, social psychologists, notably Roger Schank and Robert Abelson, have shown how much stories and storytelling, especially human-interest stories, motivate much of human behaviour. These stories can count for much more than abstract calculation. People's economic moods are largely based on the stories that people tell themselves and tell each other that are related to the economy.
 
We have seen these stories come and go in rapid succession in recent years. We first had the dotcom bubble and the envy-producing stories of young millionaires. It burst in 2000, but was soon replaced with another bubble, involving smart "flippers" of properties.
 
This mania was the product not only of a story about people but also a story about how the economy worked. It was part of a story that all investments in securitised mortgages were safe because those smart people were buying them. Those enviable people who are buying these assets must be checking on them, therefore we do not need to. We need only run alongside them.
What allowed this mania and these stories to persist as long as they did? To a remarkable extent we have got into the current economic and financial crisis because of a wrong economic theory – an economic theory that itself denied the role of the animal spirits in getting us into manias and panics.
 
According to the standard "classical" theory, which goes back to Adam Smith with his Wealth of Nations in 1776, the economy is essentially stable. If people rationally pursue their own economic interests in free markets they will exhaust all mutually beneficial opportunities to produce goods and exchange with one another. Such exhaustion of opportunities for mutually beneficial trade results in full employment. By this theory it could not be otherwise.
 
Of course, some workers will be unemployed. But they will be unable to find work only because they are in a temporary search for a job or because they insist on pay that is unreasonably high. Such unemployment is viewed as voluntary, and evokes no sympathy.
Classical theory also tells us that financial markets will also be stable. People will only make trades that they consider to benefit themselves. When entering financial markets – buying stocks or bonds or taking out a mortgage or even very complex securities – they will do due diligence in seeing that what they are buying is worth what they or paying, or what they are selling.
 
What this theory neglects is that there are times when people are too trusting. And it also fails to take into account that if it can do so profitably, capitalism will produce not only what people really want, but also what they think they want. It can produce the medicine people want to cure their ills. That is what people really want. But if it can do so profitably, it will also produce what people mistakenly want.
 
It will produce snake oil. Not only that: it may also produce the want for the snake oil itself. That is a downside to capitalism. Standard economic theory failed to take into account that buyers and sellers of assets might not be taking due diligence, and the marketplace was not selling them insurance against risk in the complex securities that they were buying, but was, instead, selling them the financial equivalent of snake oil.
 
There is a broader moral to all this – about the nature of capitalism. On the one hand, we want to take advantage of the wisdom of Adam Smith. For the most part, the products produced by capitalism are what we really want, produced at a price that we are willing and able to pay. On the other hand, when confidence is high, and since financial assets are hard to evaluate by those who are buying them, people will and do buy snake oil. And when that is discovered, as it invariably must be, the confidence disappears and the economy goes sour.
 
It is the role of the government at two levels to see that these events do not occur. First, it has a duty to regulate asset markets so that people are not falsely lured into buying snake-oil assets. Such standards for our financial assets make as much common sense as the standards for the food we eat, or the purchase medicine we get from the pharmacy. But we do not want to throw out the good parts of capitalism with the bad. To take advantage of the good parts of capitalism, when fluctuations occur it is the role of the government to see that those who can and want to produce what others want to buy can do so. It is the role of the government, through its counterbalancing fiscal and monetary policy, to maintain full employment.
 
The principles behind such an economy are not the principles behind a socialist economy. The government insofar as possible is only creating the macroeconomic conditions that will allow the economy to function well.
 
That is the role of government. Its role is to ensure a "wise laisser faire". This is not the free-for-all capitalism that has been recommended by the current economic theory, and seems to have been accepted as gospel by economic planners, and also many economists, since the Thatcher and Reagan governments. But it also is a significant middle way between those who see the economic disasters and unemployment of unfettered capitalism, on the one hand, and those who believe that the government should play no role at all.
 
The idea that unfettered, unregulated capitalism would invariably produce the good outcomes was a wrong economic theory regarding how capitalist societies behave and what causes their crises. That wrong economic theory fails to take account of how the animal spirits affect economic behaviour. It fails to take into account the roles of confidence, stories and snake oil in economic fluctuation.
 
The writer is the Arthur M. Okun professor of economics at Yale University and co-founder and chief economist of MacroMarkets. To join the debate go to www.ft.com/capitalismblog


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Ethics, Economics and Global Justice




Rowan Williams
 
In a conversation a couple of months ago at Canary Wharf, a senior manager in financial services observed that recent years had seen an erosion of the notion that certain enterprises necessarily took time to deliver and that therefore it was a mistake to look for maximal profits on the basis of a balance sheet covering only one or two years. There had been, he suggested, a deep and systemic impatience with the whole idea of taking time to arrive at a desired goal – and thus with a great deal of the understanding of both labour and the building of confidence. Either an enterprise delivered or it didn't, and the question could be answered in a brief and measurable time-span.

 
For all the rhetoric about accountability, getting your money's worth, the effect of such assumptions in all kinds of settings has been a spectacular failure to understand the variety of ways in which responsible practice might be gauged – whether in relation to investment in actual production or in relation to new financial products, whose sustainability and reliability can only be proved after the passage of time. Very much the same kind of impatience has also been part of the tidal wave of assault on the historic professions – including the law, teaching and academic research and some aspects of public service. The short-term curse continues to afflict the voluntary sector in the absurd timescales attached to grant-giving; but all that is material for a lecture in its own right …

 
But in connection specifically with the financial crisis, the main point is about what appropriate patience might look like where various financial and commercial enterprises are concerned. The loss of a sense of appropriate time is a major cultural development, which necessarily changes how we think about trust and relationship. Trust is learned gradually, rather than being automatically deliverable according to a set of static conditions laid down. It involves a degree of human judgement, which in turn involves a level of awareness of one's own human character and that of others – a degree of literacy about the signals of trustworthiness; a shared culture of understanding what is said and done in a human society.

 
And this learning entails unavoidable insecurity. I do not control others and I do not control the passage of time and the processes of nature; even the ­processes of human labour are limited by things outside my control (the capacities of human bodies). My lack of a definitive and authoritative or universal perspective means that I may make mistakes because I misread others or because I miscalculate the levels of uncertainty in the processes I deal in. And the further away I get from these areas of learning by trial and error, the further away I get from the inevitable risks of living in a material and limited world, the more easily can I persuade myself that I am after all in control.

 
Although people have spoken of greed as the source of our current problems, I suspect that it goes deeper. It is a little too easy to blame the present situation on an accumulation of individual greed, exemplified by bankers or brokers, and to lose sight of the fact that governments committed to deregulation and to the encouragement of speculation and high personal borrowing were elected repeatedly in Britain and the United States for a crucial couple of decades.

 
Add to that the fact that warnings were not lacking of some of the risks of poor (or no) regulation, and we are left with the question of what it was that skewed the judgment of a whole society as well as of financial professionals. John Dunning, a professional analyst of the business world, wrote some six years ago about what he called the "crisis in the moral ecology" of unregulated capitalism (in the editorial afterword to a collection of essays on Making Globalisation Good, p.357); and he and other contributors to his book discussed how "circles of failure" could be created in the global economy by a combination of moral indifference, institutional crisis and market failure, each feeding on the others. Yet warnings went unheeded; people's rational capacities, it seems, were blunted, and unregulated global capitalism was assumed to be the natural way of doing things, based on a set of rational market processes that would deliver results in everyone's interest.

 
This was not just about greed. At least some apologists for the naturalness of the unregulated market pointed – quite reasonably in the circumstances – to the apparently infallible capacity of the market to free nations from poverty. It may help to turn for illumination to an unexpected source. Acquisitiveness is, in the Christian monastic tradition, associated with pride, the root of all human error and failure: pride, which is most clearly evident in the refusal to acknowledge my lack of control over my environment, my illusion that I can shape the world according to my will. And if that is correct, then the origin of economic dysfunction and injustice is pride – a pride that is manifest in the reluctance to let go of systems and projects that promise more and more secure control, and so has a bad effect on our reasoning powers.

 
This in turn suggests that economic justice arrives only when everyone recognises some kind of shared vulnerability and limitation in a world of limits and processes (psychological as well as material) that cannot be bypassed. We are delivered or converted not simply by resolving in a vacuum to be less greedy, but by understanding what it is to live as an organism which grows and changes and thus is involved in risk. We change because our minds or mindsets are changed and steered away from certain powerful but toxic myths.

 
Now, you could say that ethics is essentially about how we negotiate our own and other people's vulnerabilities. The sort of behaviour we recognise as unethical is very frequently something to do with the misuse of power and the range of wrong or corrupt responses to power – with the ways in which fear or envy or admiration can skew our perception of what the situation truly demands of us. Instead of estimating what it is that we owe to truth or to reality or to God as the source of truth, we calculate what we need to do so as to acquire, retain or at best placate power (and there is of course a style of supposedly religious morality that works in just such an unethical way). But when we begin to think seriously about ethics, about how our life is to reflect truth, we do not consider what is owed to power; indeed, we consider what is owed to weakness, to powerlessness.

 
Our ethical seriousness is tested by how we behave towards those whose goodwill or influence is of no "use" to us. Hence the frequently repeated claim that the moral depth of a society can be assessed by how it treats its children – or, one might add, its disabled, its elderly or its terminally ill. Ethical behaviour is behaviour that respects what is at risk in the life of another and works on behalf of the other's need. To be an ethical agent is thus to be aware of human frailty, material and mental; and so, by extension, it is to be aware of your own frailty. And for a specifically Christian ethic, the duty of care for the neighbour as for oneself is bound up with the injunction to forgive as one hopes to be forgiven; basic to this whole perspective is the recognition both that I may fail or be wounded and that I may be guilty of error and damage to another.


 
It's a bit of a paradox, then, to realise that aspects of capitalism are in their origin very profoundly ethical in the sense I've just outlined. The venture capitalism of the early modern period expressed something of the sense of risk by limiting liability and sharing profit; it sought to give limited but real security in a situation of risk, and it assumed that sharing risk was a basis for sharing wealth. It acknowledged the lack of ultimate human control in a world of complex processes and unpredictable agents and attempted to "negotiate vulnerabilities", in the terms I used a moment ago, by stressing the importance of maintaining trust and offering some protection against unlimited loss. By sharing risk between investor and venturer, it also shared power.

 
The problems begin to arise when the system offers such a level of protection from insecurity that risk comes to be seen as exceptional and unacceptable. We take for granted a high level of guaranteed return and so come to prefer those transactions in which the actual business of time-taking and the limits involved in material labour and scarcity of goods are less involved. It has been persuasively argued that things begin to go astray, morally, in the early and intimate association between capitalism and various colonial projects, in which abundant new natural resources and abundant new reserves of labour (notably in the shape of slavery) could be counted on to minimise some kinds of risk.

 
In the post-colonial climate, it has been the world of financial products that becomes the favoured basis for both personal and social economy. A badly or inadequately regulated market is one in which no one is properly monitoring the scarcity of credit. And this absence of monitoring is especially attractive when governments depend for their electability on a steady expansion of spending power for their citizens. Increasingly, to pick up the central theme of Philip Bobbitt's magisterial works on modern global and military politics, government rests its legitimacy upon its capacity to satisfy consumer demands and maximise choices – its capacity to defer or obscure that element of the uncontrollable which in earlier phases of capitalist production dictated the habits of mutual trust and shared jeopardy, the habits that made sense of the otherwise morally controversial idea that the use of money was itself in some sense a chargeable commodity, something that needed to be paid for.

 
Maximised choice is a form of maximised control. And it presupposes and encourages a basic model of the ideal human agent as an isolated subject confronting a range of options, each of which they are equally free to adopt for their own self-defined purposes. If an economy resting on financial services rather than material production offers more choice, a government will lean in this direction for electoral advantage, since its claim to be taken seriously is now grounded in its ability to enlarge the market in which individuals operate to purchase the raw materials for constructing their identities and projects.

 
As I hope will be clear, this is a deeper matter than just "greed". It is a fairly comprehensive picture of what sort of things human beings are; and to recognise it as a reasonably accurate model of late modern "developed" society, especially in the north Atlantic world, is not to suggest any blanket condemnation of market principles, any nostalgia for pre-modern social sanctions and so forth – only to begin to sketch an analysis of where and how certain quite intractable problems arise.

 
As already indicated, the modern market state, in Bobbitt's sense of the term, the state that promises maximised choice and minimal risk, is in serious danger of encouraging people to forget two fundamentals of economic reality: scarcity as an inexorable truth about a materially limited world, and concrete productivity and added value as the condition for increasing purchasing power or liberty, and thus sustaining any kind of market. The tension between these two things is, of course, at the heart of economic theory, and imbalance in economic reality arises when one or the other dominates for too long, producing an unhealthily controlled economy (scarcity-driven) or an unhealthily hyperactive and ill-regulated economy (based on the simple expansion of purchasing power).

But forget that tension and what happens is not stability but plain confusion and fantasy. We have woken up belatedly to the results of behaving as though scarcity could be indefinitely deferred: the ecological crisis makes this painfully clear. We have woken up less rapidly and definitively to the effects of displacing labour costs to undeveloped economies. The short-term benefits to local employment in these settings and in lower prices elsewhere cannot offset longer-term issues about security of employment (jobs will move when labour is cheaper in other places) and thus also the problematic social changes brought by large-scale movement towards new employment patterns that have no long-term guarantees. One effect of this pattern is the creation not of a new consumer class but of a new group of urban paupers in unstable developing economies – a phenomenon visible in some east Asian contexts.

 
The move away from a realistic focus on scarcity and productivity/added value and towards the virtualised economy of money transactions has been deeply seductive, and, over a limited time-frame, spectacularly successful in generating purchasing power. Given that credit is not something that is naturally 'scarce' in precisely the same sense that material resources are, inadequate regulation can, as already noted, foster the illusion that the money market is effectively risk-free; that money can generate money without constraint.

 
In contrast to an economic model in which the exchange of goods is the basic process being analysed or managed, we have increasingly privileged and encouraged a model in which the process of exchange itself has become the raw material, the motor of profit-making. But, to repeat the point made so many times in the last few months, the problem comes when massively inflated credit is "called in": when the disproportion between actual, measurable material security and what is being claimed and traded on the market is so great that confidence in the institutions involved collapses. The search for impregnable security, independent of the limits of material resource, available labour and the time-consuming securing of trust by working at relationships of transparency and mutual responsibility, has led us to the most radical insecurity imaginable.



 
This is not the only paradox. In a recent essay in Prospect, Robert Skidelsky discusses why it is that a globalised economy has produced a resurgence of protectionism and nationalism, not to mention the political and economic domination of a single state, the US. We have, he suggests, been seduced into thinking that the mere lack of frontiers in global technology means that we accept a common destiny with other societies and are firmly set on the path to integrated economic operations. "Globalisation – the integration of markets in goods, services, capital and labour – must be good because it has raised millions out of poverty in poorer countries faster than would otherwise have been possible (p.39)." But the Whiggish idea that all this represents an irreversible movement towards an undifferentiated global culture and that a world without economic frontiers is natural, inevitable and by definition benign, rests on several very doubtful assumptions, rooted in an era that is passing – an era in which it was taken for granted that we began from a position of grave scarcity and moved towards unimpeded growth. But we are now in a position of "partial abundance" (i.e. a generally higher standard of living globally) which at the same time is more conscious of the limits of our material and environmental resources. As a result, globalisation is less obviously good news for the "developed" world. "The economic benefits of offshoring are far from evident for richer states," says Skidelsky (ibid.): jobs drain away to places where labour costs are cheaper, and we end up paying more to foreign investors than we earn in international markets. And the temptation for such wealthier economies is thus towards protectionism, with all its damaging consequences for a world economy. It is one of the most effective ways to freeze developing economies in a state of perpetual disadvantage; it makes it impossible for poorer economies to trade their way to wealth, as the rhetoric of the global market suggests they should.

 
Skidelsky argues that we need to take steps to reduce the attractions of relocating and "offshoring" in the first place, so that countries can focus afresh on their own processes of production so as to keep both internal and external investment alive. As he says, the present situation favours economic agreements that give little or no leverage to workers and that have minimal reference to social, environmental or even local legal concerns. Learning how to use governmental antitrust legislation to break up the virtually monopolistic powers of large multinationals that have become cuckoos in the nest of a national economy would also be an essential part of a strategy designed to stop the slide from opportunistic outsourcing towards protectionism and monitoring or policing the chaotic flow of capital across boundaries.

 
We have yet to see how much of this is deliverable, but the thrust of the argument is hard to resist, either morally or practically. Morally, protectionism implicitly accepts that wealth maintained at the cost of the neighbour's disadvantage or worse is a tolerable situation – which is a denial of the belief that what is good for humanity is ultimately coherent or convergent. Such a denial is a sinister thing, since it undermines the logic of assuming that what the other finds painful I should find painful too – a basic element of what we generally consider maturely or sanely ethical behaviour. Practically, protectionism is another instance of short-term vision, securing prosperity here by making prosperity impossible somewhere else; in a global context, this is inexorably a factor in ultimately shrinking potential markets.

 
And the wider agenda sketched by Skidelsky means also that commercial concerns would be prevented from overturning the social and political priorities of elected governments. The arguments around unrepayable international debt a decade ago repeatedly underlined the destructive effects of imposed regimes of financial stabilisation that derailed governmental programmes in poor countries and effectively confiscated any means of shaping a local economy to local needs. And we hardly need reminding of the distorting effect on a national economy – and public ethics, too - of being seen as a pool of cheap labour and a haven for irresponsible practices.

 
Several writers have said that a reformed and revitalised WTO ought to be able to move us further towards the monitoring I mentioned a moment ago. Some would be more specific and argue that for this to work effectively, there needs also to be some regulation of capital flow and exchange mechanisms, and this is where a variety of commentators from very diverse backgrounds see the "Tobin tax" proposals as having a place taxing currency exchanges in ways that would serve national economies. We should also need some mechanisms by which it could be guaranteed that a recognisable proportion of "savings", locally generated profits in a national economy, could be ploughed back into investment in local infrastructure, so that we should not constantly have to deal with the consequences of new money in a growing economy roaming around looking for a home and ending up fuelling the pressure on banks to lend above their capacity so as to keep the money moving.

 
Most such moves would, of course, require a formidable, perhaps unattainable level of global agreement and global enforceability; short of this, they could be counterproductive. But the debate on what kinds of international convergence are possible and necessary is a crucial one. The basic question that Skidelsky and others are posing, however, is how the market as we know it can be restructured so as to make it do what it is supposed to do – i.e. to offer producers the chance of a fair and competitive context in which to trade what they produce and become in turn effective investors and developers of the potential of their business and their society.

 
The last few months have seen an extraordinary and quite unpredictable shift in the balance, with international financial transactions losing credibility and national governments coming into their own as guarantors of some level of stability. It is a rather ironic mutation of the idea of the market state: when it comes to the (credit) crunch, populations want governments to secure their basic spending power, even if it limits their absolute consumer freedoms. There is also a point, recently underlined in the debate in the Church of England's General Synod on this subject, about securing justice for future generations: any morally and practically credible policy should be looking to guarantee that future generations do not inherit liabilities that will cripple the provision of basic social care, for example. Unregulated 'freedom' in the climate of destructive speculation is not the most attractive prospect, certainly not compared with a guarantee that assets will not be allowed to drop indefinitely in value. The only way of 'maximising choice' is to make sure that it is still possible to choose and to use something, and to secure the possibilities reasonable choice for our children and grandchildren, even at the price of restricting some options. Without that restriction, nothing is solid: we should face a world in which everything flows, melts, dissolves, in a world of constantly shifting and spectral valuations.


 
If we try to draw some of this together into a few governing principles, what might emerge? The non-economist is bound to be intimidated by the complexity of what we confront, but, as has been said, "we are all economists now"; the specialists are not more conspicuously successful than others in mapping the territory, and this at least encourages some tentative proposals from the sidelines, however broad and aspirational. Certainly, over the last century and a half, Anglican theologians have from time to time taken their courage in their hands and attempted to outline what an ethically responsible economy might look like, and I am conscious of standing in the shadow of some very substantial commentators indeed, from F.D.Maurice to William Temple.

In the background too is the formidable legacy of Roman Catholic social teaching, expressed in some powerful statements from the British and American Bishops' Conferences in recent decades. So with this heritage in mind, I shall suggest five elements, in descending order of significance, that might provide the bare bones of an economic culture capable of delivering something like an ethically defensible global policy.

 
(i) Most fundamentally: we need to move away from a model of economics which simply assumes that it is essentially about the mechanics of generating money, and try to restore an acknowledgement of the role of trust as something which needs time to develop; and so also to move away from an idea of wealth or profit which imagines that they can be achieved without risk, and to return to the primitive capitalist idea, as sketched above, of risk-sharing as an essential element in the equitable securing of wealth for all.

 
(ii) As many writers, from Partha Dasgupta to Jonathon Porritt have argued, environmental cost has to be factored into economic calculations as a genuine cost in opportunity, resource and durability – and thus a cost in terms of doing justice to future generations. There needs to be a robust rebuttal of any idea that environmental concerns are somehow a side issue or even a luxury in a time of economic pressure; the questions are inseparably connected.

 
(iii) We need to think harder about the role – actual and potential – of democratically accountable governments in the monitoring and regulation of currency exchange and capital flow. This could involve some international conventions about wages and working conditions, and cooperation between states to try and prevent the indefinite growth of what we might call – on the analogy of tax havens – cheap labour havens. Likewise, it might mean considering the kind of capital controls that prevent a situation where it is advantageous to allow indefinitely large sums of capital out of a country.

 
(iv) The existing international instruments – the IMF and World Bank, the WTO and the G8 and G20 countries – need to be reconceived as both monitors of the global flow of capital and agencies to stimulate local enterprise and provide some safety nets as long as the global playing field is so far from being level. They need to provide some protective sanctions for the disadvantaged – not aimed at undermining market mechanisms but at letting them work as they should, working to allow countries to trade their way out of destitution.

 
(v) Necessary short-term policies to kickstart an economy in crisis – such as we have seen in the UK in recent months – should be balanced by long-term consideration of the levels of material and service production that will provide an anchor of stability against the possible storms of speculative financial practice. This is not simply about "baling out" firms under pressure but about a comprehensive look at national economies with a view to understanding what sort of production levels would act as ballast in times of crisis, and investing accordingly.

 
Aspirational these may be; but what I hope is not vague here is the moral orientation that lies behind all these points. Ethics, I suggested, is about negotiating conditions in which the most vulnerable are not abandoned. And we shall care about this largely to the extent to which we are conscious of our own vulnerability and limitedness. One of the things most fatal to the sustaining of an ethical perspective on any area of human life, not just economics, is the fantasy that we are not really part of a material order – that we are essentially will or craving, for which the body is a useful organ for fulfilling the purposes of the all-powerful will, rather than being the organ of our connection with the rest of the world. It's been said often enough but it bears repeating, that in some ways – so far from being a materialist culture, we are a culture that is resentful about material reality, hungry for anything and everything that distances us from the constraints of being a physical animal subject to temporal processes, to uncontrollable changes and to sheer accident.

 
Implied in what has just been said is a recognition of the dangers of "growth" as an unexamined good. Growth out of poverty, growth towards a degree of intelligent control of one's circumstances, growth towards maturity of perception and sympathy – all these are manifestly good and ethically serious goals, and, as has already been suggested, there are ways of conducting our economic business that could honour and promote these. A goal of growth simply as an indefinite expansion of purchasing power is either vacuous or malign – malign to the extent that it inevitably implies the diminution of the capacity of others in a world of limited resource. Remember the significance of scarcity and vulnerability in shaping a sense of what ethical behaviour looks like.

It is true that modern production creates markets by creating new "needs" – or more properly, new expectations. Human creativity moves on and human ingenuity constantly enlarges the reach of human management of the environment. That isn't in itself an evil; but a mature perspective on this would surely note two things. One is that there is always some choice involved in what is to be developed – and thus some opportunity cost. Not everything can be produced according to the dictates of desire, and so there will still be the need to sort out priorities. Second, we cannot ignore or postpone the question of what we want enlarged management of the environment for. The reduction of pain or of frustration, the augmenting of opportunity for human welfare and joy – again, these are obviously good things. They are good because they connect with a sense of what is properly owing to human beings, a sense of human dignity. And thus if the way in which they are secured for some reduces the opportunities of others, the pursuit of them is not compatible with a serious commitment to human dignity.

 
All this amounts to a belief that pursuing ethical economic growth, while not systematically hostile to new demands and new markets, while indeed acknowledging the way in which new markets can and should help to secure the prosperity of new producers, necessarily means looking critically at our lifestyle. To make it specific, and to use one of the more obvious examples, it has become more and more clear that lifestyles dependent on high levels of fossil fuel consumption reduce the long-term opportunities of basic human flourishing for many people because of their environmental cost – not to mention the various political traps associated with the production and marketing of oil in some parts of the world, with the consequent risks to peace and regional stability. Growth as an infinitely projected process of better and cheaper access to fossil fuel-related goods, including transport, would not be an impressive ethical horizon. The question which present circumstances are forcing rather harshly on our attention is how self-critical we can find it in ourselves to be about our lifestyle in the more affluent parts of the world – not in order to adopt a corporate monastic poverty but in order to arrive at a sense of the acceptable limits to growth in the context of what might be good for the human family overall and the planet itself.

 
The five broad principles sketched above could only be fleshed out against a background in which people recognised that talking about the need for growth made no sense except in relation to a world of complex social and political relationships and of limited material resources – a background of willingness to ask not what might be abstractly possible in terms of increasing the range of consumer goods but what might be manageable as part of a balanced global network of forces, basic needs, mutual respect and so on.



 
Basic to everything we might want to say about the financial crisis from the religious point of view is the question, "what for?" What is growth for? For what and for whom is wealth important? If it is essential to invest in certain kinds of productive ventures, how does this relate to the broader and longer-term imperative of securing the funding of social care future by way of sustainable shared resources, accumulated wealth? And so on. But behind such questions as these is the unavoidable issue of what human beings are for; or, to put it less crudely, what the content is of ideas of human dignity and where we look for their foundation or rationale. The principles outlined a moment ago require a context not only of geopolitical and social analysis, not even of pragmatic recognitions of the limits of material resources or the opportunity costs of certain financial decisions, but of a comprehensive sense of belonging in a world – and a world that is neither self-explanatory nor self-sufficient, but is transparent to a deeper level of agency or liberty, that level that is called God by the religious traditions of humanity.

 
In Christian belief, the world exists because of a free act of generous love by the creator. God has made a world in which, by working with the limitations of a material order declared by God to be 'very good', humans may reflect the liberty and generosity of God. And our salvation is the restoration of a broken relationship with this whole created order, through the death and resurrection of Jesus Christ and the establishing by the power of his Spirit a community in which mutual service and attention are the basic elements through which the human world becomes transparent to its maker.

 
The realising of that transparency is, for religious believers of whatever tradition, the beginning of happiness – not of a transient feeling of well-being or even euphoria, but of a settled sense of being at home, being absolved from urgent and obsessional desire, from the passion to justify your existence, from the anxieties of rivalry. And so what religious belief has to say in the context of our present crisis is, first, a call to lament the brokenness of the world and invite that change of heart which is so pivotal throughout the Jewish and Christian scriptures; and, second, to declare without ambiguity or qualification that human value rests on God's creative love and not on possession or achievement. It is not for believers to join in the search for scapegoats, because there will always be, for the religious self, an awareness of complicity in social evil. Nor is it for believers to make light of the real suffering that goes with economic uncertainty and loss – no less real for the formerly affluent Westerner faced with redundancy than for the powerless farmer or woman worker enduring yet another change for the worse in a battered and injured African or Asian economy.

But the task is to turn people's eyes back to the vision of a human dignity that is indestructible. This is the vision that will both allow us to retain a hold on our sense of worth even when circumstances are painful or humiliating and sustain the sense of obligation to the needs of others, near at hand or strangers, so that dignity may be made manifest.

 
In conclusion, let me suggest three central aspects of a religious – and more specifically, Christian – contribution to the ongoing debate, which may focus some more detailed reflection:

 
(i) Our faith depends on the action of a God who is to be trusted; God keeps promises. There could hardly be a more central theme in Jewish and Christian scripture, and the notion is present in slightly different form in Islam as well. Thus, to live in proper harmony with God, human beings need to be promise-keepers in all areas of their lives, not least in financial dealings.

 
(ii) As we have noted more than once already, the perspective of faith understands human beings as part of creation – not wholly in control, though gifted with capacities that allow real and significant powers over the environment, bound to material identity and unable to escape material need. Living in faith is living in awareness of this created and limited identity without resentment or fantasy.

 
(iii) Living as part of creation brings with it a sense of the common destiny and common predicament of ­humanity. But more specifically, the scriptural understanding of our calling, especially as set out in the letters of St Paul, sees the ideal human community as one in which the welfare and giftedness of each and the welfare of all are inseparable. What is good in God's eyes for human beings not something that is altered by differences in culture or income; we can't say that what is unwelcome or evil for us is tolerable for others.

 
So: trustworthiness, realism or humility and the clear sense that we must resist polices or practices which accept the welfare of some at the expense of others – there is a back-of-an-envelope idea of where we might start in pressing for a global economic order that has some claim to be just. It can't be too often stressed that we are not talking about simply limiting damage to vulnerable societies far away: the central issues exposed by the financial crisis are everyone's business, and the risks of what some commentators (Timothy Garton Ash and Jonathon Porritt) have called a "barbarising" of western societies as a result of panic and social insecurity are real enough.

 
Equally it can't be too often stressed that it is only the generosity of an ethical approach to these matters that can begin to relate material wealth to human well-being, the happiness that is spiritual and relational and based on the recognition of non-negotiable human worth. There is much to fear at the moment, but, as always, more to hope for – so long as we can turn our backs on the worlds of unreality so seductively opened up by some of our recent financial history. Patience, trust and the acceptance of a world of real limitation are all hard work; yet the only liberation that is truly worth while is the liberation to be where we are and who we are as human beings, to be anchored in the reality that is properly ours. Other less serious and less risky enterprises may appear to promise a power that exceeds our limitations – but it is at the expense of truth, and so, ultimately at the expense of human life itself. Perhaps the very heart of the current challenge is the invitation to discover a little more deeply what is involved in human freedom – not the illusory freedom of some fantasy of control.


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Sunday 8 March 2009

What do you thinhk? - Kerala Madrasas: Charting A Different Course ?


 

 

By Yoginder Sikand

07 March, 2009
Countercurrents.org

Writings about India's madrasas generally focus on the most ultra-conservative or reactionary of these institutions, of the sort that churn out fatwa-hurling mullahs characterized by bone-chilling views on politics, women and non-Muslims. This owes principally to a distinct prejudice on the part of many observers—non-Muslims as well as many Muslims themselves—as well as to lack of personal knowledge of and interaction with the ulema and students of such institutions on the part of many of those who glibly write about them. It also stems from to a marked, although thoroughly mistaken and misleading, tendency to regard traditional north Indian madrasas as typical and representative of all madrasas across the country.

 

Unbeknown to many, the system of madrasa education in Kerala is markedly different from the traditional north Indian system. It is well-organised and fully integrated with the secular system of education, thereby enabling Muslim children to receive religious as well as secular education simultaneously. It also enables would-be ulema to gain a basic modicum of knowledge of modern subjects, not leaving them totally bereft of this as in the case of many traditional north Indian madrasas.

 

One of the major Islamic organizations in Kerala is the Jamaat-e Islami. Like the Sunnis and the Mujahids—the two other major Islamic groupings in Kerala (each of which is divided into competing factions)—the Kerala Jamaat has a vast network of part-time madrasas (corresponding to north Indian maktabs) and full-time Arabic Colleges (similar to senior madrasas or dar ul-ulums in north India that train would-be ulema). Says Muhammad Ali, secretary of the Majlis ul-Taleem il-Islami, the Kerala Jamaat's Islamic education wing based in Calicut, 'We run 21 Arabic Colleges across Kerala and some 200 madrasas. In addition, 73 regular schools, mostly English-medium institutions that are till the tenth grade level, are affiliated to the Majlis, with some 40,000 students, including several non-Muslims, on their rolls. Eighty per cent of their teachers are women, and more than half are non-Muslims. They are independently registered and are locally managed. We believe that both Islamic as well as modern education are necessary for Muslim children. The fees that they charge are low and, for most families, affordable.'

Unlike in the Urdu-Hindi belt, where would-be ulema often have no familiarity with modern subjects, the Arabic Colleges under the aegis of the Majlis require prospective students to have finished at least the tenth grade in regular school. Some of these Arabic Colleges are affiliated to government-run universities, and offer a regular BA course, with Islamic Studies as a subject along with other Arts subjects, while the rest are specialized Islamic institutions that offer the afzal ul-ulema degree but which also require their students to study English. Graduates of the former generally go on to do a degree in education and take up jobs as Arabic language teachers in government schools, Kerala being the only state in India where government schools offer Arabic as a subject. Several of them also seek jobs in the Gulf, as translators and office staff in business-houses and government offices. The specialized Islamic institutions aim at training professional ulema. Nine of the Majlis' Arabic Colleges are specifically for women, while the rest are roughly equally divided between co-educational and men-only institutions.

 

The 200-odd madrasas that the Majlis oversees are managed by local committees, which collect donations locally to pay for their teachers and other expenses. Most of the madrasas charge only a nominal fee of Rs.5 a month, but several do not charge anything at all. The majority are co-educational, and have both male as well as female teachers. Muhammad Ali estimates that some 40 per cent of the madrasa teachers are women, the proportion of women Arabic College teachers being around half of that. Madrasa timings are adjusted in such a way as to enable their students to attend regular school as well. 'This is why', says K.K.Muhammad, another senior Majlis functionary, 'the dualism characteristic of Muslim education that is so stark in north India, between madrasa-educated and school-educated children, is largely absent in Kerala.'

In contrast to the Urdu-Hindi belt, where each madrasa is free to set its own syllabus, the madrasas run by the Majlis follow a common curriculum. Almost eighty Islamic Studies, General Knowledge and Arabic language textbooks for madrasa students have so far been prepared for students from the kindergarten to the tenth grade level by a team of Majlis specialists that includes educationists as well as Islamic scholars. Presently, almost all the books are in Malayalam, and a few in English, but efforts are now being made to prepare a complete set of books in English and Hindi as well, the latter intended to be used in madrasas in the Urdu-Hindi belt. Periodic workshops are also organized to update the textbooks. In addition to the madrasas run by the Majlis, some madrasas in Kerala that are not affiliated to the Kerala Jamaat also use these books.

 

A major bane of the madrasa system in the Urdu-Hindi belt is the complete lack of any system of teachers' training as well as the absence of a uniform evaluation system. In contrast, the Majlis organizes regular district- and state-level teachers' training and orientation courses. The Majlis' Muallim Welfare Fund provides financial assistance to needy teachers for medical expenses, debt relief and education of their children. The Majlis' Examination Board also sets papers for quarterly, half-yearly and annual examinations for students studying at various levels in all its madrasas, thus ensuring a uniformity of standards that is sorely lacking in most madrasas elsewhere in India. Papers are evaluated centrally, by the Board. As an incentive to students, the Majlis conducts the annual state-wide Majlis Talent Search Examination, with bright students being given awards. The Majlis Festival, organized every year at the district- and state-levels, brings together students of madrasas and schools under the aegis of the Majlis to participate in a range of art, literary and cultural programmes and sports events.

 

Muhammad Ali and KK Muhammad both opine that there is much that managers of madrasas in the Urdu-Hindi belt can learn from the well-organised system of madrasa education in Kerala. However, language remains a problem, with few Malayali ulema knowing good English and there being almost no north Indian ulema who understand Malayalam. To add to this is the problem of the thoroughly misplaced, little talked-of, but, at the same time, undeniable north Indian superiority complex, with the experiences of Muslims outside the Urdu-Hindi belt hardly given any attention by those who claim to be leaders of the Indian Muslims as a whole. Clearly, that complex must be exposed and critiqued, for the Kerala experience can provide valuable lessons for Muslim organisations elsewhere in India to learn from.


The author works with the Centre for the Study of Social Exclusion and Inclusive Policy at the National Law School, Bangalore



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Thursday 5 March 2009

Major City frauds uncovered by police


 
March 5, 2009

 

By Robert Verkaik and Mark Hughes

 

Detectives and SFO reveal inquiry into big 'Ponzi' scheme and several 'mini-Madoffs'

A spate of Bernard Madoff-style scams that threaten to bring misery to thousands of investors is being investigated by police and the Serious Fraud Office, The Independent has learnt. Bogus investment schemes have been uncovered by investigators focusing on crime resulting from the credit crunch.
 
One senior officer has called them "mini-Madoffs", a reference to the US fund manager Bernard Madoff, who is accused of profiting from a £30bn pyramid investment fraud – or Ponzi scheme – which paid investors returns from their own money, or cash paid by subsequent investors, rather than from the scheme's profits. The Serious Fraud Office (SFO) is still investigating Mr Madoff's activities in Britain.
 
In an interview with The Independent, Richard Alderman, the director of the SFO, said he expected other alleged cases of "fraud on investors" to be made public soon. One allegedly involves a "big Ponzi" fraud, similar to that used by Mr Madoff, he added, without revealing further details of the case.
 
The SFO is also offering advice on how to avoid falling victim to a Ponzi scam. Mr Alderman said: "Clearly, in view of our interest in Bernie Madoff and Sir Allen Stanford [the Texan financier accused of fraud], people are talking to us about red flags for hedge funds, because as the stories unravel it is very interesting to understand the structure of what happened and what could have been picked up by people through due diligence."
 
He warned: "We are finding that people are talking to us about that and we are learning from them. We are not sharing operational detail but sometimes it is right that we feed back what we learn when we can. There is a lot more we can do on that; what kind of things due diligence could pick up."
 
Most Ponzi schemes – named after Charles Ponzi, who became notorious for using the technique in America in the 1920s – claim to offer 20 per cent returns and collapse quickly, but Mr Madoff's returns were 10 per cent.
 
Because he offered his investors a modest but steady and consistent income from their money, he was able to keep up his pretence for nearly 50 years. However, his scheme relied on a healthy stock market, so that depositors would be unlikely to collectively remove their money. When the world's financial markets tumbled and people did try to draw out their funds en masse, his scheme collapsed.
 
Detective Superintendent Bob Wishard, of the City of London Police fraud squad, said: "The growing number of frauds in the City and the deepening recession has prompted speculation that Britain could soon see its first £1bn fraud. I'm not aware of anything as big as £1bn, but there are undoubtedly some huge investment frauds going on – mini-Madoffs – that, in the fullness of time, will come to our attention."
 
Mr Alderman said the "ripple effect" of credit-crunch fraud was bringing misery to thousands. His organisation is investigating a range of financial crimes and is shortly expected to announce developments in cases involving investments, mortgages and fraudulent trading.
 
He added: "Some of them are ones where we have been asked to look at something that has gone on, and we are conducting a preliminary investigation. With others we are digging deeper. Some of it we have identified it ourselves. At least one [case] comes from a whistleblower. We are talking about quite large-scale fraud as a result of the credit crunch."
 
He promised to take tough action in cases that justified prosecution, and said: "This is the year in which I am expecting delivery. This calendar year is the year I want a lot of cases in the public domain out in court. Some corporates, some individuals, some cases involving individuals and corporates. I am expecting to send out some very strong messages as a result of what we are getting out into court."
 
The SFO has conducted a review of credit-crunch fraud which has identified the scale of the problem facing regulators. One particular area of concern, Mr Alderman said, was large-scale mortgage fraud involving "professional agents" such as solicitors and surveyors. It was clear, he said, that the recession had placed huge pressures on failing businesses. "It can give rise to temptation for businesses that are in great difficulties. And what we have seen before is that there are temptations to make various assumptions in their accounts," he explained.
 
"The obvious one is the over-recognition of revenues in the accounts: booking in year one all of the revenues that you hope to obtain from a contract over a series of years – things like that; going way beyond any prudent accounting principles.
"We see that, and we see the temptation for people to keep trading when they are effectively insolvent. The result is that they are not able to succeed in doing that in a recession, and lots of people lose out."


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Monday 2 March 2009

As capitalism stares into the abyss, was Marx right all along?

Stephen King:

We may avoid a 1930s Depression but the best we can hope for may be a 1990s Japan


Monday, 2 March 2009

"Modern bourgeois society ... a society that has conjured up such gigantic means of production and of exchange, is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells."


Those of you with revolutionary zeal will immediately recognise these words. Penned by Karl Marx in 1848, they form part of the Communist Manifesto. Marx, like Adam Smith before him, had a historical view of society's development. Capitalism, with its bourgeoisie, had replaced feudalism, but capitalism, according to Marx, would be replaced by communism. Capitalism was inherently unstable, as Marx noted later in the same paragraph:

".....the commercial crises... by their periodical return, put the existence of the entire bourgeois society on its trial, each time more threateningly. In these crises, a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises, there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity – the epidemic of over-production."

Whatever else one thinks of Marx, he certainly knew a thing or two about the business cycle. Were he alive now, he would surely claim his theories were being vindicated. We are, after all, witnessing the most remarkable collapse in economic activity around the world. Take Japan. In November, industrial production fell 8 per cent. That was bad enough. In December, production dropped another 9 per cent. That was even more remarkable. January's production figures, though, are simply eye-wateringly awful, showing a further 10 per cent decline. Production, then, is down almost 30 per cent in just three months, a pace of decline unprecedented in Japanese post-war economic history.

Or how about the US, where we discovered last week that national income contracted in the final quarter of last year at an annual rate of more than 6 per cent, the biggest drop since the early 1980s. Then there's Taiwan, where exports have been in freefall in recent months. Not to mention dear old Blighty, where the economy might end up shrinking by approaching 4 per cent this year.

The pace of decline in global economic output is extraordinary. On virtually any metric, we are seeing the worst global downturn in decades: worse than the aftermath of the first oil shock in the mid-1970s and worse than the early-1980s downswing, when the world economy had to cope with a doubling of the oil price, the tough love of monetarism and the onset of the Latin American debt crisis. Moreover, this time we cannot use the resurgence of inflation as an excuse for lost output: the credit crunch in all its many guises has seen to that. Instead, we have a world of collapsing output combined with falling prices: a world, then, of depression.

For many years, Marxist ideas appeared to be totally irrelevant. The collapse of the Berlin Wall in 1989 brought to an end the era of Marxist-Leninist Communism, while China's decision to join the modern world at the beginning of the 1980s drew a line under its earlier Maoist ideology. In western economies, Marxist ideas were at their most potent after the First Word War when the likes of Rosa Luxemburg could smell revol-ution in the air and as the Roaring Twenties gave way to the Great Depression of the 1930s. I'm not suggesting we're entering revolutionary times. However, it seems increasingly likely that the economic landscape in the years ahead will be fundamentally different from the landscape that has dominated the working lives of people like me who entered the workforce in the 1980s. We've lived through decades of plenty, where incomes have risen rapidly, where credit has been all too easily available and where recessions have been mostly modest affairs. Suddenly, we're facing a collapse in activity on a truly Marxist scale. It's difficult to imagine the world's love affair with free markets being sustained under this onslaught. The extreme nature of this downswing will change our lives for decades to come.

The first change relates to the allocation of capital. Increasingly, policymakers are accepting that market forces, left to their own devices, will lead to a race to the bottom. The dangers are becoming greater by the day. Interest rates are close to zero while prices and wages are in danger of declining. If deflation takes hold, real interest rates on cash will start to rise, creating perverse incentives in capital markets. Why bother to buy equities or corporate bonds if you are nicely rewarded for hanging on to an entirely risk-free piece of paper?

The efforts to stop this vicious circle are increasingly focused on bypassing the banking and financial system. As central banks widen the assets they are prepared to purchase to maintain the flow of credit to the economy at large, they are increasingly getting into the capital allocation game. They, and not the market, will at the margin decide whether companies and households are creditworthy. And as governments increase their spending plans to ward off a catastrophic loss of demand, they, rather than companies, will decide on how our savings should be allocated.

The second change relates to an increased national bias in the allocation of capital. As Nicolas Sarkozy, the French President, pushes to offer government funding to French car companies on condition they don't outsource French jobs abroad, as US Congress signs off a stimulus package with more than a hint of a "Buy American" policy, and as the UK Government pushes to encourage bailed-out banks to lend domestically as opposed to internationally, we appear to be turning our backs on the previous world of heightened cross-border trade and capital flows. While these flows have undoubtedly been volatile, they have nevertheless allowed emerging economies, in particular, to gain a foothold on the development ladder. Are we about to cast these countries asunder in our desperate attempt to fix our domestic problems?

The third change relates to interference in the price mechanism. When it comes to Sir Fred Goodwin's pension, this isn't so surprising, but the price mechanism extends far and wide. At the microeconomic level, we'll enter a world of subsidised loans with murky political undertones. At the macroeconomic level, countries may take the opportunity to manipulate their exchange rates in an attempt either to gain a competitive advantage or to "default" to foreign creditors.

Some of these changes may be absolutely necessary to prevent an outright collapse in global economic activity (although the rise in protect-ionist pressures is surely a retrograde step). They also suggest, though, that there will be no return to "business as usual" for market forces. The cost of avoiding depression is a heightened level of state intervention on a scale unimaginable for those who believe in the virtues of free markets. While such intervention may help prevent the worst ravages of economic collapse, it will ultimately do little to foster the entrepreneurial spirit and risk-taking behaviour which have, in the past, contributed so much to rising living standards. We may avoid a 1930s Depression but, increasingly, we may find the best we can hope for is a 1990s Japan. Not quite a Marxist revolution, then, but certainly a lasting sea-change in economic performance.

Management metaphors are out for the count

 
By Lucy Kellaway
Published: March 1 2009 20:09 | Last updated: March 1 2009 20:09
 
The gloves are off. The creators of business metaphors have been pulling their punches for more than a decade but have now come out swinging. There is a new metaphor in the management ring and, just in case you are too punch-drunk after so many idioms to have guessed what it is, here's the knockout blow: it's boxing.
 
The latest Harvard Business Review contains an 11-page article telling us that the best way to survive financial meltdown and global recession is to be like Muhammad Ali when he met George Foreman for their Rumble in the Jungle in Kinshasa, Zaire.
What the renowned boxer's performance teaches us about thriving in turbulent markets is that we must all be agile and we have to absorb blows. The point is helpfully summarised by various charts, diagrams and a two-by-two matrix with agility up one side and absorption along the other.
 
Curiously, the HBR doesn't mention any of the things about boxing that immediately come to my mind when I think of it. In boxing, you get beaten to a pulp – which must ring a bell with anyone who is now working on the economic front line. In boxing, you are quite likely to wind up with brain damage if you go on doing it for long enough – and, if things get much worse in the economy, this too may come to ring a bell.
 
Recently, I read that this bloody sport has become newly fashionable as an activity doled out by the authorities to young delinquents to distract them from drug-taking and knife crime. However, to discover that boxing is now the very latest fashion for management theorists is more surprising still.
 
The HBR article brings to an end 15 years of peace, love and political correctness by the purveyors of management metaphor. It is the first evidence I have seen from the management guff industry that "soft" is finally on its way out and "hard" is on its way in. Since I started following these things in the early 1990s, there have been three different sorts of metaphors wheeled out by gurus to help explain and prescribe business behaviour, all benign. The first were musical metaphors. There was the idea of a company as an orchestra, with the chief executive as the conductor. Each knowledge worker scraped away at her fiddle or blew his horn, and the maestro waved a thin stick to bring them together in perfect time and harmony.
 
This metaphor was popular for a while but, as the internet grew, gurus got groovier and decided that classical was out and jazz was in. The great leader must not tell his players how to play but let them jam, be creative and let it all hang out. Presently, even this seemed too square, and in 2002 a Swedish writer said that the CEO should be like a DJ, mixing records to match the mood on the dance floor.
 
Even more popular than music as a metaphor has been sport. Most of these have been based on the idea that business is a team effort (which we know it isn't, really). Football, rugby, rowing, cricket and baseball have all taken their turn as trendy management theories. For one crazy moment, even the downbeat Sven-Göran Eriksson was rebranded as a management guru.
 
The only team sports I have never seen a theory based on are synchronised swimming and lacrosse, but I dare say such theories exist somewhere. Sports without teams also get a look-in in the metaphor market, in particular golf, and a weird sled race with huskies that came into vogue a few years ago.
 
The third, and daftest, seam of management metaphor comes from science. The idea of a business as a stream of DNA always struck me as moronic. The point about a person's DNA is that it does not change. The point about companies and business conditions is that they do. It may be more plausible for gurus to talk the language of evolution and describe companies as complex adaptive systems – or it might be helpful if I could understand what they were driving at. A metaphor is meant to simplify, not to obfuscate.
 
Finally, there have been some outliers that fit none of the three categories: management as akin to being a top chef in a big kitchen, and management likened to animal behaviour. There have been ape theories, geese theories and even frog theories. The softest – and most famous – was the wretched mouse with the wretched cheese in the parable, Who Moved My Cheese?.
 
All of these metaphors have one thing in common: they are perfectly useless. I defy anyone to show how any of them has helped us understand how businesses behave or help us get better at running them.
 
Metaphors can be helpful in grasping something when the thing is terribly complicated. So, when Einstein was explaining relativity, he used a train and a clock to help us understand something that would otherwise have been beyond most of us.
 
By comparison, business – or the theory of business – is terribly simple. We know what we need to survive in troubled times, and it does not take 11 pages of boxing parallels to tell us. We need to cut costs. We need to take fewer risks. We need to conserve cash. We need to pull out of markets in which we are not successful. We need to fly economy – or not at all. There are two things that we don't need to do: float like a butterfly or sting like a bee.



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Sunday 1 March 2009

Slumdog: Dilemma of a new India


 

1 Mar 2009, 0151 hrs IST, Deepak Chopra


After its sweeping win at the Oscars last Sunday, Slumdog Millionaire seems like the movie everyone wants, and perhaps needs. It has all the ingredients of escapist fare from the Great Depression — a populist hero who overcomes all odds to get the girl and the money.

There's an added element of self-congratulation for the West: by seeing this movie, you can see India without getting your hands dirty or offending your nose, and cheer it on. Cinderella didn't walk through tenements and sectarian violence to reach her prince. But in this fairy tale, a concession must be made to modern realities. Dev Patel is symbolic of India here and now, fulfilling its wildest economic aspirations while being conscious of the darkest aspects of social decay and despair.

If we follow the metaphor to its logical conclusion, India will get the money and the girl by rising above its slums. Perhaps that's why Slumdog has created an uneasy reaction in Mumbai and the rest of India.

Rising above isn't the same as solving. Many well-born educated Indians have looked westward for a long time, which is easier than looking inward. They know more about the streets of London and New York than the teeming lanes of the ghettos in their own city. This is true, of course, among rich elites everywhere, not just in South Asia. Watching Dev cross the social line is triumphant, but it reminds you that there is a line. (Obama crossed the racial line in triumph, also, but notice how much heat his Attorney General, Eric Holder, took when he suggested in less than polite terms that America needs to be more honest and courageous about the whole problem of race.)

Like fairy tales, symbols can pacify deep anxieties. India dreams of being a millionaire, but it lives with the anxiety that it's really a slumdog. Or, that the slumdogs will one day rise up against the millionaires. You can read the tea leaves any way you like. Another uncertainty attends the film.

Having been made on a shoestring budget, Slumdog managed to outgross any number of big-budget Hollywood films. Last week, it ranked fifth on the US box office while its nearest Oscar rival, The Curious Case of Benjamin Button, was no longer in the top ten. Brad Pitt, being a megastar, has pulled his film to $122 million, compared to Slumdog's $98 million, but is that really competitive? Ten movies on the scale of Slumdog can be made for the cost of one blockbuster that has yet to pay back its cost.

The whole movie industry is watching closely, and the developing world is watching back even more closely. After two decades of action flicks with move-your-lips scripts that were primitive enough to appeal to immature male psyches, here is Asia — via the UK — sending back something sophisticated, poignant, and universal. It's like the ultimate retort to colonialism: the coolie and the wallah have more smarts than the sahib. Indians feel uneasy about that, too. Will the sahib turn his back and shut them out? Do South Asians have enough self-respect and stature in the world to at last forget that the sahib ever existed?

We may know the answers in the near future. Bollywood didn't conceive Slumdog. It still purveys mindless entertainment, for the most part, interspersed with small independent films that challenge the West for thoughtfulness and freshness. It's not for lack of talent that India didn't produce Slumdog. But questions of vision and courage do arise. Past history and ingrained inhibitions make it hard for Indian artists in any field to be as frank and true to life as they should be. They have yet to seize freedom.

If Slumdog is a viable symbol, the future it points to is just being born. An out-of-the-way picture can dare to be universal, which means that India may dare to be universal one day. The dispossessed people of Asia are suddenly aware that they have a place at the table where previously only the rich dined. Both developments are encouraging. Meanwhile, one can marvel at the bald fact that a Bollywood-style anthem, 'Jai Ho,' won the Oscar for Best Song, while Bruce Springsteen wasn't even nominated. The first Academy Awards of the recession turned out to be, as one headline proclaimed, the first outsourced Oscars of all time.

The writer is a bestselling spiritual writer


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