19 August 2014 | By ken in Society | No Comments Yet

Avoiding Bankers

It’s a crude idea, an inelegant metaphor, but it makes a lot of sense.

At a time when the financial industry appears to have a lock on mergers and acquisitions, always looking for ways to increase the value of investments in stocks while skimming off profits for themselves, the technology industry is taking another path. And it is introducing a dose of common sense. Google’s Larry Page calls it the “tooth brush test.” In contemplating an acquisition, he asks: “Is it something you will use once or twice a day, and does it make your life better?”

Maybe it is because technology companies have confidence in their analytic skills and capacity to innovate, maybe it is because they are not intimidated by banks, maybe they just believe in the simple idea that value comes from things that work, from function, not perception, but, whatever, they are growing without the financial industry. “Mr. Page is looking for usefulness above profitability, and long-term potential over near-term financial gain,” reported The Times.

This is a refreshing idea in an age of “investor capitalism.” They are hiring their own financial analysts as needed, doing their own due diligence, finding their own partners. In the process, they are avoiding many of the pressures from intermediaries to make the deal work, as well as the risks of insider trading and manipulated prices that have been hallmarks of the financial industry.

“Amin Zoufonoun, Facebook’s vice president for corporate development, said some bankers would come in and pitch acquisition candidates . . . [But] instead of trying to swallow already established Internet brands, Facebook uses acquisitions to make big bets on the future and plug technical holes.”

When “big tech companies are looking to grow through acquisitions, it is the culture and vision, not the earnings and revenue, that are of paramount importance.” They are not looking to slash payrolls, break up functioning entities or plunder assets.

And it’s often cheaper. The Times noted “Cisco, which has acquired more than 170 companies, decided it was more efficient — and more economical — to hire its own full-time bankers rather than pay millions of dollars in fees each time it struck a deal.”

As a result of all these factors, “Deals with unadvised buyers are increasing rapidly. The acquiring company did not use an investment bank in 69 percent of American technology acquisitions worth more than $100 million this year, according to Dealogic. That number was 27 percent 10 years ago.”

News travels fast in Silicon Valley. Many people in technology start-ups know each other. It’s a smaller world. And, to be sure, many newcomers start companies with the goal of being bought out. But it seems that the truly important thing at the top is that the industry wants to grow and become more effective and powerful – not just make a buck.


15 August 2014 | By ken in Society | 3 Comments

After Ferguson

In the aftermath of the violence in Ferguson, Missouri, we have the beginnings of a long-overdue national discussion about the militarization of local police forces.

Even Rand Paul has weighed in on this issue in Time: “There is a legitimate role for the police to keep the peace, but there should be a difference between a police response and a military response.” He sees an undo influence of big government, all too eager to weaponise local police. But what is the fundamental difference between the police and the military?

Is it the nature of the weapons they should use? The underlying issues they are there to address? The level of violence they face?

All these are useful questions. But the key point is that whatever force the police use has to be legitimate in the eyes of the public they monitor and guard. Their power, ultimately, is authorized by those who are subject to it. Without that, they lack the essential, effective means they need to do their job. By contrast, the military engages in war with enemies, those who, by definition, do not accept their authority.

When people feel government is legitimate, they may question specific laws, may grumble and contest, but they have a voice in making them and they have redress when wrongly used. Legitimate force helps them feel more secure. To be sure, that doesn’t always work. We all have an anti-authoritarian streak. We enjoy getting away with infractions. But that’s the baseline, the tacit agreement we have with government.

Without legitimate authority, citizens would have to be persuaded in every case to obey the laws, to follow rules. In a legitimate state, they don’t usually stop to think if they will obey. Authoritarian rule, on the other hand, gives them no voice. They obey out of fear. And they fight back, given the chance, in riots, in anonymous acts of sabotage and non-compliance.

Rand rightly calls attention to the fact that the underlying problem in Ferguson is racism: “Given the racial disparities in our criminal justice system, it is impossible for African-Americans not to feel like their government is particularly targeting them.”

They riot, in other words, because they have no voice. They do not see the police as legitimate, so much as an occupying army.

But the really interesting point here is that the police seem to think similarly. That’s why they accumulated an arsenal of weapons supplied by the Pentagon, and acted fearfully and brutally. As a result, the imagery and the eye-witness accounts have borne an uncanny resemblance to scenes from Gaza and Aleppo.

I do not think that government is the problem, but government can only be as intelligent and thoughtful as we are. Those who act on its behalf need to more fully grasp the nature of the contract that is the essential basis for their power, not the machine guns and armored vehicles they can deploy to threaten and terrify.


11 August 2014 | By ken in Society | No Comments Yet

The Underlying Pressure

Mergers are hot again: According to Thompson Reuters, “so far this year, $2.2 trillion in deals has been announced globally.” But nothing brings home the irrational frenzy of today’s Investor Capitalism so much as the impressive scale of some of the failures.

The combination of Publicis and Omnicom, two of the largest multinational advertising firms, fell though a couple of months ago for internal reasons that could have been anticipated. Rupert Murdock’s effort to acquire Time Warner came apart not just because of that company’s resistance to the takeover but because shareholders were not impressed, while Sprint’s offer for T-Mobile, also collapsed, perhaps because of the threat of government opposition.

The Chairman of the FCC commented acerbically: “Sprint now has an opportunity to focus their efforts on robust competition” – implying that the merger was a way to avoid what. And that suggests how much the current merger mania may be fueled by the hope for quick profits.

The DealBook writer in The Times cautioned: “The danger with a mergers-and-acquisitions boom is that chief executives could allow themselves to get carried away by the thrill of the hunt, reducing their focus on internal investment projects that might have a better chance of bearing fruit.” But is it the hunt that excites them so much as the shortcut they see to growth?

The Times went on to comment: “some chief executives may have come to view takeovers as the only way to obtain big increases in revenue in a still lackluster economy.”

Some investors say they see signs of irrationality. No surprise as such signs are everywhere. David Einhorn of the hedge fund Greenlight Capital recently observed that some companies he is betting against — or selling short, in Wall Street parlance — have become the targets of takeovers, even though, in his view, they have significant weaknesses. “Companies we are short often have serious problems, of which the boards and management are probably aware,” he wrote in a recent letter to investors in his fund. “This makes them more eager than usual to sell at any sort of premium.”

In today’s markets, the least attractive path to growth is the patient, slow process of building a business. That’s what most managers like to do, developing their skills as they solve problems, expanding their markets as they learn more. That’s what workers like to do, becoming more proficient as they engage their tasks. Even executives like the experience of thinking about future directions to take as they gain greater and greater understanding of the competition as well as the opportunities provided by changing demographics, improved technology, and customer demand.

But investors who are now, increasingly, in charge of policy, only want the stock price to go up. They pressure top management to embrace strategies that have the sole aim of increasing “shareholder value.”

Most signs point to businesses now being more efficient and profitable. Profits are piling up, but that is now less a sign of success as a dilemma for management. Distributing profits in the form of dividends does not appeal to investors. Diversifying for safety isn’t sexy. Research takes too much time. Nor do investors want businesses to burden themselves with salaries and benefits for workers.

On the other hand, they are not against bonuses, stock options and benefits for senior management, the ones who can look for mergers or aquisititions to capture headlines and excite analysts.

No wonder senior management is feeling pressured into making hasty deals.


05 August 2014 | By ken in Society | 1 Comment

The Need to Belong

Should it surprise us when experts actually agree? They frequently are invoked to express clashing points of view. But, sometimes, when they are free to look at the evidence and reach their own conclusions, they can achieve a high level of unanimity.

A recent survey of professional economists, “which asked whether the American Recovery and Reinvestment Act — the Obama ‘stimulus’ — reduced unemployment,” produced a surprising response. “All but one of those who responded said that it did, a vote of 36 to 1. A follow-up question on whether the stimulus was worth it produced a slightly weaker but still overwhelming 25 to 2 consensus.”

Paul Krugman recently made this point. Hammering away at the need for economic stimulus for a couple of years now, he was clearly enjoying the evidence that he was not the “unicorn” one commentator on CNBC said he was. But there is a larger point here: people hold on to their beliefs in the teeth of evidence to the contrary.

It depends on the context. Members of a group will be profoundly influenced by what the other members believe. Those engaged in partisan politics find it hard to separate from the crowd. Those whose identities are tied to specific ethnic or religious sectors of the population tend to conform to their dominant myths. The pressure to be accepted or included, to be seen as “reasonable” or “intelligent” or just “one of us,” is profound, whether you are a presidential advisor, a scientist, just playing a game of pick-up basketball on the street or managing a hedge fund.

In short: the need to belong trumps the need for reality. It is not so much that we are deceiving ourselves and others as that we fall under the sway of a stronger and more compelling pressure.

On the other hand, there is what James Surowiecki called “the wisdom of crowds,” the fact that the collective judgment of many can be uncannily accurate. And we have the example Krugman cites of economists substantially agreeing on the meaning of economic data. Another example: climate scientists converging in agreement on global warming.

The point is that if individual minds can be freed from the pressure to fit in with other minds, if they are not bent into conformity, suppressing their differences — and if they are not deviant or wildly idiosyncratic – they can be relied upon to give us useful and reliable pictures of reality. And they can agree.

But our perceptions do need to be confirmed by others, and we need affirmation. We want to belong. And that’s not just because we are weak or insecure – though, of course, we are that too. We are social beings, living in families and communities. We have to understand each other and act together to get anything substantial accomplished.

Those needs easily lead into being intolerant, opinionated and wrong. And frequently we have no idea it is happening to us because everyone else seems to be in agreement that we are completely correct.

That’s why it’s good to have experts, people who study facts. But the experts need to be independent, not only not for hire but also able to speak their minds without the contagion of group process. How rare is that.


29 July 2014 | By ken in Society | 1 Comment

What Neuro-Science Adds and Takes Away

The powerful don’t empathize with those less powerful, according to new research reported in The New York Times. The reason offered is that, “when people experience power, their brains fundamentally change how sensitive they are to the actions of others.”

This is a nice example of how cognitive neuro-scientists, focusing entirely on “objective” evidence, in this case the activity of “mirror neurons,” miss out on the common sense meaning of human behavior. An earlier explanation of this well-known effect, offered by Susan Fiske, a psychologist at Princeton, is that “powerful people don’t attend well to others around them because they don’t need them in order to access important resources.” They “already have plentiful access to those.”

Conversely – and perhaps more importantly – the less powerful are acutely attentive to the opportunity to gain allies or avoid powerful enemies. Empathy is instrumental, and our drives to survive and thrive guide our sensitivity and perception. That’s the reason we have to understand motivation.

To be sure, the researchers suggest that theirs is a “complementary” reason, not the only explanation. It makes sense that human motivations inevitably are implemented by neurological activity. We inhabit our bodies and our bodies help us out. And sometimes our bodies are a bit ahead of our minds, initiating actions before we are consciously aware of the dangers and opportunities we encounter. In those cases, consciousness can supervene and influence the outcome.

Perhaps a better way of putting this is that the understanding of motivation and neuro-science are two sides of the same coin, two perspectives on the behavior of our “mind-bodies.”

Looked at this way, what the researchers appear to have found is one of the many mechanisms in the brain that help us in our never-ending struggle for survival. That is not insignificant. But more significant for our well-being is understanding the motivations that guide our behavior, making it possible to have more intelligent, compassionate and aware selves as well as communities that promote and support those selves.

The neuro-researchers sum up their findings by suggesting that the powerful are hardly “heartless beings incapable of empathy.” They were subject to a temporary set of manipulations in an experiment. Or, as they put it: “The good news is that they are, in theory, redeemable.”

The better news would be our finding ways as a society to remind the powerful, who do not “need” the weak, to become more mindful of them. They are fellow humans, after all, brothers and sisters, colleagues, citizens. Moreover, if ignored, they might sabotage our plans or, worse, rise up in rebellion.