I read a couple of things recently that are connected, but perhaps not in a way intended by all of the authors. The first is by Sally Goerner, on the rise of American oligarchy. The second is a paper from McKinsey on capitalism’s short-termism problem.
The Sally Goerner post takes a long view–around 250 years–and positions America’s current political crisis as the latest in a series of 70-90 year cycles in which oligarchy flares up. It follows a familiar pattern, says Goerner, like so:
- Economic “Royalists” infiltrate critical institutions and rig political and economic systems to favor elites.
- Rigged systems erode the health of the larger society, and signs of crisis proliferate.
- The crisis reaches a breaking point; seemingly small events trigger popular frustration into a transformative change.
- If the society enacts effective reforms, it enters a new stage of development. If it fails to enact reforms, crisis leads to regression and possibly collapse.
- Over time, transformed societies forget why they implemented reforms; Economic Royalists creep back and the cycle starts a new.
I suspect we could map similar cycles in other countries.
The systemic model that sits behind it is this:
“Scientifically speaking, oligarchies always collapse because they are designed to extract wealth from the lower levels of society, concentrate it at the top, and block adaptation by concentrating oligarchic power as well. Though it may take some time, extraction eventually eviscerates the productive levels of society, and the system becomes increasingly brittle. … In the final stages, a raft of upstart leaders emerge, some honest and some fascistic, all seeking to channel pent-up frustration towards their chosen ends.”
World Factory is an extraordinary theatre project that sets out to explore the impact of globalised production (and by extension, globalised trade) by creating an experiential space for its audience. I saw it in Cambridge last week; it has dates scheduled in Brighton and Manchester between now and Christmas, and may return for another run at Cambridge Junction.
For the show, the audience is seated at tables around the space, each a team charged with running a Chinese textiles factory. Once the experiential part of the production starts, the group has to handle a series of problems and dilemma, starting with whether we should handle a cashflow crisis by cutting wages across the board or firing half the staff.
The four cast members double as ‘dealers,’ issuing the cards, keeping track of the money, and exhorting us to work faster or harder. They also delivered the ‘samples’ of the different types of clothing we were ‘making’ in our factory.
Our decisions were recorded by scanning a barcode on the cards, which also meant that the decisions of each table are recorded in real time.
As you play, at speed (my team lost a lot of money early on by failing to make a decison quickly enough) you’re faced with questions about what goods you’re willing or able to make, about your workers, about dealing with local officials, about compliance and standards, about outsourcing production to other parts of China, about demands for labour rights. And so on.
The experiential part of the game is bookended by sequences that animate the recent history of globalisation and the impact of the global trade system–for example, we were told at the end the amount of water and oil consumed in producing the goods we had ‘made’ collectively during the show.
The play is supported by as vast database of research. At the end of the show we were given a print-out, on a till-roll, of all our decisions as factory owners, with a URL linking to the research that sits behind the question that was on each card. For example, one of the decisions we had to make was whether or not to move from regular wages to piecerates. Here’s the research on this decison.
World Factory is also more than a play in that the group behind it, notably the co-directors Zoe Svendsen and Simon Daw, actually went into the business of making a shirt in a Chinese factory as part of the research. A barcode above the pocket reveals the history of its production. It might seem paradoxical that a show that is about over-consumption and over-production should, in effect, have its own merchandising, but perhaps it is a mark of the play’s effectiveness that there seemed to be no-one trying to buy one as we left the theatre.
I’ve read quite a lot about the global production system over the years, and plenty about Chinese factories, though more about the electronics sector than the textile sector. I’ve also sat on the Board of a retailing business, making business decisions in conditions of uncertainty. For me, the surprise of the game (although I shouldn’t have been surprised by this) was the way in which the pace and the relentlessness of it, together with the ambiguity about the possible consequences of many of the decisions, forced you constantly to make choices at speed that reflected the imperative to keep the factory working. Capital has its own logic, as Marx says somewhere, and once in role it is hard to refuse it.
One of the video interviews shown on the screens that surrounded the auditorium was with the owner of the factory that made the World Factory shirt. She had been in debt up to her eyes after her first business folded, to the tune of several hundred thousand RNB. She took a job in a clothes factory that paid 2,000RNB a month, described in the rules of the game as low but enough to live on, so would never have managed to repay her debts, so started another clothes business. As she said, once you have the business, you have to keep going.
The show is also good on the politics, or more accurately the political economy, of the global textile industry. Who knew, for example, that Chinese factories outsource novelty Christmas jumpers to British factories? The quality is low, the margins are thin, and making them close to the end-consumer, with minimal delivery times, allows enough flexibility to respond to fluctuations in demand. They also spelled out the impact of cheap disposal clothes on the countries unlucky enough to get our recycled hand-offs. We think we’re doing people a favour by recycling through charity shops; actually we’re killing off indigenous textiles business in poor countries.
The actor who was also our dealer said that working on the play had changed her attitude towards recycling clothing, from thinking it a good thing to finding it uncomfortable.
One tip if you’re lucky enough to be able to go to see World Factory: decide on your table before you start whether your strategy is going to be about maximising profits or looking after your workers, and then stick to it.
The images are by Andrew Curry, and are published here under a Creative Commons licence.
Most discussion of the future of work assumes that the work, or the lack of it, is our coming problem. But what if we’ve got the question the wrong way around? What if we’re slowly, or not so slowly, giving up on the idea of work? After all, we all know that most work is dull. And even the interesting stuff is exploitative, somewhere along the line.
The thought struck me while reading Dan Hancox’ book The Village Against The World, about the anarcho-syndicalist village of Marinaleda, in Andalusia. After 20 years of intense political struggle, the village won some land for itself, and later added some food processing plants. Unemployment there is five or six per cent, a fraction of the level in other parts of Andalusia. But the young people, generally, are less willing to work in either. Work in the fields is hard; work in the processing plants is boring. And this is, pretty much, a universal truth.
Tesco is due to announce the result of its investigation into its accounting scandal along with its half-yearly results on Thursday, and the Telegraph got first wind of Tesco’s report into its accounting “irregularities” a few days ahead of publication. The ever-diligent Ian Fraser was quick off the mark on Twitter:
And when I retweeted this, Jamie Saunders, who runs futuresedge in his spare time (“this isn’t my job, it’s a hobby”, as Clara said recently on Dr. Who), sent me an interesting question as to whether this was actually about an absence of checks and balances. But actually, it’s worse than that.
Over at The Futures Company blog I have a short post on Tesco’s problems, prompted by the abrupt dismissal of its Chief Executive Philip Clarke in the face of the continuing pressure on the company’s market share and profitability.
For non-British readers,Tesco is (still) Britain’s largest supermarket, but having been utterly dominant in the 1990s, has been struggling for much of the past decade.
The first thing I said in the post was that the food market had become more complex since the financial crisis, and Tesco hadn’t been able to follow. This normally translates into a story about being “assailed by discounters”, but the discount proposition isn’t just about price. People who advise Tesco to turn its attention to fighting with discounters on price show they don’t really understand how the market has changed.
I read earlier this year Richard Rumelt’s book Good Strategy Bad Strategy, much acclaimed when it was published in 2011. And you can see why: it is lucid, well-writtem, and largely free of jargon, which already marks it out from the average business book. It also has a clear view of what strategy is (and what it is not), which is welcome, given how much the word is abused. And the business stories he tells illuminate his argument.
Rumelt is entertaining on the differences between bad strategy and good strategy – and I’ll come back to the bad strategy later. Good strategy, he says, is composed of a kernel of three elements (p77):
- A diagnosis that defines or explains the nature of the challenge. A good diagnosis simplifies the complexity by identifying the critical aspects of the situations.
- A guiding policy for dealing with the challenge.
- A set of coherent actions that are designed to carry out the guiding policy.
In particular, I found his advice on diagnosis valuable. A good diagnosis “should replace the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects.” This is, in effect, a sense making exercise. And a good strategic diagnosis does a second critical thing: “it also defines a domain of action.” Good strategy can then be built on a diagnosis that points to areas of leverage over outcomes. (more…)
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.
In my last post I wrote about how Art Kleiner’s idea of the Core Group helped us to understand Barclay’s recent history. In this post I am going to develop this idea. If Bob Diamond survived in his position despite his division breaching the rules in 1998 because he’d become a member of the Core Group, we still need to understand why. In the rest of this post I am going to go further into the history.