Tragedy of the oceans

According to Alan Sielen, pollution, overfishing, and climate change are now emptying oceans, enabling the lowest forms of life  - microbes, jellyfish, and disease - to make a comeback, returning us to the "barren primeval waters of hundreds of millions of years ago." 

Destructive fishing practices in "the commons" are rife. Among them, Sielen says about a third of what fisherman pull out of the water was never meant to be harvested. And "fishing vessels drag huge nets outfitted with steel plates and heavy rollers across the sea floor and over underwater mountains, more than a mile deep, destroying everything in their path."

As a resident near the murky waters of the US East Coast (and former resident of islands in the South Pacific) what really brought this "reverse evolution" to life for me were these images:

...we are far removed from the days...when 15 foot sturgeon bursting with caviar leaped from the waters of Chesapeake Bay, when George Washington’s Continental army could avoid starvation by feasting on swarms of shad swimming upriver to spawn, when dense oyster beds nearly blocked the mouth of the Hudson River, and when...adventure writer Zane Grey marveled at the enormous swordfish, tuna, wahoo, and grouper he found in the Gulf of California.
— Alan Sielen, Foreign Affairs, November/December 2013

I remembered an extraordinary, oceans-fight-back, page-turning thriller I read a few years back called The Swarm, by Frank Schatzing. There was a plan to turn this book into a movie  - it would be very timely. 

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Remarkables

Last week Cass Sunstein, former regulation guru in the Obama administration, playfully announced his annual Behavioral Economics film awards - called Becons.  I tried to work out which ones I would nominate, but gave up - this was too much of a corset for thinking about my largely pleasurable film watching. Instead, here's the three most remarkable films I watched for the first time this year - only one was actually released this year:

1. Black Sun (2006), tells the dance-with-life story of Hugues de Montalembert, a French artist and filmmaker living in New York, who was victim of a violent assault. The documentary is directed by Gary Tarn. (Film was featured in a previous post in September 2013).

2. Let's Get Lost (1988), a documentary about jazz trumpeter Chet Baker, directed by Bruce Weber, and only recently available in the US because of conflicts over copyright. (Full movie on Youtube.)

3. The Gatekeepers (2013) a documentary directed by Dror Moreh, who interviews 6 former heads of the Israeli intelligence agency Shin Bet about their counter-terrorism work in West Bank and Gaza.

There's no gene for the human spirit

As the debate on privacy rages on in the US, data brokers came under the spotlight:

A Senate commerce committee hearing last week revealed that data brokers are selling increasingly sensitive information, including lists of rape victims sold for 7.9 cents per name, and genetic disease sufferers. Companies can use those details to change what offers they make to consumers and change the prices they charge for products.
“One of the key characteristics of modern data brokers is a lack of restraint,” said Pam Dixon, executive director of the World Privacy Forum. “The degree to which no piece of data are sacred is evident in the reams of sensitive consumer data compiled, scored, circulated, and sold.”
— FT, December 22, 2013

This reminded me of an excellent film, starring Ethan Hawke and Uma Thurman, called Gattaca, set in a future where a person's opportunities are determined by his DNA. But the key message: there's no gene for the human spirit.


Driving blind

About 25% of US economic growth comes from consumption of data (for example, apps, online search, storage such as drop box, video such as Vimeo), according to Michael Mandel. The trouble is this activity is not measured in GDP - because it does not fit into traditional economic categories or tracking systems. And even this estimate is only partial, and does not include investment in data by firms and governments (such as the 'big data" databases on climate, consumer transactions such as Amazon and Visa, financial databases such as Bloomberg, and genomic databases) or international trade in data. Mandel concludes:

Key statistics watched by policymakers - economic growth, consumption, investment, and trade - dramatically understate the importance of data for the economy. In turn these misleading statistics distort government policy.
— Michael Mandel, Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy, Progressive Policy Institute, October 2012
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Wolves of Wall Street

The US government's accountability office issued a report earlier this year summing up the costs of the 2007-08 financial crisis. Estimates of US output losses range from a few trillion dollars to over $10 trillion, depending on assumptions. Other costs include losses in household wealth, costs of long term unemployment, and budget crunches at all levels of state and local governments. In the Wall Street Journal Rex Nutting uses this analysis to put the total numbers in perspective:

The 2008 financial crisis cost the U.S. economy more than $22 trillion, according to a study by the Government Accountability Office. That’s more than three times as much as the $5.9 trillion in profit earned by the financial sector between 1947 and 2012, and it’s slightly more than the $21.5 billion in value added by the financial sector between 1947 and 2012
— Wall Street Journal, Market Watch December 13, 2013
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Intensely concentrated

According to the latest Economist magazine, Blackrock manages $4.1 trillion of financial assets - making it the biggest financial organization in the world. Its risk management system called Aladdin is used by other firms to manage $11 trillion more:

All told, Aladdin keeps an eye on almost 7% of the world’s $225 trillion of financial assets. This is unprecedented - and it means flaws in the system could matter to more than just Blackrock, its investors and its customers. If that much money is being managed by people who all think with the same tools, it may be managed by people predisposed to the same mistakes.
— The Economist, December 7th-13th, 2013
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"Gross Domestic Freebie"

James Surowiecki in the New Yorker notes that because we measure the health of the economy by Gross Domestic Product growth, a lot of the digital economy is left out because it's free, even though it's valuable. Take Google Maps and many mobile apps for example. Surowiecki explains the idea behind GDP and the disconnect with the digital age:

The basic assumption is simple: the more stuff we are producing for sale, the better off we are. In the industrial age this was a reasonable assumption, but in the digital economy that picture gets a lot fuzzier, since so much of what’s being produced is available for free.....New technologies have always driven out old ones, but it used to be that they would enter the market economy and thus boost GDP - as when the internal combustion engine replaced the horse. Digitization is distinctive because much of the value it creates for consumers never becomes part of the economy that GDP measures
— New Yorker, November 25, 2013

According to Surowiecki, recent studies estimate that the value of free digital goods on the internet is hundreds of billions of dollars a year and rising fast (GDP in the US is nearly $16 trillion). Since GDP also leaves out things such as depletion/destruction of the environment and natural resources, the gap between what's measured and reality in the ever more crowded planet seems to be getting wider. This matters because policy makers and business rely heavily on GDP for key decisions, or avoiding them.

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You cannot escape your signature.

Recently I visited Frank Gehry's Guggenheim museum in Bilbao, Spain. What a breathtaking, dazzling building, inside and out - I pity the artists inside who have to compete. A day or so later I came across an interview in the FT with Gehry. Asked if he is a "brand" Gehry said: "You cannot escape your signature. A man who was considered one of the greatest architects of the 20th century, Mies van der Rohe, repeated himself endlessly. But if it's good, it's good."

As I make my way to work, I have the pleasure of looking across the East River in New York at another Gehry building, with its signature curves - and it's good.

Guggenheim Bilbao from beneath a Louise Bourgeois spider.

Guggenheim Bilbao from beneath a Louise Bourgeois spider.


Radical shift in American capitalism?

Mutating legal structures for US business may be more bad news for inequality.  As reported by The Economist magazine, the fairly new master limited partnership manages to avoid tax and much regulation. These partnerships now have a valuation of $1 trillion, and in 2012 took in 28% of equity raised. According to IRS data (2008 latest available), these business structures accounted for 63% of profits. Much of the energy industry expansion over the past decade has been financed this way. Mutual funds can't invest in them - so most American's can't participate.  Another downside is that these structures are dependent on loopholes, so very prone to (corrupting) money politics. The magazine asks:

Are these new businesses, with their ability to circumvent rules that apply to conventional public companies, merely adroit exploiters of loopholes for the benefit of the plutocratic few? Or do they reflect the adaptability on which America’s vitality has always been based?
— The Economist, October 26, 2013

More in this video...


Banks paying $100 billion in fines - so far

According to The Economist, fines for bank behavior leading to the 2008 financial crisis (and beyond) now total around $100 billion (in the US and Europe).  

But the magazine complains about a climate of fear: it says the settlements don't reveal what the banks did wrong and that they are agreeing to pay only because it's better than facing a criminal indictment and going to court - which could destroy their business, even if they found not guilty. The result?

Besides raising costs for banks and their clients the current climate of fear poses a number of longer-term risks to the financial system. The first that big banks will be less ready to buy units of failed rivals as JPMorgan and others did during the financial crisis. That will make future crises more difficult to manage. As worrying is that banks are being discouraged from confessing to wrongdoing or sharing concerns with regulators. That may make it more difficult for supervisors to assesses future risks. And without any proper accounting of banks’ sins, no one will ever know whether just has been done.
— The Economist, November 2, 2013

This may be true. But what The Economist doesn't say is that banks have brought it on themselves for causing huge economic damage, paying bonuses to themselves for failure, stonewalling banking reforms, and showing no leadership in cleaning up their own industry.  Public perception of a lack of accountability in banks can be more toxic than fuzziness about the fines.

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Narcissism at the top

Narcissistic behavior is more common in banks than other types of business. It's easier for narcissists to rise to the top when banks have a very short term focus - i.e., make money today. 

I came across this argument while talking with psychologists about banker behavior contributing to the 2008 financial crisis for my documentary, The Banking Brain. So I was interested to see a recent article in the FT about narcissistic managers:

Compelling, charismatic, colourful, such people can initially draw people under their spell until difficulties and discord arise, when their deeper, darker personality begins to emerge….. These people have an insatiable appetite for control, status and praise, which explains why many strive for and gain the top jobs.
— FT, October 28,2013

In the same article the FT refers to work by Mark Stein, professor of leadership and management at Leicester University who says Dick Fuld, head of Lehman Brothers at the time of its collapse, is an example of a narcissistic leader – someone whose character at first brought success but then allowed catastrophe to strike.  According to Stein:

One of the biggest problems with narcissistic managers is their extreme feelings of omnipotence and their deluded thinking they can shift the market and know the future. As a consequence, and in the face of clear and stark warnings from others, they take extreme and unnecessary risks that endanger the future of the organization.

There's another reference to research by Donald Hambrick at Penn State University which suggests narcissistic CEOs generate more extreme performance - big wins and big losses.

Not the sort you want in charge of banks that are too big to fail.

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Never again, yet again.

Mukesh Kapila has written a book "Against a Tide of Evil" about his experiences as a UN representative in Darfur at the start of the genocide in 2003 and why he went to the press when he felt the UN system was failing to respond.  Kapila has been around most of the genocidal hot spots in the last few decades, including Rwanda and the Balkans.  

While I have not (yet) read his book, when I saw him on his book tour in New York recently, one of the issues that preoccupied him was why organizations (like the UN) fail to openly confront and deal with the most important issues - in this case the urgency of a genocide. This is something I used to wonder a lot about too when I worked at the World Bank. And now I wonder about as I watch US politics. 


Multimedia art

This week I was blown away by B. Madonna, a breathtakingly poetic piece of performance art directed and choreographed by Maureen Fleming. She mixes her own Butoh dancing with three dimensional video and mostly live music (including Bruce Brubaker playing Philip Glass). One of the most creative performances I've ever seen.


Visual poetry

This week I saw a stunningly beautiful art film directed by Bruno Dumont about three days in the life of French sculpture artist Camille Claudel - in an asylum. (Mentored by Auguste Rodin, her work is more eye-popping.)

Starring Juliet Binoche as Claudel, much of the movie is closeup on her amazingly expressive, traumatized face, while the matching set is a stark but beautiful, winter landscape around Avignon in France. The sound is in the same mood - but no music, only voices, and landscape noise such as gravel, birdsong, and the oppressive mistral wind. Terribly sad she was locked up for much of her life - and by her brother. 


Numbers games

Thankfully this week the team leading one of the projects I worked on at the World Bank was able to publish it’s annual rankings of business laws and regulations for nearly 190 countries (www.doingbusiness.org). 

The rankings tend to be a barometer of red tape, corruption and small business vigor and guide policymakers in their efforts to promote healthy entrepreneurship. 

The Chinese government (ranked 96th in the world) has waged a campaign to neuter the project by shutting down the rankings for several years now – taking over from an angry campaign for many years before that by the French (ranked 38th). (Two "expert" panels have "investigated" the methodology over the past 10 years - the first, mostly economists, had a positive verdict; the second, by all accounts a mixed chaotic bag, largely negative.)

So the Doing Business rankings get to live for another year at least. In this context I noted with interest news reports that the Chinese government will start to combat chronic urban pollution by doing performance rankings:

 

China will start to point the finger at its top ten most air-polluted cities — each and every month — in the hopes that national humiliation will push positive environmental action. A parallel list of the nation’s ten cities with best air qualities will also be published.
— CNN, September 19,2013

Often what you hear in the World Bank boardroom is out of sync with what countries actually do (foreign policy may rule at the board, not economics) . But let’s hope that this internal Chinese embrace of benchmarking will spillover to the Doing Business Project.

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