Monthly Archives: May 2014

Stories of the crisis

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This week I’ve spent two enjoyable days at the OECD Forum and among other sessions listened to Faisal Islam talk about his book [amazon_link id=”1781854106″ target=”_blank” ]The Default Line[/amazon_link].

[amazon_image id=”1781854106″ link=”true” target=”_blank” size=”medium” ]The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge[/amazon_image]

He started by asking what should journalists – along with policy makers and economists – have asked or said before the crisis, when the good times were rolling? And have we learned the lessons since? He wanted to tell the human stories of the crisis as a way of shedding light on these questions. For example, the experience of one man in China to work in a factory in Guandong is a microcosm of the development of the global imbalances that grew so large in the mid-2000s – or so Faisal thought. But the man they chose by the time they got there had quit his factory job and become a punk hairdresser. So the story was also one of the nascent consumerism of China, and also the vulnerability of mobile labourers with their wheelie suitcases and hukou cards, and the downturn in factory employment in 2009 and 2010. The story of the crisis is one of a complex and interlocking series of currents around the world, he said. The stories help us understand them.

The book visits Greece too – the book opens with a cargo plane chartered to fly euro notes into Greece at the peak of its crisis because the share of bank notes in GDP rose from 6 to 25 per cent. People were taking cash out of their accounts. (I don’t blame them – I did the same on 2008.) meeting the demand was an amazing logistical exercise by the Bank of Greece – the country had only had the plates to print 10 euro notes in Greece; apparently only German-speaking countries have the plates for higher denomination notes.

Cyprus was on the itinerary too. It had its own plane full of notes flown in from Germany too. In contrast to the Greeks! who tried to keep it secret! the Cypriot authorities made it very public. Perhaps as a result, people didn’t feel the same need to take out cash because they knew there was enough there.

There’s Britain too, and the mortgage boom that had people buying houses on loans they couldn’t really afford, funded by wholesale money the banks and building societies had raised to fuel the bubble. Northern Rock was raising funds in Africa to fund 125% mortgages in the North of England. The book also takes in a Czech mathematician who dropped out of finance to become a Californian hippy. Iceland. The ECB and its focus on pizza prices.

All this and more. It sounds a rattling good read, which I have now bought.

The OECD forum had several Meet the Author sessions:
[amazon_link id=”1452603685″ target=”_blank” ]Average is Over[/amazon_link] by Tyler Cowen
[amazon_link id=”0241953898″ target=”_blank” ]How Much is Enough[/amazon_link] by Robert Skidelsky
[amazon_link id=”B00GOH7YZ2″ target=”_blank” ]The Entrepreneurial State[/amazon_link] by Mariana Mazzucato
[amazon_link id=”0399159967″ target=”_blank” ]Hacking Your Education[/amazon_link] by Dale Stephens
[amazon_link id=”1846142245″ target=”_blank” ]Exodus[/amazon_link]by Paul Collier
[amazon_link id=”1610395050″ target=”_blank” ]Frugal Innovation [/amazon_link] by Navi Radjou
[amazon_link id=”1846146895″ target=”_blank” ]The Last Vote [/amazon_link]by Philip Coggan

And last but not least

[amazon_link id=”B00GMSUUWM” target=”_blank” ]GDP: A Brief but Affectionate History [/amazon_link] by Diane Coyle

The thirst for understanding

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The yearbook from the Publishers Association is always an interesting snapshot of the UK book market. The news this year was that a big (19.2%) increase in the value of digital sales to £509m in 2013 didn’t quite offset the small-ish (-5.2%) decline to £2,880m in physical book sales. The total was down 2.2% overall to just under £3.4bn in sales. The detail is always interesting too. Prices of physical books were up 2.3% in the year, with the biggest increases in non-fiction and academic/reference books – sales in the schools market were down after a couple of years of stonking rises. Intriguingly, the report doesn’t give e-book price changes – I wonder why? By far the fastest growth in e-book sales has been ‘consumer’ e-books ie. not academic, professional or school.

Last weekend there was an article in The Guardian about the revival of Penguin’s Pelican imprint of accessible non-fiction works. This weekend Lorien Kite in the Financial Times has reflected on the news about the Pelican series flapping back into existence. They were the product, he writes, of a more optimistic time when the spirit of self-improvement was strong. The first 10 sixpenny Penguins published in 1935 sold a million copies in four months.

Actually, I think the 1930s were not that optimistic,but rather similar to the 2010s in the degree of uncertainty people feel about the future. There is a great thirst for understanding. But what about books now, when they face such stiff competition from other, trivial, attractions like Candy Crush Saga and Instagramming one’s meals? Kite concludes – and I agree – “Yes, publishers of non-fiction feel embattled but there is plenty to reassure them, not just in the success of titles such as the million-selling [amazon_link id=”0141033576″ target=”_blank” ]Thinking, Fast and Slow[/amazon_link] by Daniel Kahneman, the psychologist – or, for that matter, Piketty’s [amazon_link id=”067443000X” target=”_blank” ]Capital in the Twenty-First Century[/amazon_link]. The popularity of online lectures such as TED talks, the continuing boom in literary festivals, even the internet voluntarism epitomised by Wikipedia, all suggest that the self-improving impulse is alive and well.” In the UK industry figures, the number of units of physical books sold declined 7.3% in 2013, but in that mix was a 22.7% decline in fiction sales compared with a 3.3% drop in non-fiction sales. Penguin looks sensible to be pushing on non-fiction at present.

What’s more, the publishing industry is showing signs of navigating its digital transition rather better than other business sectors. I’d *really* like to know what’s going on with e-book pricing.

Incidentally, I came across somewhere yesterday – I can’t remember where so tell me if it was your tweet! – this from Kahneman: “We don’t think as much as we think we think.” Great line.

[amazon_image id=”0141033576″ link=”true” target=”_blank” size=”medium” ]Thinking, Fast and Slow[/amazon_image]

Economists and experts

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There was another favourable review of Bill Easterly’s [amazon_link id=”0465031250″ target=”_blank” ]The Tyranny of Experts [/amazon_link]in The Observer yesterday – it doesn’t seem to be online, but here is the FT’s from a few weeks ago.

[amazon_image id=”0465031250″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor[/amazon_image]

I will read it soon. Meanwhile, it reminded me of a passage in Jeremy Adelman’s fabulous biography of Albert Hirschman, [amazon_link id=”0691163499″ target=”_blank” ]Worldly Philosopher[/amazon_link]. Hirschman was working in Colombia in the early 1950s on a World Bank project, one of its first big country ‘surveys’, led by Lauchlin Currie.  Currie was allowed to turn a survey into a general development ‘master plan’, “Laying the tracks for a problem regarding the place of local knowledge in the business of economic missionizing.” Adelman writes that the plan was, “Coded in the scientific rhetoric of economic missionaries.” Hirschman clashed with Currie in terms of both personalities and ideas. The hallmark of Hirschman’s approach to economic development was exactly the importance of the specifics and local knowledge.

[amazon_image id=”0691163499″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

I don’t know whether Easterly’s book cites Hirschman, or [amazon_link id=”0691117829″ target=”_blank” ]Peter Bauer[/amazon_link], who had somewhat similar views and insisted on the importance of historical specificities, but it sounds like their approaches are in sympathy.

To infinity, and beyond

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Brad Stone’s [amazon_link id=”059307047X” target=”_blank” ]The everything store: Jeff Bezos and the age of Amazon[/amazon_link] is a rattling good read, and it should be on everybody’s reading list. The raw material is a gift to a storyteller of course. Jeff Bezos is clearly an extraordinary character, Amazon an extraordinary company, and the period since the dawn of the internet an extraordinary era. Stone has covered the company for many years and the account here is authoritative.

[amazon_image id=”059307047X” link=”true” target=”_blank” size=”medium” ]The Everything Store: Jeff Bezos and the Age of Amazon[/amazon_image]

The book is particularly good on the distinctive dynamics of online businesses, and the consequences for the various strategic calls Amazon has had to make. For example, when a solitary analyst at Lehmans, Ravi Suria, started to write negative reports in 2000 about Amazon’s then-low or negative margins, it risked becoming a self-fulfilling prophecy because financial viability depended on suppliers not demanding faster payment, and on customers having the confidence to continue flocking to the website. I hadn’t really appreciated before Amazon’s negative working capital requirement as customers pay for goods faster than suppliers need to be paid for them.

There are descriptions of moves straight out of the playbook of [amazon_link id=”087584863X” target=”_blank” ]Information Rules[/amazon_link] by Carl Shapiro and Hal Varian (although this book, one of my all-time favourites, isn’t referenced), such as super saver delivery – free for people who don’t mind waiting longer – and also Clay Christensen’s [amazon_link id=”0062060244″ target=”_blank” ]The Innovator’s Dilemma.[/amazon_link] Amazon has set up some new areas of business as skunkworks, but in other cases Jeff Bezos simply drove through new activities that would cannibalize existing sales. One example is the introduction of Marketplace, putting other retailers on the same page as Amazon itself.

[amazon_image id=”087584863X” link=”true” target=”_blank” size=”medium” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_image]

The corporate culture sounds awful; I’d never work there. Amazon has become a nasty competitor as it has grown – and the book has an interesting section on its entanglements with competition authorities over e-books. It raises some questions too about the company’s business methods in dealing with both suppliers and smaller competitors – undercutting pricing in nappies, apparently to induce an online diaper supplier to sell out to Amazon; the use of grey markets in high quality goods to get a better price, thereby undermining the viability of the supplier. All, though, in the interests of delivering Amazon customers “everyday low pricing”, a desirable aim but one that simply conflicts with some other desirable aims such as sustaining craft production. This is an unfinished story, as the long term will one day catch up with the short term.

The other big question, not explicitly raised but obvious, is what a post-Jeff Bezos Amazon will be like. That’s no doubt many years away but his driven personality and vision have shaped the company. Succession in these digital giants is clearly a big issue.

All in all, a terrific book for thinking through some of the dilemmas the online world presents, and for thinking about the digital challenge to existing business models. The Jeff Bezos story is amazing too, and by the way he wants to colonise space. That’s not a joke.

Highly recommended book, whether for pleasure or for business students.