I was an early investor in Surveylab, which makes the ikeGPS range of professional hand-held data-capture devices.  Their point of difference is that they capture the image and location of an object from a distance, unlike most GPS devices which only tell you where you are.  Applications are manifold, in network industries like electricity and telecommunications, in environmental agencies like the US Parks Services, and in military applications such as UN post-war reconstruction. Sales are primarily B2B, either direct or via their major distribution partner in the US. Founder Leon Toorenburg is looking for someone to take on the global marketing role, with a particular emphasis on internet-enabled sales. The business is VC-funded, with another funding round being completed as I write. So if you or someone you know is interested in the job, take at look at the ad on Seek or TradeMe.

Last week’s Economist lists the world’s biggest corporate R&D spenders, drawn from an EU report on the top 1000 EU-headquartered companies and the top 1000 non-EU companies  Those numbers are eye-wateringly huge, but I do seriously wonder about bang-per-buck (or should that be eruption-per-euro?)

Know anyone who wants to play a big role in a new web business in Wellington, NZ? Get them to look at this.  Some people I know are planning to build an international business-to-business on-line marketplace for clients and providers of a specialist business service. I’ve had a look at what they’re planning and it’s very promising; probably the best web business idea I’ve seen recently (locally). The market is truly international in scale and scope. However, while these guys really know their services market, they freely admit they know little about building and operating an on-line marketplace.  They’re looking for 3 key people to join them in the start-up team:

• The CEO: someone who knows how to build a web business, build and lead the team and operational processes, drive the strategy and international marketing push. Excellent English language written and spoken communication skills. Proficiency in another major European or Asian language would be useful, but not essential.
• Head of development: Leadership experience in Agile web-business application development. Knowledge of on-line payments, cloud-based infrastructure, etc.. Good understanding of customer-centred product management and design.
• The business could also use the occasional services of someone who understands (at a business level) cross-border payments; maybe consult, maybe part-time, maybe advisory board.

So if you, or someone you know, want to put yourself on the line with all the challenges and potential rewards of a start-up business, please email me with a short pitch on what you have to offer.  Those wanting a big salary, fancy offices, hordes of staff, regular hours and business class travel should not apply!

PS: Thanks in advance for any links from bloggers and twitterers.

Stockbrokers never seem to get any positive press. They make more money the faster they can persuade you to churn your portfolio, and they rapidly tap-dance around the issue when you question the performance of stocks you’ve bought on their recommendation. So maybe we shouldn’t be surprised that a Wellington stockbroker has applied these abilities to become the world’s fastest tap-dancer. Slow-motion video showed that he achieved 1056 taps in 60 seconds. Think about that - it means he had to lift a heel or toe off the ground 18 times every second. Who needs automated stock-trading systems when a human broker can move that fast in real-time?

Des Dearlove and Stuart Crainer, visiting professors at IE Business School in Madrid and associates at London Business School’s Management Innovation Lab, have published “The Thinkers 50 - 2009“, their biennial ranking of the world’s top business thinkers. Sponsored by The Times and other organisations, their criteria included:

• Are the ideas and examples used by the thinker original?
• Have the ideas promoted by the thinker been implemented in organizations? And, has the implementation been successful?
• How proficient is the thinker at presenting his/her ideas orally?
• How proficient is the thinker at presenting his/her ideas in writing?
• How committed are the thinker’s disciples to spreading the message and putting it to work?
• Do they practice what they preach in their own business?
• How international are they in outlook and thinking?
• How well researched are their books and presentations?
• Have their ideas had an impact on the way people manage or think about management?
• The clincher: are they, for better or worse, guru material by your definition and expectation?

Professor CK Prahalad is #1 for the second time in a row, followed by a mix of academics, economists, business writers and business leaders.   I must admit that I’ve never heard of some of them before (and I think I’m reasonably well-read) so I’ll leave it for you to decide if everyone’s inclusion (or omission) and ranking are justified.

1.  CK PRAHALAD (1)
2.  Malcolm GLADWELL (18)
3.  Paul KRUGMAN (-)
4.  Steve JOBS (29)
5.  Chan KIM & Renée MAUBORGNE (6)
6.  Muhammad YUNUS (-)
7.  Bill GATES (2)
8.  Richard BRANSON (9)
9.  Philip KOTLER (11)
10.  Gary HAMEL (5)
11.  Michael PORTER (4)
12.  Ratan TATA (-)
13.  Ram CHARAN (22)
14.  Marshall GOLDSMITH (34)
15.  S. (Kris) GOPALAKRISHNAN (-)
16.  Howard GARDNER (39)<
17.  Jim COLLINS (10)
18.  Lynda GRATTON (19)
19.  Tom PETERS (7)
20.  Jack WELCH (8)
21.  Eric SCHMIDT (-)
22.  Joseph STIGLITZ (-)
23.  Kjell NORDSTRÖM & Jonas RIDDERSTRÅLE (13)
24.  Vijay GOVINDARAJAN (23)
25.  Marcus BUCKINGHAM (38)
26.  Richard D’AVENI (46)
27.  Rosabeth MOSS KANTER (28)
28.  Clayton CHRISTENSEN (25)
29.  Stephen COVEY (15)
30.  Thomas FRIEDMAN (26)
31.  David ULRICH (42)
32.  Roger MARTIN (-)
33.  Henry MINTZBERG (16)
34.  Daniel GOLEMAN (37)
35.  Chris ANDERSON (-)
36.  Warren BENNIS (24)
37.  Robert KAPLAN & David NORTON (12)
38.  Jeff IMMELT (31)
39.  Don TAPSCOTT (-)
40.  Nassim Nicholas TALEB (-)
41.  John KOTTER (30)
42.  Niall FERGUSON (-)
43.  Charles HANDY (14)
44.  Rakesh KHURANA (45)
45.  Manfred KETS DE VRIES (-)
46.  Tammy ERICKSON (-)
47.  Costas MARKIDES (44)
48.  Barbara KELLERMAN (-)
49.  Rob GOFFEE & Gareth JONES (32)
50.  Jimmy WALES (-)

Exporters are lauded locally in most countries; but when they start establishing offshore operations in manufacturing or product development, they are quickly castigated for doing so. The critics have a very naive and short-sighted view. For over a decade, I’ve been arguing that exports are not enough:

The world’s most successful companies do not just export globally - they operate globally. That means having sales, service, logistics, production and development operating around the world. Look at the world’s greatest companies. How many do things only at home to ship out to the rest of the world? I can only think of one - Boeing. The others made the leap from exporting to international operations…. To minimise the cost of distance - freight, duties, foreign exchange risk and in-transit inventory; to reduce production costs, through greater volumes, lower material costs and lower manufacturing wages (an unpleasant reality); to get closer to customers for more efficient service and faster reaction to changing needs; to build critical mass for future investment; and to build credibility with large global customers.

I’m glad to hear, via The Independent’s Nikki Mandow, that others are pushing the same message.  At the Export New Zealand-organised Go Global conference in Auckland today, Jonathan Ling (the head of corporate heavyweight Fletcher Building) surprised many of those present by arguing that lifting the country’s outbound foreign direct investment is essential for future economic prosperity.  Despite some problems, overall Fletcher attributes enormous benefits to its offshore activities.  On a smaller scale, others report similar nett gains.  Even the government is getting the message, with more equitable tax arrangements for offshore direct investment.

Here’s why I think it’s a good idea for countries to encourage outbound foreign direct investment:

Global companies like Nokia, Vodafone, and Nestlé operate in many countries. The interesting thing is that large numbers of their high-value jobs are still at home- in development, marketing, and corporate administration. They are surrounded at home by a plethora of supporting organisations- in banking, IT, law, accounting, advertising, travel, short-run early-stage manufacturing, research, education, etc. Together, they bring home huge revenue and profit streams.

If New Zealand wants a high-value economy, it needs more than just exporters. It needs global businesses that operate offshore in all facets of their business. New Zealand should encourage its businesses to invest offshore, not deride them for it. Without global operations, we won’t get a Kiwi Nokia or Vodafone. With global operations, we look like getting a Kiwi Nestlé. We could sure do with some more.

The alternative is to repeatedly build small niche businesses and sell them off for  a few million dollars; great for the founders, but not a sustainable and substantial national economic strategy.

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!)

The Economist’s Big Mac Index is somewhat accepted as a rough and ready medium-term indicator of underlying currency value.  Now I see that Swiss global banking giant UBS has adopted it too.  In its annual review of wages and prices around the world, one of the quirkier charts plots the relative time a worker needs to earn enough money to buy a Big Mac hamburger.  In the same report, UBS also publishes an iPod index. Given the commonality of iPod and Big Mac purchasers in the IT industry, this is highly relevant information for cross-border salary comparisons!

The UBS chart is in a .pdf document, but here’s The Economist’s representation of the UBS Big Mac data for selected economies (wtt. Paul Walker). Kiwis (often absent from Economist charts) have to work 19 minutes to afford a Mac.

Whether or not you agree with his argument, Al Gore’s An Inconvenient Truth was a masterpiece of communication, galvanizing debate by people and governments; something that scientists and environmentalists struggled to do.  Keeping up the story-telling, this time from the sceptical side, is Australian broadcaster Mike Smith. Irrespective of whether the rationale is correct, I had to admire this explanation of the scale of Australia’s carbon emissions:

Imagine 1 kilometre of atmosphere that we want to rid of human carbon pollution.  We’ll have a walk along it.

The first 770 metres are Nitrogen.
The next 210 metres are Oxygen.
That’s 980 metres of the 1 kilometre.  20 metres to go.
The next 10 metres are water vapour.  10 metres left.
9 metres are argon.  Just 1 more metre.
A few gases make up the first bit of that last metre.

The last 38 centimetres of the kilometre – that’s carbon dioxide.
A bit over one foot.
97% of that is produced by Mother Nature.  It’s natural.

Out of our journey of one kilometre, there are just 12 millimetres left.  About half an inch.  Just over a centimetre.
That’s the amount of carbon dioxide that global human activity puts into the atmosphere.

And of those 12 millimetres Australia puts in .18 of a millimetre.
Less than the thickness of a hair.  Out of a kilometre.
As a hair is to a kilometre – so is Australia’s contribution to what Mr Rudd calls Carbon Pollution.

Imagine Brisbane’s new Gateway Bridge, ready to be officially opened by Mr Rudd.  It’s been polished, painted and scrubbed by an army of workers till its 1 kilometre length is surgically clean.  Except that Mr Rudd says we have a huge problem, the bridge is polluted – there’s a human hair on the roadway.  We’d laugh ourselves silly.

There are plenty of real pollution problems to worry about.  It’s hard to imagine that Australia’s contribution to carbon dioxide in the world’s atmosphere is one of the more pressing ones.  And I can’t believe that a new tax on everything is the only way to blow that pesky hair away.

Perhaps we all need to just take a few deep breaths.

While I admire the use of analogy, Smith’s reasoning can be countered.  As the Arabian parable said, it was the last straw added to the load which broke the camel’s back. Oh hang on, that’s another story with a message.

Reported in the HeraldSun; spotted by WOBF.

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!

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.

Economist Willem Buiter was an early proponent of the good bank/bad bank solution to take all those toxic assets out of the finance system without crippling the taxpayer and the ordinary depositor.  Unfortunately, despite the support of many economists, that proposal was largely ignored by most governments, who instead lumbered the taxpayer with huge borrowing, printing money and other future-hocking solutions.  Undeterred, Buiter has now turned his attention to a related major policy issue - banks that are “too big to fail” because they would bring down national and global economies.  On his Financial Times blog, Buiter covers a broad range of options and concludes that “there is quite a list of effective instruments for cutting leveraged finance down to size“.

• Legally and institutionally, unbundle narrow [high street] banking and investment banking (Glass Steagall-on-steroids).
• Legally and institutionally prevent all banks (narrow banks and investment banks) from engaging in activities that present manifest potential conflicts of interest. This means no more universal banks and similar financial supermarkets.
• Limit the size of all banks by making regulatory capital ratios an increasing function of bank size.
• Enforce competition policy aggressively in the banking sector, by breaking up banks if necessary.
• Require any remaining systemically important banks to produce a detailed annual bankruptcy contingency plan.
• Only permit limited liability for narrow banks/public utility banks.
• Create a highly efficient special resolution regime [SSR] for all systemically important financial institutions. This SRR will permit an omnipotent Conservator/Administrator to financially restructure the failing institutions (by writing down the claims of the unsecured creditors or mandatorily converting them into equity), without interfering materially with new lending, investment and funding operations.

However, Professor Buiter reckons that governments aren’t facing up to this problem, either. Instead, it looks like the surviving big banks will get even bigger.

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.

Thanks to SPD for the link.

The report’s recommendations needed to be implemented, permanent senior management was needed to replace those in acting roles, the IT system needed an upgrade worth $117 million over four years and the entire process needed to be taken apart and looked at “from top to bottom”.

That snippet is from today’s Dominion Post, commenting on the need for a major overhaul of New Zealand’s Immigration Service. I’ve already heard much about the shambolic state of this government agency, so the need for a root and branch renewal is not surprising.  What caught my eye was the size of the proposed IT upgrade.

I know that government IT projects suffer from very bureaucratic (and often ineffective) environments: unengaged and unempowered users, long-winded decision-making, overly complex legislative and procedural requirements, etc, etc..  Even if that isn’t always so, government IT will still usually be more expensive than commercial IT.  Unique requirements (well, nationally idiosyncratic, anyway) tend to demand bespoke solutions, or at least customised implementations of standard case management and workflow systems.  Allowing for that, $117 million still seems way too much.  After all, this organisation only does a few core tasks:

• receive applications, process them, and issue visas for tourists, students, temporary workers, and permanent residents.
• weed out dodgy applicants (at least that’s the theory).
• provide information on the process to potential applicants and employers.

Let’s look at the IT investment per process worker (a useful metric for process/people-centric operations). Assuming that the NZIS still employs approximately 750 people (the last number I could find) and that 2 out of 3 staff are engaged in the process (as distinct from support functions and executive staff), that’s $234k per person.  That is ridiculously high. What complex business process does this organisation operate that requires such a high IT investment? If I was the Minister of Immigration or the Minister of Finance, I’d be demanding alternative proposals for the business process and supporting systems.

Curiously, that $117 million is a very specific precise number, given that “the entire process needed to be taken apart and looked at ‘from top to bottom’.”   I’m smelling the pungent scent of of desperation - let’s throw lots of money at a big IT project to give the appearance of decisive action.   More cynically, it buys 4 years of plausible excuses while the project is underway, and in 4 years time, everyone senior will have moved onto pastures new.   Sadly, you’ll find similar stories in every government in every country.

Over at design blog Snap2Objects, they’ve compiled short profiles of 70 designers who shaped the world, “… a huge compilation of the most important product designers, graphic designers, architects and other great professionals that made part of our history contributing to the evolution that we see today in each field“.  It’s a very eclectic list - naturally, IKB is included - but, despite its length, no doubt misses out some of design’s great names.  Even so, it’s well worth perusing when you’ve got the time.

Here are a couple of samples (pity my layout design skills aren’t up to the task):

Manolo Blahnik Shoe Designer (1942-)

Working alone without assistants or apprentices, MANOLO BLAHNIK (1942-) is solely responsible for the design of every one of the thousands of shoes that bear his name. He has dominated shoe design since setting up in business in London in the early 1970s.

Norman Foster Architect (1935- )

NORMAN FOSTER is an architectural phenomenon; responsible for a dozen or more of the key buildings of the last 30 years, but also as the founder of perhaps the most financially successful architectural practice of modern times.

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.

It’s a bit like comparing airline fare deals.

I have refrained from comment on the Telecom Vodafone “interference battle” until it reached some outcome.  The two sides have just announced that they have reached an agreement out of court.  Telecom will delay its launch date by a couple of weeks and Vodafone had stopped its action.

For my non-NZ readers, New Zealand’s two major mobile telecommunications operators have been involved in a PR and courtroom stoush over the alleged interference of Telecom’s new XT network with Vodafone’s network, with Vodafone seeking an a court injunction to stop Telecom launching its network because Vodafone’s customers are experiencing major service failures. Few commentators have been scrupulously neutral, assuming either that Telecom is incompetent and arrogant, or that Vodafone cunningly mounted its court action just days out from the network switch-on as a PR stunt to put Telecom in the wrong.

I used to run Deltec, a company which made filter and antenna systems for mobile telecommunication networks. We sold 95% of our production  offshore in all the major telecommunications markets, especially in large urban centres with multiple operators in very adjacent frequencies using identical technology prototocols.  The numbers of cellsites, operators and customers are usually 2 or 3 times that of the NZ situation.  Signal interference is normal during the early days of a new cellsite (even more so for an entire new network) when there is already an incumbent in the area.  The fault may lie with the newcomer, but it is just as likely to lie with the existing operator’s cellsite receiving or transmitting signals outside its allocated frequencies.  The general practice is that each instance is taken on its merits, both sides’ engineers work it out, and take appropriate action quickly.  All very low key, routine, professional and civilized.

Deltec was the dominant antenna supplier to both Telecom and Vodafone until we sold our business in 2001. What’s different about the NZ situation?  Telecom has (at long last) joined the same technology family as Vodafone and much of the world.  But for 20 years, we’ve only had two operators, operating in widely different frequency bands with completely different technology protocols.  Vodafone and Telecom engineers and management are not used to having another major wireless network in such close technical proximity.  Both are likely to have had sloppy frequency management (it wasn’t an issue), but rarely been pulled up on it before. More relevantly, neither company is used to dealing with the other on technical issues where collaboration rather than confrontation is the norm.

As for the court action being a stunt, who knows?

PS: Interestingly, whenever we hosted people from Telecom and Vodafone together in technical or social contexts, it was always very friendly, with both sides getting on well.

PPS: I forgot to mention that my family trust owns Telecom securities.

It’s turning into a bumper time for Kiwi online accounting business Xero.  Not only did Xero win the 2009 Innovative Service award at the NZ 2009 Hi-Tech Awards, but now it’s won global recognition by picking up both the  main award and the people’s voice award in the 2009 Webby Awards banking and bill paying category.  Congratulations to Rod Drury and his team; and perfect timing - the application form to take up an additional parcel of shares [.pdf] arrived in my post office box yesterday.  Coming on top of the news of a major investment [.pdf] by Craig Winkler, the founder and former owner of MYOB, this looks like an easy decision.

On his excellent financial news website, Bernard Hickey makes a prediction on the future makeup of Big Auto:

Fiat is looking to take over Germany’s Opel from out of the General Motors stable of dead and dying brands and add it to the remnants of Chrysler it is taking out of Chrysler’s bankruptcy. The hard-charging boss of Fiat, Sergio Marchionne, (sounds like the guy who made the spaghetti westerns with Clint Eastwood) reckons he can build Europe’s second largest car maker, the WSJ reports. He’s dreamin’. Big cross-border car company almost never work. Just ask BMW, which bought Rover in the 1990s and lost billions of euros, and Daimler Benz, which bought Chrysler and lost tens of billions. I predict this will all drag Fiat into bankruptcy too. The big 3 car companies in 10 years time will be Toyota, Ford (if it’s lucky) and Renault-Nissan.

If Fiat picks up Chrysler and Opel (essentially GM Europe), Hickey may well be right about Fiat’s potentially fatal indigestion and the new Big 3 (although VW, BMW and Mercedes have ambitions too).  I thought that Fiat’s bid for Chrysler was brilliant strategic opportunism, but GM Europe is “a bridge too far” for the Italian automaker.  The other thing I don’t get is why GM would divest its main European operations to Fiat:

• They’re in less of a mess than the rest of GM.
• They have the vehicles and designers GM needs both now and in future (retrofitting eco-friendly engines when practical).
• They give GM true global scale, which everyone seems to agree is essential for success in automobile production.
• GM is desperate for funds, but the Fiat deal won’t give them any, and there are almost certainly other buyers who might stump up hard cash.

US president Ronald Reagan once described the role of government in the economy: “If it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidise it.“  That certainly sums up government behaviour right now.

At at an Institute of Directors breakfast this morning, economist (aka. dismal scientist) Andrew Gawith spoke about the global economic crisis and the need for change. I had the mixed privilege of delivering the vote of thanks.  I say mixed because, while Andrew is a nice chap and a great presenter, he had me grateful that the windows don’t open in the 5th floor dining room of the prestigious Wellington Club; otherwise his audience might have been jumping out of them. (Update: I was wrong - they do open.  Eek!) Andrew’s presentation was  largely a summary of the scale and causes of the current global crisis.  He doesn’t offer much hope that we’re through it yet - 2009 will get worse and 2010 will be flat at best, he says. (One bright note for NZ readers - China and India’s demand for protein will keep climbing, and so Kiwi farmers will once again save the day).

I won’t rehearse Andrew’s case - you’ll be largely familiar with the themes by now if you read the financial pages of your morning newspaper.   I will paraphrase some points he made regarding the role of government and regulation.

• Deregulation arguably went too far (notably the repeal of the 2nd Glass-Steagall Act in the USA, the emergence of unregulated players in mainstream savings and investment everywhere, and the loosening of bank equity ratios).
• Regulation didn’t cover some of the more recent  “innovative” financial instruments.
• Even where regulation existed, the regulators were either woefully indifferent or incompetent.
• Financial institutions have become so big, at an order of magnitude dwarfing the largest industrial corporations, that governments have no choice but to prop them up, even if the cost will cripple future generations.  Yet no-one is looking seriously at how to address this “too big to fail” problem.
• Regulation won’t stop unethical behaviour.  You can’t legislate for morality.

Andrew concluded with a strong message for his audience.  The economic crisis wasn’t only a failure of regulation, but also a failure of morality. Boards of directors set and enforce the moral stance of their organisations; ethics, values and responsibility - old-fashioned virtues that are still highly relevant.
Disclosures: Andrew Gawith is a principal of economics consultancy Infometrics and of Gareth Morgan Investments, which manages part of my family trust’s investment portfolio. I am a member of the Wellington Club.