A gaping hole at the heart of economics

In the UK, the opposition leader Ed Miliband has caused a stir by promising controls on energy prices for households; with much support but also criticism that there are insufficient proposals to ensure cheap supply. In one response, economist Roger Bootle criticized the policy as little more than a gesture. But this article also revealed a gaping hole at the heart of standard economic thinking that he shares with Mr Miliband and his advisers, for example with the observation that:

The contrast between democracy at the ballot box and massive inequality in the market for employment is a huge problem for modern capitalism.

Both he and Mr Miliband assume that ‘capitalism’ is a single entity, with a natural tendency towards inequality. This glides over the fact that some profit-making corporations are massively more equal than others, and that many of the more equitable ones are among the most profitable, as our case studies show.

Roger Bootle counters Mr Miliband with a list of five measures for the UK economy:

• Conservative macro-economic stewardship to ensure stability,
• Investing in infrastructure and encouraging private investment,
• Minimizing costs to starting businesses and employing people,
• Reforming the welfare system to encourage work,
• Ensuring that young people have good education.

Little to object to, but the problem is what’s missing. Completely absent is any discussion of the framework and beliefs that shape the way in which private and public sector organizations are run, and the personnel charged with this responsibility. Much of our recent economic problems stem from a failure in the dominant business model, but there is no appetite for fixing it. In conventional left-right economic thinking, it’s not even on the agenda.

As we state in New Normal, Radical Shift: why are there calls for labour market reform, but never management reform?’

We’ve no wish to single out Roger Bootle, who is one of the more thoughtful and valuable commentators on many macro-economic issues. The point is to draw attention to this massive, gaping hole at the heart of pretty much all economic analysis, left-wing, right-wing, Keynesian, neo-liberal, the lot: the pretence that management and leadership don’t matter.

Just how likely is that?

• The Chartered Management Institute is starting to raise the profile of management and leadership, and illustrate its economic contribution, within the media and the UK Parliament. For more information, click on this link.

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Selective outrage in a partisan world

This month the Chartered Management Institute asks why management is still so neglected, with just one in five actually qualified as a manager, and 43% rated ‘poor’.

It’s symptomatic of a wider problem, in which entire sectors are glorified or demonized in unhelpful and simplistic ways. This has its roots in a seriously dysfunctional political-economic system. By and large, left-wing parties represent public sector interests, and right-wing parties represent business – and in the USA and UK, considerable support from hedge funds and investment banks.

This has resulted in ‘institutional sectarianism’ – a tendency only to be outraged by governance failures only if they occur in the opponents’ sector. In the UK, Conservatives will denounce public sector inefficiencies and unaffordable public spending, but overlook the damage caused by investment banks’ reckless speculation (ironically, state-subsidized – but that’s another story). Labour will lay into ‘big business’, but neglect failures in health care on its watch, and cover up weaknesses in its welfare-to-work scheme with misleading spin.

This narrow party-political point-scoring holds back proper development of accountability and good governance – in the public and private sectors alike.

From New Normal, Radical Shift:

“In the national media, management and leadership have been dropped as subjects. This is a problem on the left just as much as the right. As the former Financial Times management correspondent Richard Donkin lamented at the awards ceremony for the Chartered Management Institute’s Management Book of the Year in January 2011, there is not a single management correspondent left in the ‘quality’ media in the UK. We will do everything to reform economies and businesses, it seems, except challenge the beliefs, behaviours, attitudes and decision-making processes of the people who run them.”

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For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

We are what we believe

It’s often assumed that busy executives are too busy to worry about beliefs or philosophy – but in the real world our beliefs, or unwritten ‘scripts’ about how the world is, will affect priorities and decisions; whether we prefer financial to narrative information, and so on.

Just focusing on the numbers and managing for the next quarter has been exposed as inadequate – in pure business terms. Conscious leadership is an alternative. The idea is to illustrate the connections: between the personal, the team, the organization, society and the environment – all as an inter-dependent whole. At an individual level, an increasing number of business leaders are reassessing their beliefs, and updating them to bring them in line with a complex reality of faulty market pricing, finite commodities, and the nature of the company as a complex community of skilled human beings – not just a set of resources and targets. It’s a more realistic view, not a utopian one.

From New Normal, Radical Shift:

“Between us, we have coached, or interviewed for management books, hundreds of senior executives, and we also have senior management experience ourselves. This is the consistent finding: that personal presence and communication skills do not constitute a sideshow, but lie at the heart of what makes an effective leader. There is now considerable evidence that the personal presence of a senior business leader has a huge bearing on organizational climate and ultimately business performance.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

A world run by bean-counters

Weak skills hamper the growth of businesses; more evidence accumulates as to the economic impact of strong management.

Yet still, in the strange world of politics and formal economics, people management is regarded as junior to data analysis. We really do live in a world run by bean-counters.

One often comes across the same bizarre split when working at a corporation. The big decisions are made on the basis of accounting cost, but from time to time a token gesture is made towards ‘engagement’ with an away-day or a little bit of training. The two worlds are never joined up – except in the very best-run companies, who cheerfully ignore economic orthodoxy and the damaging business model that it has produced.

The economic impact of strong management is colossal, something the dismal science continues to ignore.

From New Normal, Radical Shift:

“According to the orthodox views of neo-liberalism and Marxism, which still dominate popular prejudices in the boardroom and on the picket line, enterprises such as Mondragon, Whole Foods, Nationwide Building Society, Semler, Google, WL Gore & Associates ought to be commercial failures. The fact that these organisations are not only successful, but exceptionally successful and resilient, tells us that something is fundamentally wrong about the dominant economic and political philosophies that still hold too much sway. The economic benefits of cooperation and equality of status are beginning to be seen, not in experimental communes, but in some of the most successful corporations in the world.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

People don’t just matter ‘sometimes’

The quest for employee engagement often struggles to be on the corporate or political agenda. It sounds ‘soft’ both from a finance-based business perspective, and to trade unionists who emphasize legal rights. ‘Engagement’, however, isn’t soft: and it isn’t only about rights and employee welfare – it’s about performance, too, based on the inter-dependence on which all organizations depend.

What is frustrating is the common practice of paying lip-service to engagement and enlightened leadership, only to revert to type when discussing strategy or politics. In these realms, using accountancy-based economic models, engagement isn’t just discounted, it’s treated as a negative. We discussed last week how the wage cost is not the employment cost, but it is remarkable how often this gets forgotten.

Many people sort of ‘get’ that engagement matters, but baulk at the implications. In the real world, it matters all the time: not just in teams but in strategy; not just on training courses but in project management. The organization consists of people, not ‘resources’.

From New Normal, Radical Shift:

“Most do not yet possess the ideology or the vocabulary to describe and encourage the economics of inter-dependence; for example by not adopting human capital analysis which, where used, shows the huge business returns of high levels of employee engagement and promising careers for staff.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

A narrative of hope

It’s questionable whether the ritualized debates over global warming, typified by reaction to last week’s report by the Intergovernmental Panel on Climate Change (IPCC) are serving a useful purpose any longer. The two camps are, probably accurately, described as alarmists and deniers; but neither alarm nor denial is a sound basis for policy development.

Perhaps unexpectedly, major corporations are now leading the way on a sustainable, zero-carbon future, for reasons that include preventing climate change – but also because it makes good business and environmental sense. A question we raise in New Normal Radical Shift is whether we are neglecting other environmental challenges.

More fundamentally, we need a narrative of hope, rather than one of excessive alarm or fear.

From New Normal, Radical Shift:

“A natural advantage of corporate social responsibility managers is a tendency to focus on practical, but also optimistic, objectives. This is in contrast with many non-corporate social and environmental campaigners who have a tendency to project images of doom, especially about prospects for the climate; and hatred of the forces of capitalism. This creates a climate of fear, which can cause potential supporters to feel disengagement or impotence. Progressive change has never been effected through fear. Martin Luther King did not promise vengeance upon lynch mobs. He had a dream. Nelson Mandela did not pledge to drive the white folk of out South Africa. He promised equality.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

Win-win-win-win-win: multiple benefits of a living wage

As discussed yesterday, it is a fixed belief on the left and right of politics that the lower the wages the higher the profits. This bias hampers development of ‘living wage’ approaches. Fortunately, many enlightened companies see through this cynical nonsense and become excellent employers.

It’s relatively easy, conceptually, to scrap this limiting belief: just understand that organizational economics is not a zero-sum game. You don’t have to take from others to promote your interests. The demonstrable economic impact of employee engagement can far outweigh any increase in pay – if the leadership and strategy are strong, as we’ll discuss further next week.

When it is intelligently managed, a living wage policy is a ‘win-win-win-win-win’:

Win – for the worker and her or his family, who have better quality of life.

Win – for the line manager and the organization, as a well-motivated workforce produces better services and happier customers.

Win – for the shareholders, because better customer service generates superior returns.

Win – for society, because there’s less poverty, personal debt and family breakdown.

Win – for the taxpayer, because fewer people need social security benefits.

From New Normal, Radical Shift:

“What we found was that, very rapidly, by improving worker training, management training and productivity-management of the factory – how it flows – we could free up the money to make it more productive, and free up the cash to pay workers more – 23 per cent more. It was an interesting virtuous circle. [Interview with Mike Barry, Marks & Spencer]”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

Extreme inequality is a product of left-right politics

A recent article in the New York Times about the ‘sinking middle class’ of the USA was heavily tweeted and generated much comment. Its central point was that the elite, now including many super-rich individuals, has been the only group to have benefited from economic growth in recent decades. Income for the middle class had stagnated while their costs – especially for health, housing and higher education – had soared.

It made for sobering reading, but unfortunately tended to repeat some of the ‘zero sum’ thinking that entrenches deep inequalities. One section reads: ‘The real wages of workers on the factory floor are lower than they were in the early ’70s. And the richest 10 percent of Americans get over half of the income America produces.’

What this phrasing disguises is the extent to which many enlightened firms with low inequality have actually been among the stellar performers – in pure economic terms; also, how the extreme inequalities result in part due to an oligarchical nature of the USA and other western countries, in which financial services have gotten themselves underwritten by the state. In this arrangement, they get to keep the profits and dump their risks onto the taxpayer. So they’re not really getting a share of ‘the income America produces’ – rather they are allowed to keep their state-subsidized casino winnings. Simon Johnson is an excellent writer who, among others, has exposed this.

Supporting this dysfunctional arrangement is the dominant left-right economic ideology. This is based on the idea that, the lower the wages the higher the profits. It’s called ‘flexible labour markets’ on the right and ‘social dumping’ on the left. It suits both left and right to pretend that extreme inequalities result from ‘market forces’, but the truth is more complicated. Our binary political way of thinking is no longer fit for purpose.

From New Normal, Radical Shift:

“In the US, while the left-wing blame deregulation for the credit crisis, and the right-wing blame the Clinton administration’s encouragement of home-ownership in lower-income groups, [Simon] Johnson identifies a common factor: ‘Even though some [policies] are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

An end to ‘take-make-waste’

One of the most curious aspects of the business model that has held sway over the past few decades has been the ability to cling to ideas that are simultaneously counter-intuitive, wasteful and lacking in an evidence base – and to express deep scepticism about smarter ways of working.

On the matter of environmental sustainability, there persists an attitude that the rapacious, colonial approach of ‘take-make-waste’ must be good for profits, and that to care about the environment must involve costs. But how on earth can being wasteful make good business sense? This came to the fore last year at an event run by the sustainability network 2degrees, when a spokesman for Coca Cola Enterprises commented that the company was trying to be far more efficient and environmentally responsible, but that people doubted it could be done.

As recorded in our blog at the time, vice president Stephen Moorhouse said the firm was in its sixth consecutive year of growth and had reduced carbon emissions by 8.5%. Smarter operations and more efficient use of energy can help the business, yet he often gets asked how it is possible to combine business growth with better environmental protection. ‘I get asked that question a lot,’ he said.

In New Normal Radical Shift, we encourage adoption of Bob Willard’s dictum of ‘borrow-use-return’ to replace the unsustainable ‘take-make-waste’.

From New Normal, Radical Shift:

“Traditional MBA-style business education in the late 20^th Century chopped the business off from the personal (deemed too soft or self-indulgent) and from societal and environmental considerations (seen as being a matter for politicians and NGOs, not busy executives). This approach has often been criticized as being unethical; it is increasingly evident that it is impractical also. Divorcing business strategy from concern for the planet does not make good business sense over the longer term, because the planet is where the business is located.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com

Accountancy doesn’t even measure cost

The extent to which the finance function has held management and corporate governance in its grip is rarely fully acknowledged. It encourages an excessive focus on historic accounting figures, often diverting managers away from the real company and its performance. It even leads to the remarkable conclusion that employees don’t even exist, that they are ‘intangible’.

Now, to be clear, we’ve nothing against finance. It performs an essential function. What New Normal Radical Shift challenges is the idea – firmly part of the fashionable business model – that only finance should be allowed anywhere near the steering wheel. Consider the following common phrase: ‘We must bear down on costs’. Well, fine, but unless ‘cost’ is understood as being a by-product of human behaviour, this focus is at best limited and at worst creates wasteful distortions and poor strategic decision-making.

The bias is exacerbated by an excessive focus on quarterly reporting, which adds short-termism to the problems of management-by-numbers.

The point was well made in the recent Management Futures blog of the Chartered Management Institute: ‘If a finance manager claims that: “We’ll save £x million by switching to casual labour,” this is an easy argument to rebut. You simply say: “That’s accounting cost, not operating cost. You’re omitting some of the biggest factors to take into account.”’

This of course, is heresy – the idea that accountancy doesn’t even measure cost very accurately. But it’s called being in the real world. Our radical shift isn’t about projecting an idealistic future, it’s more about catching up with the present. We’ll discuss the economic benefits of a living wage and employee engagement later in this series of blogs.

From New Normal, Radical Shift:

“Everything comes down to human commitment and skills. One problem that hampers wider recognition of this development is the persistence of the misnomer ‘intangible’ to describe human skills. This derives from the practices of accountancy and company law, which refers to tangible assets as those that can be owned by the legal entity that is the company and priced on a balance sheet. However, the ultimate underlying value of all companies is the people who comprise it. It is people who create assets, not the other way around.”

Buy the book: http://tinyurl.com/mp8w4lg

For Neela’s blog, go to: http://www.neelabettridge.com/category/blog/

Join the Linked-in group Radical Shift: http://tinyurl.com/nbmg754

If you are interested in learning more about training courses linked to these themes, or to invite Neela or Philip to give a talk on any of these subjects, please contact us on:

neela@neelabettridge.com

phil@whiteleywords.com