Ged Carroll

Category: economics | 經濟學 | 경제학 | 経済

Economics or the dismal science was something I felt that I needed to include as it provides the context for business and consumption.

Prior to the 20th century, economics was the pursuit of gentleman scholars. The foundation of it is considered to be Adam Smith when he published is work An Inquiry into the Nature and Causes of the Wealth of Nations. Smith outlined one of the core tenets of classical economics: each individual is driven by self-interest and can exert only a negligible influence on prices. And it was the start of assumptions that economists model around that don’t mirror real life all the time.

What really is a rational decision maker? Do consumers always make rational decisions? Do they make decisions that maximise their economic benefit?

The problem is that they might do actions that are rational to them:

  • Reducing choice when they are overwhelmed
  • Looking for a little luxury to comfort them over time. Which was the sales of Cadbury chocolate and Revlon lipstick were known to rise in a recession
  • Luxury goods in general make little sense from a ration decision point of view until you realise the value of what they signal
  • Having a smartphone yet buying watches. Japanese consumers were known to still buy watches to show that they care about the time to employers when they could easily check their smartphone screen

All of which makes the subject area of high interest to me as a marketer. It also explains the amount of focus now being done by economists on the behavioural aspect of things.

  • Hallyu, Mociology & Microchunk

    Hallyu – The rise of Korea as a cultural hotbed (what’s called the Korean wave in some quarters) in Asia: from the sexiest mobile phones, or well written and produced cinema to K-pop (the Korean equivalent of J-pop: sugar-coated Japanese pop music that carries well in other Asian markets and performed by young performers so physically perfect, you wonder if Sony hasn’t a secret laboratory protected by ninjas inside of Mount Fuji to manufacture J-pop artists).
    Interestingly the Korean wave has not yet impacted on Japan in the same way as its neighbours, which was an interesting aside that came out of Richard Edelman’s keynote at the London presentation of his agency’s global trust barometer survey. Kudos to the New York Times Online (registration required).
    Expect to see more of hallyu: the mix of professional product perfection and the conservative nature of Korean culture produces a product that travels better around the world than much US culture.

    Mociology – The study of how mobile technology impacts with sociology from purchasing concert tickets to organising political rallies, raves and flash mobs. (Derived from mobile and sociology).

    Microchunk – A product or service sold traditionally as a package broken down into its constituent parts so buyers can purchase a la carte for consumer electronics to news feeds. Think sachet marketing for the digital world. People like 37signals have successfully built ‘microchunk’ applications and services (like Backpack) that do one thing extremely well and compete against other much larger software companies that take a bundled approach leveraging an effective desktop monopoly (mentioning no names). Kudos for mociology and microchunk to Wired Magazine. More related content here. 

  • Level3

    Totaltele.com had an interesting report from Dow Jones Newswire how Level3 the backbone network provider had been exhibiting Enronesque traits.

    Level 3’s capital-intensive business model is questioned (subscription required) by Helen Draper highlights how Level3 is having to invest huge amounts of money to make just a little money back, hurting its working capital. This was one of the factors that encouraged all the creative accounting at Enron.

    I have a bit of related history. Back in the day I was involved in launching Enron Broadband Services in Europe. The operation was a start-up with just three bright Americans who were sent over to kick things off. I got them sorted with their first UK mobile phones, which were prepaid devices on Orange.

    My team was responsible for introducing them to the European telecoms media, the telecoms analyst community and key contacts at the major peering networks in London. I thew the most awkward party ever. A whole pile of UNIX and Cisco experts ate nouveau cuisine in a minimalist restaurant that required a cloak room assistant to help you find the exit door in the bathroom. My job at that time wasn’t made any easier by Level3. In a classic case of the Emperor’s new clothes or dot com hubris, Enron had a complex PowerPoint deck and a story that  didn’t make much sense. At the time Level3 was both a supplier of capacity to Enron Broadband Services and a determined critic.

    It’s then CEO James Crowe was a vocal critic of the Enron Broadband Services business model according to journalists that I had spoken to. Which made my job so much harder.  Of course, some of Crowe’s criticism was justified and none of us really had an idea of how much of a mess Enron actually was. It is ironic to think that Level3 might be treading a similar path. More telecoms related content here.

  • Breakfast clubs

    Its easy having worked in the media to lose touch with what happens in society. When I read in the FT on Saturday about Greggs the Bakers’ school breakfast clubs I was impressed and disturbed at the same time.

    Firstly the disturbed bit, I went to school in a hardship hit area where many kids queued to get free school meals, I managed to avoid it myself as my Dad managed to keep working. The recession hit 80s I thought were long gone, its a lot easier to get work now. The breakfast clubs reminded me that the child poverty one associated with my parents day and before; despite family credit and new deal schemes designed to alleviate real poverty. It seemed like something one would have expected when there were the dark satanic mills and dank industrial landscapes portrayed in LS Lowry paintings and sketches where working-class people toiled on the edge of existence and children were at risk of catching rickets and got their shoes from a ‘boot club’. Instead of the dark satanic mills, there are now warehouses with zero hour contract employees. This isn’t even the old day wages suffered by construction workers and stevedores working day rates pre-containerisation on the docks. 

    If this carries on the political centre won’t hold with this level of poverty.

    I was impressed by the way Greggs have taken positive steps to help communities deal with this by funding the food and equipment like toasters and having their own staff train volunteers who cater for the breakfast clubs. Breakfasts improve punctuality and help the children concentrate on their morning lessons, since many of them would not have eaten until lunch time. The campaign seems to be a text-book case of corporate and social responsibility activity. Apparently the scheme costs them in the region of 250,000GBP per annum and puts to shame the Big Food companies who have far more resources at their disposal and are in desperate need of far more goodwill. What do you think? More related posts here.

  • China Inc. – The 800-pound dragon in the room

    The New York Times has a great review of China Inc. by Ted C. Fishman which highlights the growing economic might of China. Some interesting facts and figures featured in the review of the book include:

    • From 1982 through 2002, the United States economy grew at an annual rate of 3.3 percent. China’s economy grew at an annual rate of 9.5 percent,
    • In 2003 China bought 7 percent of the world’s oil, a quarter of its aluminum and steel, almost a third of its iron ore and coal, and 40 percent of its cement.
    • China makes 40 percent of all furniture sold in the United States
    • China has 3,000 Christmas-decoration factories which exported more than $900 million tree trimmings and plastic Santas in the first 10 months of 2003.
    • China still only makes one-twentieth of everything produced in the world
    • China can rely on a vast low-wage army, working for an average of 40 cents an hour, that can turn out consumer goods of every description
    • American and Japanese companies spend $1 billion to $2 billion to develop a new car
    • New super-cities like Shenzhen, a fishing town of 70,000 20 years ago that now has 7 million people, making it larger than Los Angeles or Paris, swelled by migrants from the countryside looking for a better life in the city
    • Up to 300 million Chinese have migrated from the country to the city over the past 20 years
    • The Asian Brown Cloud, a wind-borne industrial smog that originates on China’s east coast, can be seen in California as it rides the jet stream
    • China has seven of the world’s ten most polluted cities


    The book also provides some insights into the differences between the rise of China and Japan. Unlike Japan, China Inc. is driven by local enterprises rather than the central analysis and planning carried out by Japanese Ministry of International Trade and Industry (MITI) [now known as the Ministry of Economy Trade and Industry] to find key markets to conquer. There is a certain irony in the socialist state using the brutal darwinism of the marketplace in a way that Adam Smith would have appreciated.

    Current reading at chez Renaissance Chambara:

     

  • Running Money by Andy Kessler

    Andy Kessler’s Running Money, Hedge Fund Honchos, Monster Markets And My Hunt For The Big Score is a well written set of memoirs from a technology fund manager. Together with his partner-in-crime Fred Kittler, Kessler managed to survive the highs and lows of the technology industry in the late 1990’s, he tells the story in a very articulate way that is as powerful as Robert X Cringely’s book Accidential Empires. The expansion of the tech sector is told using the industrial revolution as an analogy.

    One of the first things portrayed in Running Money (and other books) is that the tech sector actually revolves around a relatively small group of people. In addition to writing his memoirs Kessler tries to make sense of it all and proves very illuminating to readers. In this respect it is far better than The New New Thing by Michael Lewis.

    Post-industrial, IP-driven economy

    The book looks beyond the technology sector to put a positive spin on the huge US deficit. Running Money explains that America is now an IP economy and assumes that the developing world will follow on behind as a wave sweeps across national borders moving the economic status through hunter gatherer, agriculture/extractive, industrial, service and intellectual property economies. In some respects the US with its IP economy is following Europe; what is the Swiss banking system, LVMH’s luxury brands and the continents big pharmaceutical firms if not part of an IP ecosystem?

    Conclusion

    I would recommend anybody to read Kessler’s book. I thought I would end however on some of the differences in viewpoint I have with his writing. Where some of Kessler’s writing differs from my own perspective is when he outlines his analysis of the current state of affairs and some of his future vision:

    • Kessler considers markets to be a perfect instrument in the long term; which I am not convinced about at all. Think the great depression, the S&L debacle of the 1980s for instance, markets can break and require occasional interference
    • The neat model of China being an industrial workshop for US intellectual property is simplistic. China is fast moving into building its own brands from mobile handsets to luxury watches (the first Chinese astronaut went into space with a relative expensive Chinese brand of chronograph. China and India has a huge film industry. It isn’t only China either, Japan is now a source of numerous fashion trends, hot movies in Korea have their scripts optioned by Hollywood, some of the best advertising creative teams come from South America and India)
    • Kessler talks about the entertainment industry as being part of this US IP powerhouse but this fails to see the many flaws and mismanagment in the music, media and film industries that make Worldcom seem well managed. The RIAA and MPAA have hid behind piracy to hide a deeper malaise highlighted in Michael Wolf’s Autumn of the Moguls
    • Kessler doesn’t talk about what the inevitable post-intellectual property economy looks like

    More book reviews here.