I was watchng a documentary about the guitarist and producer Nile Rodgers, who together with his musical collaborator Bernard Edwards had, with Chic and (as producer) Sister Sledge, a golden run of hits in the late 1970s, at the height of the disco boom. And then – after the so-called ‘Disco Demolition Night‘ in 1979′ – neither band had another hit. Without trying to overthink it this was a cultural moment that deserves a little more reflection.
I’m indebted to a letter in The Guardian for this account by J K Galbraith of the history of the American economy between 1929′ the year of the Crash, and 1932, the last year of the Hoover administration:
“Gradually interest rates were brought down. The rate at which banks could borrow was 1.5%, hardly a usurious charge. Bonds were bought on a considerable scale and the resultant cash went out to the banks. Soon the banks were flush with lendable funds.
“All that remained was for customers to come to the banks. Now came a terrible discovery. The customers wouldn’t come. Even at the lowest rate they didn’t think they could make money. And the banks wouldn’t lend to those who were so foolish as to believe that they could.”
And people say that history never repeats itself.
The image is a 1932 cartoon mocking Hoover for asserting that prosperity was just around the corner. It is from the Princeton Alumni Weekly, and is used with thanks.
Here’s a second post on digital technology from my contributions to Ogilvy Do.
The revolving door that takes you into my office in London has just been replaced after five months out of action. You needed to push the old doors; the new ones are automatic (and stop the instant you touch them). Sometimes, watching people trying to unlearn their old behaviours and apply new ones, I’ve been wondering if someone in the building is carrying out an experiment to see how quickly people are able to change learned habits in the absence of visual cues.
And this thought was partly prompted by a recent post by Alex Pang on the fad on the invisible interface. As Alex writes:
I think that, when it comes to interacting with the world or with information at a level above randomly waving your arms and legs around, there’s no such thing as an intuitive gesture that could be used by digital devices or wearables to trigger some action.
And he quotes the director and designer Timo Arnall, who has amassed a splendid collection of faddish cuttings on the notion that “the best design is invisible”. (more…)
I’ve been contributing some posts on a digital theme, through The Futures Company, to the Ogilvy.Do blog. Here’s the first of them, on Facebook Home.
There’s an interview in Fast Company with the former CEO of Groupon,Andrew Morton, who was forced out of the company after some disastrous results. About halfway through he tells his interviewer, “the moment a company goes public the conversation shifts from how they’re trying to change the world and the product they’re building to how they’re making money.” Of course: we all want to change the world, but that’s not the reason investors put money into an IPO
But it’s maybe a thought that should be on Mark Zuckerberg’s mind as well these days. Zuckerberg holds onto his belief that Facebook is on a mission to change the world, but the numbers aren’t looking good. It’s hard to avoid the notion that the company’s IPO caught the peak of Facebook sentiment, and the only way is down. The company’s problem is exemplified by its Home phone, previewed this month, and summarised by my Futures Company colleague Chloe Cook as “Essentially, Facebook gets wallpapered over the inside of your phone.” It effectively locks its users in to Facebook, which led the British commentator John Naughton to describe the company as a “pathogen”. (more…)
Mrs Thatcher’s only been in Hell for 30 minutes, and already she’s closed three of the furnaces and another three are on strike.
It wasn’t on Twitter, or on a political blog, but on the listserv of some football fans – fans, as it happens, of a club in a former mining area in the north of England. As Hugo Young said in his posthumously published piece on her (he died in 2003) in Tuesday’s Guardian, “Thatcher was a naturally, perhaps incurably, divisive figure.”
For my part, I think you need only one chart to understand her influence on Britain, which shows the step-change in inequality during her time in power. I’ve published this here before, when I blogged on the 30th anniversary of her first election victory:
Over at the excellent Global Dashboard, Alex Evans has a post reflecting on the things he and David Stevens called wrong (and less wrong), looking through their development and poverty lens, in the aftermath of the crisis. In a similar spirit, my sometime colleague Ian Christie sent me ‘Ten notes on the crisis’, representing his take on what we’d learnt about economics and politics since 2008. I thought they deserved a wider audience. And so, with his permission, I’m republishing his Ten Notes here. They start below the fold.
I was doing some blog management, and found this post written but never posted. It seems to touch on some recurring themes of mine.
I developed a mild obsession when in Prague with the huge outdoor advertisement for Nivea at the top of this post. We were staying a short distance from the centre, and the sign was right by the hotel, attracting the attention of drivers as they joined one of the freeways out of the city. (more…)
One of the most alarming articles I’ve read this month was by the Cambridge-based economist Ha-Joon Chang. He’s the author of 23 Things You Didn’t Know About Capitalism, and has a sharp eye for how markets and economies work in practice. Anyway, he noted that despite a substantial devaluation of the pound since the financial crisis, both service exports and manufacturing exports had also fallen. This isn’t how devaluation is supposed to work.
In the first part of this post, I looked at the impact of the economy, and its business history, on HMV’s collapse. In this second part, I’m going to turn my attention to changes in the music market, the impact of the internet (there’s two stories here, not one), and the business’ strategic reponse.
The received wisdom about the collapse of the British entertainment chain HMV and its acquisition by the distress specialists Hilco is that it didn’t see the internet coming. And doh! Actually, the truth has a lot more to do with economics and the way finance dominates business. This long post is broken into two parts: part 2 is here.
The immediate cause of HMV’s collapse, of course, was the British recession, which has gone on longer than anyone expected, and the economy is now teetering on the edge of an unprecedented triple dip recession. Here’s the NIESR chart showing comparative GDP since the pre-recession peak for the past six recessions. The black line at the bottom is the current recession, and yes, this chart should be on the wall of every economic policymaker in the UK.
The Bank of England Chief Economist Spencer Dale put some numbers on this in a speech just before Christmas.
[P]rivate sector productivity … is around 15% below the level implied by a continuation of its pre-crisis trend. Over the same period, real product wages … have fallen by a similar amount. A quite remarkable degree of real wage adjustment. The fall in the terms of trade and the rise in VAT mean that real wages measured in terms of consumer prices – the so-called real consumption wage … have had to fall even further. No wonder that people are finding life tough.
It’s just worth spelling this out. Real incomes have fallen by close to 10% since the financial crisis, and are are about 15% lower than they would have been had the economy stayed on trend. And in practice it’s worse than either of those figures suggest because more expensive imported goods and the VAT increase means relative prices have gone up while wages have fallen.
In turn, the reason for this is that it turns out that the economic multiplier that informed austerity economics was wrong. The theory was that the multiplier associated with public spending cuts was 0.5 – so each pound taken out of public spending would shrink the economy by just 50p. It turns out – and this is from a research paper (opens pdf) by economists at the archpriests of deficit reduction, the IMF – that the multiplier is larger (between 0.9 and 1.7). So every £1 taken out of the economy in public spending cuts shrinks the economy by between 90p and £1.70, and so the economy shrinks faster and further than expected. (John Lanchester explains all of this very well in a recent essay at the LRB).
But there are other reasons, too, which have as much to do with the history of HMV and its former parent company EMI as the changing fortunes of the hard-format entertainment market. This is a story of businesses that are as interested in financial engineering as doing business.
HMV, for most of its life, was just a brand, which became part of EMI when its owner, The Gramophone Company, merged with the Columbia Gramophone Company in 1931. Spooling on fifty years, to 1979, and EMI merged with Thorn, an electricals manufacturer and retailer. And spool on another seventeen, to 1996. By this stage HMV, as an entertainment retailer, was one of three businesses within the overall group; Thorn and EMI (with HMV) were demerged, amid much shareholder excitement. This was the rationale (opens pdf):
Following the Demerger, each group will be able to operate independently, taking into account its own distinctive strategic objectives, operational needs and philosophies, capital and dividend requirements, personnel needs and resources and product development and marketing policies. In addition, the Demerger will enable both groups to introduce share-based employee incentive plans, which will more directly reflect the performance of individual businesses and enhance the retention and motivation of employees.
Like many such assertions made by company Boards during the 1990s (such as the de-mutualisations in the financial services sector) this had more to do with looting the businesses (sorry, that should read “better utilising the businesses’ capital”) than improving their performance as businesses.
Within two years, Thorn had been acquired by the Japanese group Nomura who sold most of it on to the private equity company. Terra Firma. EMI, for its part, spun out HMV in 1998 (private equity took a majority stake) and sold most of the rest of its stake when HMV floated on the stock exchange in 2002. It would have generated cash on both occasions but didn’t use the money well, being acquired in 2007 by Terra Firma (yes, private equity again), who sold it on to Citgroup (the bank, which held much of its debt) which then sold parts to different music industry buyers.
You might think there’s a story about the decline of Britain’s commercial and industrial base here, and you wouldn’t be wrong. HMV for its part continued to pick up record shops when the opportunity arose, acquired the bookseller Waterstones in 1998 and the smaller Ottakars chain later (the Ottakars assets were merged with Waterstones), and eventually, realising that music retail was slipping away, spent money acquiring music venues (such as Hammersmith Apollo). As its core entertainment retail business was squeezed, it sold these off to raise cash: Waterstones went in 2011 and the venues during 2012. One of the striking things about researching this story is that concerns about HMV’s debt levels have dominated since 2011, when it was partly re-financed by its bankers. Financial engineers love debt – it allows them to do all sorts of fungible things with balance sheets – but the combination of debt-funded business and falling sales is almost always fatal. As Simon Bowers blogged in the Guardian,
From that moment onwards  HMV was to limp on as a corporate creature all but controlled by its debt commitments. A zombie.