Sunday, May 23, 2010

THE CAPPUCCINO ECONOMY.

MORE FROTH THAN SUBSTANCE!SANY0575

Just below the Langeberg mountains past the town of Swellendam, there is a farm stall and restaurant called Rolandale. It is a popular lay-by for SANY0569 travellers on the N2 highway from Cape Town to the Southern Cape and we regularly have Sunday breakfast there.

They serve a cappuccino which is topped with a tower of froth that somehow defies gravity. This past Sunday, while waiting for the tower to fall or succumb to the gentle chilly Overberg breeze, I wondered how much of the serving was froth and how much was coffee.

It struck me that this was very similar to the global economy: how much of it is froth, and how much is substance. Froth is the liquidity, or “money” in the world, that has been created by financial instruments such as derivatives and other forms of speculative “money” trading. Substance is created by tangible value being added in the production of goods and services. If derivatives expert and author Satyajit Das is to be believed, only about 30% of world liquidity today is substance and the rest is froth.

Staring at my Rolandale special, I imagine that the two thirds froth has within it billions of tiny organisms all engaged in tasks based on nothing. I imagine too the hardship that could follow for every individual if, in trying to get to the substance below, we simply blow off all the froth and all of the activities it contains. Perhaps best to remove the froth spoon by spoon by changing government deficits to surpluses until we get to the real coffee. Some bankers believe this could take up to 20 years.

We could, of course, just mix the froth with the coffee, and dilute the whole mixture, albeit with some spill. This would dilute the value of money and leave us with hyper-inflation.

I think next time, I’ll order cappuccino with cream, or maybe settle for a plain filter coffee with no milk.

Friday, May 14, 2010

THE MAJESTY OF HUMANITY: BORN TO CARE!

btc02

 

A stranger walks by and stumbles. Most of us will immediately reach out to help in an instinctive and  spontaneous response. A subsequent rational thought driven by prejudices may, or may not alter that response.

 

clip_image002In his TV series on Human instinct, British medical and social Scientist, Robert Winston, found that the instinct of care for others is virtually exclusive to human beings and is shared only by a handful of other species. It is so powerful in humanity that it often outranks that of self preservation. His findings were informed by his own and other experiments, as well as anecdotal and physiological research. Human mothers more than any other species are prepared to die for their offspring, and acts of extreme heroism are not uncommon in humanity. It has also been shown that mirror neurons in our brains help mimic the actions and emotions of others, creating a platform for empathy. We are all, he concludes, natural born heroes.

clip_image004This capacity to be kind predates modern society, proving that care for others is not the preserve of enlightenment, culture, religion, or nurturing. A 200 000 year old jawbone of an elderly woman showed that she had been kept alive by the kindness of her companions.

The “caring” conspiracy goes further. My favourite axiom perhaps says it best: “Our true value lies in our capacity to make a contribution to others”.

At an individual level, psychology doyens such as Viktor Frankl and Carl Jung believe that we find inner peace and contentment in acts of kindness to others.

Motivational gurus mostly see success in the ability to look beyond immediate self interest and self gratification. By its very nature, success means risk and risk implies not being constrained by the narrowness of self interest. The real entrepreneurs in life are those who have done something meaningful and lasting for humankind.

At a social level, exchange has evolved from our capacity to identify needs in others. The very basis of transaction has to start with knowing the others’ needs first, and then only applying “what’s-in-it-for-me”. The profit motive is a perversion of the caring motive.

American psychologist, Daniel Kahneman won a Nobel Prize in economics for his work which showed that despite an eightfold increase in average living standards in 50 years, human contentment had not increased, but had actually declined many cases.

At a company level, the true legacy of great companies is rooted in their ability to add tangible value to people’s lives. In “Built to Last”, Collins and Porras conclude that profit was a minor consideration in truly great companies. The financial giants and multinational monsters that have played havoc in the world today are nothing more than mutant mergers placing profit above people.

At a country level, World Bank studies have shown that prosperity is strongly linked to countries having an external focus and developing people. Despite World War perversions, the real and lasting legacy of Switzerland is the Red Cross and not banking or watches. National Life Satisfaction measures show no correlation between national contentment and material wealth.

At a spiritual level, all major religions teach the “love thy neighbour principle”. I particularly like the Sufi saying: “One act of kindness to your fellow human being is equal to one year’s devotional prayer.”

clip_image006Humanity has become the custodian of all things on the planet. We have become majestic through our capacity to be kind. We will lose it if we abuse it. Even a child becoming aware of the world we live in will question what we have done.

Despite all of the encouragement to the contrary, we have paid homage to self interest as the machine that drives consumption and acquisition which in turn has been the foundation of prosperity. We have made as if it is human nature. It clearly is not. It is a sad, sad perversion of what we really are and what we can be. We can only hope that if this perversion has caused the crisis we are in, a return to our real humanity will get us out of it.

It starts with you and me.