May 30, 2022 | Governance, Leadership
There is no situation that requires a decision that cannot be enhanced by asking two simple questions:
Is the information right?
Is it the right information?
These are different questions that often become confused.
An accurate piece of data is of no value if it does not relate to the question being asked, or is related to a symptom of the problem rather than its core.
Often it seems that people use data to back a point of view, and just because they have data, the critical analysis of the assumptions and methodology behind the data is not seriously questioned.
It also pays to closely observe who is asking the question, and their attitude to an unexpected or uncomfortable answer.
Charlie Munger, Warren Buffett’s brilliant offsider is credited with the quote: “In God we trust, all others bring data”. I think this is absolutely right, as far as it goes. You just need to ensure it is the right data, and you do not mistake the data for the outcomes of crystal ball rubbing, self-interest, or optimism.
Header cartoon credit: Gapingvoid.com.
May 23, 2022 | Governance, Management
Bureaucracy evolved to enable operations to be scaled as mechanisation started to slowly take over from individual effort in the 1800’s.
It enabled tasks to be allocated, completed, and managed where the expertise resided, rather than one person doing everything. That role remains vitally important to the productivity of the resource investments we all make.
It does not matter if the bureaucracy is a private one, or a public one, they are equally potent at working in their own best interests.
The challenge faced by the bureaucracies that dominate our lives, both private and public, is the advance of digital, and the ability for data to make routine roles redundant. However, the people who lead bureaucracies have not evolved at the same rate. They use the technology as a means of control, and expansion, not as a means to reshape the operations of the bureaucracy and risk doing themselves out of a job.
Not unreasonable, but they miss the essential truth that technology is just a tool, and like all tools requires smart trained people to use them well.
The problem they need to solve is that the disruption that is occurring is making these hierarchies cost heavy, inflexible, and unable to change. As a result, they are being ‘cleaned up’ by the organisations that are evolving without the overhang.
Don’t let yourself be a part of the ‘overhang”
Header cartoon credit: Gapingvoid.com
May 19, 2022 | Governance, Leadership
Every adult on the face of the earth has a set of biases deeply rooted in their brains. This is nothing to be surprised, ashamed, or confused about, it is the way we evolved. Our biases serve the purpose of freeing up cognitive capacity for more important, potentially lifesaving things, like the Fight or Flight response to anything that resembles danger.
Confirmation bias is one such cognitive shortcut. When we see something that we are familiar with, that confirms what we already think, we just accept it without analysis. Because it confirms to what we already believe, we accept it to be true.
We no longer live on the savannah where the rustle in the grass might be a sabre-toothed tiger, but the cognitive shortcuts that evolved in response to the need for instant recognition of that situation remain.
We use a host of these biases all the time in all facets of our lives, usually without recognising them.
Those who understand these cognitive shortcuts can use them to their benefit, and potentially our detriment. If someone can use a bias to elicit the response they want to some sort of stimuli, as in a sales situation, they can benefit, and those on the receiving end do not realise they are being manipulated.
The addition of the network effects of the web over the top of biases we all have has the effect of supercharging them. The social platforms particularly Facebook use this as a core part of their business model. Give people what they want and expect to see, and they will be increasingly committed to the view and the sources of ‘information’ on their view.
Over the time of this election campaign, we have seen the major parties put confirmation bias on steroids. Selected messages in selected places to selected audiences, seeking to confirm a selected response in the minds of the audience.
What a farce.
It is a graphic example of confirmation bias at work when what we need is thoughtful policy development and analysis as part of a robust strategy for the country.
Instead, we get this blizzard of psychologically driven tactical messages aimed only at Saturday May 21st.
I watched the Liberal Party ‘policy launch’ last Sunday morning. My penance for being so acerbic over the last months. Thankfully, both the treasurer, and national’s ‘leader’ were brief, but Scomo took 55 minutes of my life with a passionate plea to a packed house of selected Liberal party members for their vote. Presumably, he already has theirs, but what was interesting is that the whole thing was a zealot’s exhortation of a whole range of half-truths and outright misinterpretation of facts. Raw Confirmation bias on steroids for the packed house.
I wonder if any other swinging voter watched it, and had to run for the dunney as I did?
Thank heavens it will be over in a couple of days, but the hangover is likely to last for a while.
Header cartoon credit Chainsawsuit.com
May 16, 2022 | Customers, Governance
When a rule is made by some institution, seemingly in the best interests of the community, most citizens accept the rule and do their best to adhere.
This applies from the rules introduced by local councils to moderate litter, to the larger tax and commercial governance rules applies by federal governments.
Some rules are just ‘semi-rules’. The intent is to substitute for common sense, rather than attracting enforcement in the breaking of them.
Problem is that once you have a rule which dictates behaviour, any behaviour that is not explicitly outlawed becomes OK. That has led to armies of lawyers and accountants using unintentional loopholes in tax laws to slide through.
The wider impact is that the community ceases to consider what is ‘right and wrong’, substituting the question ‘is it legal: Yes/No’. If one of the accountants can make it seem legal, no matter how morally corrupt it may be, we now have the licence to go ahead anyway.
This is stupid, it has led to the erosion of the ‘moral compass,’ the sense of right and wrong that we used to impose on ourselves.
In addition, these rules become so complex that only experts can understand them, and mistaken misunderstanding is not seen as a defence.
Just consider for a moment our taxation regime.
Hugely complex, a great big pile of band-aids that applies only to those without the resources to exploit the gaps.
Even at the ‘semi-rules’ level this applies.
Last week coming up to some roadworks in my street, I slowed to accommodate the obvious cement truck coming out of a side street. There was a bloke with a sign that said ‘slow’ which I took to mean slow but careful, assuming the truck driver would respond accordingly. He apparently did not see the sign, slammed on his brakes, as I did as it became obvious that if I followed the clear instruction, I would not come out of it well. In addition, I copped a mouthful of extremely fruity language from the driver. Understandable, but in the circumstances, unwarranted.
Had the whole thing been left to common sense with no dozy sign carrier removing the need for common sense to apply, none of this would have happened.
In most situations where people are in a position to make a decision, let them. There will be errors, and mis-steps which will lead to learning, and attendant improvement. Providing a framework for decision making empowers people to do the right thing, offering a sense of responsibility and accountability they will not have in a highly regulated environment.
Substituting common sense, courtesy, and respect for others with formalised rules applied by institutions is part of what has led us to this state of perpetual anxiety and selfishness.
May 9, 2022 | Governance, rant
Following is the full version of the edited remarks published in Australian Manufacturing on April 29. I did the editing, as the following was way too long for the publication.
What is blindingly absent from this election campaign, and politics in this country is any recognition that an economy is a system. No part of the economy acts alone, each part depends in some way on every other part. They are interdependent. The entire system is the sum of the interdependent parts and depends on all the parts playing their individual role.
An economy is like a car, which we sadly no longer produce in this country. No part of a car can move you from point A to point B. It is only when all the parts are fitted together, acting in concert, that it has the ability to move. One part fails, and the rest underperforms at best, fails completely at worst.
We seem to think that we can add a dash of pork here, and a bit of pepper over there in an effort to buy votes, and bingo, all will be well. Utter nonsense.
What we are seeing currently is a confected tactical battle of hollow words backed by the opportunity to spend public money chasing the largess of incumbent government. What we need is a strategic conversation, where a wide range of very tough questions are asked, followed by even tougher choices. We need to have an informed and rational national conversation about those questions, and the resulting choices that must be made.
Nobel winner Daniel Kahneman coined the term ‘prospect theory’ which describes the way people value the prospect of gains and losses very differently. The pain felt by an immediate loss compared to the benefits that come from a long-term gain is multiplied many times. The reverse side of the coin is loss aversion, a remarkably powerful psychological impulse. We value the loss of something we already have far more highly than the value of something we may have in the future.
Both political sides use these twin drivers ruthlessly in an attempt to shape behaviour at the ballot box. It is a reasonable thing to do, when coupled with integrity and transparency, both notable only by their omission.
What we are seeing is the expenditure of the financial and intellectual capital of the nation, investment decisions left in the hands of institutions that we no longer trust based on the behaviour over the last 30 years.
What we need is for our leaders to build the political capital to be able to make bold decisions that change the economic and social landscape of the country.
The last time there was a genuine investment of political capital that could later be recovered, was when Howard risked his position when went to the 1998 election with the GST as part of his program.
Following are a few of what I believe to be the key factors which face the nation, but about which we will hear little, or nothing during this pork led competition for our votes.
Income Vs Expenditure. Our expenditure exceeds our income. This is not a blip in the graph, it is a long-term structural weakness. If Australia was a business, it would be broke. The analogy to the household budget is not an accurate one as the government has control of the money supply, but nevertheless, the piper must be paid. There is no sign of any acknowledgement of the debt, despite the current government using deficits as a stick to beat the labour party for as long as I can remember. In addition, there are none of the preparations necessary to build the productive capacity of the economy to repay this debt, beyond wishful thinking and modelling that uses questionable assumptions.
Education. We need to consider education in the broadest terms, not just the stuff you need to know to pass an exam, but the understanding to break a situation down into is component parts. First principals if you like, define, and understand the problem, generate possible solutions, test and learn, then implement and review continuously. Education is a multigenerational undertaking, not just something you throw money at and hope.
You do not need a degree to be smart. Some of the smartest people I know do not have degrees, and several others with multiple degrees are failing as baristas.
Our system has been bastardised over the years to accommodate fiscal and ideological demands. The result is a distortion in the allocation of resources and the increasing polarisation of opportunity for Australian kids. This is in addition to the conversion of education into a privatised profit centre. Now we have qualifications for sale, and an education system dependent on those sales for survival.
If we are to genuinely address the opportunities of the future, the State/Federal squabbles have to be sorted, and resources allocated to deliver that equality of opportunity.
The largely discarded for political reasons Gonski report, now 11 years old, provided a least a starting point for the school system. A similar exercise needs to be done for the tertiary sector, recognising that technical and academic education combined will deliver the manufacturing and operational skills needed for future productivity improvement throughout the economy.
There also has to be the political will to implement, without which, we will continue to stagnate.
Climate change. The science has been in for 30 years, it is a generational challenge, and should not be a political football tied to short term politics in a few seats. Despite the scathing third report by the IPCC (International Panel on Climate Change) released the week prior to the election being called, the silence has been deafening. This is despite increased recognition of the impact of Climate change by the voters. Meanwhile, there are a cohort of independents threatening mainly formerly safe Liberal seats whose priority is climate change, along with integrity in public life.
We need to be thinking differently about the term ‘climate change’. It is too narrow a term, implying we just need to be concerned about the impact of CO2 on weather, and the human and capital impacts of those changes. Instead, we need to be thinking about the challenge more holistically. We humans are just a small part of the ecosystem of the planet. For millennia we had no appreciable impact in the balance between what we took out, and what nature was able to put back. Suddenly, that changed, and we now take out of the planets ecosystem far more than the capacity of the system to replace it.
There is nothing we do that does not come from nature. The oxygen we breathe the water we drink, the food we eat, the materials we use, all come from nature. We are part of the planets ecosystem, whether we like it or not, and we are consuming the resources of the ecosystem at an unsustainable rate. Think of it as you would a balance sheet. On one side you have assets, on the other liabilities and equity. When your assets grow faster than your liabilities, you add to the store of equity. When it is the reverse, you deplete equity. The tipping point is when your equity is gone, and you can no longer sustain the difference between the rate in increase of liabilities over the production of assets. At that point you are bankrupt. We humans have been depleting the assets of the planet unsustainably since the beginning of the industrial revolution, and the rate at which the depletion is happening is increasing. At some point in time, the music will stop, and subsequent generations will inherit an unwinnable challenge.
Apolitical Policy advice. The politicisation of the public service is a problem. The government does not get frank and detailed policy advice anymore. Instead, they are paying consultants, who are in effect paid to tell the government what it wants to hear in relation to policy, while the public service has been relegated to the role of implementers.
Expenditure Productivity. Fiscal debate, such as it is, has been reduced to how much has been spent, with no reference to the return for that spending. We need to increase productivity of public revenues radically or the reduced number of taxpayers in future will be unable to shoulder the burden of an ageing population. The increased demands for the government to look after people down to the minor details which should list as ‘personal responsibility’ will become overwhelming. Promising no more taxes is not sustainable unless coupled with explanations of how the productivity of the current expenditure will be radically increased.
Governance. The parties cannot rule themselves, how on earth can we, the electors believe that they can deliver for the country. Besides, to use Paul Keatings immortal phrase, they are ‘unrepresentative swill’. Both major parties have about 60k members. Such small and skewed numbers are hardly a representative sample from which the political leadership of the place should be drawn. Instead of having people in parliament who genuinely wish to contribute, who have proven themselves worthy elsewhere in the economy, we now have politics as a career. Smart youngsters with degrees, mostly law, getting jobs as political staffers of various types, and progressing by proving only that they are effective political mechanics to the point where they are endorsed as candidates, and they keep trying until they land a spot. Alternatively, they can be shovelled into a range of highly paid roles that are appointed by political fiat. No experience beyond politics required.
As a director of companies, I am subject to the Corporations Act 2001. The act amongst other things, outlines the obligations of directors to exercise their duties in good faith, and in the best interests of the shareholders. In other words, do not tell lies, deliberately mislead, or act in a way that is not in the shareholders best interests. Both sides of the house fail on all counts. If they were also subject to the provisions of the Corporations act, half of them would be holidaying at Long Bay.
A further pressure on the governance performance of current institutions that has long term impacts on the economy is in the management of R&D expenditure. Our federated and short-term driven system works against the focus necessary to deliver strategic outcomes. Billions of dollars are thrown at the wall of grant programs, most of which do not deliver outcomes that add to any sort of ‘vision’ for the Australia we would like to hand to our grandchildren.
CSIRO used to be a relatively apolitical and deep reservoir of scientific capability that was able to collaborate and co-ordinate across sectors and around the nation. That was before it was progressively gutted and politicised over the last 30 years.
The Labour party has just announced as part of their election platform a new defence research agency similar to the successful American DARPA model. It would make more sense to re-fund and expand the remit of CSIRO, rather than starting again and risking duplication and turf wars.
Institutional integrity. We should not need an integrity commission, but sadly we do, desperately. It would appear to the casual observer that the adage that power corrupts, and absolute power corrupts absolutely is at work. It needs to stop, so the public can have some level of confidence that the taxes they pay are not being wasted, and worse, diverted.
Democracies only work when there is trust in the institutions that run them, and by inference, the people in those institutions are trustworthy. The fact that trust is so low is an alarming indicator, something the government should be addressing, both by its own behaviour, and by increasing the level of transparency and accountability. Unfortunately, the perception of the behaviour of governments is very low, and the refusal of the government to sensibly address the question of an integrity commission with teeth makes us assume the worst. Remember the 26 times the current government voted against a royal commission into the banking industry? When dragged kicking and screaming to hold it, the depth of the avaricious and morally bankrupt behaviour revealed was breathtaking.
The end of cheap money. The inflation figures released on April 27th put the annualised inflation rate at 5.1%, up from 3.5% at the end of the December quarter last year. While it may bounce around given the volatility of fuel and food prices, the trend is very clear, and the current election driven lucky dip of spending promises will not help.
No matter the rhetoric, and short-term giveaways that come with an election campaign, Australia is in for a rocky ride, and it will not matter who wins on May 21, the impact will be felt in every corner of the economy, and by every Australian. Most currently in parliament, and those who realistically aspire to be there after May 21 have not been in a management role in an inflationary surge. That is a very dangerous situation, it is easy to make the wrong call through inexperience.
Inflation led cost cutting
When you are in the red, as we are, the temptation is always to cut the discretionary spending. In a corporation that leads to reduced advertising, not replacing employees who leave, sell and lease back assets, in other words, cashing in on the things that will generate the cash in the future. Governments struggle with this as so much of their spending is baked in, and subject to the swings of the economic cycle. Nevertheless, we should be increasing what we spend on education, R&D, and those future cash generators, and aggressively look to reduce institutionalised waste to fund the increases. Unfortunately, this leads to the difficult choice of accepting short term pain in the expectation of long-term gain, not usually a politically palatable choice.
Cyclic mismatch. Election cycles do not match with those that run the rest of our lives. Generations come and go, scientific discovery to product commercialisation usually takes 20 years or more, the constitution has had only 8 amendments since federation in 1901, the last successful one in 1977 relating to the relatively benign question of the retirement age of judges. The world has changed a bit since 1977, and our strategic framework is almost unchanged after 121 years. We must wonder if the constitution is still fit for purpose. There is not much any government can do about this beyond acknowledging the reality and being prepared to invest in the long-term health of the economy by building intellectual, social, and educational resilience. However, we should be able to have an informed debate about the nature and limitations of our ‘institutional guardrail” the constitution, and be prepared to make changes as necessary to meet the challenges of the 21st century
Header cartoon credit: gapingvoid.com
May 8, 2022 | Governance, Personal Rant
Last Tuesday’s prime rate increase has been positioned as a disaster level cyclone by the opposition, and an inevitable but minor storm in a well-managed teacup by the Government.
Which is it?
Anyone who has been using their brain over the last months recognised there would be a rate rise, soon.
House prices have surged, supply chains are broken, energy and telco prices are ramping up, there is a not so little war going on in Europe. China is locking down millions in response to Covid outbreaks, and we, along with the rest of the developed world have been printing money like Darcy Duggan on day leave.
If ever there was a recipe for an inflationary breakout, this is it.
Unfortunately, or fortunately, depending on your point of view, we are in an election campaign characterised by ever more expansive promises to spend more in pursuit of a few votes.
Who now cares about the rhetoric that previously dominated the political agenda: Debt and deficit? Seemingly the current government has had some sort of shape-changing conversion on the road to Kooyong that makes all that former fiscal rectitude irrelevant.
Meanwhile, the opposition, while squarely blaming the government for the inflation rate is determined not to be outspent in the vote buying contest.
All this is happening while teachers in NSW strike for better pay for the vital job they are doing, Nursing home staff are as rare as non-drinkers on Anzac Day, and hospital staff are exhausted after two years of intense pressure on them while listening to politicians tell everyone not to worry, everything was under control.
There has been a wholesale replacement of fact by opinion and belief.
A fact is repeatable, its veracity can be tested, and the impact of changing input variables measured. A belief by contrast cannot be put to the test, but for some it becomes an absolute truth that is beyond dispute, and any disagreement is treated as some form of advanced blasphemy.
At some point, the piper will have to be paid, and ignoring that simple fact only makes the day of reckoning more painful.
Whichever party wins on May 21, they will inherit a generational mess of its own making. Trouble is, we, the voters, will be paying for it while politicians and by then former politicians will be running for the publicly funded sinecures provided
Header cartoon credit: the great Leunig
