Category Archives: creating value

Foreign land ownership

Foreign person? Foreign company? Foreign trust? Local company owned by foreigners? Local company owned partly by foreigners? Foreign company owned by locals? Local company owned by locals with debt finance from foreigners?  Local bank with foreign shareholders and repossessed properties? Local insurance company issuing policies to foreigners? BRICS bank? Foreigner married in community of property to local? Local living permanently overseas?

You don’t even need to look at this proposal being counterproductive, populist silliness.

Paris bans half all of all cars

Ok, only temporarily and the (almost) half that are banned change from day to day. A temporary increase in pollution levels has sparked the emergency measure.

I’m fortunate enough to live close to where I work with the wonderful MyCiti bus available as a genuine alternative to get to work. Imagine a world where I was paid (subsidised) not to use my car on particular days. Perhaps a combination of local government and employer-sponsored initiatives, with a scorecard and recognition or prizes or tiers of benefits for better green behaviour.

There’s so much more than can be done in this space and so much more that must be done in the coming years and decades. What would it take you to not drive your car to work?

Chinese debt a serious worry?

I’m not really that close to developments in the Chinese economy. It is a large, complicated beast that is quite different from our own. Over the last year or so I’ve heard more and more from people who generally speak sense that the debt levels in China and the awful investment projects used to show the appearance of a strongly growing economy form a worrying pair of forces.

House of Debt (a newish blog, seems interesting) has a post covering some of these risks to the Chinese and therefore global economy, with charts! I may post on these issues from time to time as it’s beginning to feel more and more relevant.

Tragedy of the Nutella

I’m not a fan of Nutella, but it seems students at Columbia University are.

The story is a little bizarre and, frankly, a little bizarrely written, but the message is interesting. Nutella is provided at Columbia University Dining Halls. Students can eat as much Nutella as they can (or at least, as much as there is) without paying any marginal cost.

As it turns out, the problem is slightly worse than that given it’s alledged that students are spiriting away stealing jars of Nutella from the dining hall to eat later. The actual theft or whatever they’re calling it here only compounds the problem.

The problem is the age-old Tragedy of the Nutella Commons. A good that has no marginal cost to any individual will be over-used to the detriment of all.  If everyone can let their cattle graze on the village common, pretty soon everyone will put their cattle on the common rather than on their own land, overgrazing the common and destroying the ability of the lucerne or grass to regrow and be self-replenishing.

As it is with our roads. The full cost of using the roads (road maintenance, new roads) isn’t borne through fuel levies of vehicle licences (particularly heavy vehicles) therefore additional funds are needed from the general income tax revenues and at the same time the roads condition deteriorates rapidly.

As a thought-provoking aside, if the villages held a lottery and gave permanent use of the village common to one villager, even though inequality will have been massively increased, average and total utility will be greater than if the villagers were to destroy the common through overgrazing.

Different types of predictions

As part of the run-up to my overview of my own predictions for 2012, I thought i should highlight why I bother at all.
Most predictions, most of the time, will be wrong. Crystal balls aside, it is nearly impossible to reliably, accurately predict future complex events. However, the process of rigorously considering what might happen, what could go wrong, what the drivers of change are – all of those are really useful.
But why then bother making ultimate predictions if the “process” is where the value is? As it turns out, making the final prediction is part of the process. Paying poker without money at stake is a pointless exercise; there are no consequences to poor play (be it luck or skill that was lacking).
Making that firm and final prediction is important to ensure the process was rigorous and not an off the cuff guess.
Finally, evaluating part performance can’t suggest whether the predictions are improving, whether they are consistently biased or whether the system is working.
So, most predictions are wrong, but some are useful.

Lexmark quits inkjets

Price competition with commodiised products is not a fun place to be.

Lexmark is throwing in the towell on inkjets and will focus on laser printers. This links to the story about HP and Dell struggling to make money on commodity PCs while Apple changes the market and the margins.

Michael Porter’s Five Forces are just as relevant today. If you have intense competition, with plenty of threats from substitute and many competitors you’re margins are on a one-way trip to negative.

The question for me is, should financial services be any different? How different can you really make the products, services and customer experience? Apple has done it where other computer manufacturers can’t see a way, so maybe it is possible in FS.


It may be time to pull out the old Milo Optimisation Post. It was trivial 5 years ago and it’s still intended as funny rather than serious, but the sad, sad thing is that the lesson still hasn’t been learnt in our airports and probably a range of other entities.

The security check point is a bottleneck. More specifically, the number of scanners open at certain rush times isn’t enough to cope with the arrival rate of passengers at the check point.

The bottleneck is the small number of open scanners. The bottleneck could be fixed and throughout increased by having more scanners. No amount of hurrying up the process to inspect tickets will change the bottleneck. No amount of directing people to stand in queues at each scanner will change the rate at which people go through the scanners (as long as there is always a queue at each of them). None of this changes the throughput of the sytem.

But it does mean that there are extra people employed to inspect tickets and extra handlers directing people to queues – these employees could presumably operate an extra scanner and massively increase throughput. This might in turn create a bottleneck somewhere else, but if that happens it shows that throughput has already been increased. It also presents an opportunity for the next stage of optimisation.

Income inequality over average income

In South Africa we have a major income inequality problem. It’s historical (accumulated wealth, accumulated skills) and current (disastrous public education) and isn’t going away any time soon.

The free market argument here is to forget about income inequality per se and focus on economy friendly, business friendly policies that will grow the entire economy and have the benefits trickle down to all South Africans. If we can only raise GDP enough, all our problems will be solved.

Which is patently absurd of course.

Market liberalisation and economic growth sometimes go hand in hand, but so does increased gearing and increased risk and increased income inequality. Just look at the US, where although GDP per capita has increase over the last two decades, the real incomes of middle class Americans have hardly budged. This is not the solution that SA needs.

But more than the argument that increase average incomes alone isn’t sufficient to increase lower income householder incomes, there is another view entirely.

Increasing country incomes doesn’t make us happier. As all boats rise with the tide, everyone’s expectations and comparatives change as well. Look at the old Eastern Block and now China – people don’t report being any happier even with a four-fold increase in average incomes.

It’s income inequality that matters first, and average incomes a distant second.