Monthly Archives: January 2017

Merry-go-round

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Merry-go-round

Suppose you are a smart person with considerable experience of the world. You have worked hard and sacrificed much for a stellar career that now has you among the CEO ranks. One of your rewards is a seven figure a year salary that puts you just shy of the top 250 CEO earners on 2014 numbers.

In a most peculiar turn of events in 2016, you go from being the CEO of a global environmental consulting firm to running a major power corporation and then, just six months later, you take over as head of the largest a private health fund in the country.

Not in a million years. Such career shifts are impossible in the real world. Consulting firm to energy company maybe. Even energy company to health fund is possible. But not from environment to industry to health in six months. Impossible.

Such career shifts are impossible in the real world. Consulting firm to energy company maybe. Even energy company to health fund is possible. But not from environment to industry to health in six months. Impossible.

Impossible.

Unless of course, you are a minister in the Australian federal government. Then you can make the change from Environment minister to Industry minister to Health minister in a jiffy. In your latest incarnation at health, you are responsible for a $65 billion portfolio. Quite some responsibility.

Somewhat surprisingly, your annual remuneration for handling the health of the nation is just $330,000 plus some expenses — but you have to be very careful indeed not to abuse any entitlements.

I’m not sure what is more bizarre. The merry-go-round of ministers running around the cabinet room and putting their bums down on the nearest chair when to music stops. Or the fact that they are paid such a pittance to take on huge financial and, dare I say moral responsibility.

Professor John Rice, writing in The Conversation, is optimistic that some positive policy settings can survive a similar revolving door of ministers in the science portfolio.  He may be right if all the newest minister has to do is keep on the innovation course and maintain the finding. Only it never is quite so simple.

The analogy with commercial firms is not a trivial one. CEOs steer their ships through turbulent waters towards profit. Shareholders demand that they do this wisely and the law protects their interests from incompetence as well as malfeasance. Rarely will the CEO survive without relevant experience and at least some knowledge.

Why should ministers be any different? It is just as important that they have at least some topic skills and experience in their portfolio even though their remuneration seems not to depend on it.

Monkeys like peanuts — more on CEO salaries

What predators do

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What predators do

I have just seen a wildlife documentary where eco-tourists out whale watching in Monterey Bay had the experience of a lifetime.

They were on the water hoping to catch a glimpse of migrating grey whales, mostly mothers and calves as they journey along the coast to feeding grounds in the Arctic. Only on this particular day, and for the mother and calf they happened to be watching, the laws of nature were graphically applied.

As the tourists stared on in boats tens of meters from the migrating family a pod of killer whales arrived and began to harass, circle and ram to try and separate the calf from the mother.

This is, of course, what predators do. They predate. Usually on the individual that is easiest to catch or subdue thus giving them a meal that keeps them alive at the lowest risk to their own safety.

On the plains of Africa, lions, wild dogs and hyenas will single out the weakest of the grazing herd – why make things any harder than they already are? Chase down predators, as opposed to those that sit and wait, will benefit from making the chase as easy as possible.

The orcas were persistent. Injuries to the calf steadily accumulated and blood became visible in the water, the reality of the event dawning on the faces of the watchers. For the television audience, the narrator embellishes the visuals with “the calf was being eaten alive”.

Marine scientists, who later analysed footage of the event, observed that it was the younger orcas that took the most active roles in the attack whilst the adult animals held back. “Teaching the youngsters how to hunt”, they concluded – or perhaps leaving the dangerous work to the more agile individuals.

The scientists also concluded that this was “not usual behaviour” or “if it is what orcas do, then we have not observed it” and “maybe it was because of the high numbers of grey whales in the bay at the time”. Or maybe, like the lions, hyenas and wild dogs of Africa, predators rarely pass up an opportunity for lean times are more common than times of plenty.

Whatever the reason, the attack was a prolonged event lasting several hours.

Time enough for the storyline with a happy human ending that is so essential to the modern wildlife movie, as “against all the odds” the grey whales swam towards the shore, reached shallower water and the orcas broke off.

No-one could follow the calf to see if it survived its injuries but the looks on the faces of the tourists interviewed for the documentary left the audience in no doubt. Of course it had survived for the sake of all things decent.

The responses of the eyewitnesses were most intriguing. They went to see nature in the wild where wild things happen by definition, yet they were all shocked, not quite able to accept that wildness includes violence and death. Perhaps if the calf had died quickly and became the meal the orca pod was after the onlookers would have been more accepting of the cycle of life.

Instead, the escape and inevitable pain was, for many, too much. The people were visibly affected.

No doubt a few of them went home to enjoy a t-bone steak.

Banks

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Banks

Banks are a handy invention. They provide a safe place to store everyday money and, so long as you a meet certain criteria, a place to borrow money for items too costly for everyday money.

Banks also have a stupendous business model. There is no more profitable commodity to trade than money. Everybody needs it and is prepared to pay a premium for access to it. This willingness to pay even helps banks manage their risk of not holding enough capital to cover their obligations because most people do the right thing and make their repayments.

Even psychology is on their side.

Despite such a stupendous business model bankers are sharp to opportunity and the squeeze to profit is ingrained in their culture.

Last year in Australia the four main high street banks declared an after tax profit just shy of $14 billion and account for around 80% of the systemic risk in the financial system. They play a big game.

And the rhetoric is that we need them to play. If the flow of cash stopped, then so would everything else. Our system of trade and exchange requires that both capital and cash flow. Deals have to be done to ensure that a new housing block is built, paying tradesmen and providing homes for people to fill with white goods and flat screen TVs.

Banks profit from all of these transactions as they provide capital, credit and a place to store cash for a fee.

The question is how much should they profit? Is $14 billion in profits fair? It is enough to pay roughly 176,000 people the average wage for a year or 400,000 people the minimum wage. The number of people recorded as unemployed in Australia as at November 2016 was 725,000.

Remember that profit is the money made over and above the cost of doing business, paying taxes, and executive bonuses.

Of course, some profit is distributed as dividends to shareholders and so is fed back into the economic system. And without this redistribution, the money would not have been mobilised toward profit in the first place. So care is needed here.

It is too simple to imply that $14 billion could make a serious dent in the unemployment rate. But it is worth a thought.

At what point does society collectively say that enough profit is enough?

Is the world changing?

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Is the world changing?

Love him or loath him, infamous climate scientist Dr Michael Mann recently made an important point about Donald Trump’s rhetoric on bringing manufacturing industry back to make the US great again.

On the America Adapts podcast Mann suggests that to achieve such a goal, manufacturing in the US must embrace the energy revolution. Implying factories running on fossil fuel energy will not be competitive in a global market.

The only way a fossil fuel based industry would be competitive is if there were trade restrictions and tariffs to keep them competitive. This makes Trump’s anti-trade agreement gambit a typical business bully approach to finding a competitive edge that, in this case, US manufacturers would not have.

The evidence is that the energy revolution is well advanced. All over the world technologies are maturing rapidly to deliver distributed clean energy. It is realistic to believe the many mayors and governors that claim carbon neutrality for their towns and jurisdictions when their constituents are all up for a Tesla wall.

Today’s first graders, who will consume a fair amount of electricity in their lifetimes, may not know or care, but most of that energy will not come from a coal-fired power station.

This change from fossil fuel to alternative energy and the accompanying shift from centralised to distributed generation is exactly the one that was needed to tackle the climate issues Michael Mann is so passionate about. Only it is happening because it makes economic sense and not because of a limp international agreement made in a Japanese city or from late night breakthroughs in Paris.

Let’s not kid ourselves. The change is happening certainly. Only it is happening because the technology is becoming commercially competitive. So competitive in fact, that a US president is elected on the back of rhetoric to prop up his countries uncompetitive energy system and hold on to the past.

Does all this mean that the world is changing? Not really. Those first graders, who will spend more of their lives looking at a screen than the trees, may notice more wind farms and will drive an electric car they plug into ports on the street to share the energy captured from the roof at home. But they will also be fiercely competitive and, just like their parents and grand pappy, rely on markets to deliver their lifestyle.

They will work, eat, sleep, and procreate with their mobile device never more than an arm’s length away. They will earn money and use it to pay for their data plans. Not much will be different…

Unless, just maybe, perhaps, possibly…

All this distributed energy makes everything easier, and the system changes. If stuff gets cheaper and cheaper, maybe value is recognised in what people do and not what they have.

Here’s hoping.