Over the Edge of Politics

The “Occupy Wall Street” demonstration that has grown over the past few weeks has attracted growing media attention, but not always much respect.  Reporters are captivated by the odd assortment of protestors that keeps showing up. Commentators sense it is important, but they don’t know what to make of it.

That seems to reflect an ambiguity among the demonstrators themselves.  They have no specific goals, no way of knowing even when they will have succeeded, or when it will be time to go home.  Charles M. Blow called it a “festival of frustrations” in today’s New York Times, and noted that it highlights “the failures and ineffectiveness they feel from the current government.”

He is correct in that.  The demonstrators not only fail to call for specific reforms, they bypass electoral politics entirely.  Blow goes on to link the demonstrations to a new Gallop Poll that shows that 81 percent of Americans said they were dissatisfied with the way the country is being governed.  “Americans’ confidence in the people who run for or serve in office is also at a new low.”  (See, “Hippies and Hipsters Exhale.”)

But he doesn’t emphasize another defining characteristic of the demonstrations:  the focus on Wall Street.  To me, that means they grasp that the problem is about money and corruption.  It is not just unemployment, the loss of social benefits, or the collapse of consumer credit.  These are concerns, to be sure, but the demonstrators are united in the conviction that they can’t trust politicians to represent their real interests because moneyed interests have taken over.  Government has become indifferent to the interests of the vast majority or, at worst, an instrument of exploitation.

Earlier in the week, a remarkably wide-ranging article on the front page of The New York Times noted that protestors around the world are showing “wariness, even contempt, toward traditional politicians and the democratic political process they preside over.”  (See, “As Scorn for Vote Grows, Protests Surge Around Globe,”)

Usually the issue is played in the media as a matter of self-indulgent citizens who do not want to give up the benefits they got used to enjoying but hadn’t really paid for.  This is designed to isolate the protestors, and prepare the ways for their defeat.  But the piece in the Times makes clear how widespread this is and how multifaceted.

Some commentators see signs of hope in a younger generation that is using social media in creative ways and evolving more participatory forms of organization.  But as someone who shared in the hopes of a new era of democracy in the sixties and participated in the protests back then, I too am struck by the lack of any specific focus.  Then, we wanted the Vietnam War to end.  What does “Occupy Wall Street” want?

But the protestors in Spain and Athens, New Delhi, Israel, London and, now, New York may be less about agitating for a new era.  A better analogy might be the canaries that warn of toxic levels of fumes in coal mines.  Perhaps they are telling us that ours is longer a viable democracy, not even a very good oligarchy.

Will it end up in anarchy and some form of dictatorship?

Or How to Avoid Blame

I have no inside knowledge about Kweku Adoboli, the UBS trader arrested last week after he reportedly lost over two billion dollars.  But common sense suggests that the way it is being played in the press is misleading.  This cannot be just about the occasional individual “rogues” who run wild.

Given the pressure that banks are under to be profitable, it’s likely that successful traders who evade the scrutiny of risk managers are usually appreciated.  The press report only the “rogues” who get caught, and they get caught when they lose a lot of money.  That seems to be what makes it “fraud.”  The others make break the rules, but, hey, they make their numbers.  Supervisors tend to like that.

So this suggests, as well, that they are not operating on their own.  For every “rogue trader” who is caught, there must be many others who are not.  Indeed, there must be a fair amount of encouragement to be “creative” and “bold” in banks that are struggling to recover from the current business slump and become more profitable.

This also suggests that others in the bank knew what they were doing.  You don’t trade aggressively with large sums of money for over three years, as Mr. Adoboli did, without anyone noticing.  He wasn’t playing around with his own money.

It’s simple common sense to realize that the banks were complicit, not innocent.  They had to be more than mere victims of irresponsible traders.  Knowing this, of course, the police are rounding up others for questioning, and there will be extensive investigations.  It’s not possible to say what they will find – or even what they may want to find.

Reuters noted the other day that banks are looking into “clawing back” bonuses for those who were complicit.  (See, “Claws Out.”)  And The Wall Street Journal commented:  “The pending investigations, as well as a handful of lower-profile instances of improper trading uncovered in London in recent years, highlight how the practice is more common than generally realized.  ‘These aren’t isolated cases,’ said a recently departed senior FSA official who worked on some of the investigations.”  (See, “UK Sets It Sights on ‘Rogue’ Traders.”)

Even more recently, The New York Times quoted a banker at UBS on the organizational climate that encouraged and supported such activities:  “The problem isn’t the culture.  The problem is that there wasn’t any culture. There are silos. Everyone is separate. People cut their own deals, and it’s every man for himself.  A lot of people made a lot of money that way, and it fueled jealousies and efforts to get ever better deals. People thought of themselves first, and then maybe the bank, if they thought about it at all.” (See, “At UBS, It’s the Culture That’s Rogue.”)

Meanwhile, the bank is busy reassuring investors and trying to contain the damage.  They need culprits so they can appear victimized themselves and free of blame.  They started with Mr. Adoboli, hoping to localize the problem.  Now as it is clear the problem is far greater, the CEO has been forced to resign.

But, again, it is not a problem of individuals, and it will never be solved by scapegoating particular people, no matter at what level.  UBS needs to develop a culture of mutual responsibility, a rarity in the world of finance and a difficult thing to do under any circumstances.

The Growing Gap Between the Rich and the Poor

The full story is never on the front pages of our newspapers.  You have to piece it together, but the evidence is everywhere — and it adds up to important and frightening news about how our social fabric is being pulled apart.

This week a new report by the U.S. Census Bureau announces: “the poor have rapidly gotten poorer.”  Different sectors have declined at different rates, but the overall trend is clear.  Now 46 million Americans live in poverty. (See, “The Poor Are Still Getting Poorer.”)

That is the highest number in the 52 years the census bureau has been tracking poverty, and it amounts to 15.1 percent of the whole population.  (See “U.S. Poverty Rate, 1 in 6, at Highest Level in Years.”)

But that just half the story:  at the same time, the rich are getting richer.  In June, according to a study commissioned by The Times:  “the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.” (See, “We Knew They Got Raises. But This?”)

The Times went on to say something about average pay:  “The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier.  After inflation, workers were actually making less.”

“It was the first time since the Great Depression that median household income, adjusted for inflation, had not risen over such a long period,” said Lawrence Katz, an economics professor at Harvard.  “We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.” (See, “Soaring Poverty Casts Spotlight on ‘Lost Decade.’”)

The fall-out effects are everywhere.  According to a new report on higher education:  “As income inequality has increased in the United States over the last decade, so too has the gap between rich and poor colleges and universities.”

“Between 1999 and 2009, private research universities that enroll about 1.1 million students increased their education-related spending per student by about $7,500, to almost $36,000. But in that same period, education-related spending stayed . . . at slightly more than $10,000 per student, at the public community collages that enroll 6.7 million students.”

As the Director of the research project issuing the report put it:  “The growing gap between the haves and the have-nots has become much more exaggerated over the last 10 years.” (See, “Spending Inequity in Colleges Has Risen.”)

And there is growing inequality among jobs.  The official jobless figures are getting worse, but just having a job is no longer protection against poverty.  So many are underemployed, partially employed or just plain exploited.

As a society we protect ourselves from the full impact of this widening gap by fragmenting the news.  We all know parts of it, but the whole picture is not being presented.  We get to see one part of the elephant at a time.

It might be too frightening to see the whole, and we might start to feel the need to do something about it.

What’s “Bad For Business” and What’s Not

Conservatives have embraced the truism that businesses are hurt by government regulation.  Ideologically, they argue, rules infringe on individual freedom, but they have also persuaded themselves that they are actually bad for the bottom line.

They are a drag on productivity, they claim, because they take so much time and so many resources to implement.  Moreover, they inhibit creativity and discourage innovation.  The U.S. Chamber of Commerce has said that small businesses “pay the price in higher costs, whether it is fuel or health care or whether it’s being able to find access to capital.”   As a result, the argument goes, regulations end up being bad for consumers too.

So it was something of a surprise to see a survey, conducted by the McClatchy Newspapers, indicating that small business owners don’t actually think that way.  (See, “Regulations, Taxes Aren’t Killing Small Business, Owners Say.”)

“None of the business owners complained about regulation in their particular industries, and most seemed to welcome it.”  Moreover, like many of the rest of us, “Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.”

Also, like many of the rest of us, they see the unfair advantages that many large business gain from tax loopholes.  Small businesses are not able to lobby as the large ones do or make contributions to the election campaigns of legislators in return for special favors.

According to the report, many small business owners actually thought governmental regulation is constructive.  “An executive in the hospitality business notes:  ‘The health and safety of our guests depend on regulations.’”

That isn’t to say they don’t face a lot of problems stemming from external requirements.  As one put it, “You cannot go into business, any business — small business or large business — unless you can afford insurance.”  Some complained in particular about workers’ compensation claims.

Another complained about the Internet. One said: “Everybody thinks the Internet is this great thing that is happening to the world, but it is really, I think, killing a lot of small business. People that we talk to that are no longer in business say the same thing exactly.”

In general, they are afraid of the shape of the economy:  ”I think the business climate is so shaky that I would not want to undergo any expansion or outlay capital,” said the owner off an automobile repair shop.  He’s thinking about hiring one more mechanic.

For many of them, jobs are the key.  People not only need jobs to be able to buy from the smaller firms, but they need to have confidence that their jobs are secure. And large businesses, better able to manage the risk, are not hiring.

One builder of homes in California said, “It starts with jobs. … There’s an awful lot of people sitting on the fence; they’re waiting for a sign.”  If consumers are depressed or irrationally cautious, as Ben Bernanke suggested the other day, and not spending — along with businesses and banks – what kind of a sign would it take?

Or Seeing Clearly

The idealized glow of a halo makes it hard to see clearly – and to think straight.  We are reminded about this now as Steve Jobs has stepped down as Apple’s CEO, and the press is full of dire warnings about the company’s future.

An account of Job’s career in Newsweek is suffused with idealizations.  At the same time, offering a retrospective of his career, it reminds us that his life, like most of ours, has been checquered and filled with its share of mistakes.

Most of us probably have not forgotten that he was booted out of Apple for being a poor manager before he was brought back.  “In his second tour of duty at Apple he mastered all the less glamorous but highly important aspects of business that had eluded him at first—things like inventory management,” writes Newsweek.  Returning, he found a second in command who was good at just those things he wasn’t.  And he also learned a lot about listening to others. Nonetheless, “The company lost $247 million in the last quarter of 2000. CBS Marketwatch named Jobs one of the year’s biggest losers.”  (See “Exit the King.”)

I do not in any way want to take away from Jobs’ brilliant achievements at Apple.  The point is about us, and our susceptibility to hero worship.  It’s about how hard it is for investors to think straight and keep in touch with reality.

Two years ago, Phil Rosensweig published a thoughtful book, The Halo Effect, about how we tend to be blinded by the oversimplifications we want to believe.  He begins his story with Cisco System’s phenomenal rise in the late 90’s, until its bubble burst, and he goes on to chronicle the stories of IBM, Nokia, and ABB.  He notes the typical delusions of business managers and journalists who believe they have found the magic key to success.  He also offers critiques of such classic business books as In Search of Excellence,  Built to Last, and From Good to Great.  His point is that the path to success is winding and complex, not capable of being summed up in a recipe or illustrated by a single example.

We all remember Enron, for course, several times Fortune’s top Company of the Year.  And, no doubt, we all have our own examples of companies we idealized and over-valued.  We may even at time believe we have found the secret to success, or even the two or three secrets.

As CEO at Apple, Jobs did eventually deliver.  After early failures, Newsweek notes:  “when stock splits are factored in, the shares increased 110-fold during his tenure.”  But it is one thing to be successful, and it is another to be endowed with superhuman qualities, to walk on water.  The halo looks like it’s out there, glowing in the dark, but it’s largely a mirage.