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Opinion Pieces

The most infamous management consultant of all time will most likely forever remain Edward Snowden, who leaked probably the largest volume of US secrets ever whilst working at the National Security Agency (NSA). Recall that it was the Edward Snowden leaks in 2013 that led to the public realisation that the US was unofficially spying not only on individuals under suspicion, but on everyone they could through various surveillance programs.


Few people outside of the business of management consulting realise that Edward Snowden was not, in fact, an NSA employee – but was a Booz Allen Hamilton consultant (Booz Allen Hamilton being a management consulting firm known particularly for its government services work). It is somewhat surprising that even the most secretive of official spy organisations in modern history would use external consultants. Yet, it is even more astounding that an external consultant to the NSA would have access and be privy to America’s most tightly-held secrets.


ContractingIrrespective of what one thinks of Edward Snow­den, and irrespective of whether one agrees that the behaviour of the US government in spying wantonly and relentlessly on its own people, as well as on foreign leaders, warranted Snowden’s enormous and embar­rassing information leak; his ability to do so – to access such confidential information – as a contractor, is telling. It is imperative to understand this, for it is the perpetuation of a new way of working globally, rather than an idiosyncratic case, that enabled Snowden to steal so much high-security information.


Quoting at length from the Vanity Fair article on Snowden from their May 2014 issue, another disgruntled NSA official who turned on the agency, Thomas Drake, had this to say: “The culture of contractors is one of huge elephants in the room. Because 9/11 just opened up the floodgates. We have always had contractors in the government. We’ve even had contractors in intelligence, but historically it tended to be much more circumscribed. What were historically considered government functions only are essentially being outsourced, contracted, to private industry, who are focused on how much money they can make, on shares, on revenue streams. It’s a profit centre.”


Whilst this may sound like an indictment on the use of consultants in government, and in the intelligence community in particular, one needs to remember that the complexity in the systems – software and hardware – required to gather information on the scale demanded after 9/11, was gargantuan. Companies like Booz Allen Hamilton, Dell, IBM, Boeing and Raytheon, all contributed to the effort and were amply rewarded for their work. In fact, the US military even outsourced some of their on-the-ground work in Iraq and Afghanistan to military contracting firms in order to appear to reduce their troop numbers, as well as to perform tasks that they did not wish to perform officially themselves.


The military community and the intelligence com­mu­nity in the US are no different from the Fortune 500 companies in the US, or for that matter anywhere in the world. Large institutions often need assistance in, as the Vanity Fair article so befittingly puts it, “everything an agency could need, from security guards and maintenance staff to satellites and supercomputers”. This new structural work environment, in which significantly important pieces of the overall mission are outsourced to consulting firms, is no longer unusual at all. In the UK banking environment, for example, an enormous proportion of those working on Basel projects or on Anti-Money Laundering (AML) projects, or on other mission-critical pieces of regulatory work, are contractors. This means that they are not formally employed by the banking institution, they can be fired at any time, and they are remunerated on an hourly or daily basis. They do not receive sick leave, there is no company culture to speak of, and there certainly is no Christmas party.


The firms that do employ contractors do so for low margins and they do so in volumes. Whilst this way of acquiring key skills at a moment’s notice does offer efficiency rewards and does allow banks to apparently run leaner, the agency problem rears its head. It is not illogical, for example, to contemplate that a project manager contracted to implement a Basel III liquidity risk measurement and reporting system at a bank – who is employed under a contract arrangement remunerated on a daily basis – would not be overly stressed, should a time extension eventuate out of some kind of technical delay. In fact, purely on a commercial basis, this would suit the project manager in question.


The agency problem is defined as the conflict of interest that is inherent in any relationship where one party is expected to act in another’s best interest. The greater the degree to which the firm separates itself from its own workers, the greater the risk of the agency problem arising. In the new world order, in which technology has made it possible for work to be performed remotely, in which teams can be made up of people who never meet, and in which actual meetings take place on behalf of an organisation in which only contractors and consultants are present, the agency problem can become detrimental not only to organisational efficiency, but also to the people doing the work.


It is important to consider the effects of the agency problem on efficiency within an organisation. But, in observing the Edward Snowden case, it is also worth considering the effects of the agency problem on individual ethical behaviour, especially in making the distinction between employees of an organisation, contractors to the organisation, and consultants brought in to complete a specific piece of work. To many, this distinction between consulting and contracting must seem like splitting hairs. After all, if one works for Booz Allen Hamilton – which calls itself a management consulting firm – then one must be a consultant. But the pasting on of a veneer of company culture will not for a moment distract from the fact that Edward Snowden was contracted to the NSA, for a substantial stretch of time, and was part and parcel of the NSA infrastructure. In fact, his security clearance was specifically high because he was responsible for network security. And, irrespective of how he was remunerated, he believed that he was an NSA man. In fact, it was his conviction that he was working for an unethical organisation that led him to expose what the NSA was doing, that drove him to divulge its most cherished secrets.


But, there is a distinction to be made. For, in a consulting firm, consultants are clearly remunerated on their ability to deliver, rather than on their ability to burn hours. Consultants are trained together to work under pressure in team environments, rather than working alone in disjointed open-plan offices with no connection to their employing firm. There exists a sense of responsibility to the project, in a consulting environment, and to one’s peers, rather than to a timesheet. These are the characteristics that can distinguish consulting from contracting, and in so doing, limit to some degree the agency problem within the target organisation.


It is imperative to realise that whilst there will always exist the agency problem in the world of consulting, the agency problem in the world of contracting is at its most severe. Had Edward Snowden been a member of a Booz Allen Hamilton team, and had that team been managed to deliver, rather than simply provide a stand-in set of skills, then he may have gone to his consulting peers, or to his consulting partner, to confess his moral urge to expose America’s desire to spy on people on a mass basis. Nevertheless, irrespective of what Edward Snowden would have done, his firm Booz Allen Hamilton was ultimately not held responsible for his actions. And this is really the most significant difference between consulting and contracting. A consulting firm will take responsibility for the actions of its consultants; and a contracting firm, profiting from hours on a timesheet alone, will not.


Opinion Pieces

There is a new and growing genre in bookshops that conceptually sits somewhere between Politics, History and Economics. It should properly be called Polemics, but the purveyors of the written word will generally place this new material either on their History shelf or on their Economics shelf – possibly through a misunderstanding of the purpose of the books, or simply because they do not have Polemics as a dedicated section.


More likely, however, it is because polemical writing is usually about something, or more specifically about undermining something – such as politics – rather than being something in and of itself. Its underlying topic – if all polemics were to be grouped in their own section of a bookshop – would be a smorgasbord of confusing subjects. You would have Nassim Taleb’s Fooled by Randomness sitting alongside the holocaust denialist David Irving, rather than finding their books in the Economics and History sections respectively.


As it stands, Nassim Taleb is generally to be found beside luminaries such as Joseph Stiglitz, truly a case of putting the cat among the pigeons; and Irving’s Hitler’s War, insultingly, will be found sandwiched between David Stevenson’s The History of the First World War and Philip Short’s Pol Pot. Or worse, even in a respectable bookshop, it is not an impossibility to find Irving’s Goebbels: Mastermind of the Third Reich – a study in historical revisionism and a sycophantic nod to one of history’s worst psychopaths – hugging the jacket of William L. Shirer’s The Rise and Fall of the Third Reich, the definitive tome on how it was possible for Germany to allow the dominance and banal evil of Nazism to overcome them.


In the case of Nassim Taleb, whilst his books on the surface would appear to be about the financial markets and risk prediction, they are really and truly purely polemical pieces of invective against all – really all – economic modelling, infused with a sociopathic dislike of most economic thinking. They are frustratingly inconclusive and unhelpful in their results, appealing to a mysticism of perspective, and at best invoking little more than fear. In Irving’s case, despite the distasteful position he adopts, there is at least some academic basis, but his work quickly falls prey, both in its arguments, and in its facts, to his undeniable anti-Semitism. His purpose is no different to that of Trump’s advisor Steve Bannon, previously the chairman of Breitbart News, and about as right-wing a commentator as one could find in a liberal democracy at present. His purpose, clothed as academic history, is really a political purpose, a manifesto.


It is therefore one of the ironies of bookshop browsing as a casual activity that the observant browser will, on occasion, be able to identify the polemics amongst the historians, the economists, and the politicians. The ‘art’ of vociferous argument, infused with sarcasm, fraught with diabolical assumptions, aggressive in tone, and dismissive of scientific balance as a genre of writing, is often scattered, unbeknown to most, throughout the bookshop, like the spies who were embedded in European cities such as Berlin and Brussels, posing as artists and journalists, and clerks, during the height of the Cold War.


To further confuse matters, one needs to stress that there is a distinction to be made within the genre of polemical writing itself. A lot of it is bad, and some of it is good. There is nothing wrong per se, in taking on, right from the start, a strong position in one’s argument, and pursuing that argument with vigour, whilst also acknowledging the existence and roots of the thinking and philosophies one is attempting to undermine. That is a very different matter, however, to writing a pure manifesto, picking one’s ‘truths’ out of context, perhaps even taking things further and engaging in the new and oddly accepted art of ‘post-truth’, exemplified by the phenomenon of President Trump’s tweets.


When an esteemed long-in-the-tooth publication such as Time magazine finds it necessary as recently as April 2017 to publish an issue on a solid black background cover, with the words only ‘Is Truth Dead?’ in the colour red, then it is apparent that there is value in making the distinction between good polemics and bad polemics. Good polemics inherit their value from the art of polemical writing, a genre and form of entertainment, and an essential part of the history of academic debate going all the way back to the Forum in Greece three thousand years ago, from bad polemical writing – the writing of unadulterated lies in an effort to justify, and to recruit, and to cloud better judgement. The worst forms of polemical writing are no different to the pamphlets distributed at right-wing rallies, preying on fear, urging immediate and thoughtless action. To a large extent, the trouble lies in the value of truth one ascribes to the published word, irrespective of its true agenda.


Good polemical writing has a long history, stretching back to Greek and Roman literature, but in its modern form – post World War II – it finds its most strident voice in writers like Christopher Hitchens. In the passage of his oeuvre one can trace his transformation from war reporter, to essayist, to activist, and polemicist and finally, in his dying days, to biographer. If one is looking for something written by him, one is going to have to look in several sections within the bookstore: to find Hitch-22, his confessional autobiography which eclipses in excellence all his previous work, is easy – just go to Biography. Whereas to find his vitriolic attack on Mother Theresa – titled The Missionary Position just to give an idea of its tone – is far harder. It could be anywhere – in History, in Politics, in Religion, or even in Economics.


This is the trouble with the new genre within a genre of left-leaning political writing that has emerged out of the ashes of the liberal agenda – in the wake of the political sharp right turn that has overtaken western democracy in the past eighteen months. It is writing that is infused with the anger that is felt by the democratic middle-class and whose mantle is carried by the left-wing, primarily US-based, academic. One thinks here of Edward Said, whose career has been spent deconstructing the Western notion of the Middle East. It is intelligent, insightful, factually accurate writing – but it is also angry.


Another US-based author, whose intelligence and academic credentials allow her to adopt a vitriolic style without descending entirely into the realms of political manifesto is Naomi Klein. Her two most significant contributions have been The Shock Doctrine – The Rise of Disaster Capitalism and This Changes Everything, her diatribe on climate change. In both cases an academic style, rooted in fact and analysis, is not intrinsically directed to add to a growing body of analysis and argument in a traditional scientific sense, but is rather a full-blast attack on our sensibilities, aiming, as per her title, to shock us towards change.


The entire purpose of her work is to achieve social and political change through her word, rather than to be canonised in a literary sense. She is capable of the latter, but her purpose is the former. This is a genre that includes at its roots Karl Marx’s Capital: A Critique of Political Economy. To give an idea of the extent to which polemical writing has become mainstream, one only needs to look at the praise The Shock Doctrine received. Tim Robbins as an example said of the book, “It could very well prove a catalyst, a watershed, a tipping point.”


When picking up a book like Jane Mayer’s Dark Money: How a Secretive Group of Billionaires is Trying to Buy Political Control in the US, one should ready oneself for a political speech rather than an enjoyable historical discourse or a reasoned argument. Naomi Klein called Mayer’s book “utterly brilliant and chilling”, and that is precisely how we are meant to feel: terrified. The generic argument goes something like this: since World War II and the Bretton Woods Agreement, since the establishment of NATO, since the imposition of the World Bank and the International Monetary Fund and other untold evils imposed upon the world, the rich have got richer and the poor have got poorer.


What is worse, Mayer argues, is that we have been duped – we have bought into the notion of capitalism and we have forgotten that it is not necessarily married to democracy, that the two can be separated. And meanwhile – other than impoverishing the Third World, and replacing jobs with robots – we are also destroying the planet. If we don’t stop now, it will all end in Armageddon. Mayer’s take on the topic is to veer towards conspiracy theory and conjecture, digging deep into specific organisations and shaming the individuals who have profited from the political control they wield through economic domination.


Reading this type of book can sometimes feel like that conversation you find yourself in with an old friend from university you haven’t seen for a while. They used to be a little intense, but you had no idea that over the ten years since you’d last seen them they had become evangelical – either towards Fundamental Christianity or towards climate change.


Climate change evangelists are no less vigorous in their proselytising than Fundamentalist Christians, or Tea Party right-wingers for that matter. You come away feeling that you are given no time to consider your options – agree now immediately and adopt the mantle, or you will be cast away as a victim of mainstream oppression. And there is no shortage of such evangelical and angry writing in the new literature of economics: there is Wolfgang Streeck’s How Will Capitalism End? and there is also Yanis Varoufakis’ And the Weak Suffer What They Must? In Varoufakis’ case, to be fair, his brief stint as Minister of Finance during Greece’s battle with the IMF over the question of austerity is enough reason to give his book more than a cursory glance. Streeck’s book, despite its academic prowess, and its innumerable facts and figures, never actually answers its eponymous question.


In this vein of academically-based work, angry and immediate in tone, and on the topic of the apparent failure of capitalism, Paul Mason’s book Postcapitalism: A Guide to Our Future, makes for interesting reading. Rather than focusing on the notion that through exposing the ills and evils of the modern capitalist framework readers will be more informed – and therefore more active in their resistance to capitalist oppression – Mason takes on a far more ambitious task. His book truly is a manifesto: it argues essentially that the battle between socialism and capitalism is already over – that socialism is not the only alternative to capitalism, that capitalism is already failing and is being replaced with what he terms ‘postcapitalism’. He argues that the ideals of postcapitalism can achieve a more equal world only if his specific steps and milestones are followed.


The skeleton of his manifesto is clearly laid out in the preface to the book. He writes, “So, I want to propose an alternative: first, we save globalisation by ditching neoliberalism; then we save the planet – and rescue ourselves from turmoil and inequality – by moving beyond capitalism itself.” Whilst it is not entirely clear what this would mean – insofar as moving beyond capitalism is concerned, even in the later chapters – he is at his clearest when describing the forces that will drive this change. The kernel of his idea is that a ‘networked economy’, exemplified in his idea of ‘networked individualism’ rather than in the old notion of the ‘community-based’ worker – and driven by new technology-enabled capabilities – will achieve the benefits of postcapitalism.


Once again, these benefits are, at best, opaque – even after a thorough reading. Of course, there are throughout the book the use of broad-stroke statements in respect of reduced inequality, and enhanced individual efficiency and a new kind of government. But there is little that one can really call a defined outcome. Where he is most insightful, however, is in his analysis of the processes he claims as the key driving forces behind postcapitalism. Specifically, in describing the three impacts of the ‘new technology’ on the old notion of the market-driven neoliberal economy, he is fascinatingly original.


“First,” he argues, “Information technology has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. Second, information goods are corroding the market’s ability to form prices correctly. Third, we are seeing the spontaneous rise of collaborative production: goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy.”


His third point is palpable already in every aspect of our lives, from the way the consumer purchases goods online, to the rise of peer-to-peer lending, to the use of cryptocurrencies as viable exchange alternatives. Probably the best example of ‘collaborative production’ is Airbnb, which breaks and transcends international boundaries, personal space boundaries, and has significantly upended not only the hotel industry, but also the entire tourism and travel industry. In respect of his second point, it is easy to think of examples in which market prices are no longer correct – at least for periods of time. There are, after all, well-documented cases in which market prices have been significantly manipulated by individuals and firms that have cynically corroded the market system – the prices of oil or aluminium as examples, or LIBOR for that matter.


Mason, however, is at his best when dealing with his first point – that technology has radically and permanently altered the nature of work itself. In describing the opacity of distinction between working within a community, and living and existing for oneself, couched in the term ‘networked individualism’, Mason cites the work of London School of Economics professor Richard Sennett. Sennett specifically studies the impact of greater job flexibility within the new highly-mobile hi-tech workforce.


Mason, paraphrasing Sennett, writes compellingly: “If work rewards detachment and superficial compliance, values adaptability over skill and networking over loyalty… this creates a new kind of worker: s/he is focused on the short term, in life as in work, and lacks commitment to hierarchies and structures, both at work and in activism.”


It is worth going further and quoting Sennett directly. He writes: “The conditions of time in the new capitalism have created a conflict between character and experience, the experience of disjointed time threatening the ability of people to form their characters into sustained narratives.”


And this really is the trouble with the new polemicists, and with economic and political writing in general – that one has to sift and wade through mountains of words, most of it banal or arrogant or reductive, to come across this nugget of pure gold. What an especially compelling and insightful observation to bring to the lay reader’s attention: that new technology and the phenomenon of social media, in tandem with the erosion of a stable work environment, has created an individual who lacks character, who is fragmented.


And this is why we find ourselves in the midst of an all-out battle to save the ideas at the heart of liberal democracy – choice, freedom, courage, community, empathy, truth – in a world of Donald Trump and Marine Le Pen and Nigel Farage. We are not overcome by political forces that peddle fear, who shut borders, who threaten violence, who feed on distrust – because they have good ideas. We are overcome by them because we have become fragmented by the very technologies and changes that we long ago accepted and embraced.


We are an Instagram, selfie generation. We post ourselves and our lives on Facebook, but mainly we post ourselves. If there is any doubt in anyone’s mind of the extent to which this is true, simply observe the following: as of writing the value of Facebook is USD 420 billion, whilst the value of General Electric, which differs in that it is a company that makes many useful things from refrigerators to jet engines, is valued at USD 250 billion.


Of course, it would be tremendously naïve to nostalgically wallow in dreams of a previous time. That would be to forget that those same times had their own post-truths – the imminent Russian invasion, the space race, the segregated US South, and of course apartheid – but Mason’s hidden nugget of truth is a blow to the gut. Of course we lack conviction in community, and of course we lack empathy. There really is no space in our lives for activism when we are so enamoured with ourselves in such a fragmented reality. There are various versions of ourselves: the one who goes to work, the several on social media, and the one in which we are part of a community. And in blending them, we have become less significant to others, and more significant only to ourselves.


It is a pity really that there is such a plethora of impassioned – yet unbalanced – writing on a topic as important as our political and economic future. And it is a pity too that there is such a dearth of reasoned analysis that would provide cogent proposals for change – proposals that would not necessarily require the adoption of an evangelical stance. There is danger in crowd psychology, and the adoption en masse of simplistic ideologies.


Opinion Pieces

We arrived by taxi at the track for the Saturday qualifying session and we were late. We had been held up by some poor planning, by breakfast at the hotel, and by the line of traffic that had begun at least three kilometres from the main entrance to the Circuit de Catalunya. Breakfast had been wolfed down at the hotel on the beachfront of Barcelona. In retrospect, we should have just grabbed some croissants and headed out earlier.


The Circuit de Catalunya is forty-five kilometres out of Barcelona proper, and sits in the foothills between the Catalan capital and Girona, and it seemed to us that the entirety of Spain had decided on the same itinerary as us – qualifying on Saturday, a tour of the paddocks, and the main races on Sunday. We got out of the luxury sedan we had been provided by the hotel and walked the freeway to the main gate and found ourselves run-walking in childish excitement to just get into the stands.


Security queues held us up, but it was no matter. The sheer number of fans for the 2016 MotoGP weekend in Catalunya, and the obsession that the Spanish have for the sport, had us in awe. There were thousands and thousands of people who had arrived on bikes. The sound of the machines ran like a base undertone throughout the Circuit complex, every now and then punctuated with the scream of an unencumbered monster GP bike hitting 320 kilometres per hour down the main straight. Even in the parking lot, it was heaven.


When we finally got through security and found our seats, we began to sense an undertone of strange stillness, of sadness. Luis Salom, we learnt, a Moto 2 rider, had perished in the Friday afternoon practice session, inexplicably failing to make one of the last turns of the Circuit, and sliding at high speed into a barrier wall, his heartbeat ceasing on the helicopter flight before even reaching the hospital. He was twenty-four years old.


We could feel the sadness of his death hanging over the Circuit – there was something awkward about being there, about celebrating this arena of racing at the very limit of human endeavour, when that limit had already been crossed. I made a comment then to my friend who had joined me in Spain to see the main race and to see Rossi, our hero, that in our world – today’s world – the gladiators are not meant to die.


That discomfort had to pass however. We had to see qualifying, as did the crowds around us, and we shuffled along through the retail stands – Valentino Rossi caps, Marc Marquez caps, Lorenzo shirts and caps, Honda Repsol colours, Yamaha colours, Ducati colours and the paddock girls, geared up in heels and make-up and the gaudy unashamed in-your-face marketing that somehow makes the whole image even more alluring, not less. In some ways, I told my friend, it is like walking through a market in Jerusalem – so many conflicting ideas and views of the world vying for our attention. One must just pick one’s hero.


Of heroes, for us – as for most – there was and remains only the one. Rossi. His very name evokes meaning – meaning that is decoupled from the naming of the man himself. He is a brand, yes, but he has now transcended even that status. He is now an idea. Of the man Valentino Rossi, we can say this: he is a phenomenon, he has changed the way racing is executed at the highest level of the sport, he is a joker, he is a clown, he is a businessman, he is a beautiful man, and he is nine-times world champion. Of the idea – of the idea we call Valentino Rossi – we can say far more. But to do so would first require that I explain why I love the motorcycle racer called Rossi.


There are two things I particularly love about Valentino Rossi. The first is the way he races against his rivals, usually Marquez or Lorenzo through the 2015 and 2016 seasons. He races from behind to beat them through wiliness and through courage and by hook or by crook. He is unrelenting – and for this many despise him. He races to win and he does so without a doubt in his head that he deserves to win, not because he is better than them – because truth be told he is not – but because he is more realised than they are, as a man and as a human being.


You can see this in the way he rides: I challenge anyone to deny this. He is racing in a higher state of self-realisation than any of his competitors. He does not arrive at this arena of human courage with the youth and fearlessness of Marquez, nor with the precision and coldness of Lorenzo, nor with the flourish and gusto of Dovizioso – he arrives not for his career, nor even his fans, nor even for himself. This is not what he does, this is who he is. And this is truer in his case, than in any other, regardless of the sport.


The second thing I love about Rossi are his brief interviews post-race, and there have been many. In these brief flourishes with journalists waiting by the pits, he embodies the very essence of the Italian man: he gesticulates, he pontificates, he shrugs, he smiles. But behind his eyes is a childish spirit, a primordial joy, a lack of adulthood really, in which one can see – only just see that is – that for him, this whole thing, this whole journey, all his wins and his entire career, and the crowds and the fans, are to him surprising and to some extent – well – funny. He is amazed, to this very day that he gets to do this: to race motorcycles and to be adored for it. His joy is palpable and it is innocent and it is that of a child. And in this he is unique.


So those are my two reasons for loving Valentino Rossi. But, like most heroes – like Achilles, like Spiderman, like John F Kennedy – there are faults, there are on occasion moments of hubris; and in Rossi’s case, there is the problem for my friend and I on that particular weekend at the Circuit de Catalunya that Rossi had not won a race for some time.


We watch qualifying from an air-conditioned lunch spot that sits three or four stories up across the racetrack from the main stand on the main straight. The riders are breaking 320 kilometres per hour as they pass us, so most of the qualifying is watched on a TV set-up as the bikes blast by behind us like rockets. Intermittently, we go onto the balcony above the track and watch the speed of the machines and the men on the machines as they pass. Just to see the sheer speed of it. It is horrifying and beautiful to see, a flash of colour, and the sound – the sound is awesome.


One sees the bike and the man on the bike in that moment as one thing, for if one didn’t – if one separated the two in one’s mind – the danger of it, the proximity to death, would be too much to bear. I want to tell my friend this thought, I want to convey to him this idea, but I balk at the moment I am about to utter it. Because it cannot be said. Not then, not while the spectacle of this all is actually taking place. Perhaps later.


Rossi, as it happens, qualifies poorly. At least not too badly, but by no means is he in pole position. Marquez is phenomenal. Marquez may be taking risks, but they are not risks that are visible to us, even in the TV slow motion shots. He appears to be impenetrable. And then there is Lorenzo. Our fear is that if Lorenzo gets out in front on the main straight and is the last to break on the right-hand corner at the end of the straight and he takes the lead, the other riders will never see the front of him again. It would be awful, I comment to my friend, to travel all the way to Catalunya to see such a thing. He nods his agreement. It would be awful, he says. Or for that matter, if Marquez gets out in front, I say. Yes, he says, but it would take a miracle for Rossi to win. He is tempering my expectations. Managing them to the extent he can. Why, I wonder, would I expect Rossi to win in Catalunya just because we have travelled to see him. It is illogical. We are not regular fans. We are connoisseurs of the sport. But still, if only Rossi would just win – why not on this one day, for us?


That night we go out and we imbibe in the spirit of Barcelona and we take responsibility for ourselves and for the moment and for the occasion. We do not over-indulge because we wish to reach the Circuit the next day fresh and in full essence and in connection to the track and to the possibility of a Valentino Rossi win. We watch Moto 3 from the stands at the last corner before the main straight – the battle between the fledgling racers whose careers in this division will either end after a few seasons, or will lead them to Moto 2, and then possibly on to the pinnacle of the sport, the sharp end. Where Rossi lives and battles.


There are crashes, as there always are in Moto 3 and as we walk along the track to the main stands to our luncheon we hear the voice of Brad Binder and his complaint at the riding style of his competitors and of the disappointment in his loss. We miss most of Moto 2, although we catch the start – the revving of the machines as the riders wait for the red lights to count down, and we see that very moment of clarity that exists at the interstice between stillness and movement, before these monsters of noise leap into action. It is surreal.


The balcony from which we watch the start of the main race is too packed to really make out the riders. I find myself jostling for position and I give up and go inside and join my friend in front of the TV. Rossi at turn one is down to fifth or sixth, I cannot recall exactly, but he is at least still in the mix. I am between two worlds: on the one hand, there is the comfort of the Dorna executive lounge, the canapes and the detail one can see of the race on the TV screen; and on the other there is the immediacy and reality of what is taking place just metres away on the balcony.


I flurry between both, in a schizophrenic daze, anxious as time is moving forward, the laps and the experience tumbling away, too fast. The crowd roars, I rush outside, there is a sea of green vr46 flags – Rossi’s race number for the past decade – waving wildly on the main grandstand opposite. Rossi has made it past two riders into third place. I am now pumping my fists into the air, screaming Rossi’s name with the rest of the balcony. He takes second position breaking late and dangerously and finally passes Marquez in a gladiatorial battle that goes on for several laps. He takes first position and is able to hold it.


I am standing now at the edge of the door to the balcony, on my toes, peering over the sea of spectators to catch a glimpse of Rossi’s green Yamaha take the final right-hander into the main straight to take victory. The commentators on the TV are going wild and the crowd outside is going wild and it is beautiful. We are jumping up and down like children, even the German man travelling on his own whose conversation over lunch has been dry. For some reason I hug him.


Opinion Pieces

As graduates join the workforce of large corporations, chances are they’ll find themselves at social events with colleagues and seniors. Sailing through without ruining your reputation requires a careful balancing act.


The days of employees choosing a position based solely on salary and longevity are long gone. Today, a company’s culture is as important – more so, for millennials – than a payslip. Companies are therefore making a huge effort to create a culture that fosters strong connections between employees. And part of that includes organising social events at work. As an employee, participating in those events can be social-participation_small1incredibly beneficial – provided you don’t cross any boundaries.


I believe it’s as important to participate socially at your company’s work events as it is to deliver on your KPIs. It shows the company – and would certainly show me – that you are fully invested in the company; that you are in it for the long run. By seeing you there, enthusiastically taking part, I understand that you appreciate and respect the time and effort it takes a company to throw the event.


Participation also builds relationships with your colleagues. You spend the majority of your time at work, so it’s important that you connect with, understand and bond with your colleagues on a personal level. It’s no secret that doing so results in greater teamwork and productivity at the office.


However, interacting with your bosses or colleagues on a social level at the office can often feel like walking a tightrope; one step out of line and you could spiral out of favour with those who call the shots. Balance is everything.


First and foremost, understand that boundaries exist at social work functions. While the idea is to relax, have fun and bond with your co-workers, you cannot let your guard down totally – especially if there is alcohol involved. You need to keep an eye on your behaviour, and remember to act in such a way that you will still be respected when you arrive at work the next day – instead of being the subject of office gossip.


Also, be weary of oversharing. You may find yourself having a casual chat with your CEO. Believe me, he or she doesn’t want to know about your Tinder date. Instead, use the social event to your advantage. Engage in relevant and meaningful conversations about world events, news, or trends in your industry.


Think of it like this: the financial industry is an HQHP (high quality, high performance) environment. I truly worry about whether or not our employees are going to be loyal, dependable and respectful when it really counts. Will they be consistent in all environments? If you can still be gracious, even in the moments when you are relaxed, it shows you are exactly the person we want on our team. Master this balance and you’ll be walking that tightrope to success in no time.


Oh, and just because the boss is paying, does not mean you should order four of the most expensive single malt whiskeys…


Opinion Pieces

Nelson Mandela vowed to liberate all South Africans from the continuing bondage of poverty and deprivation. Twenty-two years later, South Africa remains one of the most unequal societies in the world. We look to French economist Thomas Piketty and his work on income and wealth inequality to understand whether his theories and solutions apply in a South African context.


In 2015, Piketty came to South Africa and spoke at the University of Johannesburg’s Soweto campus to over two thousand enamoured students, dignitaries, top-ranking ANC officials and some of the wealthiest elite in South Africa. Despite the fact that South Africa was not one of the twenty countries covered in his body of work, Piketty argued that land redistribution, a minimum wage, and tax on the wealth of individuals rather than just their income, would contribute toward a more equal society in South Africa. Piketty left South Africa with an honorary doctoral degree in Economics – Philosophiae Doctor (Honoris Causa) – from the University of Johannesburg and a growing fanbase. It remains to be seen, however, whether Piketty’s thesis actually holds true in a South African context.


piketty_2_smallCapital in the Twenty-First Century, Piketty’s overnight sensation, took the world by storm and sets the tone of the debate on the skyrocketing incomes of the 1% and the exorbitant gains of the 0.1% and 0.01%. Central to the book’s theme is the underlying concept that laissez-faire capitalism is no longer working, and that state interventionism is required. The book integrates economic growth, the distribution of income between capital and labour and the distribution of wealth and income among individuals.


Using more than two hundred years of data, particularly from America and Europe, Piketty and other economists detail historical changes in the concentration of income and wealth. He demonstrates the evolution of inequality, from the pre-industrial revolution all the way to the digital age today.


One only has to think of Marie Antoinette to get a feeling of the extreme inequality in the 18th century – where private wealth overshadowed national income and was concentrated in the hands of rich families atop a rigid class structure. This system continued until it was disrupted by the First and Second World Wars and the Great Depression. Piketty explains that the period from 1914 to the 1970s is an historical outlier in which both income inequality and wealth inequality fell dramatically. It would seem, according to Piketty, that the enormous disruptions and violence of the first half of the 20th century was actually the engine room for wealth re-distribution and the cause of the lowering of the Gini Coefficient in Western economies. He asserts that now that the shocks of the early 20th century have subsided, inequality is approaching levels last seen before the First World War. His theory is that the extreme fiscal stimulation of a broad-based nature caused by the need to rapidly create munitions and to enable the logistics of war, lead to an injection of wide-ranging economic stimulus never before seen and probably never to be seen again.


Piketty’s theory behind the more recent surge back to the levels of pre-20th century inequality has to do with capital accumulation. His central claim is that the free-market system has a natural tendency toward increasing the concentration of wealth. Other than during periods of extreme disruption – in the Western economies that he investigates – the rate of return on capital including investments, dividends, and royalties has consistently exceeded the rate of economic growth. He then goes on to point out that where r > g, r being the rate of return on capital and g being economic growth, it causes rising inequality through an excessively greater concentration of wealth in the hands of a few. In other words, inherited wealth grows faster than output and income. Piketty mentions that the combination of slow growth alongside better financial returns will result in inherited wealth that will, on average, “dominate wealth amassed from a lifetime’s labour by a wide margin”. The rising wealth of the 1% is not a random consequence, but the palpable result of capitalism itself. His argument is that this will ultimately continue until either public policies and institutions are put in place to regulate the relationship between capital and labour, or conflict will result. This prediction is based on an extrapolation of past trends and also assumes that as wealth rises, capital will not experience diminishing marginal returns.


One of the points that Piketty makes is that this rising inequality – associated with an ever increasing disparity between the rate of return on capital and economic growth – is that the ogre of patrimonial capitalism is a key driver. This is where the economic elite attains their fortunes through inheritance rather than innovation or entrepreneurship and is one of the reasons he gives for rising inequality. In interviews outside the realms of his book, as mentioned in a previous Monocle article, Death and Taxes – Piketty vs Bettencourt, he has raised examples such as Liliane Bettencourt who inherited her wealth and thereafter experienced the same rate of return on her capital that Bill Gates – an entrepreneur from the start – experienced on his capital. Data from a study completed by the Oxford Quarterly Journal of Economics shows that French annual inheritances have tripled from less than 5% of GDP in the 1950s to about 15% of GDP today moving closer to the 19th-century peak of 25%. Ultimately, Piketty argues, capitalist forces have resulted in a society of rentiers – people living on income from property or investments – people unlikely to innovate or advance society.


Piketty’s overall thesis suggests that capitalism as an economic system is not working and will result in low growth, high levels of inequality and low levels of social mobility. If you are not born into wealth then life, even for the best educated, will be something akin to how Jane Eyre felt without a Mr Rochester.


piketty_4_smallIn Capital, Piketty uses the Forbes 400 Rich List 2015 as an example of how concentrated wealth has become. He calculates that over the last 30 years the top 400 richest families in the world – irrespective of each year’s annual constituents – has experienced an annual growth rate substantially exceeding the world economic growth rate. He uses this case as an example of how, if extrapolated, the top 400 families in the world would own just about everything by the year 2050. Ironically, if one analyses the Forbes Magazine’s 2016 list, there are two problems with Piketty’s underlying thesis: namely that the constituents of the list change quite dramatically over time, suggesting that although overall wealth is concentrated, it is not concentrated in the same hands. Secondly, on closer inspection, one will find the following: Bill Gates was named the richest man in the world by Forbes Magazine’s 2016 annual list of the world’s billionaires. This was the 16th time that the founder of Microsoft claimed the top spot with $75 billion. Following behind him on the list with $67 billion is Amancio Ortega, the Spanish retail genius who started Zara, with less than $100. Both Gates and Ortega are self-made billionaires. In fact, the first 8 of the world’s richest people are entrepreneurs. They did not start with large chunks of inheritance but made their way up the ranks with hard work and focus. Tied at 9th place is Charles and David Koch who inherited the family business when it was worth $21 million in 1961, and made it into the $100 billion conglomerate it is today. This equates to a compound annual growth rate (CAGR) of more than 16.8% for a period of 54 years. Although they inherited the original business from their father, it was their hard work that got it to where it is today. These entrepreneurs lead the way to technological change and advances in productivity, which lower cost and increase real wages.


Interestingly though, Piketty’s argument around patrimonial capitalism holds more water when analysing the world’s richest women. The top 10 richest women are either widows or heiresses and include Liliane Bettencourt, the heiress to the L’Oréal empire, and Steve Jobs’ widow Laurene Powell Jobs. The top 10 wealthiest men on the list are primarily self-made and the top 10 women are primarily heiresses. It is somewhat unfortunate that Piketty would appear to be more correct in looking at the women in the top 10 list as opposed to the men.


When looking at the richest South Africans, one finds the majority coming from old money. Nicky Oppenheimer, the richest South African, comes in at 174 on the Forbes’ list followed by retail industrialist Christoffel Wiese, who surpassed the diamond magnate for a time, post-Brexit. Ironically, some of the corporate sponsors for Piketty’s South African visit are extensions of the corporate entities which Piketty is criticising. The sponsors included AngloGoldAshanti, Audi, Coca-Cola South Africa, Vodacom, Rupert & Rothschild Vignerons and Douw Steyn, in his personal capacity. The progressive wealth tax that Piketty is suggesting would have a large impact on the founders of these very same companies. Piketty’s suggestions would seem at odds with their personal narratives. He has been embraced by the South African public and by the South African elite, in a way that seems ironic if one looks at what he is proposing.


To put this in perspective: the most significant economist of the last 50 years, on a visit to South Africa sponsored by the wealthiest elite in South Africa, has proposed the following: progressive wealth tax, a national minimum wage, worker participation at board level in companies, and significant land reform. In particular, progressive wealth tax, which is Piketty’s proposed overall solution of 10% per year on capital would most likely experience strong resistance from the very same quarters that invited him to speak.


After the work of Simon Kuznets, many economists postulated that inequality was essential for economic development. In the early stages of a country’s economic growth, inequality needs to be high, but as economies develop, and skills’ bases expand, inequality should fall. In recent decades, this has not been observed to be true. In some developed countries such as the USA, inequality levels remain as high as they’ve been for the past century. On the other hand, developing countries such as Brazil and Latin America have had reduced levels of inequality. Inequality has become a major topic for research and most major economists are now addressing this particular issue due to its great importance. As an example the Financial Times’ Martin Wolf said that rising inequality is “incompatible with true equality as citizens” which is a central principle of democracy. Inequality is not good for anyone and results in a reduction of mobility and deepening poverty as well as peripheral symptoms like increased crime rates. Additionally, Columbia University economist Joseph E. Stiglitz, argues that extreme inequality “threatens our democratic institutions”. Even in the current political landscape moving toward the US elections in November, The New York Times notes that more than half of the early funding for both the Democratic and Republican parties came from just 158 families. This plays into the argument that Piketty makes: which is that the accumulation of wealth creates an environment, within laissez-faire capitalism, in which fewer and fewer have more and more power. It is precisely this accumulation of power which leads to higher rates of return on capital whilst a country experiences simultaneously lagging economic growth rates. Piketty points out that inherited capital produces a class of rentiers who dominate politics with many negative consequences.


Piketty stresses that South Africa is one of the most unequal countries in the world, and stated that “South Africa is very unequal and did not become more equal after the end of Apartheid, at least not as much as some people would have hoped. In some way, it has even become more unequal if we take the concentration of incomes in the top groups of the people.” He further advocates that the lack of large-scale forced land redistribution in South Africa from the rich to the poor could be the reason behind one of the world’s widest income gaps. If one takes into consideration that Piketty’s work concentrated on western economies with long historical tax records and ones which did not have homogeneity with a South African context, it is at least a valid question to ask why he would advocate such a potentially socially dangerous solution to South Africa’s inequality problems. If one considers the extent of damage to the Zimbabwean economy following their land redistribution programme it is further a valid question why an economist who proposes these policies would be given a standing ovation by the wealthiest elite of South Africa. Rather than address the politics of Piketty’s policies it seems more apt to question the validity of Piketty’s economic argument and apply it to a South African context as a test of whether the concepts of Piketty are applicable in South Africa at all.


Piketty’s work covered twenty countries including France, USA and the UK. If one applied Piketty’s hypothesis to South African data, would it show that South Africa’s increasing inequality is due to r > g? In fact, would it even show that inequality has increased, and furthermore would it show that r > g since the failure of Apartheid?


In a study completed by two American Professors, Daron Acemoglu and James A. Robinson, it was argued that Piketty’s general laws of capitalism ignore the role that political and economic institutions play in understanding the inequality of the past. They used South African interest rates and economic growth rates to test r > g and proved that it did not explain historical patterns of inequality as Piketty suggested it would. Although the study was insightful, its use of interest rates as a proxy for return made it incomplete. Piketty’s definition of capital includes profits, dividends, royalties, capital gains and other capital components. A more comprehensive proxy than interest rates would need to be used. Monocle Solutions’ research team realised there was a missing component of research and set out to re-test Piketty’s original hypothesis in a South African context: that, when the return on capital exceeds South African economic growth, the result is rising inequality. Instead of using interest rates solely, a composite index – R – was created using a combination of South African returns on the four major asset classes – namely cash, bonds, property, and equity – as a proxy for return on capital.


Over two decades of data were collected (1994 – 2014) and the following proxies were used for each of the corresponding asset classes. For the less risky and liquid cash asset class, the three-month JIBAR rates were used. The return on the bonds was measured using liquid government bonds – namely: R194, R186, R153, and R157. The property class was represented by annual growth rates in the value of property obtained from the Lightstone property index. The property class was further segmented into the following categories: national luxury, high, mid and low value. Lastly, the South African All Share Index was used as a proxy for equity. The data source used as the measure for economic growth – G – was the nominal GDP values of South Africa, collected from the Federal Reserve Bank of St Louis (FRED) for the period 1994 to 2015.


The research team hypothesised that the composite index for capital return, R, would vary depending on investor risk appetite. Consequently, R was calculated for three different investor appetites: risk-seeking, risk-neutral, and risk-averse. Each investor risk appetite was given a different weighting for each of the four asset classes. To ensure all realistic investment scenarios were tested, each composite R was compared to G over the same period.


piketty_5_smallRecall that Piketty’s original studies never included South Africa but he does indicate in a Ted talk, quite emphatically, that in a country like South Africa, R would almost always exceed G. Clearly, Piketty is making the same assumption he made when he spoke at the University of Johannesburg’s Soweto campus last year. This must have also been the same assumption made when he proposed land reform within South Africa. Distressingly for Piketty, as well as for his South African admirers, the Monocle research team found that the underlying assumption he makes seems not to be true. Specifically, the Monocle research team found that in the past two decades across all investor types defined above, the return on capital, R, on average did not exceed South African growth, G. This phenomenon of R being less than G in South Africa, over the past two decades, does not necessarily disprove Piketty’s thesis that when r > g, inequality increases. But if r < g does it necessarily mean that inequality has decreased? The question of whether inequality has increased or decreased in South Africa since the fall of Apartheid and since the first free and fair elections were held in 1994, was the next topic that the Monocle research team then addressed.


Despite the general perception propagated by the media that South African inequality is largely on the rise, a more scientific measure was required. The first measure was taken from the World Bank, which undertakes research into the state of global inequality. In terms of South Africa, it was found that income share held by the highest 10% made up 52% in 2009 and 54% in 2011. Comparatively, the lowest 10% had a 1.17% share of total income in 2009 and a 1.05% share in 2011. Unfortunately, 2011 was the latest data available at the time the research was completed. Similar inconclusive results were found when using the Gini Coefficient, another measure of inequality which looks at the statistical dispersion of the income distribution of a country’s residents. The Gini Coefficient uses a scale of 0 – 100, with 0 indicating that the dispersion of income is completely equal (i.e. everyone gets the same amount) and 100 being the most unequal or having the most uneven distribution of income. South Africa’s Gini Coefficient increased from 59 in 1993 to 65 in 2011, again showing an increase in inequality.


Based on both the World Bank and Gini Coefficients it would seem that South African inequality is rising, despite the fact that return on capital does not exceed economic growth. It must be noted that due to the imperfections of the Gini Coefficient index and the lack of recent data, a strong conclusion cannot be made with confidence. However, at the very least we can state that it is inconclusive whether the corollary of Piketty’s thesis pertains to South Africa: that when r < g, inequality decreases. In fact, at first appearance it would seem to be untrue, when r < g, it is possible for inequality to increase. However, the Monocle research team felt that the distortions of the Gini Coefficient index and the basis for the World Bank studies were not sufficiently accurate and the Monocle research team created an inequality index based on the simple thesis that inequality could be measured by analysing the value of property for different income levels within South Africa. Whilst the research team recognises that this stands only as a proxy for inequality, it would at least provide an original insight into the question of inequality in South Africa.


The Monocle research team created a concept of a high-income individual versus a low-income individual, in which we defined a high-income individual to possess excess wealth which would be invested in equity to the extent of 50% of his or her net asset value (NAV). Furthermore, we assumed that the same investor would be invested in luxury property to an extent of 40% of NAV, as well as 5% in bonds and 5% in cash for diversification purposes. In comparison, we created a concept of a low-income individual who would have no excess capital and therefore no holdings in equities or bonds. 70% of the low-income investor’s NAV would be tied up in low-income property and 30% in cash. Using the data collected from the various sources mentioned above we were able to show that from January 1995 through to September 2014 the compound annual growth rate for the low-income investor was in excess of 23.5% whereas for the high-income investor it was approximately 11.4%. The tremendous distortion between the growth rates of the individual investors can primarily be ascribed to the enormous differential in growth rates of high-income property versus low-income property. The lower income investor is 70% invested in low-income property and this particular property segment has experienced tremendous growth since the failure of Apartheid and the advent of true democracy within South Africa. Of course, this can easily be ascribed to the recognition – for the first time for these properties – of land rights and the registration of these land parcels with the protection of democratic property rights. This in and of itself is an indication that using the political institutions enshrined within the liberal constitution of South Africa there has been a far greater growth in low-income capital then there has been in high-income capital on a relative basis, distorting the underlying assumptions Piketty made when visiting South Africa. In fact, using property growth rates across different income segments as a proxy for a measure of inequality within South Africa, the Monocle research team is able to conclude that inequality has decreased since the advent of formal democracy within South Africa in 1994.


Another study by the IMF also found no empirical evidence that supported Piketty’s thesis. In fact, for at least 75% of the countries examined, the study found that inequality responds negatively to r minus g shocks, which is in line with previous single-equation estimates published by Acemoglu and Robinson (2015).


Although superficially attractive, the idea that equality can be enforced by the state has little empirical and even less ethical support. We would need to look outside Piketty’s “magnum opus” in order to understand inequality in South Africa.


By the end of Apartheid, South Africans who previously had no property rights were given property rights and this led to an increase in their capital values. It is particularly difficult to say that South Africa doesn’t have rising inequality, particularly considering that the World Bank and the IMF have shown that it may be true. But when one observes certain data categories, as mentioned above, the Monocle research team will argue that there might have been, to some extent, a reduction in inequality. Also, Piketty’s thesis, that r is greater than g in South Africa, is not true and this has been confirmed in several different scenarios taking into account investor risk appetite. Most dangerously, Piketty is proposing land reforms and policies that are not based on analysis and data that are contained within his main thesis as he did not study South Africa. It is also worth noting that even for Western countries, such as his own, he does not propose land reform, he proposes progressive capital gains tax. As responsible analysts, one needs to question why the South African elite would give centre stage to an economist who proposes such radical and dangerous reforms with a more or less complete lack of empirical evidence to support these notions within the country of South Africa. We would argue that it is particularly ironic that the wealthy elite have invited out a star-studded economist to come and preach reforms that could potentially further endanger and enhance inequality in South Africa. Ironically in contrast with an aggressive state-run land appropriation reform programme as proposed by Piketty, a large number of South Africans who previously did not have property rights, today do have property rights and this is thanks to the work of the South African democratic system rather than to a foreign economist. At some point, we will need as a country to be proud of our own heroes rather than heroes from other lands.


Opinion Pieces

We’ve all heard the old adage “the customer is always right”. Anyone who has worked in client services will tell you it’s true – and nobody says “no” to the customer, right? Not so fast…


If you’re working as a consultant, the idea that “the customer is always right” needs to be understood slightly differently. You’ve been hired to help a company achieve their goals; they wouldn’t have asked for your advisory services if they didn’t need guidance. But, in any arrangement where drastic change is taking place, you’re likely to be asked to do something that isn’t part of the scope of the project. Yes, the objective is to keep your client happy, but at a certain point you have to face the reality; if you were to continue to do what they ask – you’d fail on what you have initially agreed to deliver. The death of any client relationship is over-promising and under-delivering. You have to find a balance between keeping the client happy and keeping the project on track.


no-smallThere are many reasons you may have to turn down a request from a client. Maybe you don’t have the resources to see a project successfully to completion – a lack of staff or time. Maybe what is being asked of you is just not within your company’s set of expertise and therefore not in the client’s best interest. Don’t assume that you’ll automatically lose favour with a client simply by turning them down. Remember, by giving them your honest opinion, even if it’s something they may not want to hear, you are doing your job; looking out for their best interests. The following advice may assist you, should you be put in a situation with an over-asking client.


Firstly, it’s very rare that you’d ever use the actual word “no” when letting a client down. When delivering bad news, a certain amount of tact is required, especially when dealing with valuable clients. Be a little more subtle, thank the client for trusting you with a specific task and then rationally explain the reasons for saying no.


Secondly, keep it client-centric. Clients simply are not interested in what’s going on in your operation – they want to know what’s going on in theirs. Explain what the consequences would be for their business, if you were to conduct the tasks asked for. Outline the problems or risks for the project. A client will be more likely to maintain a good attitude towards your working relationship if they are assured of your loyalty and commitment to them.


Lastly, come to the table with solutions, not obstacles. When you turn down a request from a customer, don’t forget that a new problem is being created – and it’s still your job to help solve it. If you leave the meeting without having proposed an alternative solution, you are failing in your duties. Whether it’s coming up with a new plan or suggesting they outsource this particular project to a service provider more suited to it, your client will appreciate your honesty and proactive approach.


At the end of the day, the customer is still right, even if you need to turn them down every now and then. Knowing when – and how – to say “no” could mean the difference between a mildly displeased king having his requests denied, and a furious monarch who may send you to the gallows for non-delivery on his expectations.


Opinion Pieces

Entering the job market with a university degree and no knowledge of hard skills is like being a superhero without special powers. By hard skills I mean the ability to use a range of computer programming software to manipulate, complete, validate, and ultimately to convert data into information.


Here’s a hard truth for today’s graduates who are looking to enter the job market: the assumption that a formal education is enough to land – and keep – you in a dream position is holding you back.


While you may have left university armed with theories about your industry’s intricate inner workings, chances are you’re lacking in practical, hard skills – and those are what you’re going to need in the fast-paced working world. I meet many graduates with an Honours degree, but they’ve never put together a professional presentation, compiled a computer program, or pulled information from a database. These days, you have to be able to demonstrate you can do your job faster – and better – than anyone else, and hard skills will help you do that.


Skills such as advanced Excel and Visual Basic for Applications, basic database logic skills or programming – for example SQL – will distinguish “potentially decent” employees from exceptional ones. Without them you’re like Batman without his tool belt of cool gadgets. You have a ‘degree cape’ and a ‘distinction mask’, but you are limited in your ability to add value. If you want to up your hard skill ability, keep some of the following tips in mind.


Firstly, be flexible. Flexibility and versatility in the workplace are highly sought after attributes. In a competitive working environment, employees with a range of varied hard skills are likely to be the most useful to their employers.


Think about the backline of a rugby team, like the All Blacks, in which great players are able to switch positions quickly, and efficiently, if needed. A player could be a fly-half in one game and act as wing in the next. That’s an efficient team, one which is flexible enough to beat all competitors under the right circumstances.


That ability to move around and work on various tasks is gold in the workplace, especially when resources are scarce and the competition is fierce. When learning hard skills, don’t feel pressured to focus on just one. Learn as many as you can – at least on a basic level.


Secondly, even if you don’t have hard skills currently, you need to understand just how important they are. When I’m interviewing candidates, and I mention a skill, I don’t want to be told, “I can’t do that”. I want to hear, “I’d love to learn to do that!”. We’re really testing people’s aversion to hard skills, and if they meet my question about coding by saying they “don’t want to be an IT person”, then I know they don’t want to grow, or keep up with the times. Those people will always have to depend on someone else.


Thirdly, the broader your knowledge is, the more likely you are to find new and original ways to apply that knowledge to your work. Those who think outside of the box will stand out in any corporate environment.


For example, Monocle once worked on a project that involved sourcing customer data on behalf of a large banking group, in order to compile reports required by the South African Revenue Service. Much to our dismay, we realised that much of the required information was on documents that were not in digital form and had to be manually scanned. One of our employees, of his own volition, took the initiative to teach himself to write code, in Python, that would convert scanned documents into characters in a database. This saved us and the bank countless hours and ensured successful delivery of the project.


Finally, as employers, we expect graduates to arrive with a certain degree of inexperience. We recommend strongly communicating with your employer that you want to learn. After all, a great company will know that investing in you, will ultimately lead to efficiencies and benefits to the company itself.


If you’re not a graduate – if you are one or two years into your career – and you still don’t have hard skills, you are probably already behind the curve. At Monocle we highly recommend getting as broadly skilled as possible, as fast possible, to help accelerate your career.






Opinion Pieces

If one were to conjure up a perennial image of apartheid South Africa, it would have to be one of the grainy photographs taken in Soweto on 16 June 1976. There are the shots of the South African Defence Force armoured vehicles in a stand-off with the baying scholars who had formed a roughshod group on the outskirts of Soweto, and there are shots of the crowd in panic after the first bullets had been fired. And then there are the photos of Hector Pieterson.


tobaccobeerv1-0smallThese are the images that are conjured, that have been nurtured by the process of history into permanence, that are now indistinguishable from the concept of apartheid itself.


I grew up in apartheid South Africa, and these were not the images that I had in my head at the time. The images I had were of large, loosely-fenced properties, of dull brown and grey landscapes in winter, of single-story houses, and of pastel-coloured cars, of Saturday barbecues with neighbours’ children, and of swimming, endlessly, throughout summer.


There were of course some small anxieties of things to come. There was the moment when I was told that we should not go to school because it was ‘kill-a-white day’. It would only be many years later that I would come to realise that this day was the anniversary of the Soweto massacre.


But they were only ripples. Like any totalitarian regime, there was a bubble that was carefully maintained around us. We had little real notion of the world in which we lived. Our main convictions of ourselves were that we were somewhat politically behind, that the international community was repulsed by us, that we would spend two years in the army, and that we were pretty good at rugby.


On Saturday afternoons, having been excluded from international sport, we would watch the Currie Cup games. My father and his friends would drink South African Breweries-made beer, and smoke British American Tobacco-made cigarettes. They would watch the rugby whilst keeping an eye on us in the pool.


The extent to which things have changed since the 1970s is dramatic. This country has had, for some time now, the most liberal forward-thinking constitution ever written – in any country, anywhere. Our freedoms are guaranteed. Two decades of self-realisation through the implementation of democratic principles, and our inclusion into the international fold, have made South Africa and its people change enormously.


Nevertheless, in spite of these freedoms, and in spite of tremendous structural change, the economic reality for many in this country has altered very little. Frequently, and particularly more recently, stagnant growth and continued stifling inequality is blamed either on externalities or on the idiosyncrasies of leadership.


These externalities are often the same kind of externalities that any emerging economy with a heavy reliance on commodities would cite: the pull-back in Chinese demand, the falling copper price, the oversupply of steel. These are the structural arguments; the medium- to long-term reasons given for lacklustre performance.


In the short-term, one recognises clearly that the enormous gyrations in the value of the currency, and the immediate impact this has on the ‘markets’ – meaning bond prices and the value of JSE tickers – are primarily driven by the notion that the utterances of leadership itself are events, rather than utterances only. These are not structural impingements, but the fear is that they could become institutionalised.


What is not spoken of however, what is analytically absent, is the extent to which the financial markets – in spite of all of the remarkable changes we have experienced as a society – have not changed very much. This is not because the economy has not changed. The economy today is radically different to what it looked like in the 1970s. It is the markets that look distressingly similar to apartheid South Africa. The markets have become substantially, audaciously, out of sync with our economy.


Just a few facts elicit this. Looking at the JSE holistically and then drilling down, one notices that SAB Miller and Anheuser-Busch – two enormous beer-making firms that are set to merge after international competition commissions approve their R1.5 trillion deal – constitute 27% of the total value of the JSE. That is remarkable: the brewing of beer is valued by investors at over a quarter of the total stock market. Now add British American Tobacco, another ‘sin-tax’ firm, and we have three JSE firms that make up roughly 39% of the total stock market value of the JSE.


Even more absurdly, if one then adds Naspers, the next largest company by market capitalisation on the JSE, that fraction goes up to 46%. Naspers, in and of itself, is worth interrogating. Of its R1.0 trillion market capitalisation, more than 80% of that value is made up of its investment in Tencent, a Chinese messaging app.


To put that into perspective consider this: The largest four banks in South Africa employ about 190 000 people, whereas Naspers employs only 24 000 people. The Big Four banks are all considered blue-chip shares, yet their total market value, all together, is worth less than Naspers alone.


The party line amongst local and international economists reads something like this: The South African economy is likely to grow sluggishly in 2016 and 2017, afflicted by severe electricity constraints and the downturn in the global commodity cycle. Policy uncertainty, labour unrest and resultant investor uncertainty have also undermined SA’s potential growth trajectory in recent years, although South Africa is actively working to ease electricity supply constraints in the longer-term.


What the headline should read is this: Of the R15 trillion value in the South African equity markets, almost one-half is invested in a beer company, a cigarette company, and in a Chinese messaging app. This is because institutional investors are divesting themselves of South African economic exposure and SAB, BAT and Naspers will provide the investor approximately three quarters diversified offshore exposure.


As ironic as it is plain: the image in my head of a childhood spent growing up during apartheid in South Africa – men drinking beer, smoking cigarettes and watching rugby on TV – was accurately prescient of the constituents of the JSE more than thirty-five years later. My childhood image however has very little relevance to the broader economic reality that exists within South Africa today: a picture of tepid growth, violence, xenophobia, extreme unemployment, cronyism, and a proliferation of mediocrity in all echelons of utilities.


Most importantly however, this contrast between the JSE and the economy displays in the collective investment strategies of just about every investor within the borders of this country, including the State’s own investment arm, a substantial absence of faith in this country.


Little real equity investment has risked itself on our future. The distortion between the real economy and the markets – the structures through which the real economy is meant to be funded – is astonishing. In nominal terms, the figures are even more distressing: the value of unencumbered equity invested in the real economy in South Africa is strikingly low – something like a sixth to an eighth of the same ratio in the US.


Money has simply gone to what it knows best, its past successes. These are successes that have repeated themselves on a worldwide stage, but somehow only in industries that distract one from the rigours of reality.










Opinion Pieces

For the past sixty-one years Fortune magazine has published a list of the largest 500 firms in the world. An idiosyncrasy of the list is that it is published in order by revenue rather than by profit or by total assets. It will come as no surprise to most that Apple comes out as the most profitable firm in the world, achieving an incredible profit after tax margin of 23% on revenue of USD 234bn.


china-olympics-smallWhat may surprise some is that the next four positions – by profit – are occupied by four companies in the same industry from the same country. Amazing as it may seem, positions two through five are occupied by Chinese banks. The total profit after tax reported by the four largest Chinese banks in the 1 August 2016 edition of Forbes magazine is in excess of USD 136bn.


To put this into perspective: the total profit of the largest four US banks is only USD 80bn. A modicum of legwork will divine the following: JP Morgan came in sixth with USD 24bn, Wells Fargo came in eighth with USD 23bn, Citigroup came in thirteenth with USD 17bn, and finally Bank of America came in seventeenth with USD 16bn.


Putting aside the niggling doubt that must infect one’s perception in comparing American firms to Chinese firms – for example one has to ignore the fact that China is an autocracy, is notoriously opaque, and is prone to excessive government intervention – it still seems a legitimate pursuit. Given that these numbers are reported as accurate income and balance sheet figures by these firms, there is no reason not to compare them, irrespective of whether what emerges is sensible. In fact, merely by reporting them in a list as Fortune magazine does, it gives these numbers a certain degree of validity.


It does seem more than innocuous however, and somewhat incredible, that the four largest Chinese banks made nearly double the profit of the four largest US banks. US GDP ending Q3 2016 is reported as USD 18.4trn and Chinese GDP is reported as USD 10.9trn.


In simple terms, this allows one a comparative ratio for financial productivity – so to speak – of the US versus China. In the case of the US, the ratio between banking profits and GDP is 0.44%, whereas in China this ratio is 1.25%. That means that Chinese banks must be 2.9 times more efficient than US banks.


A couple of points spring to mind. Firstly, there is no possible way in which this could be true – US banks are older, wiser, more battle-weary and generally more visible worldwide than Chinese banks. Secondly, in running a large diversified bank, one has to have a certain minimum infrastructure in place, which is costly and requires highly-educated skill-sets to administer. This would account for the relatively high cost-to-income ratios observed in US, UK and European banks. Usually one sees numbers between 50% and 65% for this metric.


In order for Chinese banks to be 2.9 times more efficient than their US counterparts they would either have to have substantially better interest rate margins or they would have to have far less costly infrastructure and far fewer educated staff. Both are possibilities but nowhere near the three times efficiency pick-up implied by the official numbers.


In fact, what is far more likely than uncanny Chinese efficiency is simply that Chinese banks have not recorded provisions for the enormous debt overhang that they are failing to account for. The next financial crisis is possibly imminent and is made poignantly obvious by a cursory analysis of Fortune magazine’s data.


The International Monetary Fund estimated as recently as June 2016 that potential losses for Chinese banks’ corporate loan portfolios could be equal to about 7 percent of GDP. That translates into USD 760bn in actual losses. Recall that we used the same concept to estimate financial efficiency for Chinese banks, and that the profits of the four largest Chinese banks came out as USD 136bn. In other words, it would take five and a half years of sustained Chinese banks’ profits to absorb only their corporate loan losses, never mind the consumer loan losses built into their system.


So, on the one hand we have the regular financial press – Fortune magazine – awarding ranking honours to Chinese banks – and on the other hand we have the losses forecasted by the IMF.


Even if one were to factor in the political leanings of the IMF, there still remains two unfortunate conclusions: the opacity in Chinese statistical and financial reporting, and the obvious compelling improbability of Chinese operators being three times more efficient than US operators. These two realities lead to only one derisory conclusion: that the Chinese numbers must be wrong. What irks is the near absence of mainstream financial media focus on what would appear to be the next crisis made plain in numbers.


The buying power of the Chinese economy has led to a wilful myopia in the western acceptance of the Chinese story. Even the most basic analysis leads one to very disturbing conclusions. It is nine years since the near collapse of the financial markets. Yet the lessons apparently learned – primarily that excessive leverage in banking and exponential growth in property prices signalled a future overhang of severe magnitude – have already been forgotten.


There is not a single line of analysis in Fortune magazine on the irascible truth that there is no possible way that Chinese banks could be this profitable. Nor on the consequences of this blatant myopia. Something wicked this way comes. And it will be global.














Opinion Pieces

A few years ago, we were asked to assist a bank with their methodology for credit risk models. It was a relatively usual request – with one glaring difference. The bank wasn’t exactly around the corner from our slick London offices; it was in the Faroe Islands. In case you haven’t zoomed in on a map for a while, let me refresh your memory: somewhere where the North Atlantic Ocean meets the Norwegian Sea (take a left at Norway, if you hit Iceland you’ve gone too far) sits a cluster of 11 rocky islands. Not the sunny, clear-watered islands featured in alcohol adverts; the cold, wet, windy islands featured in National Geographic documentaries about deep-sea fishing. Or extreme mountain climbing. Although today, they’re an autonomous country within the Kingdom of Denmark, the Islands have a history as rocky as its mountains, ravaged by Scandinavian Vikings, and invaded by the British in 1940. In short, no, it wasn’t on my list of holiday choices. To be honest, I didn’t even know they had banks there…


sadalur-feroeAnd yet, there I was, on a plane, heading to my Island meeting. Essentially, landing a plane in the Faroe Islands is just slightly more dangerous than landing a plane in the actual sea. We’re getting closer and closer and in front of me, I can just see – through the thick fog that’s delaying our landing – peaks of rocky outcrops. There’s barely room to breathe, let alone fly a plane between the mountains. At the last second, the plane banks, so the wingspan can fit snugly between the jagged edges. And then suddenly we were making a bee-line to the ‘runway’. I use ‘runway’ loosely here. At the end of the runway is a lake, the final destination for unlucky touchdowns (a very reassuring sight, I’m sure you can imagine). I was clinging on for dear life, hoping for the best, as the plane’s tyres screech to a halt seconds before Lake City.


My colleague and I were supposed to be accommodated in one of only five hotels in Tórshavn, the capital of the Faroe Islands, but it turns out we were visiting Faroe in its five minutes of bustling holiday season, and all hotels were fully booked. Fortunately, the bank’s project manager kindly offered to have me stay in his personal home. Unfortunately, that meant sleeping in his child’s single bed, underneath a duvet covered in dinosaurs. Nevertheless we were received with the warmest hospitality and great food.


The next day, we headed to the bank to consult on their credit risk modelling methodology; a space in which I was far more comfortable. Considering the Islands are about as far from civilisation as you can get, the bank was incredibly sophisticated – and the meeting went well. Of course, no business trip would be complete without a little sightseeing, and soon we were huddled at the harbour, crawling into thick, weather-proof suits.


In a speedboat, we crashed through the waves of the freezing North Atlantic, with the rain and backsplash trying unsuccessfully to penetrate our weather suits. We stopped at an even smaller island and hiked up the rugged trail through a small village, wind at our backs (and fronts, and sides) to a local’s home. But the welcoming entertainment wasn’t a cocktail on the deck, but a show; of the local stuffing a puffin (no, that’s not a euphemism). The bird stood no chance against his skilled hands.


Despite the fact that a stuffing isn’t always my aperitif of choice, our next stop was back on the mainland, for a meal at one of their fanciest, finest restaurants. Nestled at the top of a hill, the place is straight out of a Tolkien novel, overlooking miles of tiny houses, complete with traditional dark-wooden panelling and insulation-friendly grassy roofs. Whilst admiring the beautiful view, sipping an ice-cold beer and feeling proud of my adventures of the day, I suddenly picked up a strange odour. Without even seeing the menu, I was presented with a plate, offering five different local delicacies; likkja (that is whale biltong to us), whale blubber, skerpikjøt (or wind-dried mutton) which smelled more like it was buried for a few days so that it had begun to rot, dried shark, and lastly potatoes (or so they said). I needed a strategy, and fast. Luckily, the locals believe that the best way to have a beer is to chase it with a strong schnapps, which meant there was ample amounts of Dutch Courage to help me through. I followed each bite with a quick shot of schnapps. But after the dried shark, I respectfully retired from the table, and headed home to crawl into my Dino bed.


While the world of consulting is often filled with interesting characters and outlandish last-minute presentations, my time in the Faroe Islands was by far the most fascinating few days on the job. Did I learn anything in particular? Yes. Never underestimate your clients based on where they’re located. Be prepared for a challenge. And always check the end of a runway before you land a plane.