Another AP Blunder: Oil

More terrible business reporting skills from the AP this morning:

Oil Inches Up in Wake of Last Week's Terror Alert in Gulf SINGAPORE (AP) -- Oil prices inched up Monday in the wake of a terror alert in the petroleum-rich Gulf region last week and as traders watched for signs that OPEC nations were following through on announced production cuts.

Light, sweet crude for December rose 7 cents to $60.82 a barrel in Asian electronic trading on the New York Mercantile Exchange.

Now, as you may recall, on Friday the AP's Jeannine Aversa reported that 'markets slumped' after they came off by 0.3% in the morning's trading. Now, it appears, oil prices are 'inching up' in the wake of a new terror alert - despite moving less than the markets did on Friday, by a totally unremarkable 0.1%.

This is not news, it's garbage; leave it alone. The news is that over the past week oil prices have been in a downward freeze as equity prices have broken significant records. But of course, that doesn't sell papers like a terror alert does. Plus, traders have known for weeks about potential production cuts in oil by OPEC - if any of them are reacting to them now they're a little late to say the least. What is interesting to note is the lack of reaction of oil markets, meaning most of that value we saw earlier this year there has now been significantly factored out.

This type of reporting misleads and undermines our economy.

How Not To Use Powerpoint

Presentation Zen, a great blog if you are a speaker looking to improve your general performance, has a hilarious example up of how NOT to use powerpoint (Via Fredd Kambo Joint):

This slide brings back all the memories I have of a number of similar presentations I've been to - truly exhausting experiences. Fredd Kambo, an uber-consultant at Shell, points out what's on the slide too. Here's the full transcription of the slide in all its glory:

1. Supposing the new consumer model, we tried to simulate more complicated diffusion process to observe the value alternation phenomenon and the value amplification phenomenon. We obtained the actual percentage of each type of consumers by an empirical consumer survey, and inputted them into the new simulation model. The results indicated that, if the market has more than 40% of technology-sensitive consumers,  the value-alternation phenomenon occured frequently and the demand side hypothesis was supported.

2. However, In this simulation, we only examined the competition between two competing technologies which did not qualitiatively change during the diffusion process. The qualitative change in one technology seems to be difficult to simulate in such a simple and general model, even though in a practical case, technologies may change qualitatively to some extent during the diffusion process. This point is the limitation of this simulation.

This is more exhasperating than an MBA class. Look at how the guy is reading that garbage off the slide too! Unfortunately, as anyone who goes to a number of presentations can similarly testify, this type of thing is all too common.  This slide took me three minutes to draw up against the clock and says the same thing:

Granted, it's no work of art, but it goes to show how much things can be simplified, which is the whole point of Powerpoint. Incidentally, the product looks like a highly sophisticated piece of technology with that kind of conversion rate, so some discussion about how it might be undermined by disruptive technologies should really be amongst that wad of material about 'qualitative empirical testing'.

Cheating: A Cultural Phenomenon

There's been a lot of discussion over the past few weeks about the ethics of MBA students since studies carried out recently found that more than half of all business school students admitted to cheating in one form or another at some point on their Master's degree course. There's an interesting article on the phenomenon by Market Watch's Thomas Kostigen:

The corporate scandals that have plagued Wall Street in recent history are setting a fine example for young students looking to make their mark in the business world: They are learning to cheat with the best of them.

Students seeking their masters of business administration degree admit cheating more than any other type of student, from law to liberal arts.

"We have found that graduate students in general are cheating at an alarming rate and business-school students are cheating even more than others," concludes a study by the Academy of Management Learning and Education of 5,300 students in the U.S. and Canada.

Many of these students reportedly believe cheating is an accepted practice in business. More than half (56%) of M.B.A. candidates say they cheated in the past year. For the study, cheating was defined as plagiarizing, copying other students' work and bringing prohibited materials into exams.

While the findings are indeed alarming, I think it's much more likely that that business school students are just being more honest than others in taking this survey. That possibility means that measures taken by academic departments may be wholly misplaced in curing the intellectual ailment inherent in the findings.

That's a big statement, but it makes more sense when you look at the overall picture. Cheating is not a practice confined to any one particular discipline (i.e. with inherently greater rewards in one over another), it's a cultural phenomenon which affects a wide-ranging level of students, from the arts to the sciences to law to business. While it's possible to argue - as this article does - that the recent exposure of corporate fraud may be influencing to some degree the students who decide to pursue MBA's, fraud is still as rampant a phenomenon in the sciences and in law as it is in business, it's just less spectacular - i.e. it doesn't usually involve billions of dollars - so it doesn't make for great headlines. Fraud, like cheating, is a cultural, rather than a generic phenomenon; it's driven by a societal value system which places enormous merit upon coming in first place and a shaming of coming anywhere else. In academia at least, business is just like any other discipline in most respects, unevenly sharing the spoils amongst the Magna and Suma graduates.

Where business is different - and this is where my argument that business school students are just being more honest in their answers kicks in - is that there's no inherent stigma in cheating in the way that there is in the law and science disciplines. Indeed, admitting cheating to some degree may even be seen as a desireable way to behave if the results paid off. This is not the case in law and science, where intellectual originality is prized foremost amongst other attributes, out of the necessary demands of those disciplines. A law or nuclear science student is therefore far less likely to admit to cheating in a finals examination than a b-school student, because of the serious shaming-effect it has on his or her intellectual integrity, which is critical to his or her ultimate success. In business, where intellecutal integrity is not so highly prized, one can admit quite freely to having dodged the odd goal-post if one has results to show for it.

If schools are serious about cracking down on cheating, then what needs to be remedied is not a stricter enforcement of anti-cheating measures by b-school academic departments, but a general paradigm shift by all academic departments on how they merit their elite. By placing such a huge premium on coming first, cheating - in any discipline - will always be rampant as students seek out the glory and favour of their peers and principles.

Risk Return

You can find quite a good round-up of globalisation and U.S. market forces over at Immodest Proposals, linking to some of my commentary this week (there are some links to other good posts too there):

At The Global Perspective, Daniel Harrison has a series of posts that celebrate the economy and take the fools who talk it down to task. First, Greed is Good, then a lengthy post explaining the core strength of the current market run-up, finally, a post showing how ridiculous Daniel Gross is being in Slate.

... Things could be better, but the way to greater prosperity isn't greater government control and isolation. Cutting bureaucracy and encouraging global trade will continue to fuel both prosperity, and an increasing quality in the goods available.

Imagine how crappy cars would be if our markets had been "protected" from non GM/Ford/DaimlerChrysler vehicles for the past 30 years (as many wanted to do in the late 70s)? I shudder at the thought of that world.

The globalization of production, and the increasingly direct communication between suppliers and demanders has improved the quality of life for everyone.

Our economy is far from perfect, but it's still the least protected, most global market in the developed world.

Some would claim that our prosperity and dynamism are unrelated to the relative lack of protectionism and isolation (compared to Europe or Japan anyway), but those folks are fools.

This is how I, and many rational business people the world over, think about the American spirit of embracing economic changes in the face of political risk. It's heartening to see. Growth in the economy has to start from the grass-roots level, and that means putting aside innacurate journalistic political bias and vote-hungry one-liners which instill false fear into the general population, and instead carry out a meaningful analysis of the potential returns. There's a good explanation of that up over at Fredd Kambo's blog:

So how do people, industries, and economies become productive? They do so by competing. When someone is out to have your lunch, there is an incentive to do things better, faster and cheaper. It was ever thus ... It is a counterintuitive truth (at least to those of us who are non-economists), but to prosper, it appears that we have to open ourselves up to threats.

Otherwise known as risk-return.

The Mindless Herd

When markets do a u-turn, you always get the few who say the u-turn doesn't mean anything, no matter what the numbers are saying. This is particularly true when someone has a political agenda to push. Daniel Gross at Slate (via Instapundit) is the latest culprit:

For starters, the Dow's success does not mean that stock-market investors in general are thriving, because the Dow does not well represent the whole market ... And because of its weighting system, the performance of a few stocks can have a disproportionate impact ... And serious investors don't even use the Dow as much of a benchmark.

Go and read his piece if you are so inclined; at least it offers some amusement for its sheer financial illiteracy. It's that 'weighting system' argument again, which bears and Democrats alike are all over - despite the fact that, as I said in a recent post, it doesn't really matter at all how the index is weighted when it's buying momentum you're trying to guage and when the total numbers of outstanding shares is much greater than the privately held ones.

This argument is logically flawed too. Re-read this line:

the Dow's success does not mean that stock-market investors in general are thriving, because the Dow does not well represent the whole market

So, when internet stocks were pushing enormous highs only seven years ago under a Democrat government, was it fair to say that it didn't mean investors weren't cashing in because the NASDAQ doesn't represent the whole market (and the NASDAQ back then constituted a much smaller part of the market than the Dow does now)? It's simultaneously impossible for ALL makets - property, commodities, bonds, all equity indices - to be up all at the same time, so no one who understood financial markets would make such a ludicrous claim. Plus, it's wrong. Capital spillage from the Dow has pushed the NASDAQ to a five year high.

On top of that, it's incredulous that Mr. Gross would put his name to a statement like 'serious investors don't use the Dow as much of a benchmark,' especially as he claims in the same post that 'The Dow has a long and distinguished history, and remains the most popular shorthand for the performance of the stock markets.' So - while remaining the most popular shorthand (presumably he means in the financial industry meaning 'serious investors') for the performance of the stock markets, 'serious investors do not use it as much of a benchmark'?

This is herd-talk again, and if anything, the whole self-contradiction should sound warning signals to those who are short right now. Or, dare I say it, banking on a Democrat take-home at mid-terms.

Housing Prices and GDP: A Factual Explanation

An awfully crass and ignorant piece of journalism from Jeannine Aversa, an Economics writer at Associated Press:

WASHINGTON (AP) -- Economic growth slowed to a crawl in the third quarter, advancing at a pace of just 1.6 percent, the worst in more than three years.

The latest snapshot of the economy, released by the Commerce Department on Friday, showed that the slumping housing market figured prominently in the economy's dramatic loss of momentum. Investment in homebuilding was cut by the biggest amount since early 1991.

Then later, after destroying the republican administration for causing this, some experts chime in with real opinions (despite the fact that apparently the Bush administration is seeking to 'downplay' the recent figures):

The Bush administration quickly sought to downplay the slowdown in economic growth.

"Everybody expected this. You have a combination of rising energy prices and also rising interest rates, and now you've seen a reverse on both," said White House press secretary Tony Snow.

Commerce Secretary Carlos Gutierrez said that latest GDP figures displayed the economy's resilience even as the housing market has tanked. "I would not panic about this," he said in an interview with The Associated Press.

Treasury Secretary Henry Paulson struck a similar note. He said the housing boom over the last five years was "clearly unsustainable" and that the housing market "needed to have a correction" by slowing to a more sustainable pace.

Democrats argued that the slowing in overall growth is evidence that the administration and the Republican-controlled Congress aren't doing a good job handling the economy.

"This report undercuts the President's claim that his tax cuts are working," said Sen. Jack Reed, D-R.I.

And finally, Ms. Aversa kills Wall Street:

On Wall Street stocks sagged. The Dow Jones industrials were off 45 points in morning trading.

"The economy's dramatic loss of momentum." I cannot believe I am hearing this right now.

Despite the Dow trading at record all-time highs, the NASDAQ trading at record five-year highs, stocks 'sagged' since the U.S. economy is slowing 'to a crawl'. This is wrong on so many levels. First of all, of course housing is off - markets have shot up the past few weeks like rockets. Where else is the money going to come from to fund equity investments other than alternative investments like houses, bonds (which are down too) and recent commodity gains? Investors are just becoming more bullish and more speculative with their capital by employing it in the equity markets. There's deposit accounts, of course, where the money can come from too, but this is hardly a primary source for capital relocation (why would you put $1 million on a deposit acount paying 3.5% interest when you can throw in a higher-rate T-Bill?).

Secondly, while private investment takes shape in an economy, productivity generally does not increase that much, largely because the result of the productivity is not seen until the private investment yields material returns. With investment only just beginning to pay dividends now, it's hardly fair to say that the U.S. economy is slowing 'to a crawl.'

Journalists do no service to the general investment education of the public not to point these things out, and they do no service to their own economies either. Instead you have to find it on a blog like this. Right now most of the media is scared to point out the latest bullish trends, largely because they fear getting caught and looking ridiculous if the markets plummet again. It's the herd mentality. Steer clear of the herd, and steer clear of overly-simplistic journalism.

NASDAQ at Five Year High

Just as I predicted, we saw a five year high for the NASDAQ yesterday, when trading on the market pushed it up to as high as 2,379.29 points before settling back at 2,379.10 on close - beating the five year by 4.10 points.

With rates looking unchanged - now standing at 5.5% - and billion dollar plus valuations for new unproven tech business models, the market scenario is looking more and more like an instant replay of 1994. All we need now are one or two big IPO's.

*UPDATE* October 28, 2006: Welcome Instapundit readers! Thanks for dropping by. This is a blog about organisations, markets, the global economy and everything in between. Feel free to take a look around, comment and of course, come back!

The Bull Is Back

From the charts, it looks like we'll see a five year high any day now from the NASDAQ - to top 2,375. Last week the market fell short twenty points of that benchmark, but with little resistance in the Dow Jones now, there's a strong chance that some of that industrial buying will pour over into technology.

For the second time in two days, Google has beaten its all-time high of $471.64 - on Tuesday the stock rallied to $484.64, closing at $480.78, and then yesterday the stock reached 488.50 before settling back on close at 486.60.

You don't have to be a genuis to work out that with this kind of momentum behind big tech, a straight leveraged bet on the index weaning out another 5% short-term is money lying on the table. The most interesting candidates in my opinion though are Yahoo!and Lucent.

Yahoo!'s earnings may be much, much weaker than Google's - it trades at a P/E in the low 30's on a market cap of about $30 billion against the latter's P/E of just over 60 valuing the search giant at nearly $150 billion - but the stock has taken a bit of a beating over comparisons with its  younger upstart.

This stock has split no less than 5 times, mostly 2 to 1 since inception - and one of those splits was way past the tech bubble. If big tech continues to plough forward with such mighty alacrity, it's only a matter of time before traders start looking in the bargain bin for P/E's under 40, and Yahoo! is a good contender. It's prescient that Yahoo! doesn't have all the acquisitions baggage that Google has too - even though market sentiment favours recent private equity buy-ups by Page and Brin, they are still one-way bets on unproven brands and semi-proven revenue models. Add to that that the revenue models are pure play with no hedge against the core business model. Also, say what you will, this is a company that's been public through the worst of it all, and there's still a lot of headroom in that chart.

Everyone hates Lucent, but getting in bed with Alcatel was smart - as telecoms markets become more standardised throughout Europe and the U.S.A., having one giant global reach makes sense. At a P/E of 20 and with a market cap of $11 billion, this stock is real bargain basement material right now. When tech picks up, telecoms tech is the next big driver and I think there's a lot of space for some creative earnings streams over the next few years if you're on the content and data side of the business.

Big tech is back, and so is the U.S. economy - it's one major reason the Republicans will storm home in the mid-terms.

Street Games

Like everyone else, I've spent the last few days trying to work out exactly what the DOW surpassing an all-time high of 12,000 points means for the markets. My conclusion is to follow my instinct, and in this case, my instinct is telling me to follow the numbers. The numbers always seemed to be pointing to a year 2012 record high for both markets, fueled by a massive second coming in tech stocks, and it's satisfying that now the numbers are starting to add up in the right direction.

A lot of the skeptics are pointing out - with some justification - that it's not the DOW meeting record highs that's a key indicator, but it's when the the junior NASDAQ follows suit that we should start paying attention. In part, argue the sketics, this is because of the misleading way in which the DOW is measured - as a total culmination of all stock prices regardless of market caps, meaning that an intrinsically smaller company with a higher stock price has more impact on the indices than a larger company with a lower price - and in part it's because the DOW is full of the heavy old industrial stuff which always grows over time anyway and that it's only when the 'New Economy' stocks start rocking and rolling that we know we're in the bull ring. Indeed, The Economist made this point only a couple of weeks ago.

But all this justified skepticism misses some major points, not least historic trends. First of all, there's not a lot of real net difference between a stock price moving up and and a market cap (a company's total value according to outstanding shares) moving upwards when a) the number of outstanding shares of the company's stock issue in play is much greater than the number of privately held shares (as is the case for nearly all DOW companies), and b) when you're trying to guage whether it's buying momentum you're seeing in the markets. Let me explain the second point with an example. If Company A is worth $100 a share but has a market cap of only $100 million, whereas Company B is worth $1 a share but is worth $1 billion, it may be easier to move the price of Company A's stock to $200 than it is to move the price of Company B's stock to $2, but this doesn't mean to say that there's not ferocious buying going on. If anything, it says buyers are becoming more speculative - and hence aggressive - with the returns they expect from their capital by courting assets with lower intrinsic valuations (assuming the comparative valuations of Companies A and B reflect to a reasonable degree their actual assets, which is the case with the DOW).

Secondly,  to dismiss any kind of buying of an industrial capital market as not meaningful enough to guage whether  we're entering a bull market or not is grossly ignorant of the way in which economic growth in an economy takes shape. The first companies to attract investment in China five years ago, it should be remembered, were not the fancy technology stocks  and souped-up financial vehicles that get the spot light in a raging bull market, but rather the industrial companies from which productivity stems. It's only natural for capital to seek out gains in material productivity before it seeks out gains in intellectual productivity.

Most importantly of all maybe, if you look at the correllations between the DOW and the NASDAQ it's impossible not to notice that the latter follow the former in almost acolytic fashion, particularly with regard to up/down swings:

Look at how in particular, in this chart going back to the first trading day of the NASDAQ, the blips in the DOW in 1987, 1990/1991 and 1998 all correspond magically with significant blips in the NASDAQ. Also look at how, after the 1998 blip a strong run can be seen on both the DOW and the NASDAQ. Lastly, and most importantly of all, notice that every time there's a pre-emptive greater spike in the DOW before the NASDAQ follows suit. This is simplistic, but the point is presceint and persistent: it would be the first time in history that the DOW makes a significant gain and the NASDAQ doesn't follow suit if the latter doesn't pick up.

In a presentation I gave earlier this year, I explained the process we are witnessing now this with the accompanying slide:

The last two boxes, "Asset-backed securities" and "Intellectual property" represent equity, the other boxes are their own suigeneric investment catagories. The red arrows represent large-scale and sudden capital departure, wheras the blue arrows represent a timely and more rational movement of capital. Post-2003, the departure of speculative capital in real estate to the equity markets has been a capital transfer that is in part responsible for the growth in the charts above. The most serious stage in the capital markets in terms of capital departure however is represented in the smaller red arrow, where speculative investors leave commodity speculation in order to pursue higher returns in the equity markets. For some time, as the illustration shows, speculators have been toying with commodity speculation supported by a "safety net" of bond-weighted (usually government and AAA) investments.

This is where hedge funds have so dramatically changed the investment platform. Because they are inextricably and comparitively performance-based, once one hedge fund leaps into the equity markets and shows gains, the rest tend to follow. But why pursue equities rather than commodities? Simply because once speculators have realised gains on a base commodity, the next obvious investment is in companies which are benefiting from the rise in these commodity prices. In investing in these companies, they are assuming more risk, naturally, but there's also a higher potential upside: just look at the comparison of the increase in the price of oil and the increases in the prices of oil companies. While oil has showed around 100% rise in price, many oil companies have shown returns of four or five, or in some cases, as much as fifteen times that.

The reason technology is so popular for venture capitalists is that returns are high relative to risk. Technology is certainly risky, but it's not a volatile business with absolutely unpredictable returns, and the market rewards the sector with generally high valuations as a result. From this model, there is certainly an indication that technology is returning slowly to the forefront of the investment world, and that at some point there will be a significant influx of investment towards the sector.

Eddie Elfenbein over at Crossing Wall Street, in a recent post, exemplified stages one and two better than I can here, with charts (which you can see over at his blog):

... the markets suddenly converged in mid-June. Except for a few strays, (there's) a pretty strong positive correlation (between capital exists in commodities and capital introduction into paper). This tells us that money was coming out of hard assets like gold and into paper assets.

And there have been tech stocks roaring their way through the past 18 months. Akamai is one such company. Google is another. The latter's performance is worth considering for a moment. Trading at 473.99 at the time of writing, having beaten Wall Street's expectation on Q3 earnings hansomely only a week ago, it's worth putting under the microscope. This is a company which made a 90% jump in Q3 earnings on the year to $733.4 million, and a revenue increase of 70% to $2.69 billion. While that sounds impressive, the company blew $1.65 billion of those dollars on Youtube, and unknown and untested brand only weeks ago. That's another six month's record earnings at the same level to make the acquisition profitable in absolute terms, without dividends, and without re-investment in its own business. And that's if the concept succeeds. NewsCorp bought MySpace on even more tenuous terms less than three months ago.

All this financing action looks very much like a replay of 1995/6, when Netscape and Yahoo! stacked up one-billion dollar plus IPO prices, except that's it happening in the form of trade sales rather than IPO's. That's predicatble enough. The tech bubble of the 1990's may not have endured, but the impression that the internet is a growth and medium catalyst for hundreds of industries didn't lose any lustre.

My guess is, despite Google's precarious revnue model, the stock spikes $500 before the year end, and a few more 'social networking' sites start charging precarious valuations based on their own one year busines models. That's one billion dollars for one year of relative growth. And when these companies find they can't attract their corporate trade-buyers, the next logical thing is to find VC's looking to cast-off their gains in the retail market. Or the VC's already financing this stuff will start to get bored with the lack of liquidity generally available in a trade sale. Or they'll just look for higher gains, from greater fools. Ridiculous or not, it's the trend of the market.

Last time round the argument was that rates had so far to fall that it couldn't possibly be a bubble. This time round the same argument is contsruable with commodity prices and lack of inflation. Whichever way you see, if you want to argue a five-year bull, the stats are there to make it believable, at least for a cyclicar five year term.

Let the games begin.

*UPDATE* October 28, 2006: Welcome Instapundit readers! Thanks for dropping by. This is a blog about organisations, markets, the global economy and everything in between. Feel free to take a look around, comment and of course, come back!

Greed is Good and DOW 12,000

As the Dow Jones makes history surging past the 12,000 mark yesterday, it's just too irresistable not to join in all the bonhomie and play back that famous speech delivered by the fictional Gordon Gekko (Michael Douglas - not that anyone needs reminding) in Oliver Stone's classic Wall Street:

There are still some amazingly relevant points in the speech, not least of all that "we're not here to indulge in fantasy, but in political and economic reality. America ... has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions." The solution al la Gekko? "Greed ... Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms - greed for life, for money, for love, knowledge - has marked the upward surge of mankind. And greed - you mark my words - will not only save Teldar Paper, but that other malfunctioning corporation called the USA."

It seems that Greed is still very much the vogue remedy for hard times. Saying that, let's not start counting to 36,000 just yet.

Senator George J. Mitchell in Oslo

It's not often America's powerful world leaders come trecking across the Atlantic to visit the Nordic region, but yesterday morning I had the privilege to attend a talk by Senator George J. Mitchell.

***

"If you let people go hungry and leave them with nothing, they get angry." Rune Bjørkevik, one of just a hundred guests to attend this morning's intimate conference with the Senator is expressing his view on global policy to the general agreement of the table. "The key is to try and figure out how to create something for everyone," he says.

"But it's not as easy as that," Lynn Kvamme, another guest interjets. "What do you do when one culture's way of doing business is different from your own? If you just create one global policy for an organisation you may miss out on the market altogether by setting standards not applicable in the host country in which you're doing business."

"I think the answer is you have to form your own moral code: as long as you never to do something which you wouldn't be happy to have represented on the front page of the Financial Times then that seems a pretty safe rule-of-thumb," I offer. The comment doesn't go down with too much effect.

"No - it's about hard skills and soft skills, and finding out how to use them with some kind of purpose," someone counters bemusingly from the other end of the table, switching the conversation language into Norwegian.

Held amidst the spenetic visage of the Grand Hotel in the heart of the Norwegian capital, just a stone's throw from Stortinget, the national parliament, the atmosphere at the conference is a peculiar hybrid between the compassionate global politics of one the world's first social-democracies and the hard capitalist opportunism inherent in the companies the guests represent. Present are delegates from Microsoft, Telenor, Fast Search and Transfer - Norway's notorious cocktail party, Champagne-swigging camaraderie of first class minds with just a little self confidence to go with - Xerox, Citigroup, and of course DLA Piper, the senator's own law firm, which is holding the event in conjunction with the American Chamber of Commerce.

The peculiar paradox of this warm left-leaning approach to cold corporate ambition could not make for a more perfect preclude to the Senator's own very eloquently delivered adress, "Global Challenges in the 21st Century".

***

***

“Senator Mitchell is a man who has dedicated his life to making the world a better place. The United States Senate would be better off with a hundred George Mitchells today.” So said Benson K. Whitney, the highly respected US ambassador in Norway when introducing his good friend to the stage.

It’s easy to see how Senator Mitchell became such an influential figure in US politics. He is a complex mixture between quite opposite qualities – softly-spoken but equally determined, relaxed but purposeful, eloquent but colloquial, business-like and at the same time very much the people’s man – but whereas these contradictions usually translate to hypocracy in many of his colleagues, on the Senator they gel together well. He’s a man for whom politics is more than just legislation – it’s the bedrock of life itself. Politics comes naturally to him, that much is clear, though he claims this wasn’t always the case.

“I have to confess I’m a little intimidated talking to this room on corporate globalisation, because most of the attendees here know a great deal more about it than I do” he starts out modestly. “But when I was thinking about this (before giving this speech), I thought back to my introduction to the Senate. I was just a federal judge at the time in Maine, and it didn’t occur to me that I would be asked to be Senator, so like everyone else, I turned off my TV and went to bed on Sunday night at eleven, wondering who they were going to announce as Senator the next day.”

Half an hour or so later he received a phone call from the Governor, asking him if he would report downtown so that he could be announced as the new senator. 

“Can I have some time to think about it at least?” he asked.

He was told – you have an hour. After discouraging words from his two brothers – who are famous state athletes – he was suddenly driven, he said, by this “insecurity complex” brought about by the sibling rivalry. Still, this is said in good humour – it is evident the family are close. 

Here’s a piece of trivia – senator Mitchell was the shortest-reigning senator to ever cast a vote – two minutes after having been sworn in. “That the first of many informed policy decisions I made as Senator,” he cracked.

And on his first night on the job he was asked to give a key-note speech to 3000 chartered accountants on “the tax code”, after all the others chosen to give the speech had cancelled at the last minute. “They kind of figured you would be free to do it,” he was told. When he protested that he knew nothing about the tax code, the response came: “well, you’re not going to get very far in politics with that attitude.” 

And so, a young Senator Mitchell delivered a speech on a subject he knew nothing about to some of the sharpest and most well-informed minds on it in the country – and that’s politics. And here he claims he is doing the same thing, talking about globalisation, but unaided by any notes, and as one of the global champions of many of the world’s most wide-ranging policies affecting globalisation, it’s clear this is modesty. In his final act as senator in 1994, the WTO’s last trade agreements were formed.

“But the vast majority of dislocation that happens to markets is not because of trade agreements but because of innovation,” he asserted. “The word (globalisation) has become a pejorative in itself in many respects. Expanded trade, too, does produce dislocation. While the advantages of globalisation are global, the disadvantages are local. 

“In Europe there were three major land wars with France and Germany as the main protagonists (in the twentieth century) – but in the past success of the Atlantic Alliance” this is now no longer a real possibility. “But today it’s  a nuclear  threat, and the number of terrorist organisations has expanded regularly, we face a growing competition for energy security,” he said.

“There is no act or policy which can deal with these issues at once – and just as we face new challenges that alliance has been under threat in the last years.

“That means we must be able to co-operate on military issues, but we must also be able to co-operate on non-military issues.” 

There are, he explained, different principles and circumstances that are relative to all – different religions and ideologies for example – but underpinning them all “there are economic problems.

“Without economic growth and the creation of opportunity there is no solution. The same is true in the middle east. Business leaders can be peace makers. There is nothing more important than opportunity in people’s lives.” 

It’s a point he is amply qualified to deliver, given his large corporate concerns at Disney, DLA Piper, and numerous other conglomerates. “You are not in business just for the profit of your shareholders – think instead of your role in creating jobs.”

 

Jobs

But what, I ask him, about all the blue-collar jobs going overseas? What kind of trade-off must a politician or business leader be prepared and willing to make at the expense of their own country to the betterment of other poorer ones? 

“We have to realistically recognise the enormous benefits while dealing with the disadvantages. We have to make it clear that it doesn’t mean turning back the clock and that this is not a unique situation – it’s not representative of trade agreements. We have to create skills and education to find employment that is more knowledge-based” and on a higher level. He concedes that this may mean less job security – but this is the global trend.

“Every society is filled with stories of people who achieve the pinnacle of success with no education – that will be rare in the 21^st century.” 

In every society, including our own, we have to see every benefit and disadvantage and weigh them up and within that, finding the opportunity, goes his argument.

“That’s the answer to the loss of jobs.” 

He gave an example, from Maine, his home state, where his mother worked in a textile mill all her life. At the time, there were 24, but now today there are none. Her children, he argues, were able to get into higher and more advantaged jobs through the education they received and the increasing growth of the economy in the US On balance, however, he doesn’t think this programme of education and transfer of skills has been done so effectively in the USA.

“The question is do we have the leadership, vision and determination to do it the right way. 

“The same is true in (drafting) economic policy – free-market economies require constant change; business agility is now essential to success. For someone of my age it’s almost unthinkable that GM could be close to collapse – but what works today might not be the right policy.”

In the next five to ten years, we must have “the willingness to accept and embrace change,” he said. He outlined the paradox between politics and business. “Political leaders are risk adverse … often it takes business leaders to make those changes.” 

Environment

How about, asked another member of the audience, environmental changes?

“It’s a profound issue affecting not just the quality of life but the issue of life itself,” he responded. 

“The reality for almost everyone in life” – in marriage, in raising children – “is we make the most important decisions based on less than scientific certainity.

“Is anyone here scientifically sure they married the right person? 

“Policy is made on less than scientific certainty – we have to be prepared to act on less than scientific certainty.”

For example, “we all know that at some point in history oil will be replaced by a new energy source – you can argue whether that’s in 50 - 500 years, but human ingenuity will have to find an answer. 

“The public in the U.S.is very hard to move – we have to arrive at a democratic consensus that the problem exists and then a democratic consensus on what has to be done.”

When senator Mitchell appealed to draft legislation dealing with oil and the environment, for nine years, the proposal was rejected; he couldn’t even get a hearing in congress. The President was against it, indeed, he said, everyone was against such legislation no matter how much he requested, pleased or begged. After a massive Exxon oil spill, within 90 days, the legislation was drafted and signed. 

“So it takes a significant and dramatic event” to draft this kind of legislation. “”The difficulty with global warming is that it’s slow”. Although it may not be scientifically certain, it’s pretty damn certain that the world is heating up due to polluting effects – and this should be enough to act now, he feels.

On energy security “the first thing we have to do is change our wasteful habit of consumption – one in eight barrels of oil is consumed on U.S. highways and we can’t continue like this. 

“We clearly can, must and will increase the fuel efficient standards of our vehicles. The Russians have plenty of gas and they will use that to pursue a number of objectives,” he added. “There are a number of long-range projects under research” – but first and foremost, there has to be the economic incentive for those in every type of business to seek alternatives.

And that point very well summarises Senator Mitchell’s point about policy – it is driven by economics, and without economic incentive, there is little sense in the policy. For a democrat, that's one hell of a statement.

Sound of Silence

One wonders just how neutral British media is upon glancing at the 'corrections and clarifications'  column in the Guardian last Friday:

In a Comment piece headed A storming send-off - but the silences show why he had to go, page 29, September 27, we said that Tony Blair's statement that a withdrawal from Iraq or Afghanistan would be "a craven act of surrender" was received by conference delegates in silence. That was not the case. As our "clapometer" recorded on page 6 of the same issue, the statement drew 11.44 seconds of applause.

As blog Harry's Place notes (via Instapundit):

Even if Freedland's (the journalist covering the event) hearing aid had malfunctioned for a full twelve seconds one might expect the reporter to have witnessed the massed palms of the delegates' left and right hands being brought together in the universal physical gesture of agreement and approval for the same amount of time.

Doing so, however, would have meant admitting that the view common among metropolitan journalists that Labour foreign policy is hugely unpopular with Party members isn't supported by the facts though.

Absolutely. It's almost an insult to the integrity of the paper to have this kind of 'oversight' under a corrections and clarifications byline. This is not just sloppy journalism, it betrays the fundamental law of news reporting - reporting the facts.

It is unfathomable that you could construe a twelve second round of applause into dead silence at such a key point in the speech without having some kind of agenda at play. And if something like that does happen to be a genuine error, then it doesn't say much for your reporting credentials.