Posts Tagged ‘Incentives’

The profound concept of what value is and what value society should try to attain is explored in this worthy documentary.

I would like to highlight a number of the take home messages which I found to be praiseworthy and challenging of conventional wisdom;

  • ‘Not all profits are created equal’ implying certain gains could potentially be more worthy than others, the simple metric that something is profitable should not be an absolutist criterion. Profit should be based on sustainability not success
  • The components of the Value Chain should be continually assessed not for whether they are profitable but for what real value they provide the wider society, what positive aspects do they contribute?
  • Price, a key market signal, does not reflect the true cost to society or the environment, therefore how ‘profitable’ are certain activities
  • Our environment governs our behaviour therefore is there is any such thing as free choice, do we even have the freedom to make a choice?
  • The rewards we have currently have in a market economy incentivise us to make potentially harmful choices, not the beneficial choices
  • Contrast the theory that markets allows us to allocate resources adequately with the knowledge that this allocation may be to detrimental activities
  • Some say society at large has never been more prosperous nor peaceful, but the point of how fractured it is bears contemplating
  • The final scene where the following advice was given had much resonance with me, ‘…it’s time. Serve’ This could also be interpreted as in order to serve (society/the natural world order, and therefore establish justice to ourselves and others) we must SUBMIT…the basis of the concept of Islam
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It has been oft repeated that in our democratic, liberal societies, the few have greater power over the many

Is it the top 1% that owns a greater share of the capital and wealth than the remaining 99%? It is interesting to think of how many of these ‘many verses few’ statistics genuinely exist when analysing our reality

Given the freedom to own property and generate capital, which can indeed be a positive thing, to what extent is this so open to abuse that the rules of the game were never really meant to create fairness and a degree of equality? Is human nature, which is left unchecked, too prone to avarice that such freedoms will always result in a small elite hungry to capture ever more resources than required?

This is not another post looking to promote controlled economies,  however its purpose is to illustrate that, with the best of intensions, will some freedoms, when applied to a population shaped and conformed to behave in a certain manner, always result in a pyramidical structure taking shape where these conditions exist? Is this shape the overriding effect of all the freedoms at our disposal? Consider the following;

Top Asset Management firms by total value of assets under management

Think about what this data is actually telling us; when asset managers acquire equity, or interest in another business enterprise, they take a degree of ownership in that firm. Thereby, over time and because of the funds that flow to these giant institutions, the few in combination, have ended up in a position of ‘owning’ in part or in full, the many corporations that they have a share in – allowing them to ascend to the top of the pyramid; the few owning much greater proportion combined than the many. It also follows that this leads to a common source of control and influence across an economy/region given this limited pool of effective ownership.

Another perspective on this could be that much of this capital originates from the mass population who are the ultimate owners, through their long term savings and pension provisions invested with these providers. Therefore, is this an attempt to invert the structure, allowing the many to benefit? I would argue not, the masses, when considered individually, on average, do not financially benefit as much as the managers who take material cuts from the pool of funds at their disposal. Often their reward incentives are not adequately aligned with the retail investors at large, allowing the elite to become disproportionally better off than the investors who are searching for gains. The small investor is also not the party which excercises the controlling power.

In addition to this asset ownership, consider more generally, how much land the few own in comparison to the larger population, the size of GDP of the few regions compared to the many, the distribution of resources, the access to what is classed as the best quality of education, the trend continues and the structure that we can continually see forming is that of a top down, hierarchical pyramid – it should be clear from such insights what the ultimate power structure of the contemporary world is and what the fruits of everybody’s efforts are really delivering.

 

 

As the new calendar year opens and the prior year draws to a close, many media slots are filled with both reviews of the past 12 months and predictions for the coming period.

In a year which has shattered any pretence, if there was indeed any in the first place, that certain qualified professionals have an innate ability to understand and predict future events and trends more so than those not so versed, I find it bewildering how the routine of setting predications continues apace.

Yet, nothings changes with the time and space given to these commentators. Does this suggest that we are simply suffering the fall out of the media’s own making?

Does it become a necessary exercise in futility that cannot be undone. People are paid to ply their trade, plenty of investors hoping to be the early bird yearn for such opinion, however what fundamentals change with the ticking of the clock past midnight on the 31st of December….none. Events occur at various moments, they may be game changers, or just another part of an ongoing trend, but until such time, why do many of us become caught up, entangled, in the futility of reviewing for only the sake of review? Until material events take place, should the consensus be the same from one small moment to the next?

With the amount of opinions available, getting the right outcome then becomes a sure fire way to earn a name for yourself…and then ensure others listen to you the next time. It will also set yourself apart from others and thus raise your status even further, allowing one to earn a greater share of the pie.

But the emphasis seems to be to write for the sake of writing, to pick winners or make new observations, not because anything has changed, but because of the need to make a statement, an observation or raise an issue not already discussed. Because the machine is too bloated and it needs more junk to feed on, many are only too pleased to oblige, and before we know it, we don’t have quality research on the market, we have noise. Distracting garbage probably not worth the paper its written on, something to separate the herd from the those with an eagle eye.

No-one can be right all the time, and no-one can rightly claim to know more than their peers. And yet in a year such as 2016 when eggs have been freely spread over the faces of our esteemed experts no such change is thought to be appropriate this time around.

Sometimes, less is needed, not more. Sometimes no comments are more insightful than the need to fill a void, to sell more observations to the detriment of the ordinary investor. I find a great connection here to the fact that even in an information age, with so much growing information at the tips of our fingers, we are arguably becoming ever more ignorant, being drowned in distraction not clarity. Look at the clamour of reporters trying to decipher from the tiniest inferences from Central Bank Governors as to the perceived direction of rates and the economy….there is just too much at stake not to be overzealous in this regard.

Will we think back to the remarkable number of events throughout modern history when the herd were quite disastrously wrong (EU Single Currency argument ?), or is this too just many people buying the trash up for sale. Perhaps we have never been accurate at all but the blurred reality shown to us is one that most experts get it right… mostly, but who’s really keeping check?

I wonder how the future will pan out…..let me see what those in the know are saying….?

 

 

 

An oft repeated argument by numerous commentators about the benefits of free markets and capitalism is the incentive system it fosters.

Whilst constructively shaping human behaviour is needed in order to positively reinforce the benefit humanity can bring to the wider universe/environment, a question continues to linger about what type of incentive do alternative systems propose, and can they indeed work?

This post by a Muslim Counter Racist activist sheds meaningful light here and in my opinion makes a compelling argument if fully analysed

One particular point I would like to highlight here is the final part;

If this all sounds too ‘idealistic’ and ‘anarcho-libertarian’, I should like to draw attention to the closing phrase in this sign / indicator (ayat) – which is also the closing phrase of this enclosure / chapter (surah), viz. “and if you turn away, He will replace you with another people; then they will not be the likes of you.” In short, if a people are not willing to measure up to this ‘ideal’, then they will be replaced by others.

Capitalism might appear robust and permanent, but it is nothing but the ‘froth’ that mounts up on the surface of the water and is destined to pass.

I draw your attention to this because it ultimately plays to another well rehearsed attribute of capitalism and pluralism which should be supported; the idea of ‘Creative Destruction’, if an idea is deemed to fail, then it should be allowed to, naturally (no bail-outs/artificial support), and a more robust, stronger idea will take its place by having learnt from the weaknesses of what came before.

The true form of Deen-al-Islam is not with us in the contemporary world and how can we therefore assess accurately if it can indeed work. If it is not implemented correctly, it will indeed fail.

How do we assess whether our flirtation with capitalist principles have failed – do we really have the freedom to choose to replace it, or have we been coaxed into believing that it works?