S A Aiyer
Vijay Mallya has not paid employees of Kingfisher Airlines for months, and has defaulted on thousands of crores due to suppliers and creditors. Yet he has just donated three kilos of gold, worth almost one crore, to the Tirupathi temple. In August, he offered 80-kilo gold plated doors to the Kukke Subramanya temple in Karnataka. Possibly he believes that the gods can be bought off in ways that employees and creditors cannot.
How can a man who owes enormous sums to employees and creditors be free to throw gold around like small change? If there were any justice, surely the gold and golden doors should be seized from the temples and handed over to the employees and creditors. Surely they should have first right to Mallya’s assets.
After two decades of economic reform , we have not yet evolved rules that facilitate the exit of poor managements before they ruin a company beyond redemption. Kingfisher Airlines has been ground to the dust by Mallya, a liquor baron who should never have entered this space.
A free-market economy is not just a device giving owners the freedom to sack employees. It is one where creditors and employees have the right to seize a company defaulting on dues, and sack the management. The managing shareholder or promoter is only one of many stakeholders. If he cannot meet his obligations to other stakeholders , they should oust him in a true free market economy. In India, alas, our unreformed regulations and procedures leave promoters in control no matter how big a mess they make.
In the US, creditors can quickly seize a company that defaults on dues, and reorganize or sell it to a new owner . The owner can get temporary protection from creditors through Chapter 11 proceedings. In this, a judge determines whether the company is so far gone that it must be liquidated, or whether it can be saved through mutual sacrifices by creditors, employees and owners. In the process, the judge can change the owner. So, often workers survive bankruptcy proceedings , but the owner does not. That is what we should aim for in India too: an exit policy for incompetent, defaulting owners.
Kingfisher Airlines never made a profit, not even in the boom years when its rival airlines were profitable. Creditors should have moved in years ago when it became clear that the skills of a liquor baron were irrelevant for an airline. But in India creditors cannot quickly seize a company, least of all when the owner has political clout (as in Mallya’s case).
In the old licence permit raj, banks and financial institutions had to support existing managements and keep rescuing them. This has not changed despite the 1991 reforms. Banks have to keep throwing good money after bad.
Today Kingfisher is so worthless that it no longer makes sense to seize it and find a buyer. SBI Chairman Pratip Chaudhuri estimates that rehabilitating Kingfisher will cost a billion dollars. Nobody will do so — a new airline can be started for maybe just $100 million. Kingfisher has just lost its flying licence. Mallya’s hopes of being rescued by Etihad Airways of Abu Dhabi look like pure fantasy.
Even if it makes no sense to seize the airline today, why not seize his liquor business? Why not seize his prize luxury possessions, ranging from paintings to yachts or jets? Why not take over his cricket team, Royal Challengers ? Why not take over his football team Mohun Bagan, and his Formula 1 racing team Force India? Why is he allowed to keep all these, along with gold that he donates to temples, when he says he doesn’t have enough to pay employees or suppliers? He has given personal guarantees to banks: why are these not being enforced?
Mallya can be congratulated on one thing. Service was top-class in Kingfisher , and the airline gained a good reputation for quality. Had the airline been seized early on, it could definitely have been sold to a new owner. However , its reputation has steadily fallen with its continuing financial crisis, leading to cancelled flights and official grounding.
I constantly hear that India has gone in for neo-liberal policies. That’s pure rubbish. Neo-liberalism would have given employees and creditors the right to quickly seize and sell a company that cannot meet its obligations. The problem is not liberalism but the continuing old illiberalism that keeps promoters in charge, forcing other stakeholders to take a hit. Temples and religious trusts can keep enormous donations from defaulters instead of handing them over to others who, in all justice, should have the first right to such money or gold. This area desperately needs reform.
Sunday, 6 January 2013
Saturday, 5 January 2013
Barack Obama and the 'empathy deficit'
The US president claims the 'empathy deficit' is a more pressing problem than the federal deficit, but empathy may be merely a product of changing scientific fashions
Barack Obama at the Iowa state fair; meeting girls from the Boys and Girls Club of Cleveland; and with North Point Marina owner Donna Vanzant after Hurricane Sandy. Photograph: Jim Watson/Jewel Samad/Larry Downing/AFP/Getty/Reuters
In 2011, researchers at the University of Chicago conducted a simple experiment to ascertain whether a rat would release another rat from a cage without being given a reward. The answer was yes. After several sessions, the rats learned intentionally and quickly to open the restrainer and release the caged rats. The rats also repeated the behaviour even when they were denied the reward of reunion. Even more astonishing, when the rats were presented with two cages, one containing a rat, the other chocolate, they chose to open both cages and "typically shared the chocolate".
For the researchers, the conclusion was inescapable: the rats were displaying empathy. Announcing the results in Science, the lead researcher, Peggy Mason, explained: "There is nothing in it except whatever feeling they get from helping another individual."
Neuroscientists are not the only ones to see empathy – or its absence – everywhere these days. According to Barack Obama, the "empathy deficit" is a more pressing political problem for America than the federal deficit and holds the key to the success of his second term as he seeks to build bridges with Republicans and tackle the wave of horrific shootings that last year disfigured American communities from Colorado to Connecticut. On this side of the Atlantic, meanwhile, George Osborne's enthusiasm for welfare cuts is explained by the coalition cabinet's "lack of empathy" for the poor.
But can the solution to violence, cruelty and the divide between liberals and conservatives really be a matter of promoting a trait that we appear to share with rats? And are scientists and politicians talking about the same thing when they invoke empathy in these different experimental and social contexts?
One of the problems with using the same word to describe the pro-social behaviour of rats and similar behaviour observed in humans is that people are infinitely more complex and reflective than rodents. It also confuses the different psychological and philosophical meanings of empathy.
Thus modern-day neuroscientists and social psychologists, drawing on the Scottish Enlightenment philosopher Adam Smith's notion of a "moral sentiment", have come to regard empathy as intrinsically pro-social. When we empathise, they argue, we mirror the distress of an "other" and, unless our brains are damaged or we are developmentally abnormal, we are moved to alleviate their suffering.
The result is that, like other modern moral sentiments such as trust and altruism, empathy is increasingly seen as a "social glue" and the evolutionary basis of human co-operation. But what if this notion reflects nothing more than the current vogue for connectedness that permeates the post-Darwinian sciences and our internet-obsessed times? What if, instead of empathy being the basis of modern social life, it is merely a product of changing scientific fashions?
Barack Obama in Boone, North Carolina; at a campaign event in Chicago; and with Rose Mary Sabo-Brown, who received a medal of honour for her late husband, US army specialist Leslie H Sabo, Jr. Photograph: Jewel Samad/Saul Loeb/AFP/Getty
Although empathy has become something of a political buzzword, it is surprisingly difficult to define. Moreover, a survey of the scientific and historical literature reveals that its meaning has shifted significantly over time.
The word first appeared, misspelled as enpathy, in a 1909 lecture by the Cornell psychologist Edward B Titchener, and in a translation credited to the Cambridge philosopher and psychologist James Ward the same year. Inspired by the German aesthetic term Einfühlung, meaning "feeling into", Titchener compared empathy to an enlivening process whereby an art object evoked actual or incipient bodily movements and accompanying emotions in the viewer.
This made it very different from the far older term sympathy, or Victorian notions of the "sympathetic imagination", which novelists such as George Eliot considered a cognitive act in which readers learned to extend themselves into the experiences, motives and emotions of fictional characters.
For empathy to become more like sympathy, it first had to transit from aesthetics to interpersonal psychology and the new brain sciences. The key shift came in 1992 when a group of Italian researchers observed neurons in macaque monkeys that fired both when they picked up a raisin and when they saw a person pick up a raisin. A few years later, similar "mirror neurons" were identified in humans.
Since then, neuroscience has greatly expanded our understanding of the "empathy circuit". The key brain regions appear to be the amygdala, which is involved in the regulation of emotional learning and the reading of emotional expressions, and the anterior cingulate cortex (ACC), which activates when people experience their own pain or observe others in pain. Another important area is the anterior insula (AI), which lights up in response both to one's own pain and a loved one's pain, as well as to other emotional elicitors, such as disgusting tastes and images.
But perhaps the most important region of all is the medial prefrontal cortex (MPC), also known as the prefrontal lobe. A "hub" for social information processing, the MPC modulates self-awareness and our awareness of other people's thoughts and feelings. It also appears to play an important role in "marking" certain emotional experiences so as to provide us with emotional shortcuts to actions that are positive and therefore likely to be rewarding.
The neuroscientists Antonio and Hanna Damasio have shown that patients with damage to the ventromedial part of the MPC – the section closely associated with self-awareness – typically have great trouble learning from previous emotional experiences or making decisions, seeing equal merit in every course of action. Such patients also show less of a change in their heartbeat and other autonomic responses when shown distressing images. In this respect, their response mirrors that of sociopaths who may have suffered no medical trauma.
For some writers, these discoveries show that empathy is hard-wired and that we are primed for morality, hence the writer Jeremy Rifkin's claim that these circuits are the source of humanity's desire for "intimate participation and companionship".
However, as Simon Baron-Cohen, an expert on autism spectrum disorders, has shown, this is frequently not the case. Psychopaths, for instance, tend to be very good at reading other people's emotions while remaining emotionally unmoved themselves. Adolescents with a history of violence and diagnoses of "conduct disorder" exhibit similar traits.
By contrast, people with autism and Asperger's syndrome are very poor at reading non-verbal emotional signals and other social clues, but, once they become aware of how others are feeling, they are capable of sharing those emotions intensely. The result is that, while both psychopaths and people with Asperger's could both be characterised as having "zero degrees of empathy, only psychopaths are capable of extreme cruelty.
Where Baron-Cohen and others run into difficulty is in accounting for emotions such as schadenfreude. Far from being a form of counter-empathy, schadenfreude appears to involve empathically mirroring another person's distress and taking pleasure in that distress at the same time. Indeed, in role-playing games involving "altruistic punishment", brain researchers have found that both the ACC and the dorsal striatum – the brain's pleasure/reward centre – are activated.
Neuroscientific approaches also tend to give too little weight to the cognitive dimensions of empathy. A horrific illustration of this was the cold-blooded shooting of 69 Norwegian Labour activists by Anders Behring Breivik in 2011. At his trial, Breivik argued that he was fully capable of empathy but had used a "meditation technique" to override his feelings. "If you are going to be capable of executing such a bloody and horrendous operation you need to work on your mind, your psyche, for years," he explained.
As the German historian of emotions Ute Frevert puts it: "The fact that human beings are naturally equipped to feel what others feel does not mean that they always do so. They might just turn away and act indifferent."
So how can we make it less likely that people such as Breivik or Adam Lanza, the 20-year-old responsible for the horrific shooting in December in Newtown, Connecticut, commit acts of mass murder in future?
Barack Obama at a cafe in Pueblo, Colorado; with Aung San Suu Kyi at her residence in Yangon; and with Scott Van Duzer, owner of Big Apple Pizza in Florida. Photograph: Jim Watson/Nicolas Asfouri/Saul Loeb/AFP/Getty Images
The most common answer is by fostering greater perspective-taking. Decades of scientific research show that people are kinder to those they view as human beings. The reason is that, when we make the imaginative effort to step into the shoes of another person and see things from their perspective, we become less capable of ignoring their suffering. Indeed,brain imaging studies of Buddhists who use meditation exercises to contemplate compassion on a daily basis show increased activation of the amygdala and other parts of the brain's empathy circuit.
Novels, television and the internet can also foster greater empathy by exposing us to the perspectives of people whose lives we would not otherwise consider. This is particularly the case when empathy is married with "humanitarian reason" – the force that Harvard psychologist Steven Pinker credits for the steady decline in levels of societal violence since the Enlightenment.
However, as the response last year to Invisible Children's video about the Ugandan warlord Joseph Kony showed, this sort of empathy can be short-lived. Yes, nearly 100 million people shared Invisible Children's video on YouTube, but the outcry against Kony was temporary and people quickly found new objects for their indignation.
Moreover, far from being a guide to what is right, empathy often leads us astray, as when judges go easier on white-collar criminals who share their social background, which is why we frequently invoke other values and principles to balance such tendencies. This is precisely the argument made by Jonathan Haidt in his book The Righteous Mind: Why Good People Are Divided by Politics and Religion. Haidt maintains that empathy, or what he labels the "harm/care" module, is just one of several emotional dispositions that undergird our moral outlook, the others being fairness, liberty, loyalty, authority and purity/sanctity. The difference between Democrats and Republicans is that, while liberals focus almost entirely on care and fairness, conservatives tend to give equal weight to all six dispositions.
In theory, this should be good news for Osborne as he seeks to counter perceptions that his austerity measures are "uncaring", and even better news for Republicans, especially as something like 42% of the American electorate self-identify as conservative. However, asObama's response to Mitt Romney's unfortunate remarks about the "47%" underlined, the perceived absence of empathy is a powerful weapon with which to browbeat a political opponent. Perhaps this is why, rather than defending his comments about the 47% on traditional conservative grounds, Romney spent the closing weeks of last year's campaign desperately trying to persuade voters that he was just as compassionate as Obama.
Even before hurricane Sandy upset the candidates' campaign plans, however, that was not an argument that carried much weight with the undecideds and, following the pictures ofObama embracing the victims of the storm damage in New Jersey, it was pretty much game, set and match to the incumbent.
Indeed, if there is a lesson to be drawn from the 2012 presidential election, it is that empathy is here to stay and that where candidates once talked about "the economy, stupid" they would now be well-advised to use a different E-word.
Altruistic punishers: when it feels good to act cruelly
Empathy is not the only "moral emotion" that is enjoying a renaissance thanks to social neuroscience. Scientists have also been probing the biological processes involved in trust and altruism.
One theory is that when we empathise oxytocin and other chemicals flood the brain's pleasure centres, resulting in a "warm glow" effect. Similar surges occur when people are asked to play economic exchange games designed to elicit trust.
According to neuroeconomists such as Paul Zak, this suggests that empathy and trust are two sides of the same adaptive response – the idea being that our brains have evolved so that it literally feels good to empathise and to trust people.
Primatologists such as Frans de Waal believe that altruism may be the result of similar selection pressures. Spontaneous assistance has long been observed in apes, hence the adoption of orphans by wild male chimpanzees who may devote years of costly care to unrelated juveniles. And, as the Chicago experiment illustrates, rats also exhibit similar altruistic behaviour without their altruism being repaid.
In the case of humans, altruism is more complicated as over the course of a lifetime we will co-operate with thousands of genetically unrelated strangers with whom we are unlikely to interact again. In such societies, the advantages of forming a good reputation are minimal. At the same time, it is easy for unscrupulous individuals, known as "free-riders", to exploit the "trusting" instincts of the majority.
To explains this, neuroeconomists posit that a unique form of co-operation has evolved in human societies in which social norms are learned, co-operators are altruistically rewarded and free-riders are altruistically punished.
This theory is supported by studies of economic role-playing games in which punishment is used to motivate two players to co-operate and a failure to show and reciprocate altruism leaves both players worse off.
However, such games also pose a problem for the notion that humans are hard-wired for pro-sociality and morality as brain scans of altruisitic punishers show that they both empathise with the free-rider and take an active pleasure in his or her punishment. In other words, as anyone who has experienced schadenfreude knows, sometimes it feels good to act cruelly.
David Nicholls: The half hour that changed my life
Recently I became confused about my age. For some reason I came to believe that I was 46 years old, instead of 45. The error was pointed out to me, and once I’d got over the embarrassment of forgetting my own age (not the kind of mistake I’d make at 19 or 27 or even 36), I had a brief moment of elation. In some way, hadn’t I gained an extra year, a whole 12 months of time that I’d mislaid? What could I do with my precious 46th year? Take up the violin, train for a marathon, learn carpentry or juggling or Spanish?
What I really wanted to do was read.
I’ve been a compulsive reader for as long as I can remember. For the best part of my childhood I visited the local library three or four times a week, hunching in the stacks on a foam rubber stool and devouring children’s fiction, classics, salacious thrillers, horror and sci-fi, books about cinema and origami and natural history, to the point where my parents encouraged me to read a little less. I loved television and movies, too, but the solitary act of reading was always my greatest pleasure. Books were an obsession – an education, an escape and inspiration.
So why, as an adult, was I reading so little, less than even 10 years ago? Of course the multiple distractions of modern life, the increasing demands of work and a new family all played a part, along with the bleeps and trills of technology, the constant tap on the shoulder that comes from texts, emails, mobile phones, because God forbid that I should call someone back or reply to an email a whole hour later.
If reading is simply the act of consuming text, then in fact I was probably reading more than ever, but for the most part it was nonsense, jabber and jargon. Like most people who work in front of a screen, I’d developed a terrible internet tick, cycling endlessly around the same websites, reading the same urgent “breaking news” 10 times a day, peering pointlessly at film premiere reports, gossip and Twitter feuds, movie trailers, updating iTunes and Adobe Acrobat for the 25th time, habits that devoured hours of my day, the hours that presumably I once gave to reading books.
I was still buying books, far more than I could ever possibly read, but buying them is not the same as reading them, or loving them. All they did was furnish the room. The piles got higher, the irritation and guilt and regret increased. Reading was like sunbathing – something that I only did for two weeks in August.
About a year ago I decided to do something about all this. Along with the usual vows about exercise and fresh vegetables, caffeine and alcohol, I resolved to set my alarm one half-hour earlier, to sit up straight and read again. Unusually for a resolution, I’m pleased to say that I have stuck to that routine, and now those first 30 minutes of solitary reading are all too often the best part of my day.
I’ve read missing classics and new authors. I’ve finally devoured those writers who’ve been repeatedly recommended to me – Patrick Leigh Fermor, Alice Munro, Elizabeth Taylor, Marilynne Robinson – and, yes, they are wonderful. I’ve managed to reread some of Cheever’s brilliant short stories, and rediscovered writers who’ve unaccountably fallen off the literary map, like the great US writer John Williams or the neglected H E Bates. It’s not just fiction, either – there’s the brilliant journalism of John Jeremiah Sullivan, contrasting histories of cinema by David Thomson and Mark Cousins. Robert Macfarlane’s fascinating mix of geology, mythology and natural history. The unread pile still teeters precariously, but at least I’ve made a start.
Of course, there have been lapses along the way. I’ve slipped back into sleep more than once during The Portrait of a Lady, and there have been one or two hangover-induced lie-ins. Getting up earlier means going to sleep earlier, which isn’t always much fun. And I’ve yet to conquer my shaming addiction to electronics. I still find it absurdly difficult to concentrate on a novel if there’s a phone or computer to hand; I have taken to locking them outside the room like noisy pets. Thirty minutes is also a fairly puny amount of time. I’ve tried to turn off the TV and extend the hours into the evening, but reading a book – even a great book – after 9pm has the same effect on me as a chloroformed handkerchief. Mornings remain the best time, especially in spring or summer when the house is quiet, reading as the sun comes up.
“Just half an hour a day can change your life.” It’s the sort of dubious claim you find in the back of a magazine, and I’m aware of a zealot’s shrillness in all of this. I know that for every reader who has lost the habit or can’t find the time, there are people who’ve never enjoyed reading and question the value of literature, either as entertainment or education, or believe that a love of books, and of fiction in particular, is sentimental or frivolous. Given an extra half-hour a day, I know that some people would much prefer to be jogging or bantering on social networks or simply sleeping some more. “No one reaches the end of their life and wishes they’d spent more time on Twitter” is a claim I’ve heard before, but perhaps that won’t always be the case.
But to allow the zealot his voice again, think of what you might be missing by not finding the time to read. Allowing for a steady pace of a page a minute, you could easily take in a short story by Chekhov or Raymond Carver or Richard Yates every morning of next week.
An Alice Munro might take two days, but it will be worth it. The Great Gatsby could be read in four mornings or, if that’s too obvious, there is always Tender is the Night, a much better book I think. Other novellas – there’s The Good Soldier or The End of the Affair or Franny and Zooey or Goodbye, Columbus. Or something more recent – Denis Johnson’s Train Dreams, a small masterpiece and the best book I read last year. Or something lighter; have you ever read Ian Fleming? Casino Royale ’s a terrifically invigorating book to read before breakfast. Or why not start something more ambitious: Anna Karenina or Bleak House or Les Misèrables might last you into March, but Great Expectations or Persuasion or Madame Bovary will take half that time.
And then there are the Man Booker nominations, and the fine new work that’s coming out of independent presses, and the book of that film you saw, and travel writing before you go away, and poetry and, come to think of it, isn’t now the perfect time to read a really good biography of Napoleon?
Friday, 4 January 2013
How algorithms secretly shape the way we behave
Algorithms,
the key ingredients of all significant computer programs, have probably
influenced your Christmas shopping and may one day determine how you
vote
Program or be programmed? Schoolchildren learn to code. Photograph: Alamy
Keynes's observation (in his General Theory)
that "practical men who believe themselves to be quite exempt from any
intellectual influences, are usually the slaves of some defunct
economist" needs updating. Replace "economist" with "algorithm". And
delete "defunct", because the algorithms that now shape much of our
behaviour are anything but defunct. They have probably already
influenced your Christmas shopping, for example. They have certainly
determined how your pension fund is doing, and whether your application
for a mortgage has been successful. And one day they may effectively
determine how you vote.
On the face of it, algorithms – "step-by-step procedures for calculations" – seem unlikely candidates for the role of tyrant. Their power comes from the fact that they are the key ingredients of all significant computer programs and the logic embedded in them determines what those programs do. In that sense algorithms are the secret sauce of a computerised world.
And they are secret. Every so often, the veil is lifted when there's a scandal. Last August, for example, a "rogue algorithm" in the computers of a New York stockbroking firm, Knight Capital, embarked on 45 minutes of automated trading that eventually lost its owners $440m before it was stopped.
But, mostly, algorithms do their work quietly in the background. I've just logged on to Amazon to check out a new book on the subject – Automate This: How Algorithms Came to Rule Our World by Christopher Steiner. At the foot of the page Amazon tells me that two other books are "frequently bought together" with Steiner's volume: Nate Silver's The Signal and the Noise and Nassim Nicholas Taleb's Antifragile. This conjunction of interests is the product of an algorithm: no human effort was involved in deciding that someone who is interested in Steiner's book might also be interested in the writings of Silver and Taleb.
But book recommendations are relatively small beer – though I suspect they will have influenced a lot of online shopping at this time of year, as people desperately seek ideas for presents. The most powerful algorithm in the world is PageRank – the one that Google uses to determine the rankings of results from web searches – for the simple reason that, if your site doesn't appear in the first page of results, then effectively it doesn't exist. Not surprisingly, there is a perpetual arms race (euphemistically called search engine optimisation) between Google and people attempting to game PageRank. Periodically, Google tweaks the algorithm and unleashes a wave of nasty surprises across the web as people find that their hitherto modestly successful online niche businesses have suddenly – and unaccountably – disappeared.
PageRank thus gives Google awesome power. And, ever since Lord Acton's time, we know what power does to people – and institutions. So the power of PageRank poses serious regulatory issues for governments. On the one hand, the algorithm is a closely guarded commercial secret – for obvious reasons: if it weren't, then the search engine optimisers would have a field day and all search results would be suspect. On the other hand, because it's secret, we can't be sure that Google isn't skewing results to favour its own commercial interests, as some people allege.
Besides, there's more to power than commercial clout. Many years ago, the sociologist Steven Lukes pointed out that power comes in three varieties: the ability to stop people doing what they want to do; the ability to compel them to do things that they don't want to do: and the ability to shape the way they think. This last is the power that mass media have, which is why the Leveson inquiry was so important.
But, in a way, algorithms also have that power. Take, for example, the one that drives Google News. This was recently subjected to an illuminating analysis by Nick Diakopoulos from the Nieman Journalism Lab. Google claims that its selection of noteworthy news stories is "generated entirely by computer algorithms without human editors. No humans were harmed or even used in the creation of this page."
The implication is that the selection process is somehow more "objective" than a human-mediated one. Diakopoulos takes this cosy assumption apart by examining the way the algorithm works. There's nothing sinister about it, but it highlights the importance of understanding how software works. The choice that faces citizens in a networked world is thus: program or be programmed.
On the face of it, algorithms – "step-by-step procedures for calculations" – seem unlikely candidates for the role of tyrant. Their power comes from the fact that they are the key ingredients of all significant computer programs and the logic embedded in them determines what those programs do. In that sense algorithms are the secret sauce of a computerised world.
And they are secret. Every so often, the veil is lifted when there's a scandal. Last August, for example, a "rogue algorithm" in the computers of a New York stockbroking firm, Knight Capital, embarked on 45 minutes of automated trading that eventually lost its owners $440m before it was stopped.
But, mostly, algorithms do their work quietly in the background. I've just logged on to Amazon to check out a new book on the subject – Automate This: How Algorithms Came to Rule Our World by Christopher Steiner. At the foot of the page Amazon tells me that two other books are "frequently bought together" with Steiner's volume: Nate Silver's The Signal and the Noise and Nassim Nicholas Taleb's Antifragile. This conjunction of interests is the product of an algorithm: no human effort was involved in deciding that someone who is interested in Steiner's book might also be interested in the writings of Silver and Taleb.
But book recommendations are relatively small beer – though I suspect they will have influenced a lot of online shopping at this time of year, as people desperately seek ideas for presents. The most powerful algorithm in the world is PageRank – the one that Google uses to determine the rankings of results from web searches – for the simple reason that, if your site doesn't appear in the first page of results, then effectively it doesn't exist. Not surprisingly, there is a perpetual arms race (euphemistically called search engine optimisation) between Google and people attempting to game PageRank. Periodically, Google tweaks the algorithm and unleashes a wave of nasty surprises across the web as people find that their hitherto modestly successful online niche businesses have suddenly – and unaccountably – disappeared.
PageRank thus gives Google awesome power. And, ever since Lord Acton's time, we know what power does to people – and institutions. So the power of PageRank poses serious regulatory issues for governments. On the one hand, the algorithm is a closely guarded commercial secret – for obvious reasons: if it weren't, then the search engine optimisers would have a field day and all search results would be suspect. On the other hand, because it's secret, we can't be sure that Google isn't skewing results to favour its own commercial interests, as some people allege.
Besides, there's more to power than commercial clout. Many years ago, the sociologist Steven Lukes pointed out that power comes in three varieties: the ability to stop people doing what they want to do; the ability to compel them to do things that they don't want to do: and the ability to shape the way they think. This last is the power that mass media have, which is why the Leveson inquiry was so important.
But, in a way, algorithms also have that power. Take, for example, the one that drives Google News. This was recently subjected to an illuminating analysis by Nick Diakopoulos from the Nieman Journalism Lab. Google claims that its selection of noteworthy news stories is "generated entirely by computer algorithms without human editors. No humans were harmed or even used in the creation of this page."
The implication is that the selection process is somehow more "objective" than a human-mediated one. Diakopoulos takes this cosy assumption apart by examining the way the algorithm works. There's nothing sinister about it, but it highlights the importance of understanding how software works. The choice that faces citizens in a networked world is thus: program or be programmed.
Thursday, 3 January 2013
Martin Sorrell's peculiar vision of corporate social responsibility
Wednesday, 2 January 2013
Outlook Sir Martin Sorrell has expressed himself on the great corporation tax debate. What firms need to understand, the advertising magnate said today, is the imperative of corporate social responsibility.
"Doing good is good business," he told the likes of corporate black
sheep such as Starbucks and Amazon, which have faced obloquy in recent
months for paying less than their fair share of profit taxes in the UK.
I'm afraid this is richer than the Christmas pudding that your
grandmother oversoaked in alcohol. For Sir Martin's record on tax hardly
resembles a model of virtuous corporate citizenship.
For several decades the British state has had a system whereby a UK-based multinational is required to pay corporation tax on its worldwide profits. In 2007 the Labour government proposed to move to a system where firms would only pay tax on their UK profits, a so-called territorial regime. This was good news for the multinationals, implying a smaller tax bill. But they didn't trust Labour to deliver.
So they upped sticks in a kind of pre-emptive protest. Pharmaceutical giant Shire shifted its headquarters to the Irish Republic. So did United Business Media. The exhibitions and magazines group Informa scurried off to Switzerland. The office accommodation provider Regus went to Luxembourg. And, making the biggest song and dance of all was Sir Martin, who shuffled his WPP advertising empire to the Emerald Isle.
Faced with this exodus the Labour Chancellor, Alistair Darling, redoubled his efforts to establish a territorial tax regime. And Sir Martin made it his business to seal the deal. He extracted a guarantee from Mr Darling's successor, George Osborne, that the new territorial regime would definitely come into force. And, in return, Sir Martin announced last year that WPP would be returning its HQ to London. The territorial corporation tax regime came into full force this week. And WPP is, as Sir Martin promised, on its way back.
The trouble is the new territorial tax regime looks even more open to corporate tax avoidance. Under the old system HMRC could, in theory, go after tax on profits anywhere in the world. It seldom did this effectively. But now, with its territorial remit in place, it is even less likely to do so. And there is still more room for clever accountants to register profits overseas by registering intellectual property rights in tax havens.
This compounds the advantage of multinationals in relation to smaller, domestic firms. We have long known that income tax tends to be for the little people. It increasingly looks like corporation tax is only for the little companies.
The only solution is harmonised international governmental agreement to prevent multinationals playing off national governments against each other on profit tax rates.
As for Sir Martin, he might like to consider whether quitting the country and promising to return only when a law you dislike is changed can be considered "doing good".
For several decades the British state has had a system whereby a UK-based multinational is required to pay corporation tax on its worldwide profits. In 2007 the Labour government proposed to move to a system where firms would only pay tax on their UK profits, a so-called territorial regime. This was good news for the multinationals, implying a smaller tax bill. But they didn't trust Labour to deliver.
So they upped sticks in a kind of pre-emptive protest. Pharmaceutical giant Shire shifted its headquarters to the Irish Republic. So did United Business Media. The exhibitions and magazines group Informa scurried off to Switzerland. The office accommodation provider Regus went to Luxembourg. And, making the biggest song and dance of all was Sir Martin, who shuffled his WPP advertising empire to the Emerald Isle.
Faced with this exodus the Labour Chancellor, Alistair Darling, redoubled his efforts to establish a territorial tax regime. And Sir Martin made it his business to seal the deal. He extracted a guarantee from Mr Darling's successor, George Osborne, that the new territorial regime would definitely come into force. And, in return, Sir Martin announced last year that WPP would be returning its HQ to London. The territorial corporation tax regime came into full force this week. And WPP is, as Sir Martin promised, on its way back.
The trouble is the new territorial tax regime looks even more open to corporate tax avoidance. Under the old system HMRC could, in theory, go after tax on profits anywhere in the world. It seldom did this effectively. But now, with its territorial remit in place, it is even less likely to do so. And there is still more room for clever accountants to register profits overseas by registering intellectual property rights in tax havens.
This compounds the advantage of multinationals in relation to smaller, domestic firms. We have long known that income tax tends to be for the little people. It increasingly looks like corporation tax is only for the little companies.
The only solution is harmonised international governmental agreement to prevent multinationals playing off national governments against each other on profit tax rates.
As for Sir Martin, he might like to consider whether quitting the country and promising to return only when a law you dislike is changed can be considered "doing good".
Why do UK rail fares keep rising?
With train companies, Network Rail and the Government involved, the answer is far from simple
Fed up: protesters against a rise in rail fares in King’s Cross Station Photo: AFP/Getty Images
Here we go again. It’s a new year but an old story. Commuters are up in arms
about rises in rail fares and they’re looking for someone to blame.
Aside from the fact that central London was half empty yesterday and finding a
seat on a train would have been no problem for most, they have a good point.
This is the 10th successive year of above-inflation fare rises, and there is
no sign of any change in policy coming until the next general election at
least, and probably well beyond that.
But finding the right target for passenger anger is made difficult by the fact that transparency is not a feature of the rail industry and railway economics remains a dark art. The train companies, the Government, previous governments, and even Network Rail (responsible for the track and infrastructure) are all in the frame for blame. And actually, all of them deserve at least a bit of buckshot, if not a high-velocity bullet.
The railways may have been privatised in the mid-Nineties, but in reality they are a mix of private and state interests, with most of the purse – and other – strings still being pulled by the Government. Forget the notion of a raw capitalistic enterprise with energetic entrepreneurs seeking innovative ways to fleece the public: the train operating companies are pretend capitalists who have very little room for manoeuvre and invest very little. They complain that they make only a 3 per cent profit – or around £250 million annually – yet that is a misleading figure, based not on investment, as with a conventional company, but on turnover.
The train companies will receive a proportion of the extra fare income that yesterday’s rises generate, thanks to an opaque process that began last summer. Once the fare rises (which are based on July’s inflation figures) are known, the Department for Transport (DFT) and train companies begin negotiations over how the spoils should be divided. This is because rising fares will deter some passengers from travelling, and under the franchise agreements the DFT has to compensate the private companies for this loss.
However, given the recent inept performance of the DFT over the West Coast franchise, it would not be reckless to suggest that perhaps the train companies get rather more of this extra dosh than they need to cover any passengers lost as a result of the rises. The projections and the sums of money that follow are, of course, “commercially confidential”, and therefore not released to the great unwashed British public.
There is a real irony here. The legislation to regulate season tickets and off-peak fares was designed, at the outset of privatisation, to protect passengers from greedy private companies exploiting their monopoly position. Originally, the rises for “regulated” fares were set at the RPI measure of inflation minus 1 per cent, as a way of encouraging rail travel. In fact, since 2003 – when the formula was changed by the Labour government to RPI plus 1 per cent – the legislation that supposedly protects consumers has been used against them.
However, the situation with unregulated fares – which represent about half the income of the train companies – is completely different. Train operators are free to set all other fares, which include the very expensive peak fares on intercity and other routes, first class and advanced, and all of the increase will go to them.
For their part, the train operators argue that the extra revenue from unregulated fares is needed in order to meet the financial arrangements that come with the franchise deals – most of the train companies pay an annual premium to the Department for Transport. They say these unregulated fares are set commercially because operators face competition from airlines or the roads. But many people making occasional journeys at peak times have no option but to travel then, and are therefore heavily penalised for their lack of flexibility.
A spokesman for the train operators justifies the situation by saying: “Train companies have to meet tough financial commitments agreed with the Government when franchise agreements are signed.” It is also the case that since 2007 there has been a cross-party policy of increasing the share of the cost of the railways paid by rail users, which is now around two thirds, compared with less than 50 per cent six years ago. Yet this does not negate the fact that the train operators decide the level of unregulated fares and many have gone up far more than regulated fares. A peak return from London to Manchester in standard class, for example, is now a stunning £308.
Provided the DFT gets its sums vaguely right, the Government therefore will receive a substantial proportion of the money from increased fares. Ministers’ explanation for the rises is that this money will be used for investment in the railways – but the relationship between investment and fare rises is a distant one.
In fact, the amount of investment going into the railway for extra capacity such as improved track and better signalling is determined by a complex process of negotiation involving Network Rail, the Office of Rail Regulation and the Department for Transport. Ministers set out an investment programme in five‑year periods – the current one runs out in March 2014 – and allocate funds accordingly, and then the Office of Rail Regulation assesses whether enough money is available to carry out the plans. Network Rail then undertakes the work, primarily through contractors.
New trains are provided through a different, and similarly tenuous, relationship. The Government will determine that there is a need for new trains and build this into franchise contracts. The trains are then leased, with the operators paying for them out of their income from the fare box and any subsidy they receive from the DFT. However, the level of fare rises is not linked to the acquisition of new rolling stock. As one angry rail traveller tweeted yesterday: “Why should I pay more to travel in Lincolnshire when the services and rolling stock are so bad?”
Overall, then, there is very little relationship between yesterday’s fare rises and future investment plans. Indeed, for the past two years, the Government, in the face of public pressure, has backed down from proposed fare increases of RPI plus 3 per cent to the current RPI plus 1 per cent, which has resulted in a reduced income of around £250 million annually – enough to kick-start an investment programme of, say, £2.5 billion. Yet there has been no suggestion from ministers that this cut in fares income will reduce the amount available for investing in the railways.
The position of Network Rail – a state-owned company in all but name – adds to the confusion. It spends around £6 billion a year on maintaining the railways but has been sharply criticised for excessive costs. A report in the spring of 2010 by Sir Roy McNulty, the former chairman of Short Brothers, the airline manufacturer, identified wasted spending amounting to 30 per cent.
Network Rail is therefore being required to cut costs; McNulty reckoned it could save £1.8 billion by 2019. Justine Greening, who was Transport Secretary until the autumn reshuffle, argued that if these reductions were made then fares could, in future, be held steady, but few industry insiders believe that such big cuts could be made without compromising performance or safety.
So the real blame for the fare rises must lie with us, the passengers, and our appetite for rail travel. Ever since the early Nineties, passenger numbers have kept on rising steadily. Remarkably, even the long-term trend of passenger numbers falling during recessions has been reversed, as numbers have continued rising except for 2009-10, and even then the fall was very small.
The one way to ensure that fare rises are lower in the future is for more people to shun the railways and use the alternatives – or simply not travel. While numbers keep rising, even in times of recession, why should either the train companies or their political masters change the policy?
Christian Wolmar is a writer and broadcaster specialising in transport.
Wednesday, 2 January 2013
USA - Congress's manufactured non-solution to its manufactured fiscal cliff crisis
This
fiscal cliff deal doesn't stop tax hikes, doesn't reduce the deficit,
doesn't avoid spending cuts … and it's not even a deal
The Capitol as the US went over the 'fiscal cliff' in Washington, DC. Photograph: Jim Lo Scalzo/EPA
It is a habit of the United States Congress never to congratulate itself until it has utterly failed to accomplish what it set out to do. Needless to say, the Congress is particularly delighted with its work in leaping over the fiscal cliff last night.
Of course, it will never be put that way. Amid the usual Washington smoke and mirrors, lawmakers will talk about the benefits of the deal: it will cut taxes; it has come in time to avoid the real fiscal cliff; it will reduce the US budget deficit; it will represent a bipartisan agreement to fix America's debt problems.
It does precisely none of those things.
The much-praised deal is as thoughtless and hasty as you would expect from anything cobbled together at the last minute. Lawmakers should regard it not with self-congratulatory glee, but with suitable shame at their failure to think through major issues that impact the American economy. As the humorist Andy Borowitz concisely put it on Twitter this morning:
Praising Congress for the fiscal cliff deal is like giving an arsonist an award for putting out his own fire.
Tax cuts – and hikes
While the Senate agreement was designed to protect the middle class by allowing the Bush era tax cuts to rise for people making $450,000 and above, don't believe anyone who tells you that it's a tax cut. In fact, all Americans are going to be paying higher taxes through their paychecks, starting today 1 January, because Congress has allowed the payroll tax cut to lapse. President Obama cut the payroll tax to 4.2% from 6.2% in 2010; now, those taxes are going back up.The cost is noticeable. It will amount to $1,000 a year out of the pocket of Americans making $50,000pa. That could be a mortgage payment, or nearly a year's cellphone bills, or a vacation.
In addition, the middle-class Bush era tax cuts will be extended for only five more years, so expect more dithering in 2018 about the value of the middle class to the US economy. Luckily, that will only be a year for midterm elections that affect Congress, not another presidential election.
Spending cuts: sequester postponed
Nor does the deal avoid the uncertainty and economic disaster avoided with the fiscal cliff. In fact, it creates an even bigger cliff – really, a fiscal mountain – in March. The Senate refused to come to an agreement on the actual "cliff" part of the fiscal cliff: sweeping government spending cuts that were designed in 2011 to be so stupidly punitive that they would never be passed. Instead of sitting down and thoughtfully coming up with a new set of spending cuts, the Senate has pushed the issue off for two months. That deadline coincides with the moment that the US will hit its debt limit.The result: the new fiscal cliff will have even higher stakes, as the US could spend the next two months wrestling with even greater potential economic disaster, and a more dire impact on the markets. Now, it's not just some spending cuts that are on the table; it's the full faith and credit of the US government. That was already proven in 2011 to be an ill-judged candidate for congressional toying, but the addiction of the drama and adrenaline appears to be too much to resist for those in Congress.
The deficit and debt: revenues reduced
As for the deficit, that will actually grow under this deal, partly because the tax cuts now don't apply to many of the rich. When the president aimed for $250,000 in income and above for tax hikes, that encompassed about 2% of American taxpayers. But the new $450,000 threshold covers less than 1% of Americans. That means less money to cut the deficit, and more coming in spending cuts – very likely, to important government programs.A deal far from done
And lastly, the bipartisan nature of the deal is something that is unlikely to last after the House meets to talk about it this New Year's Day. Whatever joy the Senate has with its 89-8 landslide agreement achieved at the ungodly hour of 2.07am, news channels featured an endless stream of Republican lawmakers in the House of Representatives talking about their unlikeliness to vote for the deal. One of them compared his plan to vote against the deal to dying in honor on a battlefield.The deal is not a complete disaster, although most of what it does well is completely and obviously necessary. The best thing that it does is extend unemployment benefits for millions of Americans – at least, for another year – and revoke an ill-judged $900m automatic pay hike for members of Congress. It also extends tax breaks for research and development and interest on student loans: this is important as student loan debt now exceeds credit card debt in the United States.
So, after a day, and week, and year filled with manufactured drama, the US Senate not only failed its only goal – reducing the US deficit – but also built a mountain range out of the molehill of budget talks. But tell that to lawmakers patting themselves on the back.
"For the first time in years, we will have a major issue settled with a bipartisan vote," Senator Dianne Feinstein crowed. Vice-President Biden, asked what was his selling point to Senate Democrats, modestly declared, "Me." He expanded later on how he did it – not with reasoned arguments about the duty of the Congress and the American economy, but with this folksy negotiation tactic: "I said, 'this is Joe Biden and I'm your buddy.'" Harry Reid graded his fellow failing congressional students on a curve: "It's disappointing that we didn't get the grand bargain … but we tried."
Well, at least they tried, right? Except that won't be good enough for the millions of Americans who have their pensions invested in the stock market and the bond market. We already know that the markets don't care a fig about tax policy; but when it comes to the debt limit, they react disastrously.
Columbia Professor Emanuel Derman depended on a classic quote when he tweeted his reaction to the Senate's last-minute deal for the fiscal cliff:
1 Jan 13
@TheStalwart @mikememoli @VP This is all theater. Tale told by idiot, full of sound and fury, signifying nothing.#fiscalcliff
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