The trouble with tech is wealth destruction

By Neil Patrick

I love tech. But I hate what it is doing to jobs and wealth creation. Any voice of concern on this subject risks being shouted down as Luddite. But being branded a Luddite is not the worst thing that can happen; a whole society sleepwalking over a cliff is a far greater worry.

Robert Ludd: NOT my role model

There's a great deal of corporate and government spin about the impact of technology on jobs. If I didn’t default to the notion that cock-ups, not conspiracies, are man’s most common failing, I’d be signing up for the Loony Tunes’ New World Order Conspiracy news feeds.

At first, it was argued that technology would just enable higher quality and less costly goods. Then, when the first layoffs due to automation started happening, it was argued that only tedious and repetitive jobs would be displaced. As disruptive business models, artificial intelligence and robotics become increasingly advanced, both these defences have crumbled.

Then the really big changes started. Whole industries began to be disrupted by new tech-enabled business models. Travel agents are being disrupted by Trip Advisor and Airbnb. Cab drivers by Uber. Retailing by Amazon. Banking by PayPal. And worse, every successful disruptive business replaces a job heavy industry sector with a jobs-lite one.

The last remaining argument for tolerance of the jobs carnage created by the tech tsunami is that the Wikipedia version of history tells us technological progress is inevitable, and has only ever resulted in greater wealth and a better society. But this assertion doesn’t bear much scrutiny if you have even a basic knowledge of economic history.

The latest piece of expert group think I stumbled upon comes from none other than Deloitte. They published a paper in December 2014 entitled, ‘Technology and people: The great job-creating machine’ by Ian Stewart, Debapratim De and Alex Cole - all economists working at Deloitte; experts by most people’s definition.

An interesting footnote is that whilst the document is branded as Deloitte’s, it contains a disclaimer that the report is merely the personal views of its authors…do Deloitte’s legal team sense these views could be a bit controversial? Why would Deloitte wish to distance themselves in this way?

Anyway, the document makes the same old arguments that there is no historical situation which has shown that technology has done anything other than create more jobs and greater wealth. And by inference, anyone who argues that this time it’s different is a Luddite.

History can be an unreliable teacher. Is it really a good idea to place our faith in an argument, just because something has never happened before? That this ship is so vast and splendid it is unsinkable?

And just as a little reminder, the first industrial revolution in Britain didn’t actually create more jobs. It merely absorbed the millions of unemployed agricultural workers put out of work by Jethro Tull’s seed drill and other agricultural innovations.

When I looked at the evidence based on UK data presented by Deloitte, they helpfully show us how whilst some jobs are disappearing fast, others are growing rapidly. But looking at this data I also spotted a massively frightening detail. Here’s the table in question:

Notice anything about the nature of the jobs gained versus the ones lost?

It’s this. Almost all the new jobs are low pay and/or mostly in the public sector.

And most of the shrinking occupations are in the private sector.

By far the largest growth sector for jobs between 1992 and 2014 was nursing auxiliaries and assistants. The reason is simple and we all know that the aging population is driving this. Over this period, more than 270,000 new jobs materialised in this field. The second biggest growth sector added almost 420,000 extra jobs. Too bad then that these jobs were for educational assistants i.e. people who earn even less than teachers.

Low pay is bad enough, but public sector jobs pose an even bigger economic problem. They are paid for not by sales to domestic and overseas customers, but from taxes collected into the treasury. Public sector jobs support our society but are simply terrible as engines of economic growth. And growth is the one thing that economies worldwide are desperate to find these days.

Public sector jobs do not create economic growth and sustainable household wealth, they merely spend government (and our) money. Money taken from us and businesses in tax (unless you are Google or Amazon). It is then spent for us by the government on the things they decide we want and need. Sure some of this government spending trickles through to the private sector, but  there's a dreadfully expensive and inefficient pile of government bureaucracy acting as the middleman in this business model.

What is worse is that public sector jobs don’t make the nation richer. They are not exported. They are horribly complex to manage and operate not because the people are dumb, but because all large organisations struggle with efficiency. And more of them add to an already swollen and debt-burdened state which must borrow endlessly to sustain its spending.

You may well disagree with me. You may well trust that the experts in our governments and corporations have our best interests at heart. That the frequent cases of greed and exploitation by ruthless capitalist businesses are a more than adequate reason to reject my argument.

So in the interests of presenting a balanced view, here’s a quotation from the Deloitte report:

Change is the prerequisite for improving welfare. Until the eighteenth century the organisation of work was largely fixed and the material condition of the masses was miserable. It was the wrenching change of the industrial revolution, the application of steam power to production, urbanisation and the rise of manufacturing that brought improvements in material conditions and life expectancy for working people. Technology has transformed productivity and living standards, and, in the process, created new employment in new sectors. Machines will continue to reduce prices, democratising what was once the preserve of the affluent and furnishing the income for increased spending in new and existing areas.

Machines will take on more repetitive and laborious tasks, but seem no closer to eliminating the need for human labour than at any time in the last 150 years. It is not hard to think of pressing, unmet needs even in the rich world: the care of the elderly and the frail, lifetime education and retraining, health care, physical and mental well-being. The stock of work in the economy is not fixed; the last 200 years demonstrates that when a machine replaces a human, the result, paradoxically, is faster growth and, in time, rising employment. The work of the future is likely to be varied and have a bigger share of social interaction and empathy, thought, creativity and skill. We cannot forecast the jobs of the future, but we believe that jobs will continue to be created, enhanced and destroyed much as they have in the last 150 years.

The trouble with this opinion is that the first technological revolution merely transferred labour from the agricultural and subsistence existence of the rural poor, to the impoverished drudgery of urban manufacturing centres. The owners of capital flourished and became wealthy. Cities expanded and became wealthy. Central and local government expanded and became wealthy. Workers did not. Urban slums and squalor replaced rural shacks and poverty.

So the first industrial revolution, didn’t actually create more jobs or better standards of living for workers. However, the second industrial revolution did. This was when mass communication in the form of TV, radio and the telephone enabled the rise of truly global businesses. These businesses coupled mass production economies of scale with vast global markets.

They needed huge numbers of middle managers to support and supervise their activities. And these are today the vast global corporations that are slowly but surely being disrupted to death by thousands of niche start-ups and new business models. In the US and Europe in particular, this is why the middle class is becoming an endangered species.

The key difference between this historical perspective and the reality of today is that the monetary basis on which society is built is different. And the biggest and most critical difference is debt. The debt of businesses. The debt of citizens and governments.

A debt burdened society can only survive when it has a stable and growing income. Stable to ensure debt repayments cans always be met. And growing to help lessen the total burden of debt as a proportion of income. Just like when we take out a mortgage to buy a house, we are gambling that our future income will be stable and reliable enough to meet the repayments for the next 25 years.

But today’s incomes are less stable and secure than ever before. A cotton mill worker might have endured terrible working conditions and low pay, but at least their work was relatively secure and they were not crippled with debt. Today, the combination of housing undersupply (not helped by the debt burden of house builders) and prices inflated by overseas speculators keeps young people out of home ownership. Student loans mean young people are hobbled by debt before they even land a job.

This financial dimension is inextricably linked to the nature of the threat of technology. And it’s something that cannot be unknown to anyone with even a basic grasp of financial and economic matters. Let alone someone working at Deloitte.

Which begs the question, ‘Why might the experts want to persuade us otherwise?’

That’s a question I am not going to attempt to answer. You can call me a Luddite if you wish. That I can live with. But I really have no wish to be classed a conspiracy theorist. For now at least.

The one job sector that's booming

By Neil Patrick

The fastest growing sector isn't tech, it's the black economy...

The other day, I met an old friend I’d not seen for years. Decades in fact.

He’s a talented graphic designer. Naturally we talked about how his career had played out. It turned out that he’d drifted from job to job, but due to health problems had never managed to hold a job down for any great length of time.

To survive he’d taken any casual work he could find. Much of this work was paid for in cash; part of the booming black or ‘underground’ economy.

With so few jobs paying an adequate wage to meet the cost of living, millions of educated and skilled people now exist in an underground economy. In the US alone, this has ballooned to over $2 trillion annually.

Most people struggle to imagine a billion dollars, let alone a trillion. Two trillion dollars is $2,000,000,000,000. To put this in perspective, according to the IMF, the total GDP of the UK is ‘only’ $2.3 trillion…

That's maybe 10 million jobs in the US since the start of the recession

America's underground economy is not new, but since the Great Recession hit, analysts estimate it has more than doubled in size, driven by unemployed or underemployed people desperate to just survive. What other sectors can match that sort of growth?

I estimate this is equivalent to at least 5 million new jobs created in the US since 2008. This is fag packet maths I know, but let's say that of this estimated $1tr growth, each person earned on average $20,000 a year (this is probably much higher than the real figure, so I'm being cautious). That equates to 5 million jobs. If the actual average was $10,000, then we're talking about 10 million jobs...

As a benchmark, one of the fastest growing employment sectors, computer systems design, provides around 1.5m jobs in the US. The BLS forecasts this will be 2.1m  jobs by 2020.

So the underground economy is huge. And it’s not just criminal businesses like drugs, cyber-crime or prostitution. Research shows that a great deal of the black economy exists in completely legal industries such as bars, clubs and restaurants. It’s simply non-criminal work that isn't declared to the government by the employer and/or the employee.

Just as many people have been hard hit by the recession, so too have many businesses. It’s a huge temptation for business owners who in better times would probably run their businesses completely legally. Faced with a stark choice between closing down or slipping into the underground economy, many businesses have chosen the latter. Ironically therefore, whilst a decision to operate in the black economy takes tax out of the treasury, it also saves governments money on welfare payments to people who at least maintain some earned income.

Suddenly, the archetypal figures of the underground economy - the drug dealers and Mafia godfathers, now have a lot more company. Their new 'co-workers' are no longer just other criminals in the conventional sense of the word.

So most of these new participants in the underground economy today are ordinary citizens not evil greedy low-lives. They’re doing anything they can to survive and increasingly, this means taking jobs that pay "under the table" because they simply have no choice.

"It's typical that during recessions people work on the side while collecting unemployment benefits," Bernard Baumohl, chief global economist at the Economic Outlook Group, told The New Yorker.

He went on to say: "...the severity of the recession and the profound weakness of this recovery may mean that a lot more people have entered the underground economy, and have had to stay there longer."

Who works in the underground economy?

Some of the folks who've become trapped in the underground economy have been there for years, such as construction workers, illegal aliens and housekeepers. But it's a mistake to think these are all poorly educated immigrant workers.

The huge job losses caused by the recession have forced more people to switch from well-paid professional jobs to low paid service jobs.

But the biggest contributor to the underground economy in the past few years has been employers increasing their use of freelancers or "independent contractors" - even many who actually work full-time.

The weak U.S. economy has already given businesses plenty of incentives to cut costs by paying workers under the table. But the arrival of Obamacare gave them even more. The rules that demand that employers with 50 or more employees provide health insurance for full-time staff while allowing them to avoid offering plans to part-timers naturally encourages employers to offer more part-time work and less full time work.

"This type of regulation could put more people out of work and into an underground economy," Peter McHenry, an assistant professor of economics, told CNBC.

The underground economy hurts everyone

The rapidly growing amount of unreported wages in the U.S. is costing the nation billions in lost tax revenue. The Internal Revenue Service estimates that the losses from unreported wages have grown from about $385 billion in 2006 to about $500 billion currently.

That means the people who play by the rules are getting a raw deal.

"Those working and not paying the taxes put the burden on those who pay the tax," said David Fiorenza, an economics professor at Villanova University. "Taxes could be lower if the government were able to capture the underground economy instead of raising taxes on those currently paying the various income and payroll taxes."

But even those getting paid under the table don't get an easy ride. They forfeit contributions to Social Security, which will reduce benefits in their retirement years. They also get no healthcare, paid vacation or other benefits.

And they certainly end up with lower pay than those in the rest of the workforce. Government regulations about minimum wages hold no sway at all in the black economy. Ironically this is the most free market sector of all…which means pay is constantly being forced lower.


What the growth of the black economy really means

Whilst very little hard data is available about the underground economy, I am convinced that the majority of people within it are there not because they want to be, but because they have no real alternative.

And its explosive growth means that if you want to work, more and more of the work that is available is within the black economy. It’s Hobson’s choice…no work or work that is officially illegal. It’s not a symptom of an increasingly dishonest population, it’s a symptom of economic policy failure.

Both the IRS in the US and the Inland Revenue in the UK have announced numerous new initiatives to clamp down on the black economy. More investigations; harsher punishments. And yet the non-payment of tax by businesses like Amazon and Google continue more or less unchallenged.

It’s unjust and it targets those who are least able to defend themselves.

Government presents these moves as being a drive for a more equitable society. For everyone to pay their fair share. This is disingenuous. If we had economic success, we’d still have tax evasion, but only by those who had the freedom of choice. Unlike global corporations, most citizens who avoid tax today have few choices left.

I don’t condone tax evasion by anyone. I just think that government needs to remember that it exists to serve its citizens not the other way round. Government is happy to punish people for not declaring income in just the same way as if they robbed a bank. And yet it is failed government economic management that has created the situation that forces most people into these desperate choices.

If forced to choose between your family having nothing to eat or paying your tax bill, what would you do?

Who will take ownership of the jobs crisis?

By Neil Patrick

My recent posts have talked about the impact of technology on jobs. But this is far from the only threat to employment and a jobs recovery in the west. Off-shoring is a major progenitor of the jobs crisis. And the biggest problem with off-shoring is that no-one thinks it's a problem....except those who suffer its consequences and can do nothing about it.

The jobs crisis is real. The World Bank certainly thinks so as you can see here.

The problem is that no-one wants to take ownership of it. Just like the old saying, “Success has many fathers, but failure is an orphan”.

Empires have a habit of crumbling...

Governments have had an easy ride until now. Provide some tax-breaks and incentives to business here, some support for the unemployed there. Survive some rough and tumble with trade union negotiations without too much alienation of the electorate.

None of these things are comparable to the systemic collapse of jobs we now have to deal with in Europe and North America.

Thus, nothing that has gone before has equipped anyone in government with the skills and tools required to solve this problem.

And worse, big business can no longer be relied upon to act as a committed ally in the struggle. Globalization and off-shoring mean that the win-wins that were previously available for governments who acted benignly towards big business have disappeared. Permanently.

And this is why governments must rethink their relationships with big business.

Businesses drive to make the most profit they possibly can. Provided they stay within the law, no holds are barred. That’s the very nature of capitalism and a free market economy.

Big businesses think and act globally. But governments and citizens naturally enough think nationally and locally.

It is this mismatch in scale and geography which is at the heart of the problem.


Offshoring is a genie let out of the bottle

About 35 years ago, western firms started sending low skilled manufacturing work abroad on an ever increasing scale. By the late 1980s this was well established. And it grew. And grew. This mass-migration of jobs was overwhelmingly in one direction: away from rich countries to places where workers with adequate skills were much cheaper.

Shanghai - plenty of jobs here

Whether openly stated or not, lower labour costs were almost always the biggest driver. At first. For many firms, their survival was at stake, since new competitors were undercutting them on price. This usually involved closing plants in America and Europe and moving production to new factories in China, Mexico, Taiwan, Thailand, or Eastern Europe.

The most commonly cited benefits of off-shoring were fourfold:

• For workers in low-cost countries it would provide jobs and rapidly rising standards of living.
• Rich-world workers would be able to leave the dreary work to someone else.
• For consumers, they’d be able to buy goods at much lower prices than if production was onshore.
• For companies, lower labour costs would bring higher profits.

The trouble is that whilst these are all good things in small doses, what happens when the scale of the activity becomes so great that the migration of jobs elsewhere exceeds the ability of the domestic economy to create new ones at home?

Who cares that they can buy a new TV cheaper than ever before, if they cannot even afford to buy food or fuel?



The jobs are never coming back – even Steve Jobs thought so…

Off-shoring from West to East is now a major creator of job losses in rich countries. And not just for the less skilled, it’s now devastating the middle classes too.

US jobs reduction mirrors off-shoring

When Barack Obama joined Silicon Valley’s captains of tech for dinner in California in February 2011, each guest was asked to come with a question for the president.

As Steve Jobs of Apple spoke, Obama interrupted him with a question: “What would it take to make iPhones in the United States?”

Not so very long before, Apple had boasted that all its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold the previous year had been manufactured overseas.

"Why can’t that work come home?" Obama asked.

Jobs’ reply was unambiguous. “Those jobs aren't coming back,” he said.

Jobs' answer revealed the attitude at Apple and most global businesses. It isn’t just that labour is cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories , their flexibility and industrial skills have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most consumer products.



Government thinks big business is its friend…not anymore

Apple is one of the best-known, most admired and most imitated companies on earth. In 2011, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what vexes Obama, economists and policy makers is that Apple and many of its high-technology peers are not nearly as committed to creating American jobs as the previous generations of US industrial giants were.

In its early days, Apple didn't look much beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, Jobs bragged that it was “a machine that is made in America.”

But by 2004, Apple had largely turned its back on the US and moved to off-shore manufacturing. Central to that decision was Timothy D. Cook, who replaced Jobs as chief executive in August, 2011, six weeks before Jobs’s death. Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to seize any advantage it could find.

In part, Asian manufacturing was attractive because the semiskilled workers there were cheaper. But that wasn’t the main thing that attracted Apple.

For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of sources and suppliers. And as automation and AI inexorably increase, so the labour part of the equation becomes even less of a factor.

For Cook, the focus on Asia came down to two things. Factories in Asia can scale up and down faster and Asian supply chains have now surpassed what’s possible in the U.S. The result is that much of America’s manufacturing capacity has become largely obsolete. American manufacturing relative to Asia is now not unlike the Soviet Union was relative to the west in the Cold War era.



How many Apple’s are needed to make one General Motors? 10 actually…

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, formerly an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

This used to be US car factory - today, it's a shopping mall

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s on-site dormitories. Each employee was given a biscuit and a cup of tea and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — outsourcing has become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.



So who wants to own this problem?

Apple’s decisions reveal why the success of some prominent companies has not translated into large numbers of domestic jobs. “Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, formerly the chief economist at the Labor Department. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists think that notion is naïve. Though Americans are among the most educated workers in the world, they say the government has stopped training enough people in the mid-level skills that factories need. Clearly education alone is not enough to solve the problem.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers, including GM and others that have shrunk as more nimble competitors have emerged.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

So business says it's not their problem and government doesn't know how to solve it. And just like two squabbling children, neither will accept any responsibility. Let alone ownership.

And that’s the crux…business will keep on doing what business does, chasing profits. And government will keep on doing what government does…

This may be the biggest problem facing North America and Europe today, but no-one wants to own it.



Some information in this post was taken from this article in the New York Times: LINK

It's now official - The Global Jobs Crisis is real

By Neil Patrick

When I set up this blog, I was convinced that the subtitle – Global Jobs Crisis was appropriate and justified.

But many of my friends online and offline commented that they thought I was being rather apocalyptic. Even sensationalist. After all it does rather fit with the sort of conspiracy theory stuff which abounds in the online media world.

But I stuck with it nonetheless. Not because I wanted to be alarmist or a doom-monger. On the contrary. I wanted to raise awareness of the problem and try to find solutions that would work for people at a personal level.

It was simply the most appropriate tagline I could come up with which described the unfolding situation as I saw it. And with every week that passes I see more evidence that it remains the right subtitle.

So today I was interested to see that two years after I started this blog, none other than the World Bank has issued a report which describes the global jobs crisis in forensic detail.

I’d forgive anyone for not noticing it. It went more or less unremarked upon by the mainstream media. It’s titled in typical government speak and somewhat benignly: “G20 labour markets: outlook, key challenges and policy responses”.

The World Bank, Washington
By Shiny Things [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)] via Wikimedia

Behind the dull bureaucratic title is the starkest confirmation I've yet seen which describes in depressing detail, the true nature of the problem.

The world is facing a global jobs crisis that is killing the chances of reigniting economic growth. Worse there is no magic bullet to solve the problem.

The Study was released at a Group of 20 (G-20) Labor and Employment Ministerial Meeting in Australia in September 2014. The Bank says an extra 600 million jobs need to be created worldwide by 2030 just to cope with the expanding population.

"There's little doubt there is a global jobs crisis," says the World Bank's senior director for jobs, Nigel Twose.

"As this report makes clear, there is a shortage of jobs — and quality jobs.

"And equally disturbingly, we're also seeing wage and income inequality widening within many G-20 countries, although progress has been made in a few emerging economies, like Brazil and South Africa."

He said that overall emerging market economies had done better than advanced G-20 countries in job creation, driven primarily by countries such as China and Brazil, but the outlook was bleak.

"Current projections are dim. Challenging times loom large," said Twose.

Who says something really matters

Local mainstream media is so heavily influenced by national government spin that we cannot take anything that is said at face value. And I do my best to expose the most blatant deceptions about jobs and employment news that I come across.

Which is why this report has to be taken seriously. The World Bank isn’t beyond the influence of key stakeholders with their own agendas. Many have argued that the World Bank which has had an American as its President ever since its creation in 1946, promotes a US based world view.

And I have concerns that the World Bank still clings to a largely discredited view on monetary systems.

But critically, the World Bank isn’t controlled by politicians. And that’s the most important thing in my view. No-one at the World Bank is trying to win votes from citizens. They gain no benefit by telling people that things are better than they really are.


100 million unemployed

The report, compiled with the OECD and International Labor Organization, said more than 100 million people were unemployed in G-20 economies and 447 million were considered "working poor," living on less than US$2 a day.

It said despite a modest economic recovery in 2013-14, global growth was expected to remain below trend with downside risks in the foreseeable future, while weak labor markets were constraining consumption and investment.

The persistent slow growth will continue to dampen employment prospects, it said, and warned that real wages had stagnated across many advanced G-20 nations and even fallen in some.

"There is no magic bullet to solve this jobs crisis, in emerging markets or advanced economies," said Twose.

"We do know we need to create an extra 600 million jobs worldwide by the year 2030 just to cope with the expanding population.

"That requires not just the leadership of ministries of labor but their active collaboration with all other ministries — a whole of government approach cutting across different ministries, and of course the direct and sustained involvement of the private sector."

The Group of 20 leaders have called for each member country to develop growth strategies and employment action plans. They emphasized the need for coordinated and integrated public policies, along with resilient social protection systems, sustainable public finance and well-regulated financial systems.

"Coordinated policies in these areas are seen as the foundation for sustainable, job-creating economic growth," says the report.

So there we have it. The responsibility for solving the problem has been passed to national governments. And they are urged to adopt a cross-departmental approach to solving the problem.

Given the nature of governmental silos and the painfully slow way in which government policies are formulated and implemented, I’m not holding my breath for any big breakthroughs anytime soon.

And sadly the subtitle of this blog seems to be one thing which isn’t about to become redundant for a long while yet.

Why the economy will never be the same again

By Neil Patrick

As we slowly struggle out of recession, it's tempting to hope that the problems it caused will soon fade. But there are clues that things will not and cannot ever return to how they were. In fact the evidence is all around us; static or falling growth in real incomes despite bouyant stock markets, larger and larger wealth inequality, the ongoing injection of liquidity into economies through QE. And biggest of all, the mountain of government debts around the world. 

The real story of the 2008 financial collapse and subsequent recession isn’t about greedy bankers, dozing regulators or complacent politicians although they all played their part. It’s a story which is bigger than all of them put together. It’s a story about the transition of the whole developed world from one economic era to an entirely new one.

It’s tempting to think that all our financial woes were created by 2008 and its aftermath. And yes, it’s true that we’ve been going through possibly the worst recession in history. But the financial crisis wasn’t the cause of this, it was a symptom of a much bigger global problem and transformation which has been underway for decades. 

And it’s only if we understand the nature of this transformation that we can figure out what each of us will have to do in the coming years to ensure that we don’t become victims. Many of us have suffered enough already from the economic collapse. But the collapse wasn’t a singular event. It was a symptom of the failure of a monetary system which has passed it use by date. The aftershocks will be just as painful to many more of us. Possibly even more, if we don’t individually figure out our own survival plan now.

But I’m getting ahead. We first need to look at what’s been going on and why.

Who is really to blame for the recession?

It’s tempting to adopt over simplistic knee-jerk explanations. People were too greedy. Lenders were too careless. Big bonuses encouraged unethical and even illegal practices. Politicians were self-serving and in league with big business. There is plenty of evidence of all these things of course, but they don’t lie at the root of the problem. They were symptoms of much more fundamental changes in the world.

The real culprits are in the shadows, or at least so low profile and mysterious to most that they attract very little attention from the general public. They are the central banks. The borrowing spree was made possible because the central banks allowed it to become possible. The money banks were lending was only available to lend in the first place because of central banks’ rules around what bankers call fractional reserves. And without over-lax fractional reserve rules, there could have been no explosion in lending and no financial crisis. Whilst much of this story is complex, this is one aspect that is really simple.

How central banks made it all possible

Central banks like the Federal Reserve and the Bank of England, require a bank to keep a reserve of capital that is in direct proportion to the amount it has lent. So let’s say the central bank imposes a fractional reserve requirement of 10%, if a bank has £100 million of deposits, they cannot lend more than a total of £900 million. The questionable idea behind this policy is that banks are responsible and prudent institutions and no event could ever undermine depositor confidence so much that everyone wishes to withdraw all their money at the same time, thereby bankrupting the bank(s).

It seems like a crazy notion when we remember that there have been plenty of bank runs throughout history. For the record these include, the Dutch Tulip manias (1634–1637), the British South Sea Bubble (1717–1719), the French Mississippi Company (1717–1720), the post-Napoleonic depression (1815–1830) and the Great Depression (1929–1939).

With hindsight today, it seems incredible that the idea of fractional reserves could persist, but it did and it still does…the fractional reserve system hasn’t been dropped. It’s merely been tweaked round the edges with requirements for slightly higher capital reserves and greater risk mitigation. The main driver of this is the Basel Accords I, II and III which have sought to apply progressively increased solvency and capital reserve requirements on banks.

The system is still viewed by governments and central banks as a reasonable means to support their economies by enabling businesses to borrow money to grow and consumers to spend. Oh and governments can easily borrow too, so their own financial position is never under too much pressure. When they need to, they can simply borrow more money…

Governments are incentivised to spend not save

Western democracy encourages politicians to make voters happy. So they can get re-elected and stay in power. But you don’t get popular by spending responsibly. You get popular by building more schools, providing better healthcare, cutting taxes, creating more policemen to keep us safe from the bad people….the list goes on and on.

There’s one slight problem though. How can a government afford to do this? Especially if the economy isn’t doing too well. Someone has to foot the bill. And that’s where the central banks become super useful to governments. Central bankers are not stupid. They are not simply going to hand over billions to governments just because they are asked. No, they demand in exchange a promise from the government that the money is in the form of a loan. The central bank issues a bill for the loan amount to the government. And in return, the government gives the bank a promise to pay the bank from its future income. It’s called a bond. Through the use of bonds, the government is mortgaging the future wealth of the nation – i.e. the future work and earnings of its population to pay for its spending today.

But governments are not just mortgaging our future work, they’re making the rich richer in the process

And then there’s quantitative easing (QE). In order to prop up the economy in times of extreme stress, like now, central banks print more money to maintain liquidity. Or in other words to keep everything limping along in the economy. In the US and UK this has been carried out by the Federal Reserve and the Bank of England. It’s a medicine with severe and nasty side effects though.

In August 2012, the Bank of England issued a report stating that its quantitative easing policies had benefited mainly the wealthy. The report said that the QE program had boosted the value of stocks and bonds by 26%, or about $970 billion. About 40% of those gains went to the richest 5% of British households. Dhaval Joshi of BCA Research wrote that "QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it".

Economist Anthony Randazzo of the Reason Foundation wrote that QE "is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality".

In May 2013, Federal Reserve Bank of Dallas President Richard Fisher said that cheap money has made rich people richer, but has not done quite as much for working Americans. Most of the financial assets in America are owned by the wealthiest 5% of Americans. According to Fed data, the top 5% own 60% of the nation's individually held financial assets. They own 82% of individually held stocks and over 90% of individually held bonds.

As the majority of people get poorer, so they are less able and less inclined to borrow money. And this is exactly what we see happening. In the UK, government debt has risen exponentially in the wake of 2008 whilst private debt has been falling:

The system makes it much easier for governments to borrow than save

To say “bond bingeing” has become a bad habit is an understatement. In the US today, government borrowing has become a debt crisis. In Between September 30 and October 17, 2013, much of the US government infrastructure was forced into shutdown due to inability of Congress to agree about how the costs of Obamacare could be met.

You’d expect in a financial crisis that a responsible government would look for every way possible to reduce spending. And yes, they attempt this. But not very successfully. Every proposal to reduce spending prompts a counter argument that it’s unfair, unpopular, impossible, or will lead to extra costs elsewhere. And this is where our governments fail us. Unlike businesses which will act fast and ruthlessly slash costs, doing whatever they can to remain solvent, governments are huge unwieldy bureaucracies and every cost cutting proposal becomes bogged down in debate, argument and ultimately delay and compromise.

Meanwhile US government debt is in crisis as it continues to soar out of control. But unlike every recession before, when government spending reduced or slowed, in the wake of the 2008 crisis, the opposite happened and it took off like a rocket:

Total US public debt in 2013 was $17.6 trillion. That’s $36,653 for every man, woman and child in the USA today. It’s 31.3% of all the debt in the world and has overtaken GDP in the US.

But other western economies are not far behind. In the UK, government debt per person is $32,553. In Germany, it is $31,945. France is $31,915 and Italy $37,956. In the most struggling western economies, the situation is even worse. Greek debt per person is $40,486, a staggering 161% of GDP.

But the worst is behind us now…isn’t it?

This wouldn’t be so frightening if western economies were showing improving domestic incomes and earnings. But this isn’t happening. In fact the reverse has been happening for over 40 years.

Despite rising productivity, in the US, real household income has hardly grown at all since 1970!:

What we see here is critical. The vital connection between GDP and household income has broken. Permanently. And this reality has nothing to do with the financial collapse and the recession. It’s been staring us in the face for forty years or more. As technology continues to accelerate productivity, relentlessly reducing production costs and thereby lessening the need for human labor, there is absolutely no reason to believe that future GDP growth will result in increased household incomes.

This situation has little or nothing to do with party politics. It’s not about left vs. right or capitalism vs. communism. It’s to do with global economic and monetary systems, energy, technology, communications and society’s expectations.

And in the west, the expectations of what the system can and should deliver have completely outstripped its abilities to meet those expectations.

How a failure in selection processes can bring down a bank

By Neil Patrick

Poor governance allows bad leadership choices. And bad leadership choices risk the destruction of a whole business.

This week has seen the conviction of former Co-Operative Bank Chairman Paul Flowers for possession of class A drugs. Specifically, cocaine, crystal meth and ketamine. The mass media has had a field day with the story, but the scandal isn’t the part of the story I am most interested in.

The most intriguing question for me is how was it that Paul Flowers, who had no experience in banking was ever appointed at all?

This drugs scandal is just the latest in a long series of misjudgements which beggar belief for a man who rose to hold such a senior position.

Here’s an extract from the Wikipedia entry about Paul Flowers:

Soon after the filming of Flowers’ purchase of non-medicinal drugs was released to the media, it was revealed that, while deputy head of Social Services at Rochdale Council, Flowers had known about the activities of paedophiles at a residential boys' school, but had neither informed parents nor taken measures to close the school, was responsible for rejecting allegations of child sex abuse by the late Cyril Smith, and that, in 2011, while working at Bradford Council, "Inappropriate but not illegal adult content was found on a council computer handed in by Councillor Flowers for servicing. This was put to him and he resigned immediately."

Several newspapers reported allegations that he communicated with rent boys using his work email account while he was in charge of the Co-operative Bank, and was convicted of carrying out a sex act in a public toilet. After the bank lost £700m in the first half of 2013, and a £1.5 billion hole in the bank's finances was discovered by the new Chief Executive Euan Sutherland in May 2013, Flowers resigned in June 2013.






At the root of this crisis is bad governance and weak HR

How can it be that a person with such a background was appointed to lead an institution whose core ethos is supposedly based on fairness, transparency and good ethics?

He was voted in unanimously by his peers, but also was judged by the FCA to be a fit and suitable person to be a non-executive director of a bank.

According to some of his former colleagues, the former Reverend Flowers allegedly got the job because he did well in psychometric tests, despite lacking the financial knowledge of other candidates for the job.

Rodney Baker-Bates had experience of banking but lost out to Flowers because of the tests. A review of the bank’s governance decided leadership was more important than financial knowledge.

So Baker-Bates became one of Flowers’ deputies alongside David Davies, both appointed to keep an eye on the chairman and provide financial expertise.

When questioned, they told the Treasury Select Committee that they were ignored, and both said they would quit the board after the lender voted to buy 632 branches from Lloyds in 2012.

Baker-Bates said, “I set out to convince the board that the Lloyds branch acquisition was a giant step too far, and it was over-laid on another major error, Project Unity - which was intended to bring bank and group leadership together.”

How can it be that Paul Flowers passed the psychometric tests?

The most reliable form of psychometric testing, the five factor model (FFM) quantifies the extent of each of these personal characteristics:

• Openness: intellectually curious, prefer variety and novelty, active imagination
• Conscientiousness: dependable, prudent, methodical, achievement striving
• Extraversion: sociable, talkative, excitement-seeking, warm
• Agreeableness: sympathetic to others, cooperative, trusting
• Neuroticism: emotionally unstable, anxious, irritable, impulsive

If such tests were applied properly and evaluated correctly in the case of Paul Flowers, then why was he ever appointed? Someone, somewhere either got this wrong, or was overridden, with disastrous consequences.

What does the future hold for the Co-operative Bank?

Last year the Co-op Bank had to be rescued after it was left with a £1.5bn capital shortfall, with many of its troubles stemming from the merger with the Britannia building society in 2009.

Despite this bailout, the cumulative impact of this mismanagement means the capital position of the bank remains precarious:

This week we learned that the Co-op Bank will pay four of its largest hedge fund and institutional investors nearly £2m to support its £400m capital raising effort to ensure the deal goes through without a hitch.

A failure in this capital raising attempt could potentially bring about the collapse or at least drastic restructuring of the entire organisation.

If the Co-op Bank were for some reason not to be able to raise the money, the Prudential Regulation Authority could put the lender through a wind up process that would likely see it split into a “good bank” and a “bad bank”, with the continuing operations handed to another major lender and the toxic assets put into run off.

So it’s been a tough week for the social media team at The Co-op Bank. And their customers are not impressed with the situation either:

As I have contacts with institutional depositors at the Co-operative Bank, I spoke with them about this today and learned that they are pulling millions out of the Bank as a precaution against its possible collapse. Such a collapse would be a sad end to a once ethical and genuinely different type of bank.

And it can all be traced back to poor governance and leadership selection processes. This isn't the first and it won't be the last example of why proper governance is critical to large businesses. But it is perhaps the best example yet of the catastrophic damage that can be done through the incorrect use of psychometric profiling.

If you’re highly qualified, how come you can’t get a job?

By Neil Patrick

How can it be that so many highly skilled people are unemployed, while employers claim they cannot find people with the right skills?

Over the weekend I was reading The Third Industrial Revolution by Jeremy Rifkin. Although this book is about the economic, environmental, technological and social issues we face today, within its covers there is an explanation of this apparent contradiction.

And understanding this is of critical importance to anyone who wishes to prosper in their career over the long term.

We’re on the cusp of a new industrial era

Jeremy Rifkin has identified that industrial epochs are characterized by two determining factors. These are the dominant energy source and communication media.

So, the first industrial era was powered by coal and the prevailing communication medium was the printed word. Society organised itself around these…coal powered transport and industry and provided heat and light to homes and businesses. Print communicated everything from newspapers and novels to instruction manuals and bibles. All were committed to print.

The second industrial era is now in its death throes. This was driven by oil and the dominant communication mediums were radio, television and the telephone. In case you've not noticed, the oil is running out fast and TV and radio have ceased to be the dominant media they were in the last 60 or 70 years. Oh and it seems telephone landlines are becoming less and less popular too.

Rifkin believes that the third industrial era will be based on green energy and the internet. This change will have massive implications for the types of jobs we all do. The effects of the transformation will impact every one of us, not just those working in energy, communications and media. And there is clear evidence in many of the events that have unfolded over the last few years that he is right.

Rifkin even argues convincingly that the current financial crisis was a symptom of the end of the second industrial era, rather than the cause of it.

We’re all potential victims of accelerated obsolescence

So not only are we currently undergoing a transformation of society itself, the technologies which will define our society in the 21st century are undergoing a revolution too.

And because the pace of technological change is accelerating, very few people can assume that their skills will be current for much more than 10 years or so.

Google didn’t exist in 1995. Back then I would search the internet using a long forgotten search engine called Dogpile. Today, if a business doesn’t rank high on Google searches, it’s increasingly invisible and rightly or wrongly judged as second rate.

The credit industry was dominated by credit cards until 2008 and the financial collapse. Try finding a job today if you’re a credit card professional. Despite the credit crunch starting almost 6 years ago, one of the biggest UK credit card issuers, MBNA has been contracting now for years. It currently employs around 3,000 staff, down from 4,224 in 2011.

Yellow Pages was a huge global business for decades. But despite trying to shift its business online, it’s facing an inexorable decline in its relevancy. Not only that, it fails on environmental grounds too. The Product Stewardship Institute claims local governments spend $54 million a year to dispose of unwanted phone books and $9 million to recycle them. Phone books use low grade glues and are therefore difficult to recycle, and they often clog recycling machinery.

There’s no job security in established businesses either

Of course the decline in the fortunes of businesses is nothing new. What is new is that the speed at which a firm can move from established business and secure employer to contraction or even obsolescence. And if your career is tied up with one of them, your skills can become worthless very quickly.

The U.S. Postal Service suffered 30,000 layoffs in March 2010. Sears/K-Mart layed off 50,000 in January 1993. IBM layed off 60,000 in July 1993. And General Motors layed off 47,000 in February 2009. And these are just some of the biggest. For every one like this, there are hundreds of smaller less well reported downsizings and closures.

Organisations are very good at disguising their difficulties right up until the last moment. Are you really tuned in to the real situation at your employer? You need to be.

So if you are planning to work until you are 65 or beyond, you can fully expect that you’ll need to completely reinvent yourself at least 4 or 5 times over during your career. Note that I say ‘reinvent yourself’ not just change jobs…

Peter Weddle makes this comment on the ASQ blog. This is his take on it:

"Today’s turbulent economic environment has changed the way employers fill their vacant positions. Instead of using their traditional approach — hiring a person who is qualified for a job -they have turned to a new strategy that is best described as “talent staffing.” As a result, tens of millions of decent, dedicated and capable people — men and women who have successfully worked their entire lives — are now unemployed, unsuccessful in their search for a new job and unable to figure out why. No one has told them that the rules of the game have changed".

Do not confuse this with the economic downturn

It’s tempting to think that our recent woes are because of the recession. And that if and when things recover, we’ll all be much more secure in our jobs. Think again.

This isn’t a temporary state of affairs, it’s a paradigm shift which will continue to accelerate over the coming years and decades. It is this speed of change which means that often, skills which were cutting edge as recently as four or five years ago, can be obsolete today.

So you need to keep not just your skills but your TALENT up to date. And that’s the crux. If you are employed, you can fully expect that your employer isn’t going to react very enthusiastically to a request for a couple of weeks off work.  You're asking them to pay for you to learn some new stuff that may very well not be relevant to the job you are doing today, but which may be critical to the job you’ll need in say three or four years’ time…

If you are looking for work, you need to understand that employers will only hire individuals who have all of the skills to do a job and the state-of-the-art knowledge required to use those skills effectively on-the-job. They seek better-than-qualified persons to do a job, and they expect superior performance from them and from their first day of work.

This means they expect you to be the custodian of your talent value. That’s down to you not them.

What is talent?

Ironically, even though millions of people in Europe and the US are now unemployed and looking for work, a large percentage of employers believe there is a shortage of individuals with talent. They are quite wrong to think this of course. But perception is reality whether it is right or wrong.

Peter Weddle defines talent thus:

In practice, employers have defined a person of talent to be someone who has one or both of two attributes:

They have a skill that is critical to organizational success and a track record which demonstrates their ability to use that skill effectively on-the-job.

and/or

They perform at a superior level on-the-job which sets a standard that encourages their co-workers to upgrade the calibre of their work, as well.

The tragic irony is that employers do little or nothing to help their employees develop and hone their skills and talents for the future. So the moment you get hired is the moment your talent value starts to slowly but inexorably erode. You can be sure that your employers will only invest in you if they perceive a more or less immediate return on that investment.

What can you do about this?

Employers want to hire all-stars. Not just people who are good at what they do, but people who are clearly the best at that task. And the only way you can be such an all-star is if you are working with your talent.

First, make sure you know where your talent lies. Talent is not skill. Talent is an inherent capability, a natural capacity for excellence at a particular type of work. Talent is as individual as you are. But it cannot be universally used. No talent is compatible with all work, but every talent can be expressed in more than one career field. It can be developed to perform in one environment today and another tomorrow. But before you can do that, you have to understand precisely what you are talented at.

Second, make sure you are working in a career field and for an employer that enables you to express your talent. Employers aren’t hiring your skill, they’re hiring what they think will be your total contribution to their organisation. And right now if you have a job and your work isn’t allowing you to demonstrate your true talent, then it’s time to be looking elsewhere, even if you think your current job is OK.

Thirdly if you’ve identified your talent then you must do everything possible to nurture it, especially if you are not able to do this in your normal job. Because this isn’t something you can achieve in a few weeks or months, doing this while you are employed is vital.

Finally, you must step back and take the long view. The prospects for your firm and industry affect you. Directly. Whilst it’s easy to think that when Lehman Brothers collapsed in September 2008, it was an unpredictable event, the truth is that there were signs at least one year earlier that the firm was in financial difficulties. Moreover, five years earlier, in 2003, it had suffered an $80 million penalty from the SEC for using its researchers to unduly influence market prices.

Yes, it’s unfair that the rules of the game have changed. And yes, it’s even more unfair that employers never bothered to tell anyone about it. But if you step back and understand what is going on, you’ll be better equipped to deal with the reality. And if you fully embrace the reality, you’ll seek and find and the work you really love and build a sustainable career with it.

Detroit: a vision of the future?

By Neil Patrick

Not many people know that in the 1950’s Detroit was the fourth largest city in the US.

But almost everyone knows that the city is now bankrupt.

The mainstream media is focused on the crazy legal merry go round that has ensued in the wake of this collapse.

But a city is not really an entity on its own, although bureaucrats may find it more convenient to organize it that way. A city is the sum of all the people and lives it contains. And in the case of Detroit, these lives have been wrecked in varying degrees, not only directly by the bankruptcy, but also by the massive collapse of the government services which resulted from it.

I wonder if in the late 20th century, we had presented people with the reality of the condition of Detroit today, anyone would have taken it seriously? I rather suspect that the majority view would be something like, ‘Oh, that could never happen here’.

But it has and to my mind it presents a terrifying premonition of what the future might look like for many other cities in the US and other western countries. The UK already has what I would call it’s own ‘mini-Detroits’.

The bottom line is that if you worked or are working for any Detroit public organisation, you are unlikely to ever see more than a tiny fraction of your pension rights actually materialize.

But this isn’t just an issue in Detroit.

You may be surprised to discover that 61 other cities in the US have a gap of more than $217bn in unfunded pension liabilities. That's right $217 billion!

And I’d like someone to tell us where that money is going to be found.

You might be tempted to think along the lines of, ‘Oh yes , my city is different, because…’ (add your excuse(s) of choice here). But is it really? Really?

The collapse of Detroit is multi-faceted. Of course it all began with the decline in the fortunes of the US car manufacturing giants based there. And there was corruption, and racial tensions, and a vicious circle of increasing government spending to try and prop things up, delivering worse and worse results, leading to yet more spending. And an exodus of the middle classes, in other words, the ones who contributed the biggest slice of the revenues that government uses to pay for things.

What can we do to protect ourselves from this type of risk to our lives? Well there are three groups of people who are not only unscathed, they are actually doing rather well in Detroit right now.

That’s urban redevelopment bosses, politicians. And lawyers.

Choose your poison.

And if you’re not scared enough already, just watch this to see the full HD version of a really scary movie about the tragedy of Detroit courtesy of Stefan Molyneux at Freedomainradio.com

UK: Why falling unemployment numbers are a mirage

By Neil Patrick

Well, it’s Saturday again. On this day every week, I tend to draw breath after the week’s activities, fill myself with coffee and reflect on the week’s news and developments.

Naturally enough, employment news is high on my list of topics to digest. And today is no different. Except that today, I have good news to report…well sort of.

In the UK, we are being told that we’re experiencing falling unemployment and that this is a sign of an improving economy.

Unemployment peaked at around 8.5% at the end of 2011 going into 2012. It’s now around 7.7% based on the current 3 month rolling average, or just 7.1% if you look at the latest monthly figure. So it’s showing a steady fall, perhaps even speeding towards the ‘target’ of 7.0%.

Why do I say that 7.0% is a target? Because that, said new Bank of England governor, Mark Carney, in his ‘forward guidance’ in August, is the level at which the BoE will start to increase interest rates.

Merryn Somerset-Webb, Editor in Chief of MoneyWeek described this as, ‘A dim-witted policy based on a number no-one understands’. Quite.

Carney also said he expected the UK to reach this position sometime around 2016! So we are doing great - we’re already miles ahead of where the Bank of England thought we’d be. Erm…not quite.

This figure of 7% is not some sort of magical threshold at which suddenly the recession becomes history and we all return to some sort of financial nirvana. Far from it.

If the current trend continues, we’ll be at 7% sometime around the middle of 2014. And fully unprepared to bear the even greater cost of living increases this will bring, on top of the ones which have crushed most people’s spending power over the last five years.

But as I have talked about elsewhere on this blog, raw unemployment numbers do not tell the story of what is really happening. And achieving the figure of 7% means absolutely nothing.

We know that huge numbers of people - around two million - are currently under-employed, i.e. they are working, but not earning as much as they need or want to. But they are not unemployed as such, so they are not counted.

Many more have simply given up looking for work and disappeared off the radar all together. These are not counted either.

Meanwhile, hundreds of thousands of young people have decided to avoid leaving the ‘womb’ and have stayed within the education system, hoping that during their delay, the job market will improve and give them the win-win of higher qualifications and an improved jobs market. Yep you guessed it - another artificial diminution of the unemployment total.

Just about everyone who could afford to take and has been lucky enough to be offered any sort of early retirement package (senior public sector executives for the most part – no comment) has understandably jumped at the chance. So off they go too!

Once we factor in these aspects, you can see why the raw unemployment number is virtually meaningless as an indicator of the financial well-being of the nation.

Which would be okay if it were not being used by the BoE as a barometer to judge when we are all able to afford higher interest rates on our mortgages and higher inflation in the already massively overinflated and over-taxed costs of essentials like power, transport and food.

Meanwhile, these figures have caused a good deal of self-congratulation in government circles. The government knows just as well as you and I that these numbers are an illusion. But they are gambling on the belief that most of the electorate won’t spot the ruse.

And I fear their assessment about this may well be correct. Most people I think will not be interested in looking behind the numbers to see what is really happening and this blind spot will mean that many will be more inclined to accept the idea that the economy really is improving.

I’m sorry to say it’s just not true. It’s simply more lies and corrupted statistics.

The invisible threat to all our futures

By Neil Patrick

I started this blog because I am convinced we babyboomers are in a period of unprecedented danger. And not only us, those that depend on us too. Like our kids. And our parents. And because no-one seemed to have any idea what to do about it.

Just about everything we grew up believing about jobs and careers and how our lives would unfold has been swept away in a perfect storm of recession, global economic power shifts, financial crisis, government failure and transformation of the workplace.

Our education in the 1960’s and 70’s was a reflection of a different world. This was a world in which the US and the western economies still held sway. And the education system was geared to providing a workforce which fed that economic machine with the human labour and skills it needed.

Only scraps remain of that world. Just look at Detroit and any other examples of the old world which are now little more than derelict monuments to a bygone era.

As a group, we are extremely poorly equipped to respond to changes of this magnitude. If you have a job, you may consider that all this is irrelevant to you. You may consider yourself lucky. In some ways you are. But do you genuinely believe you will still have a job in five or ten years’ time?

Whatever your answer to the question, the fact is you are almost certainly going to need one.

Today, we have governments that still do not accept that this collapse is irreversible. They cling to electoral manifestos which regardless of policy or position on the political spectrum, argue that their policies are the right ones to restore the situation to something resembling what we all grew up in.

Well, I believe that’s all hogwash. It is never coming back.

The reason politicians tell us that they know what to do to restore the old world order, is simply because saying anything else would make them unelectable.

Moreover, there is a cosy alliance in place between government and big business which maintains a status quo and is a perfect mechanism for protecting the personal interests of the political and business elites.

We are actually partly to blame for this. We abdicated our responsibilities wholesale to our governments many years ago. We put our faith and trust in them. You want education for your kids? Fine we’ll provide that. You want defence against real or imagined enemies? Fine, we’ll protect you. You want doctors and hospitals? No problem. Free education for your kids? Check. You want care for the elderly, and roads and railways and waste removal and a justice system and food hygene and pensions? Don’t worry, we give you all of these. The list is endless.

And that’s the problem. Because every government has attempted to provide all these things to ensure it retains or attains power, we have asked for and they have accepted a magnitude of tasks which they are almost bound to fail to deliver. Not only that, we have to pay for it.

So on the one hand we have an almost endless and growing list of government service obligations to citizens. On the other, we have to figure out how we can pay for this. And yup, you’ve guessed it. We can’t. The money (or more specifically, the credit) has run out. You can only borrow and tax so much before you reach breaking point.

And if your economy isn’t growing, your tax receipts are falling. But you’ve still got to pay for all those promises you made to the electorate.

That’s why the promise has become impossible for governments to keep. The promise was predicated on the belief that western business and economic growth could continue to outpace the rest of the world.

Western governments have dug themselves so deeply into debt that no amount of economic improvement will get us back to where we all want to be.

Yesterday I was sent a viewpoint from someone who I won’t name, but who has had many dealings with the political elites, which I think sums up perfectly the hidden nature of the forces at work in government – and underpins my belief of one of the key reasons we cannot expect to see significant change if we look to politicians (of ANY party) to be our saviours.

The tone is heavily ironic and talks about the UK system, but is broadly relevant to the governments of all western economies, so read with that in mind.

Why do we need a new political philosophy when we already have a perfectly good one? The trouble is that people don’t understand it so let me explain.

We have a democracy. This means that we choose from among a small cadre of hereditary leaders who select a head from amongst themselves. They are in a unique position to do this: they have been trained from secondary school (usually but not only Eton) to understand their entitlement. They are then trained at university (usually Oxford or Cambridge) how to exercise it, for the most part on Politics, Philosophy and Economics (PPE) courses.

They understand as none of the rest of us do that political leadership has nothing to do with purpose other than itself and nothing to do with us. They are not interested and, more to the point, experience has taught them that for a relatively small outlay in highly skilled lying we can be conned into anything. And if the worst comes to the worse they can find scapegoats for us to blame for any consequences that fall upon us. The workshy are blamed for unemployment, the homeless for shortage of housing, the poor for poverty, immigrants for almost everything.

They are pragmatists above all. They recognise that real power in the world lies with money and globally organised money in particular. So they look after the interests of “business” which really means very big business and finance. In return business looks after them. The price is very high: the lies with which to justify the upward distribution of power and wealth become increasingly transparent but it is not a real problem. We must after all select from among their number if we can be bothered to engage in the process at all.

So there you have it. A perfect system already exists. To oppose it creates the danger of instability which makes you a terrorist. Relax and enjoy.

You may think that what I have said so far is unduly cynical and pessimistic nonsense. You may even think it smacks of paranoia. After all I have presented no facts to support my opinion. Worse I have presented no practical alternative. Without facts and a real alternative, how plausible is my argument?

Those criticisms are all fair and reasonable. And that’s why I’ll be returning with more on this topic over the coming weeks.

For now though, I’ll just leave you with this question. Do you sincerely believe your government, or its opponents, really have a realistic chance of delivering anything resembling the sort of lifestyle we all grew up expecting over the next 20-40 years?

New Zealand: Ageism is alive and kicking

By Raewyn Court

Ageism on the job and not enough cash to retire ... it's tough being a working senior

If you're in your golden years and don't think you have enough money saved for a comfortable retirement, you're in good company.

A study by recruitment firm OCG Consulting says only 6 per cent of New Zealand workers aged over 50 have sufficient savings for "financial security" and a "good lifestyle" in retirement.

OCG's report, Coming of Age: the impact of an ageing workforce on New Zealand business, shows the desperate financial situation of many older workers, as well as widespread workplace age discrimination.

The survey of 864 job-seekers and 56 senior business people highlights that by 2031, one million people will be of retirement age, yet six out of 10 workers over 50 today say their retirement savings are insufficient.

OCG chief executive George Brooks says the combination of financial necessity and frequent ageism is leading the country towards a socio-economic crisis as a generation of baby boomers prepare to retire.

"This is a human issue, a business issue and an economic issue," he says.

"It's not enough to say the market will sort it out because our analysis shows the market isn't, and these grim statistics need to be addressed."

The report shows that during the past five years, about 60 per cent of job seekers have seen or experienced age discrimination, including reduced access to promotion, less interesting jobs, lower remuneration and reduced training opportunities.

Brooks says that while similar surveys have shown a degree of discrimination, reports from employers and employees show ageism is more prevalent than realised.

Although close to half of employers agree that older workers are a largely untapped resource, few have strategies for ageing workforce participation.

Brooks says there needs to be a wider appreciation of the value older workers bring to businesses, including knowledge, experience, productivity and ability to handle a crisis.

"Financial need, coupled with ageism, is a very real economic, political and social problem," he says.

"It is individual firms and the workers they employ who make the decision to hire or not to hire an older worker. Solving this problem requires leadership and cultural change."

One company that rejects age discrimination is international beverages company, Frucor New Zealand.

"The age of an applicant, like their gender, is irrelevant," says managing director Mark Callaghan.

"By way of example, we have recently built a new distribution centre and wanted to improve the level of shift leaders.

"We made three hires - a man in his late 30s, a woman in her early 30s and a man in his 50s. What they had in common is that they were the best individuals for the job."

Callaghan believes there are many positive factors in employing an older person, such as experience, maturity, life balance and stability, as well as stickability.

"More mature workers tend to want to build a career with the organisation they are in. That is something we encourage at Frucor."

Half the senior employers surveyed in the OCG report cited negative factors in hiring an older person, including cost, lack of adaptability, health issues, IT illiteracy and lack of ambition.

Callaghan says these factors would be a concern - or at least things to consider - when hiring anyone, irrespective of their age.

"Lack of adaptability is not something that is exclusive to older people. Again, what is most important is the individual and their attitude."

This post originally appeared here:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11148248