Updating our insights on the deepening meltdown

I haven’t covered meltdown related issues for a while.

Here are a few must-read items, followed by a summary of John Hagel’s new report outlining some of the underlying changing fundamentals in the form that capitalism is taking.

The first must-read is Matt Taibbi’s essay which appeared in Rolling Stone, about the pernicious role that Goldman-Sachs has played in past, present and future (carbon markets) speculative bubbles and meltdowns. This remarkable essay will make you rather sick in the stomach.

Here’s the summary:

“The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere – high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth – pure profit for rich individuals.”

The Financial Times’ Ben Funnell , brings a remarkable editorial outlining the role of debt in the neoliberal system:

“Just why is there so much debt in the Anglo-Saxon world? Bankers and regulators know well that it is in nobody’s long-term interests to have allowed borrowing to escalate to a position where the US now owes far more, as a multiple of the economy, than at the start of the Great Depression. The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite. The amount by which the elite has benefited is startling, and illustrates the problem with lightly regulated free markets: the rich get much richer while the rest do not get richer at all.”

The Daily Telegraph gives us a rundown on unemployment, and explains why we have lulled ourselves in complacency, because we have the timeline of the Great Depression wrong … It takes time for the economy to unwind, and we’re not even close to the bottoming out. We haven’t, but will, reach the levels of 1932, and the author invites us to look at the political upheaval’s which were its consequence.

Ambrose Evans-Pritchard writes:

“The Centre for Labour Market Studies (CLMS) in Boston says US unemployment is now 18.2pc, counting the old-fashioned way. The reason why this does not “feel” like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another Grapes of Wrath, but 20m US homeowners are already in negative equity (zillow.com data). Evictions are running at a terrifying pace. Some 342,000 homes were foreclosed in April, pushing a small army of children into a network of charity shelters. This compares to 273,000 homes lost in the entire year of 1932.”

To conclude here are some conclusions from a new report by Deloitte , the 2009 Shift Index, the rationale of which John Hagel explains here:

“Everyone acknowledges that we are in the midst of a fundamental shift playing out on the business landscape on a global scale over many decades. We may not all agree on the exact dimensions of the big shift, but the reality is so widely recognized that it is often unstated. When we looked for indices that gave us some insight into the nature and pace of this big shift, we pretty much came up drive. There were isolated measures and one-off analyses, but there was nothing resembling a comprehensive index of key metrics updated on a regular basis. So we decided to develop one.”

“The most interesting findings can be summarized as follows:

• Return on assets (ROA) for U.S. firms has steadily fallen to almost one-quarter of 1965 levels at the same time that we have seen continued, albeit much more modest, improvements in labor productivity.

• The ROA performance gap between winners and losers has increased over time, with the “winners” barely maintaining previous performance levels, while the losers experience rapid deterioration in performance.

• The “topple rate,” at which big companies lose their leadership positions, has more than doubled, suggesting that “winners” have increasingly precarious positions.

• U.S. competitive intensity has more than doubled during the last 40 years.

• While the performance of U.S. firms is deteriorating, the benefits of productivity improvements appear to be captured in part by creative talent, which is experiencing greater growth in total compensation. Customers also appear to be gaining and using power as reflected in increasing customer disloyalty.

• The exponentially advancing price/performance capability of computing, storage, and bandwidth is driving an adoption rate for our new “digital infrastructure” that is two to five times faster than previous infrastructures, such as electricity and telephone networks.

What can be done to reverse these performance trends?

The answer to this question can be found in the three waves of deep change occurring in today’s epochal “Big Shift.”

The first, the “Foundation” wave, involves changes to the fundamentals of our business landscape catalyzed by the emergence and spread of digital technology infrastructure and reinforced by long-term public policy shifts toward economic liberalization. The metrics in our Foundation Index monitor changes in these key foundations and provide leading indicators of the potential for change on other fronts. Changes in foundations have systematically and significantly reduced barriers to entry and to movement, leading to a doubling of competitive intensity.

• The second, the “Flow” wave, focuses on the key driver of performance in a world increasingly shaped by digital infrastructure.

This second wave looks at the flows of knowledge, capital, and talent enabled by the foundational advances, as well as the amplifiers of these flows. Because of higher unpredictability and volatility created by the Big Shift, knowledge flows are a particular key to improving performance. Developments on this front will likely lag behind the foundations metrics because of the time required to understand changes in foundations and develop new practices consistent with new opportunities.

The third, the “Impact” wave, centers on the consequences of the Big Shift. Given the time it will take for the first two waves to play out and manifest themselves, this third wave—and its related index—provides an even greater lagging indicator.”

1 Comment Updating our insights on the deepening meltdown

  1. RalfLippold

    Time lags are the reasons people don’t see the change they are hoping for!

    Make the delay visible (as with causal loops in #SystemDynamics and you will
    see clear:-)

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