This is not Hawaii: the tyranny of taxonomy

I really must be getting old, or perhaps its just a bad head cold and getting over some day surgery, but whatever it is: I am feeling grumpy, even cantankerous.

Taxonomy is the process of naming things. It attaches meaning to a referent. it is undertaken by sensible people, with good intent, it is moderated by users of the terms of art being created, it fixes meaning, it creates opportunities to exchange meaning in communication.

It was probably first pointed out to the popular art world by Rene Magritte in 1928/29 with his famous painting of a pipe - "Ceci n'es pas une pipe," or more germainely given the image used above:  A map is not the territory it represents, but, if correct, it has a similar structure to the territory, which accounts for its usefulness. As Alfred Korzybski, wrote in Science and Sanity (1933, p. 58).

Yet, these simple lessons seem to be lost in modern NZ. Especially, in the financial press, in company announcements, and amongst those not financially literate.

Profit, for example, seems to mean many things: a general benefit, an outcome, and many many types of earnings: post tax; pre tax; sometimes served with a dollop of depreciation and in some cases rigorous ladles of rent, lease costs, interest costs and the more common amortisations on the side, all depending on the appetite and nefarious (?) intent of the author.

For the unsophisticated consumer of these taxonomical whimsies, their palate is numbed by claims and counter claims, they don't know, maybe they don't care. But their appetite forces them to just eat up the whole mess; question it not all, and ultimately hold no one responsible for the digestive chaos it creates.

In current day New Zealand, apparently, directly attributable, can now mean vaguely related. Externalities have become internalities. Fictions are obviously facts, opinions are presented as truth.  Polemicism and argument no longer require fact or narrative or counter argument to create a richer textured shared understanding.  Instead, we rush headlong, blindly to create apparent steady, sensible, unflinching meanings that are almost always inevitably misunderstood. 

What then is the use of discourse when the meanings of words are unfixed?

As a society New Zealand will be the loser, if we simply standby and see the triumph of the empty signifier in relation to discussions around financial matters. An empty signifier is a symbol with ambiguous meanings; contested meanings, even one so debased as to be empty of meaning, discord will be the only outcome of such a taxonomical journey.

Without a shared lexicon; without shared meanings, exercises in discernment become mere popularity contests, and that hasn't gone well universally in history, just think back to the Weimar Republic.

In all levels of Government and the business community, if we really care about consumers we need to tighten up on meanings. Direct benefits occur only from activities within a firm.  Indirect benefits can be observed, but without causation are almost impossible to measure, let alone replicate or seriously theorise about.

Profit is the positive change in tax paid retained earnings prior to any dividends or distributions amongst stakeholders.

Cash flow comes only in three levels: net cash, marginal cash and operating cash. Changes in them come from different factors, and they mean very different things.

Likewise, returns are always a relationship of a form of profit measure to another fixed reference: Assets; Capital Employed; Shareholders Equity, and Sales, and they each give us different insights to the value being created or destroyed by the management and governance of certain aspects of: a company, a fund, a market, an economy.

This week the results of a survey conducted by the Commission for Financial Capability (CFFC) and the Financial Markets Authority (FMA) for Money Week were released.  More than two-thirds of people surveyed said they did not know how much they had paid in KiwiSaver fees, while nearly half were unsure how much their KiwiSaver investments had earned in the past year, indeed 10% did not even know who their KiwiSaver provider was.

Accuracy, precision, clear communication and plain speaking is what's required NZ when we talk to investors, employees, buyers, suppliers, lenders and shareholders. No more fudging it with formal, informal understanding's and mealy mouthed ambiguity.

If we can't all show some leadership about this, then our companies and our capital markets will slowly shrivel up and die: markets and companies require confidence and trust to operate in. Not hype, inaccuracy, ambiguity and illiteracy. 

Come on NZ: say what you mean; mean what you say, and don't be afraid to call "bullshit" when you hear it, or see it. I will.

Leon