economy Archives - Kevin Low

Economics and efficiencies

Dr Janeway’s article on False Economies highlights some of the philosophical underpinnings of the modern, capitalistic study of economics that drives the system to behave in ways that endangers the entire economy’s long term prospects at times.

There were so many different themes brought out in the article that is worth more investigation and appreciation. The point that Arrow-Debreu’s work points to the fact that our markets in reality would never be efficient is something that we do not embrace enough of – especially in public policy.

The lack of political courage and unwillingness to be accountable to policy decisions drives the notion that we must ‘leave things to the market’. And today, with the world facing the climate challenge, I do not believe that the market is the solution to deal with the challenge. The political will to align incentives, define standards and mobilise efforts is necessary.

The recent Oxfam study about the rich getting richer faster than the poor being uplifted shows that, indeed, we have enough money to deal with the world’s problems. But far too often, it is either in the wrong hands or working towards the wrong goals. Economics assumes the market would direct resources to the ‘right goals’ but this goal-selection process at present is dysfunctional.

Fast followers

Being a fast follower is a good strategy; it allows you to take in the lessons from those who have tried and failed first. It is even a strategy that enables you to become a leader from public’s eyes.

But the challenge for the fast follower who gained leadership status is falling into the trap of thinking they are the leader. Their skills in curating what they learnt from the mavericks, scaling what was small and bringing things to market fast, are not going to be suited for what is required to take real leadership: influencing the market, uncovering innovation from their own values and principles.

They may have to pivot at some point when they’ve outcompeted all those whom they were fast-following.

Who foots the bill?

You bought an expensive foie gras meal and paid for it but can’t finish it. So who foots the bill?

If you finish it and get sick as a result? Is the doctor’s fee part of your foie gras bill?

If you don’t finish, and it goes into a food waste heap that requires public subsidy to manage and clean up, are the taxpayers footing your bill?

Would knowing all that change your decision to buy that foie gras meal?

What if you knew the future path of your choices? Who would you allow to foot the bill? How far ahead would you care about the consequences of your actions?

This is a story about externalities, cost and consequences. Who should care? Who should we care for? How much should we care? No one teaches us all these? We have to work them out and make decisions.

What stays the same

Interesting how just when I was thinking about pivot points for change, I chanced upon this Farnam Street article on Bezos and Buffett’s thinking on the impacts of the new on the financial markets. The focus is not so much what will change but what stays the same.

Governments around the world would benefit from the same way of approaching problems – not so much by considering what will change but rather, what is going to stay the same. It is more important to consider what are the new elements that can build upon the existing than to go wild with considering what could throw things off the current course (why, everything and anything, of course!)

Transition economics

What happens in economics when technological innovation happens? There’s a bit of dilemma between technological progress and economics because technology needs to progress to a stage when it upend the economics of an established technology – yet the incumbent is often enjoying scale economies as well as other effects such as network economies that can make it incredibly difficult for the new comer even if it is superior to existing technology at the scale that the incumbent operates.

In the Innovators’ Dilemma, that was being described and the strategy as well as the market approach is always for the new technology to chip away at the market of the incumbent technology by being appealing enough to a small group in the market to help it grow its scale and challenge the incumbent on more fronts gradually. Can the new technologies that we are trying to cross over towards make their way through this path in order to break the dominance of the incumbent technologies?

They probably won’t be able to move fast enough. And that is probably the justification for government to intervene and encourage developments. Yet governments do not want to be seen as favouring particular technologies. There is also a concern about creating inefficiencies in the market by distorting prices or forcing the taxpayers to shoulder the wrong costs.

Yet in reality, for the world to create a better future, there’s no real ways around it. The modern world was not built by shielding taxpayers from the wrong technological investments nor from carefully betting on the right technologies to take off. The complex problems around climate issues today are not so different from the public infrastructure challenges that people faced in the time before government had the kind of powers they have today. They are more complex, and we probably need more talented people working on them, both in the private sector as well as in government. In fact more so in government than ever.

The challenge remains the cost-benefit paradigms and all the free-market type principles to government and what intervention should be like. Without more mission-oriented policy-making principles and a system that is properly leveraging talents and passion, it will be difficult for governments around the world to assume the kind of role and leadership it needs to lead the transition.

Con-tinuing

Despite the bad press for EY in Germany and PwC in Australia; the big four and their sprawling professional services activities continues to grow. Accounting and audit services aside, advisory services appears to be in demand across the international business world. Overall across the economy, as best practices across the industry spreads, companies becomes more competitive and efficiency goes beyond just market prices and matching of customer demands. Innovation takes place as well.

Consultants, through advisory services helps information and knowledge work themselves out in the market. Mariana’s Big Con argument about economic rents however, might still somehow stand in the sense that the fees they attain may be somewhat outsized compared to the value created. And I’m referring more to generic type of business consulting as compared to technical advice or consulting that augments capacity of businesses during special situations such as a transaction or some kind of innovation project.

Yet I would say that the bigger con that is present in the market is the financialisation of our economy and everything that the financial industry abd banking does to generate rents. The issue is that the labour of financial industry keeps serving capital, and capital, with its sustained bargaining power (as pointed out by Thomas Piketty), continues to direct rents towards the financial industry.

The main force that can change this will be the government and regulators; there has to be more research and thinking around the manner we are setting up our economies.

Among us

There are imposters around us; they pretend to be doing their work but are actually creating problems for their coworkers to solve. They are starting fires around workplaces that we all have to put out. The only issue is that companies are trying to get people to practise teamwork and they are not trying to sniff out imposters who are just pretending to be teammates. Unless you start playing office politics and all that.

What this means is that if you have been doing well, and keep doing well even though you didn’t seem to have previous experience or built any credentials around it, you’ve already proven yourself. What this means is that if you have some suspicion about yourself as an imposter, consider your intentions rather than your qualifications. What makes you an imposter is when you have drastically different intentions from the rest of the team.

It’s not just your qualifications that gets you there. It’s your intentions as well.

Sniffing industrialism

Professional services are inherently somewhat personal kind of service that depends a lot on the team delivering the service – not just because of the expertise required and involved but also the extent the team actually understands and care about the problem that clients have.

When one enters a professional service environment, it becomes easy to sniff out industrialism when you note that the bosses are just acting as managers, thinking about how they can increase more sales, upsell customers and mainly care about the metrics involved for sales but not delivery. And then when it comes to delivery, the culture is about doing the minimum, leveraging irrelevant previous work, failing to live up to promises.

We have all seen the big consultancies deliver such stuff. Perhaps especially the big four. Mariana Mazzucato talks about it in the Big Con. Workers need to sniff out industrialism in this sector and learn to opt out of it – by leaving or changing the way they serve. Clients need to sniff that out by walking away. The reason why such industrialism perpetuates is because clients sign up for them – they put procurement departments, try to boil everything down to basic metrics and uni-dimensional issues, and negotiate lower prices, driving vendors to cut back on service.

We’ve had decades of doing more, extracting more productivity out of our assets, workers and even vendors. Like the big fossil, you might think you’re winning, until you realise you’ve just driven the world to its end.

Heart and hand labour

I’ve been based out of Australia for almost three months now. The transition was smoother than I had expected and as a Singaporean who have studied abroad both in the US and UK, Australia is an easy environment to fit into.

Yet there is one cultural element in Australia that makes it so radically different from most of the other places I’ve been and lived in. It is the respect and remuneration that is given to heart and hand labour. Vocational skills, trade skills are properly valued. Plumbers, technicians, work men are well respected and rather well compensated. It is a place where I have seen the most female construction workers at work sites. The work environment for these people labouring with their hands are generally good.

Same goes for heart labour. The caregivers; the nurses, those social workers. They are given great deal of respect and these jobs are not looked down upon. It is markedly different from Singapore in that sense. Last year in Singapore, Lawrence Wong made a speech about valuing heart and hand labour more in Singapore. The government was concerned about pay gap and inequalities but as a culture, there is a lot to learn from Australia when it comes to respecting the trade skills.

One could argue the prices would rise; food in Singapore may no longer be cheap. And it might cost way more to get someone to deliver goods or to fix stuff around the house. Well, we do pay a lot more to our corporate workers, and we do pay a lot for tuition teachers – why should head labour necessarily earn more? The government could lead the way by setting higher standards when it comes to some of these trade work. They can also pay more for the services they procure in the heart and hand sectors.

Bringing my writings together

Probably for the first time in the history of my personal blogging, I’ve brought together all my writings under a single site. Since migrating kevlow.com to a self-hosted platform (though you probably won’t be able to tell), I’ve pulled in some of the even older pieces of writing I’ve put out on the internet. This includes blog entries written from as far back as 2005.

Looking through my entries, there was the period of 2011-2013 when I wasn’t so active probably because I was busy in LSE. It was probably a bit of a shame because those were some really formative years as well in terms of the development of my academic thinking and also integration of my faith into my intellectual identity. Perhaps I had wanted to keep things a bit more private. I would like to point out that those were also years when Tim Keller’s writings engaged my mind so much more.

The focus of my writings has certainly evolved significantly especially with the addition of topics around energy and climate. My passion for education and learning was more dominant earlier in my writing though I wouldn’t consider it to have died down from then. My interest in other topics had expanded.

I could have continued to keep my writings in different niches and have them separate but I realised that in some sense, they were reinforcing one another and were all products of my principles and conviction that drove me. After years of refinement, my conviction is still towards this broader theme of trying to create a future that we all want to live in. Whether it’s energy, education, sustainability or economic development, I am future-oriented and all for investing in what is to come.