The Return Of Big Brother!

We have speculated in a previous post that one of the features of the New Normal would be a greater involvement of Government in the working environment (see post). Originally we thought that this would be through politically inspired lending criteria deployed by the banking sector of which most Governments now own a greater part.

It now transpires that Governments are willing to intervene in areas beyond the past boundaries of interference, to become active in matters that formerly they would not have. For example, the resignation (sacking?) of Rick Wagoner at General Motors serves as a good illustration of this point (see story). It seems that Mr Wagoner had become too associated with the failed GM business model and was too unwilling to adopt the new agenda that he became an unacceptible CEO of GM for President Obama. The story implies that Mr Wagoner's resignation was a pre-condition for further government assistance.

This raises an interesting point of company law. The CEO is normally appointed by and accountable to the shareholders of a company. It now appears that, if the company receives public bailout money, the political masters have the right of veto over the decisions made by the shareholders as to who the CEO ought to be.

One could argue that as public money is being used to prop up the company, the public - through their elected representatives - ought to have some say over how that money is spent. This argument has traction, but loses its force in a globalised world. Is GM an American company? It is owned by shareholders from all over the world. It operates on a global level. It is receiving public bailout funds from more than the USA. So ought the American President hold such an important veto?

For shareholders from outside of the US, this is a de facto nationalisation, only without the necessary legislation and, more importantly, compensation. It will be interesting to see how the Chinese stockholders of GM respond to this, as the US sends out the message that it is not open for business and that it can be quite an unreliable trade partner by not keeping to its own rules when they prove to be inconvenient. In many ways, this is a blow to globalisation and narrow victory for the Neo Nationalists (see post).

Neo-Nationalism

Almost a year ago we wrote anout the New Nationalism as a counter-poise to the process of globalisation (see post). This is an area that we have revisited quite often in recent weeks. In a recent report, the World Bank has highlighted how 17 of the G20 nations have imposed impediments to trade, despite promising not to do so at the G20 in November 2008 (see story).

As we prepare for the G20 in London next week, we can only see this as a worrying trend. Trade barriers tend to give rise to retaliatory trade barriers, as the current tiff between the US and Mexico quite ably demonstrates. The primary losers are those consumers behind the trade barriers who have to pay more than necessary for their goods and services. And yet we all lose as well because the total amount of trade within the global system will shrink.

We are now witnessing a struggle between the forces of integration and the forces of separation. It is too early to say which will predominate. We can only hope that common sense will prevail to our mutual advantage. The problem is that is hasn't so far!

Could 3 Million Be Possible?

For some time, I have been sceptical about the claim that unemployment could reach 3 million this year. I am now starting to entertain doubts about my view. The February figures were published last week (see report), in which unemployment rose by 138,400 to cross the 2 million mark to stand at 2.03 million. The figures contain a couple of sinister aspects.

On the one hand, the increase in unemplyment for the three months to February was 290,100. If annualised at this rate, there is every chance of seeing unemployment at 3 million this year. Equally, the rate at which unemployment is rising - the second order derivative for the really nerdy (the rate of growth of the rate of growth) - which also sets off alarms.

It is quite likely that employers had been waiting until the end of the year to see if trading conditions improve before laying off staff. Conditions haven't improved and those staff were laid off towards the end of 2008 and in January 2009, to start appearing in the figures for February. We can but hope that there is a large element of the increase that is once off, and that the rate of increase next month will fall back again.

Of course, it may not. As I write this piece on Lady Day, the quarterly rent for most commercial lets has fallen due. Poor trading conditions in the high street, along with squeezed cash flows, are likely to lead to a number of rent defaults that are much higher than usual. If so, then another twist to the downward spiral of retailing is likely to occur in the next couple of months.

There are those who believe that we are touching the bottom at the moment. Let's hope that they are right. However, from where I sit, there is still a lot of pain in system.

More On Futurists ...

A number of correspondents have asked me to clarify what I am saying about the three time horizons and weak signals (see post). I have produced a chart that might help to explain this:

What I am suggesting is that in traditional practice we consider three time horizons, whereas there are, in fact, four. The fourth – that of weak signals is not normally considered because it is subsumed into our consideration of ‘the long term’. However, what recent events have done is to challenge that presumption because, even in the short term now, we cannot presume that our underlying business model will be stable.

I suspect that this may settle down again once order is restored to the financial system. However, in the meantime, organisations may need to resort to scenario planning in order to generate a range of budgets. In part this is a reflection of the degree of risk and uncertainty that exists in the current environment. In part it reflects the chaotic systemic change that we are all experiencing.

To extend a previous argument (see post), if a lesser reliance can be placed on financial forecasts, then this would in part explain the reluctance on the part of the banks to lend to businesses. In order to restore normal lending conditions, a necessary (but not sufficient) condition would be to stabilise the business environment to allow a degree of certainty to return to financial forecasts.

In Praise Of Futurists

I have always thought of a continuum in organisational planning. There are three key time horizons – the short, medium, and long term – each of which has their associated planning techniques. We may discuss how long each of the time horizons might be - Is the short term one year? Or is it three years? Or is it even five years? There is no clear answer to this question. However, a more productive line of enquiry might be to consider what distinguishes the short, medium, and long term.

In the short term, the basic business model is fixed, as are the available number of factor inputs. When you think about it, there are problems with varying the scale of an enterprise. On the upside, it takes time to recruit staff, premises have to be found, and systems have to be integrated. On the downside, it takes time to make staff redundant, to unwind a position regarding premises, and to dispose of systems machinery. This is why budgeting is a useful planning tool in the short term – it works on the presumption that the scale of the operation and the basic business model is fixed.

As we move into a future horizon, the scale of the organisational undertaking becomes more fluid. In the medium term, whilst the basic operational business model remains fixed, the available number of inputs (the scale of the operation) can become variable. This is the world of the trendspotter and the horizon scanner, where we can look sufficiently far enough into the future to derive valuable insights, but without disturbing the comfort of the underlying business model that would represent a complete paradigm shift. This is the area inhabited by the strategic planners.

Moving further into the future, we can start to explore the consequences of not only the scale of operations changing, but also the impact of changes in the basic business model. This is the world of the scenario writer, for whom nothing is fixed and for whom everything may change in a plethora of alternative futures. This type of thinking does require an ability to grasp a change in paradigm, and is not one that comes readily to most organisations. What passes for scenario work is often horizon scanning in disguise.

There is also a fourth possibility – one that has been more of a theoretical nature until recent times. There is the case where the scale of operations is relatively fixed, but the basic business model is variable. This is the world of weak signals of an emerging future. At face value, this looks like a form of trendspotting, but, on reflection, it is the shift in the business model that makes this activity different. Much weak signals work is in its infancy at the moment, but it is definitely an up and coming area of futurism.

And so we have a continuum – the short, medium, and long terms – that has an associated continuum of tools – from budgets to trends and on to scenarios. Until recently, this has occupied a fairly stable pattern. The current recession is shaking up that pattern. The fixed nature of the short term is being challenged. The changes in the economy are calling into question many of the axioms that are implicit in current business models. For example, an SME client last week reported anxiety over that fact that the bank through which they conduct business might go bust. The net result of this anxiety is to increase the background level of risk and uncertainty in the organisational setting, which is having an impact on the ability of organisations to plan ahead.

The certainty that is needed for effective budgeting is not present at the moment. One response of organisations is to continue with the creation of the works of fiction that are called budgets. Another response is to take the view that planning is a haphazard activity and to abandon any serious attempt at planning. However, as reported in The Economist (see article), a number of organisations are embracing the current uncertainty by using the long term technique of scenario building for the short term purpose of constructing budgets.

Of course, there are those in the profession who would see the irony here. The Economist famously lambasted the profession in an article on the future of futurology a couple of years ago (see article). In an interesting twist, it would now appear that the techniques that were ridiculed in 2007 are in great demand in 2009. There is a saying that every dog has its day, and it would appear that the day of the futurist has come.

At a time when the business world needs to better deal with the issues of ambiguity and uncertainty, here we have a profession that is devoted to reconciling those issues. The proper use of future studies can allow organisations to plan better. It can allow organisations to identify and manage risks better. More importantly, it can also allow organisations to identify and appraise opportunities as they arise in the shake out of the economy. A good futures project will prepare for the upside as well as preparing for the disasters that befall us.

The case for the futurist has rarely been as strong as it is today.


© The European Futures Observatory 2009

It's A Bit Of A Puzzle

The question of inflation has been exercising my mind again. As I previously wrote, the pressures of the FEW (Food, Energy, and Water) are still driving the engine of inflation (see post). The good news is that petrol prices have stopped rising. Locally, they have stabilised at 87.9p per litre.

The bad news is that food prices seem to be racing ahead. A recent report in The Times informed us that, despite inflation falling, food prices are rising at an annual rate of 9% per annum (see article). This confirms what I am being told by those who go shopping, but contradicts what I am being told elsewhere. According to The Economist, food prices on the global markets have fallen by 6.4% in the past month, and by 34.9% in the past year (see source).

The obvious question that arises is how prices can be falling globally, and yet not be reflected at the point of sale. Some of the anomaly could be explained by currency movements (the Pound against both the US Dollar - in which most non-EU imports are priced - and the Euro - UK food prices are denominated in 'Green Euros' under the CAP). Whilst being sympathetic to this argument, one cannot but wonder if we are seeing another market failure in action.

The UK food market is dominated by an oligarchy of food giants, who have been accused of price fixing for years. Their profits have steadily risen for years against a backdrop of falling farm incomes. Is this how the food element of the Age of Scarcity will work itself out?

Filling The Gap

We recently wrote about how the Arctic is rapidly becoming one of those areas to watch in geopolitics (see post). Within the context of the Arctic, there is an unresolved issue regarding who exactly owns and controls the area north of Alaska, Canada, and Russia (the'Gap'). As this is an area crucial to the two key shipping lanes, and one which contains a good deal of readily available energy deposits, we can expect the resolution of this issue to attain a certain degree of importance.

What is interesting is that there is a framework to resolve these issues - the UN Convention on the Law of the Sea (see background article). Unfortunately, the US has yet to ratify the Convention - allegedly on doctrinaire grounds - which means that the other Arctic powers are carving up the territory without the participation of the US.

This is now likely to be something of a test for President Obama. Can he deliver multilateralism? Can he deliver the rule of international law? Is he willing to protect US interests in the face of right-wing obstruction at home? A thoughtful article in Foreign Policy provides some insight onto these questions (see article).

The warning is there to see. The UN will provide the legitimacy for the Convention, and if the US is not at the table, it will have to accept laws made by others. It would be a shame if the right in the US were to make the Arctic a Russian lake by obstructing a process that could be used to restrain Russia.

Clinton Fumbles, The Awkward Squad Score!

We have previously introduced the idea of the awkward squad (see post). These are the European nations that are likely to provide resistance to the Obama agenda. The UK is likely to oppose on economic policy, Germany on foreign and military policy, and France in the area of diplomacy. To achieve his agenda, President Obama will have to act with great subtlety to woo the awkward squad.

It is a shame that he appointed Hillary Clinton as Secretary of State. Mrs Clinton still occupies the mindset of the 1990s, which is starting to damage the Obama Presidency. As an example, there is a new framework for tripartite security talks between the US, Pakistan, and Afghanistan (see report). The problem with this is that the mission to Afghanistan is a NATO mission, not a US mission.

It sends the signal that the US is not willing to work in conjunction with its NATO partners and that the role of the European nations is to provide troops for the US to use as it wills. The response from the awkward squad is one that is unwilling to co-operate with the US. For example, Germany has refused to allow the NATO Response Force to be used to provide security during the forthcoming Afghan elections (see story).

None of this is helpful to President Obama, who needs the awkward squad to provide more troops to Afghanistan. If they don't, then the US will become even more bogged down in a war that cannot be won. At a time when the European allies need to be engaged, the Clintonista swagger of the 1990s is particularly unhelpful.