Syzygeist

Who’s Interest(ed) in Japan?

     On my father’s desk in his office during my entire youth, and included among his memorabilia after he died, was a small, framed sign, which read, “Old Bankers Never Die – They Just Lose Their Interest.” He had joined Chase Bank in New York in the 1920s as a utility analyst and would later end his career in finance as the treasurer for several New England utility companies.
     His little sign occurred to me in Japan last week during a long and increasingly academic debate about the true source of underlying interest. I raised my hand to offer the bit of humor along with a question as to whether it might translate into Japanese. But there was a serious question to be raised as well.
     We were all wearing headpieces for the simultaneous translators, and the Japanese faces looking at me broke into smiles and some outright laughter among dignitaries when I got to the punch line. The panel entitled “What future for economic reforms?” was part of the Future-of-Japan Roundtable Seminar, jointly hosted by CLSA, Nikkocitigroup and Shinsei Bank.
     It had convened an impressive array of public and private officials to discuss the challenges facing Japan, whose population is aging rapidly, shrinking in size, and confronted with the largest fiscal deficits among the developed economies. Moreover, the country has about 1500 Trillion Yen ($15 trillion) in its postal and banking savings system on which depositors are earning less than 1 percent.
This is the reason for the well known but troubling “Yen-carry trade,” in which investors – an increasing number of them Japanese, in addition to foreign hedge funds – borrow Yen at home to invest in higher interest-bearing vehicles abroad. This steady outflow contributes to the somewhat startling fact that the Yen is at the same US dollar exchange rate as it was in 1985 - even though the country has racked up impressive trade surpluses during that period.
     The joke turned out to be a starting point for several other questions, which I posed to the now slightly apprehensive audience. What does it mean, I wondered aloud, that this country pays “no interest?” Has Japan “lost interest” in itself? Is the government not interested in paying interest to its own savers? Surely it should be.
     Could it be that no interest is paid in the economy because the economy itself is not interesting - not attractive enough to warrant an interest payment? Some would argue that Japan, which has the lowest rate of firm-turnover among developed economies – has frozen out the innovative in favor of the habitual. As a local Japanese chief counsel had said to me during the week, it’s not only that in Japan the nail that stands up is hammered flat, it’s also that people don’t pursue their own success as much as they hope for the failure of others.
     In whose interest could this persistent lack of interest (rate) be, I asked? (One might blame the exporters, because the manufacturing base and institutional arrangements within the country are all tilted toward export growth, which the Liberal Democrat Party has served very well. Some argue that the necessary restructuring in the service economy can only come with a stronger Yen, which can only flow from rising interest rates.)
     I could see from the expression on a few faces that my line of questioning was making an impression, even on Hiroko Ohta, Prime Minister Abe’s Minister of State for Economic and Fiscal Policy. She had expressed the commitment of the prime minister – whose approval ratings have recently fallen to new lows, equal to George W. Bush in his country – to an “Open Japan” that intends to become friendlier to foreign and domestic investors through continuous reform.  She acknowledged that the declining population demands an increase in labor productivity, as Japan’s is the lowest among the advanced countries and the worst in services, at 70% of the US level. She said the administration was focusing on occupational training in medical care and ICT, and on renewed support for universities. The administration has targeted a productivity growth rate of 2.4 percent within five years and wants to accelerate Foreign Direct Investment and agricultural reform.
     Whether these are the right intentions, clearly enough expressed, seems to be a question. The popularity surveys suggest the voters want something else – including pension reform and more compelling reasons to be optimistic about the future.
     It is worth noting that in China’s economy, the population tends to believe it is better off now than it was five years ago and will be better off still in another five years – this is the heart of animal spirits, which animate an economy. In Japan, however, one is struck by a kind of entrenched malaise, exacerbated by the fact that households earn nearly zero interest on savings, total price-adjusted compensation for workers rose only 2 percent from 1997-2006, pay per worker actually fell in 2006, and almost 25% of all households have no savings, up from 8 percent 10 years ago. Japan’s poverty rate is now the second highest in the developed world, behind only the US.
     Risks remain that Japan, seen to be in a nascent recovery, might not be guaranteed success. Takeshi Niinami, President and CEO of Lawson. Inc, which owns convenience stores in rural areas and small cities, warned the audience this non-Tokyo economy is extremely frail.  People have no money, or little inclination to spend it, and the numbers of people in the cities and towns is falling.
     In this context I mentioned that Richard Katz and Peter Ennis in a recent Foreign Affairs article (March/April 2007 “How Able is Abe?”), had warned that failure to take action (on the population/aging challenges) “would not only jeopardize Prime Minister Abe’s longevity but also condemn Japan to lackluster growth, stagnant living standards, and diminishing global influence.”
     So it was my conclusion that among other reforms, the nation needed to increase its interest rate – in the interest of investors, foreign and otherwise, so that they do not borrow low at home to invest high abroad – a sure sign of disinterest that cannot be good for the country in the long run. And as time had now run over for the workshop, the moderator smiled broadly and bowed in my direction, thanked me for my most interesting observation, and the workshop concluded.

The Long Emergent Hope

      In reading James Howard Kunstler's book, The Long Emergency (see excerpted article here), I was struck that many of the statistical arguments seem intuitive - how could we not run out of a resource as central as oil, given our rising and apparently unslakable dependence? I was very depressed immediately after reading The Long Emergency because I could not see a way around his arguments, both on the exhaustion of oil, the shift in politics as shortages increase, and a lifestyle based on endless supplies, which will soon hit a wall of rising global demand.
      Since then, I have become involved in a renewables energy fund, especially a project to help finance the development of an enzyme found uniquely in the gut of the panda bear.  Because the panda has learned to process the nearly indigestible bamboo shoot, its intestinal bacteria have extraordinary abilities to convert cellulosic materials to sugar, a few steps shy of alcohol (ie. ethanol!). A scientist working in this country now is developing this enzyme for commercial application. It may also be that this enzyme can be produced in plants, harvested as sileage, and “activated" by light rays or other stimulus to be a digestive that promotes ethanol production far more efficiently and with less impact on the food supply than corn or sugar cane.
      Without going into the chemistry here (which I am largely unqualified to do) I would only say that this is one among many technologies being explored and which may well provide answers. It's hard to see a future that is not fraught with shortages, tensions, disruptions, etc. But I have gone from a feeling of near-hopelessness to one of greater optimism. Malthus, it would seem, was wrong (so far).
      The Rocky Mountain Institute under Amory Lovins has outlined extraordinary energy resources in efficiencies alone. Solar thin-film is showing potential to both shade and power "green buildings" as governments (much more in Europe than here) are beginning to force sensible changes on the building industries. This is just one area where change is coming, and some of it will have radical impacts. Ged Davis, the former scenario planning chief at Royal Dutch/Shell, now engaged with a range of renewable projects, has likened the current renewable technology fever to the early days of the auto, when more than 100 companies in the US were vying for capital. Many would fail, but the automobile would be born. Do we now really believe this was the beginning of the end of life as we have come to know it?
      I wish this note to sound a little hope that perhaps all is not lost as oil supplies run down (and by applying greater extractive and use efficiencies we may have more time than we think). Mankind is highly inclined toward invention, and Necessity remains the Mother of it. Perhaps we are not ultimately self-destructive, but self-preserving. That being said, we can all find evidence to fit just about any argument, and arguments to fit just about any evidence.  Better we find solutions in the middle, where we need to have faith they may exist, than disagreements at the poles, where extremism extracts its own price – particularly if hopelessness sets in.

Speak Up!!

Chris Floyd, writing in TruthOut, provides a perspective for those who have felt somehow that the war in Iraq had more to do with oil than with the evils of Saddam or the potential for democracy to bloom in primitive MIddle Eastern deserts. Floyd's commmentary is not alone in questioning the Bush administration about its reasons forgoing to war, or its motives for the "surge" and it will not be the last. It is, however, bleak in its estimate of the future, no matter who wins, loses or draws. From the militarization of the US economy, there is perhaps no turning back. Not in any practical terms we know of. Former President Eisenhower knew whereof he spoke when he warned about the military industrial complex.

One has to wonder whether the availability online of these points of view will influence alternative political choices in the US. The Democrats face a crucial moment in deciding in 2007 who decides - "The Decider," or the other representatives of the people?

I wonder: Does anyone seriously believe that 20,000 additional troops in Bhagdad will lead to some other outcome from the one we currently witness? If you know someone who has fought in the theater lately, could you ask?

What do you personally believe about the decision to send in another round of troops?
Whatever it is you do believe, are you actively expressing that somehow? Or was voting (or not voting) as far as you're willing to go?

It has often been said about smaller countries, or troubled countries, that they get the leadership they deserve. It's time each individual American stood up to be counted regarding this leadership, and this war, now.

For those of us who remember Nixon, it's hard to understand why impeachment papers have not yet been served on Dubya. That's just my view. I hope you will make yours known, whereever you stand.

Worthwhile Intelligence

Halkin Services

Sent: 04 January 2007 15:18
Subject: SPECIAL BULLETIN: The 'resurrection' of the Russian secret services

SPECIAL BULLETIN
TO: All Strategic Intelligence Forum members
FROM: JKC de Courcy, Chairman, Strategic Intelligence Forum
DATE: 4 January 2007

SUBJECT: The 'resurrection' of the Russian secret services

On 6 December, the editor of Strategic Intelligence Review, Alex Standish, gave a speech at the European Union parliament on the subject of the Russian secret services. The following is a full text of this important speech:

http://bestpartners.cc/intelligence/07_01_04_Russian_Secret_Services.pdf

 

The Case For Optimism

Open Sesame

One of the arguments I have been trying to make since 1995, when we first envisioned the global scenario called "T+0" - an increasingly transparent world - is that the Internet would become a universal solvent that could dissolve any organizational construct (including authoritarian regimes) from the top down, bottom up, outside in or inside out.

One of the profound challenges that we all face now - from individual to family to corporation to government to society - is how to adjust to the accelerating openness and transparency brought on by the web and associated technologies (of which the cell phone may prove the most potent).

Consider Bahrain, whose royal family just tried to block Google Earth because just plain folks were able to look into private estates, homes, swimming pools, yachts, etc, and see how the rich really live, and how that small country is dominated by the wealthiest among them. Also consider Spain, where SMS messaging helped generate massive spontaneous protests in Madrid and Barcelona the day following the terrorist attacks (and two days before general elections), when citizens felt the Popular Party-led government was withholding information about the perpetrators of the attacks to further their political cause.

These are telling examples of the challenge of openness (and the natural attack on any proprietary position) that web-based and mobile information technologies are bringing to the world.

Likewise the speed at which the poisoning of Alexander Litvinenko with Polonium 210 is becoming an issue for Vladimir Putin - not just the news and information about the death, but accusation, innuendo, reaction, etc. as the world is invited to focus on the nature of the KGB-influenced Russian government.

Not only facts but inference can be spread at the speed of light to reach into more corners of thought and opinion than ever before.

This is obvious. What is not so obvious is whether truth eventually wins in any battle with lies. Facts about the ownership and distribution of land and resources in Bahrain, the most web-connected of the Arab states, are relatively easy to establish and to circulate, which gives the rulers an opportunity to respond. And how they respond will be a test of legitimacy. Who killed Litvinenko will be far harder to establish, but in the absence of knowing, human intuition usually defaults to the darkest interpretation. In that case, Putin will be perceived to be guilty whether it can be shown or not. His response will remain under scrutiny, and the public view that develops will dog him through history.

One thesis about this state of increasingly open affairs is that whatever can be known will be known (if not now, then sooner than later). Moreover, whatever is being concealed (either known or suspected) will take on its own nature as people are free to speculate, and to spread their speculation ever more broadly, whether point-to-point on cell phones or one-to-everyone on the World Wide Web.

Mahmood al-Yousif is becoming a destination source for Bahrainians wanting to know how to circumvent web restrictions and see their wealthier countrymen's property via photo-sharing sites. Bahrainians (and everyone else who wants to) are also learning how to download software, get technical advice, disguise their locations and access sites that their government wants to protect.

These developments underscore the challenge of openness to individuals and regimes still trying to operate according to an obsolete world condition - that people in power can successfully conceal themselves in the trappings of the old information realities, whether paper stamped "Secret!" or other channels controlled by the authorities.

Information wants to be free, someone famous once said, which was a bit misleading. Information is indifferent. It requires that someone have it and do something with it. People, however, do want to be free, and free of the idea that someone - particularly their own government - is deliberately hiding the truth from them, even if an ugly one.

Six Degrees of Separation

The title of this blog is a fabricated word, made from a combination of syzygy and zeitgeist. Its stated definition can be found on this page. Readers are invited to submit their own definitions, which if judged superior by the originator (or by other readers), will become the definition. In use is proof, so to speak.

(A story is told, apocryphal or not, that the word “quiz” was invented in the context of a bar bet between two Irishmen. One bet the other that he could not invent a word from scratch that would stick in the language. The bettee allegedly went into the men’s room stall, scrawled the word “quiz” on the door facing the toilet. For some period of time afterwards, those with time to contemplate and some natural sense of curiosity came back into the bar to ask “what is ‘quiz’?” and the meaning was born.)

Be that as it may, consider whether the following true story of a professional business man’s travel day is a true syzygeist of its own.

I had gone to San Francisco to meet with a client about various strategic matters – including whether it should reconsider being bought by Company A. Company A had made a previous offer, had been refused, which led it to acquire Company B, a similar firm to my client but with lesser technology. (Just remember Companies A and B.)

I flew back to New York the next day and went directly to Oceana, a midtown restaurant where I was to have dinner with another client, the CEO of a Japanese bank. (He does not figure into this story, except that he was late, so I went upstairs to the bar.)

The bartender asked how I was.

“Exhausted,” I said candidly.

He then asked the young woman at the other end of the small bar (the kind with lots of polished wood and stacks of wine bottles to the ceiling) the same question.

“Sick of working for a huge company with no vision or purpose or leadership,” she said, or words to that effect. Her disillusionment was palpable.

Well, this led to a brief discussion in which she suddenly blurted out, “Well, I worked on the acquisition of Company B by Company A. So I know something about this field, and I think I could be happy working in a place like Company B.”

“Really!?” I exclaimed. “That is astonishing. I have just come from San Francisco, where Company A and B – those two in particular - were a vital topic in a day-long meeting. What are the chances of that?”

And, I went on, if she was truly sick of working for a visionless behemoth, and she truly likes what Company B does, she should look into my client, which I happen to know has superior technology, an inspiring vision about the future of the field, and is run by truly superb people, including one of the leading scientists in the world.

Well, this was incredible, she said, and she wanted to talk more, but really she had to go, but did I have a business card? (No, this was not a come-on, but more on that later.) I did not, my cards were downstairs in my briefcase, but I could write my name and office number down in the little book she produced from her handbag.

I had just written my first name down when she looked at me with amazement to ask: “You’re not Eric Best, are you?”

“Okay, this is getting a bit weird,” I said. “Do you think you know me?”

“I have had dinner at your house,’ she said.

“Not while I was there,” I said. “I would have remembered.” (This was not a come-on either, although she was memorable by almost any standard – obviously bright, accomplished, unassuming, clear-talking, and not unpleasant to look at, an observation for which I feel I need not apologize.)

“Not only that,” she went on, “I have been at your family house in Maine, this summer, and you weren’t there either. I am a close friend of Bridget and Charles Best, your nephew, and they invited us to dinner while they were house-sitting for you this summer.”

With this she gathered up her things and raced off to her next appointment, mumbling something about how she never visited this bar before and in fact never goes out drinking alone after work.

She did not stay to answer my existential question, which seemed appropriate given the circumstances: Did she think this meeting, in which I was so well positioned to question why she would wish to work unhappily for a big company when she might work much more happily for a small one – and I had the name and title of just the company – was pure chance? Did she believe in pure chance or did she ascribe significance to events of this kind. Was this, in other words, somehow meant to happen?

She did not have time to explore this before departing, and it is perhaps not meaningful that she left her credit card behind (later retrieved after I sent her an email to tell her). What is more curious is what follows.

Fast forward to the next morning: I had arrived home late, gone to bed, and now was seeing my wife and children at breakfast. I began to relate the extraordinary tale of the meeting at the bar, when my wife interrupted.

“And this was the woman who had dinner here this summer while we were away?” The expression on her face and in her voice I can only describe as one of those expressions that a married man may occasionally hear or see in his wife on the topic of some other woman, in whatever circumstance she may have appeared.

“Yes,” I said. “But how did you know?”

“Go on, finish your story,” said my wife, “and I’ll tell you.”

So I did, and she did. It seemed that my meeting at the bar – let’s call her Veronica – had immediately called my nephew’s wife on her cell phone. Bridget was at that moment shopping in Soho, and got off the phone to encounter Sarah, my wife’s best friend, who was plumbing the same aisle at that moment. The Oceana tale was related in some form, and Sarah, within minutes, then called my wife to relate her version of the tale. What inferences or implications emerged in this version I can only speculate.

So within 20 minutes of Veronica leaving the bar, my wife got the news that her husband, supposedly at dinner with a Tokyo-based CEO, was in a midtown bar in career conversation with a thirty-something.

Now, whether male or female, married or single, you must marvel at the degrees of separation in this story, and also its commentary on the nature of life, and perhaps of business.

Veronica, it turned out, is highly qualified to help my client in the business challenges at hand. I know this because I urged her to send him a resume, she did, and it impressed the CEO.

And Veronica suggested in an email that this may lead to a career change, if not to my client’s company, then at least away from the place where she unhappily works.

I take the time to blog all this not only because it appears to be a syzygeist, but also to reflect something about the new information economy, vitally networked by people criss-crossing the business and geographic landscape, preoccupied with similar topics, armed with cell phones, and likely as members of the professional class to frequent the same kinds of joints.

A recent book called “Fooled By Randomness” will make its own comment on my question – was this pure chance, or did it have meaning? You may put yourself in one of two groups to be found in the world, the ones who say chance, and the ones who say meaning.

As for me, it is a reminder that Manhattan, at least, is a smaller town than you might think, and anything that can be known, will be known. Maybe that is a meaning to give to syzygeist, an alignment of ideas (or events) to which one may or may not respond appropriately. Yes, and what can be known, will be known.

Global Economic Warming

I was recently asked to speak about global conditions at a McKinsey Forum in Washington, D.C. and then a few weeks later in a similar summit in Berlin.

These thoughts reflect about 15 years of thinking about global scenarios around the world. The future is not predictable, yet we must act in the context of some beliefs and expectations, of which mine have become largely optimistic of late.

So I said, more or less:

We are in a period of “Global Economic Warming,” – a general uptrend that will include some dramatic bouts of volatility to the upside and down. Those who anticipate and manage these factors most intelligently are going to come out ahead.

Animated by “Chindia” – roughly a third of the world’s population now growing at above double digit rates – the global economy will keep rising on a wave of  increasing global trade and the applications of Internet technologies, the mass and momentum and inertia of which is not to be denied. (For sailors, “the wind is up,” but how hard do you want to sail through the night if you can’t completely trust your charts?)

Every unit of organization, from individuals to corporation, NGOs and governments of all kinds, will be challenged to manage volatility and take the right degree of risk (more is better, if you believe that risk and return are correlated.) But the challenge will be to protect against surprising developments in the social/political/business environment that can damage your brand, your business model or your capacity to continue. This means that you have to think hard about flexibility, adaptability, accelerating your speed of adjustment, and taking the range of steps available in the marketplace – both financial and informational - to protect against risk.

Change is being accelerated by communications at all levels. The developing Internet economy of ubiquitous information and connectivity gives more people more access to more ideas and to more markets than at any previous time in history. Take note of two billion cell-phone users, nine trillion emails a year, and a billion Google searches a day - more than half of those in languages other than English. In this context, individuals and organizations will be challenged to adjust their beliefs and operating styles to unprecedented transparency and openness. Whatever can be known, will be known. And information of every kind will continue to cross borders of all kinds despite the efforts of governments and cultures to stem the flow. (Just what does it mean that Google paid $1.65 billion for YouTube?”)

Increasingly powerful technologies will continue to become available at lower and lower prices (Moore’s Law has not been repealed) with power continuing to shift to the end user/consumer. The world will enjoy ongoing maturation and application/integration of all information/processing/connectivity technologies, leading to new discoveries and greater efficiencies, with emergent biotech and nanotechnologies, new materials and genetic engineering, promising new waves of industrial growth. This development is concurrently stimulating the rise of new info-tech users, new business models built on ever more sophisticated value chains and increasing sophistication of one-to many and many-to-many interactions. The growth of the online/virtual economy will become an increasingly added-value story in global growth, 2006-2016.

What makes the case now that “the wind is up” and likely to be sustained? Global expansion for 2002-06 is the strongest since 1970s, according to the IMF World Outlook. The volume of world trade expanded by 8% since 2002, fastest and most sustained since 1950s, according to Roger Cass, of Cass Research Associates. Global inflation and interest rates at 50-year lows and global liquidity growth is at historically optimal levels of 6-8 pct. The system has shown its resilience, with the attacks of 9/11 having less impact in terms of global output than Hurricane Katrina. China’s growth at 11.3% and India 9.3% are driving broadest based global expansion in history. Even though Europe is lagging, Latin America and Sub-Saharan Africa are both growing at 4.7% on the strength of demand-driven commodity-price increases. Oh, and despite worries about real estate bubbles, as Cass Research also points out,  U.S. consumer balance sheets are the strongest by every measure since 1945.

If that all feels too rosy, it is fair to concede one giant potential fly in the ointment, articulated by Mr. Cass - the one analyst I knew in the late 80s to pinpoint precisely the impending collapse of the Nikkei (and the recent highs achieved by the Dow Jones Industrial Average, and numerous market movements and political developments in between). And his warning now is dire.

"...the deteriorating geopolitical situation and a potential nuclear/military confrontation with Islamo-fascist forces in the Middle East, which are receiving growing political and military support from an increasingly autocratic and totalitarian Russian regime, which is reasserting its role as a world power, represents the most serious destabilizing geopolitical factor for the industrial economies and world financial markets since the Cuban missile crisis of 1962. The world now stands on the brink of WWIV, the first nuclear war in human history, with incalculable consequences in terms of casualties, economic and infrastructural destruction, the loss of world oil supplies and soaring energy prices, and global environmental degradation," he writes in his September 2006 report.

If Mr. Cass is right, Mahmoud Ahamadinejad in Iran, and his radical fundamentalist supporters, like Hitler in 1933, will take the system beyond the brink, while de facto appeasement helps it happen more readily. Under this theory, Al Qaeda pursues its “Master Plan” and President Bush will decide to attack unilaterally before the end of his term (what has he got to lose?) because Britain without Tony Blair won’t help, and the Europeans refuse to get tough enough in time. China and Russia, for their reasons, aren’t any help either.

This amounts to a pair of scenarios – one that sustains upward movement in the global system, the other a derailment of incalculable proportion. Both are worth considering for any global enterprise, or for investors who think that the last five years are all you need to know about the next five.