Fire and ice

Last night I came off a series of deadlines and sat in my chair, catching up on a backlog of emails. I also watched David Stratton’s series on David Stratton with some Australian Movies worked into it currently on iView (episode 2) which was enjoyable. Anyway, somehow I happened on this doco which seemed schlocky enough to catch up on emails with. And some of you reading this will remember that game. Borg-McEnroe tiebreak in the 4th which ended 18-16 (After 7-7 in a tiebreak every second point is a set or a match point!). It was quite something at the time. Less so on the doco.

But it’s much better than that. Quite a touching doco.

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A 50 per cent top rate makes sense

My column last week for The CEO Magazine reiterates a point made previously at Troppo: the weight of research shows decisively that high marginal tax rates have little effect on the efforts of most high-income earners.

Sample quote:

“These research results line up with what we all see each day. Does anyone really believe that if you slug all those Macquarie bankers 50% instead of 48, they’ll suddenly start arriving in the office at 8.55am and leaving at 5.25pm? Nope. They’ll still be streaming through the lobby at 7.15am tomorrow, coffees in hand, ready to work as hard as they did yesterday.”

This was Nick Gruen’s conclusion in his influential CEDA paper Tax Cuts for Growth, which in 2006 seems to have pretty much established that extra tax on high incomes would not devastate the Australian economy.

The paper also pointed out that given how much the rewards of the economy were shifting towards the top end of the income scale, increasing taxes there would raise a decent amount of dough.

If anything, the past decade has reinforced those conclusions. If you really think Australia needs to address its Budget deficit, then higher marginal tax rates for the biggest earners make a good deal of sense.

So now that Bill Shorten is suggesting exactly that, it’s worth revisiting what Nick had to say. It all still applies.

Read the whole thing.

David on Twitter: @shorewalker1

Posted in Best From Elsewhere, Economics and public policy | 19 Comments

The pervasive externalities of pro-social behaviour: who knew?

What is this picture doing here? It is one of the images selected by Google when I typed in “now is the time for complacency”. It clearly has a deep connection with that idea. I can’t comment further except to say that Google has a great deal of AI devoted to these kinds of issues, so I comment the graphic to you.

Spillover Effects of Institutions on Cooperative Behavior, Preferences and Beliefs

By: Engl, Florian (University of Cologne) ; Riedl, Arno (Maastricht University) ; Weber, Roberto A. (University of Zurich)

Abstract:

Institutions are an important means for fostering prosocial behaviors, but in many contexts their scope is limited and they govern only a subset of all socially desirable acts. We use a laboratory experiment to study how the presence and nature of an institution that enforces prosocial behavior in one domain affects behavior in another domain and whether it also alters prosocial preferences and beliefs about others’ behavior. Groups play two identical public good games. We vary whether, for only one game, there is an institution enforcing cooperation and vary also whether the institution is imposed exogenously or arises endogenously through voting. Our results show that the presence of an institution in one game generally enhances cooperation in the other game thus documenting a positive spillover effect. These spillover effects are economically substantial amounting up to 30 to 40 percent of the direct effect of institutions. When the institution is determined endogenously spillover effects get stronger over time, whereas they do not show a trend when it is imposed exogenously. Additional treatments indicate that the main driver of this result is not the endogeneity but the temporal trend of the implemented institution. We also find that institutions of either type enhance prosocial preferences and beliefs about others’ prosocial behavior, even toward strangers, suggesting that both factors are drivers of the observed spillover effects.

Lucky the culture of our policy making elite is largely oblivious to this phenomenon, or at the very least incurious about how we might be able to amplify it in our society and economy.

Then again, we haven’t had a recession in 26 years. We’re world record holders.

#NowIsTheTimeForComplacency

Posted in Cultural Critique, Economics and public policy | Leave a comment

Will the bank levy actually lower bank profits? Maybe not.

In the comments section of my earlier post about hatred of the banks, John Walker (no relation) asked:

If the big four did pass on the tax to their customers, do you think the ‘non big four’ banks, building societies etc would grab the chance to be more competitive or grab the chance to raise their charges?

Terrific question. I don’t know for sure, but history suggests the answer is that the smaller banks would mostly grab the chance to raise their charges. That’s the argument in my latest column for the CEO Magazine. (Note that some bank analysts seem to think around half of the levy will end up impacting on shareholders as smaller profits.)

We shouldn’t necessarily conclude that higher profits for the smaller banks is a bad outcome, though. There’s more than one road to competitiveness with larger rivals.

In this case, the smaller banks have been underpricing the bigger banks for year to no great effect. For instance, ME Bank, formerly Members Equity, was for many years consistently the lowest-price lender of any substantial size in the Australian marketplace.

How much good has that done them? Well, some, but not that much. ME bank is growing, but it’s no giant yet. And for their money, its industry super fund owners get about half the return on equity they get from shares in the Big Four banks.

To grow, ME Bank and others like it need new capital – and to justify new capital, they need better returns.

None of this is certain, but allowing the smaller players to earn a little more may be an important step in helping them compete effectively with the Big Four.

Go on, read the column.

Footnote: The front page of today’s Australian Financial Review has former CBA CEO David Murray slamming the bank levy as a “hate tax”. He’s right, in the sense that the tax is only being imposed because a majority of people dislike the banks. That doesn’t mean it’s not merited.

David on Twitter: @shorewalker1

Posted in Economics and public policy, Politics - national | 1 Comment

“We saw bad research everywhere”

Via Andrew Gelman’s site, here’s a TED talk by US philanthropist Laura Arnold entitled “The Four Most Dangerous Words? A New Study Shows”. It details her journey through the world of social, medical, psychological and other research. It’s a lively and concise summary of the developing critique of recent scientific research standards.

With her husband John, Laura Arnold funded The Center for Open Science, which sponsored the Reproducibility Project under the leadership of Brian Nosek. Nosek and the Center are central players in the emerging field of meta-research – research into better ways to do research.

In January Nosek, John P. A. Ioannidis and others published in Nature their “Manifesto for reproducible science“, an important roadmap for moving scientific research results closer to truth. It ends with one of the great Richard Feynman quotes:

“The first principle is that you must not fool yourself – and you are the easiest person to fool.”

David on Twitter: @shorewalker1

Posted in Best From Elsewhere, Economics and public policy, Science, Society | 13 Comments

Gender diversity, innovation and performance #WAINS?

And the Children Shall Lead: Gender Diversity and Performance in Venture Capital by Paul A. Gompers, Sophie Q. Wang

Abstract:

With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners’ children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity.

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Five ways to tell if you’re REALLY doing strategy

Cognitive biases: Choose your poison

Cross posted from the Mandarin.

Introduction

Strategy is crucial for organisations. But as I’ve previously argued, a great deal of what passes for strategic thinking is a kind of anti-thinking. Typically strategy begins by determining some overarching objective – the end – with the rest of the process ‘drilling down’ to the means of getting there in progressively greater detail (which these days we’ve taken to calling ‘granularity’). 1 Surely that’s just commonsense? After all, how can you plan to go somewhere if you don’t know where you’re going? But that’s the problem. It only seems commonsensical because, right at the outset we’ve got the wrong metaphor – essentially one of the commander navigating the ship to a destination that’s knowable in advance. But the flimsiness of our enactment of this metaphor starts to give the game away. What’s striking about apex statements (whether of the ‘mission’, ‘vision’ or the ‘where do we want to be in future’ type) is how little they imply for the details of the organisation’s strategy and, in the latter case, how much they resemble vain, and arguably infantile wishes.

Organisations of any reasonable size are complex. There’s a lot to coordinate just to function tolerably. In addition to the constellation of existing capabilities that must be maintained, there are myriad problems and opportunities big and small, a range of new capabilities one needs to nurture as a result (with others needing to be cut back), and an assemblage of other organisations with which one interacts directly and indirectly. In that world, if the organisation is to sensibly set itself ends or goals, they will be a function of that context – of the means by which it might achieve them. In other words strategic thinking must comprehend the dialectical relationship between the ends the organisation might decide on and the means by which it will pursue those ends – with each influencing the other in an endless search for inspiration, improvement, optimisation and mutual accommodation. For instance, Google started advertising (somewhat reluctantly) to monetise its search engine and in doing so developed capabilities that became a launching pad for all manner of new objectives the firm gave itself as it grew.

In what follows I try to summarise into a summary checklist of principles, the preconditions of good strategic thinking. I’m thinking as I prepare to do so that the end result will also be no more than commonsense. And yet I can’t recall being part of any kind of ‘strategy work’ that resembles at all closely what I’ll outline.

Note, I’ve been deliberately provocative in placing the first three items on the list in order of importance though I have difficulty asserting this for the remaining points below them. Strategic work should be:

Critical

Continue reading

  1. An ‘apex statement’ usually kicks this off whether it’s a mission or vision statement or some summary answer to the question “Where do we want to be in ten year’s time?” or “What does success look like?” (I’ll leave demonstrating the idiocy of deciding on some Big Hairy Audacious Goal as the fulcrum of your strategy as an exercise for the reader.)
Posted in Business, Cultural Critique, Economics and public policy, Philosophy | Leave a comment