Issue 11 - The Curse of Neoliberalism

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The Curse of Neoliberalism & the Cult of Shareholder Value

I'm going to start today's ' Window to the World ' with a personal anecdote. I place a lot of value in personal anecdotes as, in essence, the statistics that we devour when trying to interpret market trends are essentially the cumulation of millions of personal experiences.

Last week, I had to fly from Florida back to Ireland, at very short notice, for a family funeral. The events that followed encapsulated in a microcosm what has gone wrong with America since the cult of shareholder value was embraced in the '80s & embellished in the decades that followed.

Firstly, I had to pay $1,800 each for a ticket that normally costs $600 - no sympathy there. But " that's the market ". However, the price gouging turned out to be the least frustrating part of my trip. The real ' fun & games ' began when I looked to source a PCR test. I searched frantically, all Saturday but was unable to acquire a ' same-day ' appointment anywhere. The earliest appointment I could get was for 9.30 am on Sunday, which was the day of my 3pm flight.

I booked the ' Rapid 1-hour PCR test ' online & on Sunday morning, I headed off to make the 45-minute journey for the test. When I got there, I was told, by the receptionist, that the test results took 5-6 days to come through. When I reminded her that her website guaranteed a 1-hour result, she just repeated her previous statement. No apologies or anything like that but she did give me a phone number for a mobile service that might help me, in my hour of need.

I phoned the mobile testing service & they agreed to come to our home at 12pm. One hour later I got a message saying that I had no appointment as I had not paid ( The lady who made the original appointment had said that the technician would collect payment when she arrived ). So now, I had to go through the whole process again, repeating everything multiple times, both verbally & by email. The earliest appointment now available was 1pm which wouldn't give me enough time to make the one-hour airport journey & still make my flight so I asked the tester to meet me at the airport at 1 pm.

I got to the airport at 12.55pm. 1pm arrived - no tester! 1.15pm - still no sign of anybody. Panic stations were now setting in. Every phone call I made to query the tester's whereabouts went to a different person, in a different place, who had no clue what I was talking about. It's now 1.30pm & the tester is still not here and I'm engaged in frenetic email correspondence with the ' support team ' as the clock ticks away rapidly. This team answered some emails & completely ignored others. At no point did they give a clear answer as to the tester's whereabouts. I get ambiguous replies ie " She's in your area " then " She's at your home " which would have been pretty miraculous as I hadn't provided my home address. I had repeatedly specified that we were to meet at the airport. At this stage, there's more smoke coming out of my ears than from the Vesuvius volcano, as I feel like I am talking to the wall.

At 1.45pm the tester arrives. It turns out that she was given TWO incorrect addresses by the appointment booker, one of which didn't exist & neither of which bore any relation to the very specific instruction I gave which was to meet at the United Airlines desk at Ft Myers Airport and which was written on their confirmation.

I was now too late for our flight and had to make the one-hour taxi ride home again, knowing that I would miss the removal ceremony of a dearly loved relative, thanks to the most extraordinary levels of sheer incompetence that I have ever experienced. I did make the flight the next day & arrived with literally minutes to spare for the funeral ceremony.

So, why am I telling this story and what does it have to do with neoliberalism & the cult of shareholder value? Let me explain.

Ever since the Thatcher/Reagan days when socialism was pretty much banished from Britain & America, we were taught to embrace the value of ' the free market '. Deregulation was ' delivered in spades ' and numerous benefits were seen - higher economic growth, rising stock markets, a significant reduction in bureaucracy & its related costs & a complete dismantling of the chokehold that the Trade Unions had over major industries.

Most of this was positive & to be welcomed. However, like all systems, as time went by, it began to be taken to extremes. Whereas it was nice to see all of the ' bad stuff ' disappear, the problem was that ' the baby was thrown out with the bathwater ' and the ' good stuff ' was also lost:

• Employers, who previously valued the input of their loyal & hardworking employees, now see them only as costs on a spreadsheet & looked to reduce those costs at every opportunity, regardless of the human suffering that it might bring.
• Accumulated profits, previously used to build a new plant or for R+D purposes, are now plowed into massive share buybacks so as to juice managements' share options.
• Customers are also seen as numbers. Instead of growing the customer base by delivering outstanding service, many companies seek to do so by ' buying the competition ' & generating monopolies.
• Customer service has become an oxymoron. Companies create as many layers as possible between themselves & their customer.s If you look at any corporate website, these days, you'll see 27 different ways to buy something but no way at all to contact someone regarding a service requirement or a product problem. You won't even be able to find a contact phone number. Instead, you'll be directed to a long list of ' FAQ's ' that won't cover your issue or end up talking to an A.I-powered chatbot that spews out preprogrammed answers that won't solve your problem.

If you are really lucky & actually get through the website labyrinth & find a number that you can phone, you will get through to a call center in Mumbai, where the guy doesn't know you from Adam & his only motivation is to get rid of you as quickly as possible so that he can meet his demanding K.P.I's. You may not even understand his accent or he may struggle to understand yours. God be with the days when you just brought your product back to the corner shop to the guy who had sold it to you in the first place, knew you personally & was motivated to look after you as he saw you as a long-term relationship.

The reason that problems arose on my PCR test search is that American companies employ the cheapest possible staff for the more basic jobs. These people are usually not well educated and they are paid peanuts. So what do you get? - a not very smart, demotivated workforce who literally couldn't give a toss about the customer - I mean, why should they?

Because of the nature of the workforce, the corporate organigram is set up in such a way that these people have no decision-making power whatsoever & zero flexibility. No matter what question you ask them, they parrot one of the 4 scripted answers they have on a sheet beside them. If I phoned up and said " I have got a gun & I'm going to kill all my neighbors, right now ", I would likely get a reply " Your call is very important to us. All of our employees are serving other customers. We appreciate your patience. Your wait time is 49 hours 10 minutes and 15 seconds. Please view the FAQ's on our website to solve your problem " while they turn around to have a coffee & a doughnut

This is not a paean to Socialism. Socialism has many faults. Capitalism is a better system, were it not for the sheer greed of its participants. Business owners who think it's perfectly all right for them to earn 50,000 times the salary of their average employee. Owners who are happy to blow away money on vanity space travel while their employees are not even allocated enough time to make it to the bathroom without being fined. Retailers whose employees have to supplement their wages with food stamps simply to have enough to eat & keep a roof over their head.

So is there any hope for us? Well, maybe a small glimmer. Here's a report from the Chronicle of Philanthropy that lightened my despair somewhat

5 Academic Institutions Get $40 Million to Promote Rethinking About the Economy By?Alex Daniels

Two philanthropies, the Hewlett Foundation and Omidyar Network, committed $41 million to five academic institutions as part of a?broader effort?to change accepted notions about the way the economy works & challenge neoliberalism, an intellectual movement that began in the late 1940s & established broadly accepted principles on the role of markets & governments that became firmly established over the course of decades.

Neoliberalism?was developed by thinkers like Friedrich Hayek and Milton Friedman & resulted in policies to shrink government, reduce government debt, open up trade & deregulate the market. It gained steam under Ronald Reagan in the U.S & Margaret Thatcher’s in Britain.

Since then, policymakers have had too much faith in using a market-based approach to solve social ills. Howard’s Center for an Equitable & Sustainable Society will use the money to study how both market forces & government regulation have contributed to healthcare disparities, income inequality, housing insecurity & other issues.

The 2008 recession and the widening gap between the rich and poor has made the failure of the neoliberal approach clear. Approaches used to describe different ways of thinking about society & the economy, like ' liberty versus equality ', or ' central control versus free markets,' are outdated & need to be replaced with “ the next big intellectual movement.”

The idea is to support a new generation of academics who influence think tanks, media & policymakers, who can break down complex economic theory into easy-to-understand concepts that the public can digest. “ Government is bad, markets are good”?is an example of a neoliberal mantra that has taken hold across a broad swathe of the public

Where the Money Is Going

In addition to the Howard University center, the support from Hewlett & Omidyar will go to Harvard Kennedy School’s ‘ Reimagining the Economy ‘ Project, the Johns Hopkins University Center for Economy & Society, M.I.T’s ‘ Shaping the Future of Work ‘ program & the Santa Fe Institute.

Hewlett will provide the bulk of the grants from its $50 million ‘ Economy & Society ‘ Initiative. Omidyar will provide $6.5 million of the total, to the Santa Fe Institute.

The Omidyar grant is part of its ' Reimagining Capitalism ' program, which also supports workers' rights, asking corporations to think beyond shareholder interests & addressing the ramifications of concentrations of power in the economy. Omidyar has already awarded $60 million to the effort.

Other related grants from the Ford Foundation & Open Society Foundations are forthcoming. Ford will make grants to institutions doing similar work in Africa, Asia & Latin America. Open Society is “exploring how best to support heterodox economic thinking” through its Open Society University Network.

Taking a Long View

The grants to universities will enable them to hire researchers who will challenge current economic assumptions. An annual conference in Santa Fe will share ideas & promote research with other academics, think-tank leaders & Hollywood producers who want to change how the role of government & the economy is presented on screen.

A short-term goal is to develop a new undergraduate economics curriculum. Children attending college after the 2008 recession, used textbooks that suggested that raising the minimum wage would harm the economy or that increased government deficits kill growth. Those ideas should be challenged. Swapping out textbooks may be easier than instituting a new prevailing view on the role of markets & government. But neoliberalism had an assist from influential donors like Richard Mellon Scaife & Charles Koch.

Buzz Phrase

One of the biggest challenges to the entire approach is defining just what “ neoliberalism ” means. Neoliberalism is a buzz phrase that can mean just about anything & is often used to pejoratively label an approach someone doesn’t like.

?Privatization & deregulation became popular because of the pain inflicted by “ stagflation ” ( high unemployment and a listless stock market ) that took hold in the '70s & '80s.

White House Interest

A number of grantmakers are involved in similar efforts inc the Children’s Investment Fund Foundation, the Economic Security Project, the Nathan Cummings Foundation, Rockefeller Brothers Fund, Skoll Foundation & the Wallace Global Fund.

Last year, Jennifer Harris, who led the Hewlett ‘ Economy & Society ‘ initiative for three years, left to join the Biden administration as Senior Director for International Economics & Labor at the National Security & National Economic councils. The appointment is an indication of interest at the White House to entertain new ways of thinking about the role of government & its relationship to markets.

While plowing ahead on the intellectual work on neoliberalism is essential, translating those efforts into policy is crucial. Not only is neoliberalism not up to the task of reducing wealth inequality, it's also a key source of hyper-partisan conflict that threatens democracy.

Life Lesson #11 - 1991 - Who is the Patsy?

There is a saying among poker players " If you have been playing for 20 minutes and you don't know who the patsy is, then you're the patsy."

In my early years at BNP, foreign exchange trading was a big part of our business. These were the ' Pre-Euro ' years and we had traders specializing in trading dollars against Sterling, Deutschmarks, Yen & Swiss francs as well as the Irish pound. USD/Dem was the biggest & most liquid market and profits could, essentially, be made in two ways.

One way was to take an outright trading position and hope that your judgment proved to be good, enabling you to close out, later on, with a nice gain. Most trades were done ' intra-day ' as maintaining ' overnight positions ' left you exposed to the risk of an unexpected event occurring.

The other way was to ' make arbitrage '. If you had a volatile market and if you were quick & nimble, you could arbitrage the price of two different banks by buying from one & selling to the other simultaneously at prices that gave you a small margin.

This is where the ' patsy hunting ' began. The FX markets were a ' dog eat dog ' world. You needed the sharpness of a quant and the reflexes of a gazelle if you were to survive the day intact. The market was full of ' whales ' who had big customer orders and could move the market in their favor and ' sharks ' who had more market information and/or picked it up more quickly than their competitors. Some of the bigger players in the market even had nicknames. Citibank, for example ( whose UK HQ was based at the Strand in London ), was known as ' The Strand Strangler ' was highly feared by all and sundry.

Now, being a small bank in Dublin, we were nearer the plankton level than that of a shark or a whale but I had hired some pretty sharp traders, who knew how to look after themselves. Our USD/Dem trader discovered a small sleepy bank in Norway that had a branch in Oslo and another in Trondheim, both of whom seemed to quote different prices when the market got volatile. Never one to ' look a gift horse in the mouth ', he regularly contacted them for USD/Dem prices and more often than not was able to take advantage of an arbitrage opportunity. In fact, the joke going around our trading room was that he should send half of his bonus to that bank, given that they had contributed so handsomely to his annual profit.

In 1992, there was heavy speculation that this bank would merge with another Norwegian Bank. However, one noted analyst scorned the move by opining that " tying two stones together doesn't make them float ". The merger never happened and in 1999 the bank was acquired by Danske Bank and our ' golden goose ' disappeared, never to return. Still, it was good while it lasted!

I guess, the moral of the story is not to be the patsy yourself. I'm pretty sure that we were occasionally patsies for some of the sharks & whales, albeit we did our best not to provide them with ' a free lunch ' too often. It was Intel's Andy Grove who said " only the paranoid survive " and in the FX markets, if you assumed that everyone else was out to get you, you were right, most of the time.