Put 90 minutes aside on 24 March for breakfast with veteran US investor Bill Payne while he talks about governance in early-stage businesses.. This is an Institute of Directors event at the Wellington Club, and neatly complements the IoD’s “Fresh thinking, First boards” programme aimed at lifting the performance of small and medium businesses through smarter governance.
Here’s some background on Bill:
Bill Payne is in New Zealand as the BNZ University of Auckland Business School Entrepreneur-In-Residence. to impart some of his experience to NZ entrepreneurs, investors and universities. Bill is a prominent angel investor - so well known he is often referred to as the closest thing America has to an Entrepreneur Laureate. His angel investing history stretches back almost 30 years after selling his own engineering business to DuPont in 1982 and includes being involved in setting up four of the most prominent angel organisations in the USA.
He has written a book, The Definitive Guide to Raising Money from Angels, as well as having written or been interviewed for articles in The New York Times, USA Today, Business Week and many other investor/education articles and websites.
From 1995 he served as Entrepreneur-in-Residence at the Kauffman Foundation for twelve years. The Kauffman Foundation is a not-for-profit foundation in Kansas City often referred to as the world’s largest foundation devoted to entrepreneurship. Its vision is to “foster a society of economically independent individuals who are engaged citizens, contributing to the improvement of their communities” and it does this through education (including mentoring), entrepreneurship, advancing innovation and research.
While Bill is in New Zealand he will be working with angel investor groups, running seminars, meeting with government organisations (NZTE, FRST etc) and serving as a mentor to some ICE Accelerator companies alongside the ICE Angels. He’s also got a blog up and running on the Icehouse incubator website.
It is very rare that we get a visitor of Bill’s experience and respect in New Zealand and for such a long time. Over 50 organisations including 6 incubators, 5 universities and potentially thousands of people will be able to gain directly from Bill’s visit.
The global Toyota car recall has been extensively covered in the mainstream media. Product recalls are not a new phenomenon in the car industry; even the highest quality marques have them. So why has so much media commentary, particularly in the US, been full of delighted glee at Toyota’s misfortune? Simple - they’ve had 30 years of hearing and telling each other that US car makers (and by implication the US itself) are rubbish, having been resoundingly trounced by Toyota in market share, production methods, quality and general admiration. As Dave Segal wrote in the New York Times last week, “Life … is just high school writ large.” Finally the smart Japanese kid who has beaten you year after year has failed a test. Schadenfreude.
However, if past experience is anything to go by, Toyota can turn disaster into success. In the 1980s, Toyota suffered a massive and widespread quality failure in New Zealand. In a country where cars don’t rust much (for reasons I don’t fully understand), it seemed that the entire Toyota fleet was rotting away, and people referred to their most popular models - Corolla and Corona - as Toyota Corrodas. Branding hell. After a slow start, cash-rich Toyota did something very few other companies could have. It offered a free panel repair/replacement to every Toyota owner with a car less than 5 years old (and didn’t quibble if it was several years older). At the same time, Toyota developed and introduced a virtually rust-proof multi-layer galvanizing process to its body manufacturing, and announced a comprehensive long-term warranty on not just the body, but the entire vehicle. A carefully-conceived, long-term advertising campaign shifted the Toyota brand positioning away from technical promotion to emotional connection. The end-result - Toyota became more local than the locals and one of the most trusted brands in the country.
US automakers should watch out. Toyota may be a bit slow to respond at first, but it has huge resources, and when it sorts itself out, then beware. Toyota will be back, and better than ever.
I claim no credit for this, having shamelessly lifted it from interest.co.nz, who got it from, etc., etc….
It is the month of August, on the shores of the Black Sea.
It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower. The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there. The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.
At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism…. .
And that, ladies and gentlemen, is how the United States is doing business today.
17 years after the release of the Cadbury Report, the accepted wisdom in most English-speaking countries is that, except in unusual circumstances, the same person should not hold the roles of CEO and chairman* of the board at the same time. European countries have increasingly adopted the same practice. The USA stands notably apart, having a very high prevalence of combined CEO/chairman appointments. However, do the results justify the change? 5 years ago, professors from the Wharton Business School said that, as shown by analysis of the financial performance of US corporations, there was no evidence to support separation. Now Harvard professor Bob Pozen reports similar findings from British and European studies. Given this lack of evidence, Pozen comes out against any mandatory requirement for a separation of duties in publicly listed companies.
However, Pozen notes:
… most US firms already have an independent person performing the key functions that you would want from an independent chair. That person is the lead director, an independent board member who helps set board agendas and conveys the concerns of independent directors to the CEO. The lead director is also needed to preside over periodic executive sessions — attended only by independent directors — which are now mandated by listing standards at US stock exchanges. Choosing a lead director is a less dramatic way of fulfilling this listing standard than appointing an independent board chair.
In other words, there is a degree of separation and oversight in many USA listed companies, albeit the CEO is still the dominant player. However, notwithstanding the lack of empirical evidence one way or the other, I suspect most boards who have separated the roles of chairman and CEO, especially outside the USA, will be extremely reluctant to go back to the old model. Boards want CEOs to perform, to get things done, to drive the business forward, but they like the positional advantage a chairman has over a CEO on the odd occasion they need to rein the CEO in. It’s easier for a board to steer via the chair, than from the side.
Finally, Pozen adds:
… there is only one arrangement with generally negative results for a company: having a former CEO becoming the board chair of the same company. This can undermine the power of the new CEO. Unfortunately, as mentioned above, over 15 percent of US companies have this arrangement. Clearly that practice needs to change.
PS:
I am a member of the Wellington branch committee of the Institute of Directors in New Zealand, whose recommended best practice is generally separation of duties.
I use the chairman* title in a non-gender specific way, taking my cue from some notable female company chairmen who vehemently eschewed the “chair” title prevalent in more PC circles.
This weekend, I finally got round to reading Michael Hill’s book “Toughen Up.” For those who don’t know him (US and UK, I’d guess), Michael Hill is the founder of Michael Hill International, the publicly-listed mid-market jewellery retailer which grew from a single store in small-town Whangarei to a multinational chain spanning New Zealand, Australia, Canada and (recently) the USA. Hill’s story is an inspiration to those who think they’ve left it too late to strike out on their own. Hill didn’t do well at school, and he wasn’t talented enough to pursue a career in music or architecture, his early passions. When he was 17, his parents arranged a job in his uncle’s jewellery store where, learning from his salesman father who also worked there, Hill discovered he was good at selling jewellery. For 23 years, he drifted along, eventually running the store despite his uncle’s disdain and repeated refusals to let Hill buy into the business. Everything changed when Hill’s house burned down. Watching the flames, he had an epiphany, resolving to buy his uncle’s business. When Uncle Arthur again refused Hill’s very generous price, Hill announced he would set up in competition; he was ordered to clear out there and then. The rest, as they say, is history.
Michael Hill’s book (co-written with Claire Harvey and already in its third print) is a deceptively simple read. With a light, self-deprecating and chatty manner, he expounds his business insights through his personal and company history. I found myself nodding vigorously at several points, particularly learning not to fight on too many fronts at the same time, keeping things simple, keeping focused on big goals, and being prepared to make mistakes. Several chapters feel like something I might have written myself when explaining business ideas to staff.
Hill’s narrative is interspersed with adoring short notes from some of his staff; some readers may find that it feels too much like a company indoctrination manual. Even so, persevere. There are some golden nuggets of business wisdom in there. And the title? It goes back to Hill’s house fire epiphany at age 40. Times may be tough now, but there is no better time to start something new.
Further to my last post on the limitations on what governments can do to promote economic development, for those that want to read some arguments from “the other side”, there’s a major debate going on at the Harvard Business Review Voices blog, following an HBR article “Restoring American Competitiveness,” by Gary P. Pisano and Willy C. Shih, who argue that outsourcing has undermined that country’s high tech sector. Here’s a list of posts to date:
“There is a tendency to write-off the UK software industry because most of the familiar software companies are in the US. That would be a big mistake… organic and inorganic growth has resulted in the top 50 UK headquartered software companies growing c20% in the last year. Perhaps even more surprising, to an ever sceptical British audience, is the c70% of revenues that the UK software industry earns abroad. Indeed, the UK is not that far off earning as much from overseas markets as we buy in. Currently £4.6b plays £5.6b with the gap narrowing each year.”
“The problem for the UK software industry has never been the quality of its people or its innovation,” TechMarketView chairman Richard Holway said, instead blaming other factors holding the UK industry back:
Lack of available financial backing: In comparison to the US, it is much more difficult for UK software developers to gain access to venture capital funding.
Lack of marketing expertise: Many of the UK’s best developers simply fail in explaining how great their product is to investors and to the market.
Local not Global: Many of the UK’s software companies focus mainly (if not solely) on products geared to the UK market.
Lack of ambition: Many UK software companies are run as ‘lifestyle’ businesses. Very few UK software entrepreneurs seem prepared to risk the Merc for the seemingly scant possibility to become a global player.
Lack of management skills: Growing from a small enterprise to medium-sized is hard enough - but not a fraction as hard as that required to grow to be large. Few founders are up to running large, global organisations; even fewer are prepared to step aside!
Easily pleased: UK software companies have a long history of being other nations’ ‘acquisition fodder’. Founders seem to want to ‘take the money and run’ rather than take the risk of growing to something larger.
New Zealand (and Australian) industry observers will find the list very familiar, except perhaps for one thing. When you’ve only got 4 million people in your home market, international ambitions are needed pretty much from the beginning, adding the complexities, risks and costs of heading overseas while still very small, unsophisticated, and fragile. Given that struggle, it’s no wonder that many are satisfied once they’ve got “the boat, the bach, and the beamer.”
KPMG has published a comparison of effective tax rates for people on US$100k a year in 86 countries (click here for the pdf file). US$100k is the entry-point for internationally-mobile managers and mid-level professionals. (KPMG also compares tax at US$300k for those further up the income ladder). The comparison excludes local government taxes and consumption taxes, and ignores what government provides in return (eg. healthcare). However, the figures are for a childless married income earner, not usually a big user of government services at this income level.
Once again, The Economist publishes an edited highlights graph. For my English-speaking readers elsewhere:
New Zealand income tax 32%, social security 1%, total 33%
Australia income tax 29%, social security 1.5%, total 30.5%
Ireland income tax 21%, social security 7.3%, total 28.3%
Singapore income tax 9.3%, social security 10%, total 19.3%
Hong Kong income tax 10.5%, social security 0%, total 10.5% (but just to make you really turn green, tax waivers can return some of that to you!)
No, I’m not writing about interpersonal bad manners. Pew Research has published the results of a US survey which looked at what proportion of income earners were taking naps during the day (amongst other questions):
Income < US$30k 42%
Income US$30k-50k 35%
Income US$50k-75k 31%
Income US$75k-100k 21%
Income > US$100k 33%
So apparently low-earning Americans nap more, but nap less and less as they move up the ladder, until they reach the top where they start napping again. Unsurprisingly, this news has encouraged someone to write a guide to power-napping.
I held off saying anything about the 40th anniversary of the first moon-walk because I had nothing to add beyond the usual awestruck adolescent wonderment of the time (which hasn’t diminished, by the way). Fortunately, UK IT commentator Richard Holway reminded me of something that is very relevant in my own career track:
The computer in Apollo 11 had just 64K of RAM. It seems amazing when we’ve now even stopped talking about megabytes in favour of gigabytes. In 1969 though, much of my programming was still in assembler code and I was expert in reading the holes in punched cards. I worried constantly about saving a bit here and a bit there. This was when dumping the ‘19’ bit from ddmmyy was common - and thus was born the Y2K bug!
My thoughts today are not about ‘Wow, look how far we have progressed in 40 years’ . It is more a wonderment that mankind could achieve a mission to the moon armed with such seemingly archaic tools. Truly incredible.
Indeed!
Just 3 years after the 1st moon landing, I wrote a complete business application - orders, inventory, billing, accounting, etc. - to run on an ICL 1901A with 8kb of RAM and 2×4Mb of exchangeable disk drive storage, written in NICOL (ICL’s version of RPG1, taught to me by David Nicholson, one of my oldest friends, who by happenstance ended up in Wellington NZ a few months before me and is still here). I was a dab hand with the old 3-finger card punch too!
Most currency relative value tools look at some mix of goods in each country (purchase power parity). The Economist cuts through the complexity by looking at just one ubiquitous product sold by a single organisation - the McDonalds Big Mac. Although the Big Mac index is really just a bit of fun, it has proved surprisingly effective over many years alerting people to significant disparities in currency fair values.
As with all international currency matters, the US dollar sets the base point. In effect, this implies that the US dollar price of a good is fair value. Clearly that’s not always so. The Europeans and, more recently, the Chinese have argued for an alternative, but there’s no sign of any real contender to be the new reserve currency. With that caveat, right now a Big Mac costs the Anglos and Japanese about the right price, the West Euros way too much, and most of the rest of the world way too little. Sounds fairly accurate to me!
Regular readers will know that I’m an admirer of Toyota, in particular its lean thinking and unity of purpose. This is not unconditional admiration. Toyota can be bureaucratic; its brand marketing is usually uninspired me-too (the NZ emotive campaigns in the ’80s and ’90s being rare exceptions); and its designs are worthy rather than exciting. However, I’m quibbling; that worthiness has helped Toyota climb from humble beginnings to overhaul the once-mighty General Motors as the world’s No. 1 auto-maker.
Toyota is renowned for incredibly flexible and efficient manufacturing, with a ruthless attention to eliminating waste in all its forms (rework, shoddy materials, unnecessary movement, set-up time, inventory, and so on). But, according to a Bloomberg-sourced article appearing in major newspapers, as Toyota started to close on GM over the last decade, Toyota has been more driven by numbers. It started to build inflexible single-purpose manufacturing plants, not training its people properly, and operating these new plants in a very un-Toyota way. Toyota recently reported its first operating losses since 1950, and has suspended production in many plants. Blame can be partly ascribed to the global recession, but that just exaggerated these other problems.
I usually take such journalistic analyses of companies with a large pinch of salt, but this story passes my “gut feel” credibility test. It isn’t a story of a company being stuck in a mindset that no longer works. That’s the GM problem. No, this is a story, if true, of being blinded by success, of losing sight of what made Toyota great.
However, Toyota’s leadership is onto the problem. After the numbers went wrong, Toyota’s honorary chairman and founding family figurehead, Shoichiro Toyoda gave a stinging rebuke to the company’s top 400 executives. The company has a big job on its hands, although not as big as that facing Bill Ford 10 years ago when he took over the helm at the business founded by his great-grandfather. Unlike Chrysler and GM, Ford’s award-winning product range, operational methods and funding management have enabled it to avoid bankruptcy. That precedent did not go unheeded by Toyota’s board. New CEO Akio Toyoda, a car nut like Bill Ford, is the grandson of Kiichiro Toyoda, the founder of Toyota Motor Corporation. He is steeped in the Toyota credo. Expect a back-to-basics Toyota in future, although maybe with a little more excitement added to the mix.
I have a lot of sympathy with hardworking citizens who argue that “I’ve paid taxes all my life, so the government should look after me in retirement”. The bad news for those hardworking, taxpaying citizens is that the government has spent all the money, and it won’t make enough in future to keep its side of the deal. Basically, you’ve all been conned on a scale far beyond anything achieved by Charles Ponzi or Bernard Madoff.
According to Wikipedia, a Ponzi scheme is “a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going“.
Most state-funded universal health and retirement pension schemes are pay-as-you-go systems, i.e. current taxpayers pay for the benefits of those who have gone before. Sounds like a Ponzi scheme. And like a Ponzi scheme, “the system is destined to collapse because the earnings, if any, are less than the payments“. The retirement welfare system was designed for a life expectancy on retirement of less than 5 years, not 20 years as now. So a much higher level of earnings is required. But in a few years, baby-boomer retirees will represent over a quarter of the population, not less than 5% as was the case when the welfare state first emerged. So the higher tax burden will be borne by substantially fewer people. A double whammy.
Bernard Hickey has called this intergenerational theft and suggests younger people leave the country. Where to? It’s just as bad elsewhere. For example, the Peter G. Peterson Foundation, established by a former US commerce secretary and investment banker, has calculated the true scale of US welfare and debt obligations at US$56 trillion, or roughly US$184,000 per American. That’s 5 times the current already-massive level of US government debt. You’ll find similar stories throughout the developed world.
For over half a century, governments and politicians have refused to face up to the problem. Political squabbling, point-scoring, vote-buying and short-termism meant that it was constantly put aside for someone else to fix, even though most citizens understand that the system is unsustainable. Worse, our governments have squandered the past 20 years of economic growth, and our countries face at least a decade of massive debt just to get back to where we were 5 years ago, which would still leave us with an unfunded and growing welfare burden. We citizens share the blame, with our insatiable appetite for more and more government support of our lives, and our relentless willingness to pay higher and higher house prices (classic “bigger fool” investment).
I wrote two years ago that, although I’m usually a free marketer, occasionally I accept that civil society does have a role enabling long-term incremental change; not a one-off token scheme, but a steady sustained year-on-year change.
A lot of people don’t save for retirement. Quickly enforcing big personal savings just engenders political strife. Haranguing people to give up a major chunk of their income now won’t work either - their lifestyle is geared to their current after-tax income, especially those on lower incomes. Instead, you might persuade people to forego just an extra 1% of their pay each year for 10 years. Each year’s additional sacrifice is tiny and probably less than any pay rise or tax cuts. In 10 years, they’re saving 10% of their income, and hardly noticed the change. Paternalistic, maybe, but it’s what a lot of people who’ve worked for me over the years have said they’d prefer. A pity more national retirement schemes weren’t introduced on these lines, and 20 years ago. (Note: I’m not saying who adminsters these schemes, nor how).
… Doing nothing while everyone bewails the lack of progress is not the answer… small incremental change can get you to where you want to go, and it can be absorbed by society, but - and these are big ones - you need to have leadership, with long term confidence and commitment, and you need to get started.
We will emerge from recession in the not-too-distant future. The looming baby-boomer retirement and the parlous state of national finances requires more urgent action on personal saving for retirement pensions and healthcare, not less. Sadly, I’m not hopeful anything will happen.
PS I don’t favour governments using debt to fund routine expenditure or retirement funds. But then, I hate being in debt anyway, other than for short-term bridging funds.
Here’s a curious thing for you to discuss in the pub after work tonight. Has the Internet shrunk our horizons rather than expanded them?
Last year, in “The Myth of the Telecommuter“, I noted that, despite electronic communication supposedly turning the world into a village, most interactions are between people within walking distance, followed by people within the same city. Prompted by similar findings, a new study of US birth data has looked at the spread of baby names over time.
… Dr Goldenberg and Dr Levy speculated that when parents chose a name for a child, they were influenced by their interactions with other new parents, so the spread of the names the babies were given was a proxy for the pattern of those interactions.
… What Dr Goldenberg and Dr Levy found was that the proportion of babies given a certain name in a state where that name was already popular or in a neighbouring state was 20% higher than would otherwise have been expected. This was true from the 1970s to the early 1990s.
From 1995 to 2005, however, the effect became even more pronounced. The proportion of newborns with common names in any given state and its immediate neighbours became 30% higher than would have been expected if there were no geographic effect. Dr Goldenberg and Dr Levy ascribe this rise to the internet. It certainly correlates with the emergence of the web, though whether the correlation reflects causation is unproven. But whatever the reason, it is a curious result.
Struggling to get your head around current thinking on what governments are doing or should be doing to deal with the global economic crisis? The New York Review of Books recently hosted a symposium with leading economics pundits Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells. Reading the summarised text of their discussion will give you a reasonably straightforward understanding of the various camps’ viewpoints. Although the participants do look at the bigger world picture, inevitably their discussion is somewhat US-centric. However, the USA’s situation and policy responses will affect us all, and similar debates are happening in every country and in international forums. The NYRB article is well worth the time to read. Just don’t expect a consensus conclusion: the debate still rages.
Recent financial, automotive and other sector failures has seen anti-business commentators ascribe the failures of a relatively few business people to all business people. For example, I’ve read and heard some outrageous generalisations about MBA graduates and the universities that produce them, because senior people in recently failed companies often held MBA,:
MBA graduates are idiots or crooks.
MBAs lack ethics and morals.
MBA teachers are complicit because they must encourage this immoral result.
These are vile calumnies. They are akin to saying that all Irish are feckless because a few Irish are feckless; or that because some Muslims are terrorists, one can portray all Muslims as terrorists. Too extreme? You see how you like having your chosen vocation unfairly and aggressively reviled in the media, on the street and in the pub because of the actions of a few.
In reaction, MBA students at Harvard made a public oath:
As a manager, my purpose is to serve the greater good by bringing people and resources together to create value that no single individual can create alone. Therefore I will seek a course that enhances the value my enterprise can create for society over the long term.I recognize my decisions can have far-reaching consequences that affect the well-being of individuals inside and outside my enterprise, today and in the future. As I reconcile the interests of different constituencies, I will face choices that are not easy for me and others.
Therefore I promise:
I will act with utmost integrity and pursue my work in an ethical manner.
I will safeguard the interests of my shareholders, co-workers, customers and the society in which we operate.
I will manage my enterprise in good faith, guarding against decisions and behavior that advance my own narrow ambitions but harm the enterprise and the societies it serves.
I will understand and uphold, both in letter and in spirit, the laws and contracts governing my own conduct and that of my enterprise.
I will take responsibility for my actions, and I will represent the performance and risks of my enterprise accurately and honestly.
I will develop both myself and other managers under my supervision so that the profession continues to grow and contribute to the well-being of society.
I will strive to create sustainable economic, social, and environmental prosperity worldwide.
I will be accountable to my peers and they will be accountable to me for living by this oath.
This oath I make freely, and upon my honor.
A very laudable affirmation, I’m sure you’ll all agree. There is nothing wrong with this oath. It’s reflective of values to which business people should (and mostly do) aspire. What’s wrong is the nastiness that compelled the Harvard students to make it.
PS. I don’t have an MBA, I am not a Muslim, but I do have Irish antecedents (the surname’s a bit of a giveaway).
Well, it’s happened. GM has filed for Chapter 11 bankruptcy, in a jacked-up deal that will see creditors bilked with the connivance of their own government. I favoured Chapter 7 administration, which would have produced a fairer deal for creditors, and produced faster action on saving the salvageable bits of GM. I predict that the US will come to regret this misapplication of its business bankruptcy laws, just as it will regret falling back into protectionism on international trade. The shine’s rapidly coming off the Obama administration.
Yesterday, we had New Zealand’s annual government Budget presented in Parliament. I’m not going to comment much on the Budget - politics is not an area I stray into often. I’ll just say that I have a sense of wasting a good crisis. My politics is classic liberalism - economic and social liberalism based on universal individual rights and responsibilities, not the American or British versions which have morphed into woolly-woofter centrist camps. So I’d have gone a lot harder on cutting the state’s activities while setting things up for the long term economic and social well-being of the country, firms and individuals. But that isn’t my focus today. I want to look at entitlements.
It’s a curious term - entitlements - especially when used by a centre-right government. It was used frequently yesterday, particularly by Prime Minister John Key in phrases like “No beneficiary will have their entitlements cut” or words to that effect. You wouldn’t say that the supermarket is “entitled” to your money every week, nor the petrol station, nor the hotel owner if and when you take that annual holiday in Fiji, nor even the charities to which you donate. You make choices on whether or not to spend your money, on what and with whom. But somehow, when a government spends your money for you, the recipients see it as an entitlement.
Every government spending programme - every single one - was initiated at some point by a government deciding that spending this money on that programme was a better idea than spending it on something else, or putting it in the bank, or reducing taxes. Before that decision to spend, there was no “entitlement”. The new recipients are usually intensely grateful - for about a year. Then they start to see the continued uninterrupted and unquestioned supply of that government money as an entitlement, an inalienable right which must be maintained and grown in line with any expansion of the use for which the money was originally supplied. Once a government starts spending on a programme, it’s extremely hard to stop, especially when citizens and institutions (public or private) receive those funds directly. Even if the original need has gone or morphed into some unintended or even dysfunctional application.
As a new non-executive member of a big-spending government agency’s board, I’d frequently ask “Why is the taxpayer’s money being spent on this?” I learnt quickly that, contrary to popular perception, we actually had very little power over what we spent, why and with whom. That was principally decided by the ruling politicians, whose decisions (either logical or appeasing some political constituency) were effectively concreted in place until overturned, if ever, by another set of ruling politicians who had decided the issue was important enough. We could move money at the margin, but the bulk of spending was effectively predetermined under rules set down by Cabinet, and very much seen as an entitlement by the often large and influential organisations that received it. Getting anything significant changed takes years of argument, followed by more years to implement those changes. [Update: see a more positive perspective from me here.]
Let me be clear. Although I’d probably do things very differently, most institutions and the intent for which the money is spent are worthy and legitimate. I also recognise that changes to funding mechanisms are disruptive. But this notion of entitlement is a real problem for us as citizens and taxpayers. It creates an ever-growing burden over generations, it ossifies society’s institutions and mechanisms, and it is a major barrier to improvement and innovation.
PS Having said all that, the Tertiary Education Commission, of which I’m a board member, contributed a very significant portion of the government’s expenditure savings. Although we also cut our operating costs - largely in line with the plan we put in place 3 years ago - the bulk of savings will come from pruning some of my pet hates, such as hobby courses funded as Adult and Community Education, industry compliance training, and various other silly funds of dubious merit. Result!
The Economist reports on a proposal to make quiet vehicles noisy! Yes, that’s right. One of the anticipated benefits of electric vehicles is much reduced noise. You’ll still get the sound of the tyres on the road, but an electric motor makes barely any noise compared to an internal combustion motor. In a noisy world, this is a problem for blind people - and people in general, given we rely partly on noise to alert us to cars coming. A bill currently going through the US Congress stipulates a minimum noise level for vehicles. In effect, if your new electric car is too quiet, you’ll have to install a noise-maker.
While the transition period - between all cars making engine noise and most making almost none (when tyre noise would be adequate warning) - may create some awareness problems, it’s crazy to throw away such a great improvement in the ambient environment. And noise-making is energy-wasteful as well. The US draft bill is the modern equivalent of making someone walk in front of a train with a red flag. It’s the wrong answer to the wrong problem. Surely we can come up with a better design solution than this?
The OECD has just issued its annual survey of tax on wages using 2007/8 data. Some readers may be surprised at where their country of domicile ranks. However, these simple averages are misleading:
GST, VAT, sales tax and local government taxes, etc. are not included.
What about the higher earners, say 65 or 75th percentiles? For example, NZ’s higher tax rates rate kick in at very low $ levels, by comparison with other countries.
And let’s not even mention the differences between countries regarding real wages, local purchasing power, and tax or tax breaks on interest, dividends and imputation, mortgage interest, pension contributions, capital gains, inheritance, house purchase stamp duty, fuel tax, road tax, etc, etc, etc.
Regular readers will know that I’m an admirer of Toyota, in particular its lean thinking and unity of purpose. This is not unconditional admiration. Toyota can be bureaucratic; its brand marketing is usually uninspired me-too (the NZ emotive campaigns in the ’80s and ’90s being rare exceptions); and its designs are worthy rather than exciting. However, I’m quibbling; that worthiness has helped Toyota climb from humble beginnings to overhaul the once-mighty General Motors as the world’s No. 1 auto-maker.