We Need A Lot More Little Things To Go Wrong

As Nietzsche said (I always wanted to begin a post that way), "That which does not kill us only makes us stronger."  Or as my first boss was fond of saying, "We only learn when things go wrong."

Both are right. But implicit in both sayings is survival and survivability. 

Survival of the fittest, building strength through adversity - this is how species evolve. It's what makes Kipling's poem "If" so stirring. It's the difference between all those 'best practice' presentations at corporate off-sites (let's be honest, they're about rescued screw-ups) and the whirring of shredders at Arthur Andersen. It's what turns complaints into fixes, features and products instead of fines.

Yet all the research suggests it's impossible to 'pick winners'. In fact almost all significant events in our history are Black Swans - surprise events that have a huge impact and which we rationalise by hindsight. We have no real idea which ventures will succeed and which will not until the facts and figures emerge. And even then we don't know how sustained that success will be. Indeed, sometimes we don't even know what success looks like, expecially with not-for-profit projects or organisations (including government departments - and the European Commission). In his book "Adapt" (a veritable bible on the importance of survivable failure) Tim Harford explains the need for built-in feedback to distinguish success from failure in such contexts. 

But, hey, the Euro had built-in entry criteria, and they were ignored because the politicians refused to countenance failure as an option.

And there you have it. Above all, as Harford emphasises, the critical thing is to accept the risk of failure, but to ensure that such failure is survivable.

Our political and economic leaders don't grasp this any more today than their forbears did when negotiating the Maastricht Treaty. Because they see it as their job to protect 'the system'. But by continuing to back the same institutions, the same systems, and essentially replicating and deepening the same old regulatory regime, they're merely resisting the tide of evolution. Rather than cutting their losses, they're busy hurling the big dice again, and again, and again like so many casino junkies.

It's impossible to mix too many metaphors in a situation like this. So here's another: if Necessity really is the mother of Invention, then we have to get her to a fertility clinic.

We need more trials and more errors of the survivable variety. In other words, we need a hell of a lot more little things to go wrong before the big things start going right.

Maybe we should make it our leaders' job to promote innovation instead of protecting the system?

Travels In The Blogosphere

My humble apologies for letting a week go by without a word from the Pragmatist. But while taking care of business, I've at least been charting my travels in the blogosphere on Twitter. And The Fine Print records a few sceptical and irreverent reactions to:

• the eagerly awaited judgment on MasterCard's multilateral interchange fees (MIF); and

• the latest draft of the Financial Services Bill.

You might also keep an eye out for a guest post on the Nutmeg blog.

Just when the sun is shining at long last...

One Simple Way To Stop Kicking The Can Down The Road

We all know with calm certainty that it each European economy functioned without the Euro. 

We can argue that Germany has done much better under the single currency, and that Greece has always been a basket case whatever the currency. But these economies functioned. 

Whereas the sovereign debt crisis is driven by complete uncertainty about whether the 'Eurozone' economic union will ever be sustainable, and the conviction that some economies are definitely doomed without their own national currency.

In this situation one might have thought the ultimate route to relative economic stability would be to set a date by which the Euro will be withdrawn. Everyone would then unite to deal with that fundamental economic fact. 

Some might argue that the decision to form the Eurozone also encouraged unity and stability, as should efforts to maintain it. Yet it's obvious that including weak economies in the drive towards monetary union created moral hazhard, driving national fiscal and banking sector irresponsibility to the point of fraud. And there's plenty of evidence on the streets and in the polls to demonstrate that the maintenance efforts are divisive rather than unifying. It's difficult to see how a decision to return to national currencies would drive the same behaviour - in fact it may eliminate it entirely, or at least reduce it to manageable, local levels where the national politicians and their banks would be stuck with the consequences of their fiscal profligacy rather than everyone else. That may explain why some resist, while it's in the job description of European officials to support the Euro in service of the single market fantasy policy.

At any rate, there's one simple way to stop the politicians 'kicking the can down the road'. 

Remove the can. 

Image from JMK Advisors.

The Politics of Cash

Over on Tomorrow's Transactions, Dave Birch quite rightly questions the assertion in the NY Times that cash is somehow important to "protect our civil liberties by preserving some untraceable payment method." Few people are obsessed with anonymity. But at the same time Dave applauds the notion that "Cash-based economies harm the poor by heightening the risks they face when carrying money and fueling government corruption and inefficiency."

I should declare at the outset that I'm a great fan of electronic money and online financial services, and I advise various clients in the payments and online peer-to-peer finance space.  But I also believe that innovation doesn't 'kill' anything - the new must coexist with the old. Calling for the abolition of old services brings the laggards out in force, sometimes to comic effect. That's one reason you won't hear me calling for the end of fractional reserve banking.

But the 'death of cash' is not a question of civil liberties or somehow liberating the poor from a cash economy. Many people - the so-called 'unbanked' in particular - still see cash as the best mechanism for maintaining control over their finances. What some people see as higher prices for not paying online or by direct debit etc, others see as a wise investment in a payment method that prevents them spending money they don't have.

 

Research commissioned by the Financial Inclusion Taskforce found that the 3 million British adults without a bank account (the 'unbanked') do not consider themselves as disadvantaged by not having bank accounts, cheque books and debit cards. They do not see much use in an ATM, cheque book, credit card or debit card because they don't tell you your balance until it's too late. A text message confirming a payment you just made is laughable.

And if you don't find your bank or its services trustworthy or useful in the first place, why would you give them all your personal details so they can text your bank balance to your phone?

Most importantly, the same research found that most of the so-called 'unbanked' are actually in control of their finances. They put cash in specific jars to cover certain expenses. They can readily see at any time how much is in the jar, so they 'always know where they are' in setting money aside for energy bills and so on. 

I agree that loan sharks and others may prey on this form of financial control. But it's not as if access to a bank branch, internet banking or direct debit has saved the rest of us from financial charlatans or the erosion of civil liberties...

Long live cash, I say.

How Cheetahs Can Leap The Digital Divide

ManyPossibilities; Hat-tip Confused

Confused of Calcutta explains that African entrepreneurs can cross the 'digital divide' by leap-frogging the legacy compliance issues that strangle blue sky discussions in western corporate headquarters and start-ups. 

There's certainly some serious infrastructure being put in place. Is it merely a coincidence that the two most popular posts on this blog by some distance are: 

Does Investment Beat Donations in Sub-Sahara Africa?

The Cheetah Generation: Will Facilitators Grow Faster in Africa?

The latest buzz seems to be about a natural resources boom in Mozambique, which the country stats suggest will need some serious investment in infrastructure, including everything from healthcare, water utilities, roads, housing and schools to remittance services. Time to brush up on your Portuguese...