Category: Sustainability

Accountable Supervision

Leadership values are not only confined to the running of a political campaign, party, or country for that matter, however, like in any venture that has an objective and deals with human beings – it forms the backbone of a successful business.

Consequently, what leaders such as CEO of Tesla Elon Musk, for example, say or does, have a positive or, in the recent unfortunate case, a negative impact on the shareholdings of his business.

The share price can decline sharply and worse yet, it can lead to the exit of senior staff members and thus undermining the business, its leadership values, and objectives.

This why it is critical for companies to adopt the right practices and responsible leadership to enable them to address both internal and external issues affecting them.

This is even most relevant when dealing with a company that has a multinational operational facet such as the Murray and Roberts Group – a South African company that operates in a global setting.

This specific multinational company was used in a case study for a research paper because it is firmly entrenched in the construction and engineering industry.

More specifically, they service the global natural resources market sectors of underground mining; Oil & Gas; Power & Energy.
Such a diverse set of operations requires a varied set of objectives spearheaded by a solid leadership path.

A new model of leadership

We have covered the topic of Emotional Intelligence before. It now surfaces again within a brand-new leadership model known as the ARCHES model.
The name derives from a key characteristic of the physical structure of an arch and its durability.

Coupled with its diversity in models and materials and its depiction as symbols of triumph, it represents an apt analogy of what responsible and effective leadership should be.

The model was especially derived by an academic* for a syndicate group assignment and is based on six key characteristics that should be imparted in a leader.

An effective and responsible leader is one who is attuned to their followers, responsive, possesses the necessary competencies, serves with humility, is ethical and adopts a sustainable approach to leadership.

A leader who possesses all these attributes is one who can rise above adversity and lead their followers in a way that promotes innovation, motivates, develops skills, promotes personal growth, and encourages improved performance.
B.Moyo

Application of the model

The model defines attuned leadership as the act of being self-aware, informed, and aware of the environment in which you exist – servant leadership.

Employees should be encouraged to take responsibility for their actions because responsibility and effectiveness are complimentary. The demise of US energy company Enron, for example, was due to a failure of management to execute communication-based responsibility, internally and externally.

A volatile, uncertain, complex, and ambiguous environment in which a business operates can result in many potential projects not coming to fruition.

In such an environment, leaders that are attuned, responsive, and possess the right competencies can expert power as their way to influence followers to exhibit the same traits.

Referent power develops out of admiration of another and a desire to be like them. Expert power, on the other hand, is a person’s ability to influence others’ behaviour because of recognized knowledge, skills, or abilities.
This requires the leader to have a tolerable level of humility.

This is defined as a personal quality reflecting the willingness to understand the self (identities, strengths, and limitations). That combined with a purpose in the self’s relationship with others.

Once again, the emphasis on Emotional Intelligence coupled with traditional leadership competencies is needed to steer multifaceted companies.

Even more so when dealing with diverse cultures and work ethics across borders and continents.

Direct consequences

Being the largest employer in the locality directly implied that Murray and Roberts had to be consistent with the idiomatic Zulu expression of “Umuntu ngumuntu ngabantu”. This means: I am because you are, you are because we are.
Good leadership in the Ubuntu philosophy is based on the engagement with communities and defines a well-led organization.

Not paying attention to ethical issues surrounding a community or the environment can have an adverse effect on your values. This would also affect your staff and the image of the company you steer.

A bitter consequence of the failure of ethics was evident in the $4.2m (64.1 million ZAR) fine to the said company. This was for its involvement in sector collusion related to construction projects for the 2010 World Cup.

Concluding remarks

Finally, a practical leader will also consider any upcoming projects with the lens of understanding the environment that surrounds them to incorporate the concept of sustainability.

These traits might sound like they need to be learned but most should be already ingrained or come naturally to you or your leaders.

If not this is not the case, you need to quickly install the right personnel with such to help steer your business enterprise or economy for that matter, to success.

*This blog post contains excerpts and is derived from a master’s research paper. It was conducted by Bonnie Moyo for the Rhodes University Business School.

9 September 2018
Can’t Get No Satisfaction

In economic terminology, the term “utility” has not much to do with multifunctionality nor completing specific useful tasks.

It does in context, relate to the level of satisfaction or “completeness” one derives from the consumption of a product or service. For example, there is only so much pizza you can eat before feeling ill from satiety.

On a broader and more macroeconomics spectrum, our utility levels will also help determine how resources are allocated and consumed.

Definition

The concept, a brainchild of Daniel Bernoulli, has so many relevant connotations. As humans, we individually have a maximum biological boundary which when reached, signals absolute satisfaction. This in economic terms is called maximum (total) utility.

Total utility is the complete satisfaction that you can get from consuming all units of a specific item.

Economists are more interested in the changes in levels of utility or what is referred to as the marginal utility.

We will return to its application to the economy.

Applying utility

Incidentally, the utility has no formal unit of measurement – though we coined the term “utils”. These so-called utils equate a number to utility levels in a controlled sample experiment.

Understandably it can be quite a feat to quantify utility as it is based on human behavioural preferences. The closest we got to quantifying such was via the marketing concept of the consumer black box.

As an illustration, the concept can be applied to something as basic as eating a delicious meal.

Depending on how hungry you were, you would derive the highest utility from the first few bites of your meal.

As you progressed and depending on your appetite, each additional fork/ spoon, or handful would provide fewer levels of satisfaction. As you reach your stomach’s capacity (towards satiety) your utility diminishes.

This can be applied to the taste of the meal. It specifically explains why we tend to eat something sweet after a main (savoury) meal.

The appreciation of ice cream when you are starving would diminish quickly as you concentrate on filling up your stomach. This as opposed to enjoying the taste.

When compared to the running of an economy, governments and policymakers can determine which goods and services yield the most utility.

This helps them to consequently direct expenditure to identified priority areas (products/services).

It is a long term concept

Education, for instance, may not provide immediate utility (gratification) for scholars and pupils. However, when appropriately harnessed, could yield higher levels of satisfaction. This is when you enter the job market with better remuneration packages.

Tweaking education curricula, taking into consideration levels of utility to whip up your interest for the good or service. This should, therefore, be a prime focus for legislators.

Inputs such as maximum times you can concentrate and the length of study for a course should be offered without compromising the substance.

Without a doubt, there would be considerations, at a micro-level to assist in enhancing both marginal and total utility in the education sector.

Read more about fiscal policy and budgets here

More life-related uses

The concept of utility is a lot less ubiquitous as we think and relates to the unsavoury phenomenon of megalomania and why there is greed.
When levels of self-gratification diminish quickly, it takes longer for those with lower levels of marginal utility to reach a plateau of pleasure.

Drug addiction, sexual appetites, and fetishes would then kick-in. In such cases, people upgrade the “product or service” that they have already maximized utility in. At that stage, another level of fulfillment would be sought.

The utility applied to finances

It also explains why you lose a lot of money gambling or investing in stocks. The satisfaction of gaining more for a little outlay will often drive you to take more risk until a level of risk aversion kicks in.

High-risk investors “called whales” are now delving into the Crypto market to maximize their utility. They are diverting their funds from property and stocks into digital currencies like Bitcoin and Ethereum.

The saying too much of a good thing is inevitably bad for you applies. It can be countered by diversifying the things that deliver pleasure or satisfaction to you.

This is to ensure that you do not maximize utility on them too quickly and lose interest. Worse case, you end up delving into the dangerous territories of addiction.

Economists need to be relevant, more than ever before. They also need to formulate a means to measure and quantify utility or provide “utils” for at least, the most common goods and services.

With such a strategy, policy-making, product pricing, and the efficient allocation of resources would be more effortless.

11 July 2018
Criminal mindedness

One fundamental and often ignored view within economics is that humans have the propensity to display irrational behaviour in the decision-making processes.

Based on this notion, one can conclude that we have a fundamental tendency to act corruptly and be generally criminally-inclined except maybe the virtuous few.

How advanced our economy or society is, depends on what measures or incentives we enforce to deter or punish criminals.
In most cases, we find that in countries where punishment is severe (e.g. in Central Europe or Nigeria), the criminals end up moving to less strict countries.
The economics of crime, especially violent crime experienced in countries like South Africa and Brazil, is something that requires adept research if anything is to be done.
In the US, studies were conducted to access the impact of legalized abortion on the level of crime. This was discussed in detail in a best-selling book by Levitt and Dubner’s called Freakonomics.
The study found that legalizing abortion (seen by many as legalized killing equivalent to death sentences) reduces the level of drug abuse and subsequently other criminal activity.

The real problem

Perhaps there is no relevance here but for instance, abortion is legal in South Africa yet a high crime rate prevails. So, what’s the problem then?
Part of the problem lies in the fact that the incentives/benefits of committing crime far outweigh the “costs” and chances of being caught and convicted by the judiciary.

John Nash through his renowned works (well at least amongst economists), devised what he called “game theory” or “the prisoner’s dilemma”.
Cheating occurs through degrees of severity from a classroom test or examination all the way to the plotting and execution of murder or indirectly killing individuals by selling users addictive drugs.
Then you have your white-collar crime such as insider trading, corporate espionage (unlawfully acquiring recipes, formulas, and technologies from rival companies).
Or simply ‘cooking the books’ or siphoning off profits from a company’s coffers.
Nash’s rationale for such cheating behaviour boils down to the attitude of: ‘if I don’t, someone else will, and leave me with the short end of the stick – so given the option, I’ll always cheat’.
His explanation is one ‘formally proven’ reason for human ‘irrational’ behaviour – or rather, could we say it is rational if the outcome is to favour the decision-maker in the short or long term? This is instinct is innate in human behaviour of not such a few.

Crime and law enforcement

Back to the subject of crime: higher than usual levels has often been blamed on the poverty caused by poor and exclusionary fiscal, social and monetary policies.
There are of course more layers and underlying factors unique to the history of political climate and resource allocation.
Further studies (such as that in the Freakonomics book) need to be carried out such as the potential effects of police presence in deterring crime in the diagram below:
Police officers per 100,000 population by regions and sub-regions (medians)

Source: www.unodc.org

Also, highly recommended if you are a law enforcer, economist, government official, or student, is a book entitled Economics of Crime by Erling Eide, Paul H Rubin & Joanna M Shepherd.
This book covers the theory of public enforcement including probability and severity, fines and imprisonment, repeat offenders, incentives of enforcers, enforcement costs and enforcement errors.
It might shed some light as to how criminally-inclined people can be dealt with once and for all. Because as we know – whatever government is doing to fight crime now is clearly not really working!

“When crimes are left alone long enough to fester, a second economy is borne.”

The proceeds from a ‘secondary’ economy because of criminal activity never benefit society. Even though people like Pablo Escobar were seen by locals (in his Colombian town) as philanthropists, their assistance came at a price. Such contributions which are naturally tax-free generally are referred to in economics as ‘social ills‘.
A third market is formed – one comprised of the need to feel secure.

Dealing with the scourge

But fighting fire with fire (with more guns & police who are sometimes corrupt themselves) will not alone solve the problem.
Criminals simply become more aggressive when met with a more confrontational approach as seen in South Africa. The Jeppestown (Johannesburg) shoot-out in 2006 for example, left several police officers and criminals dead.
It’s time to get ’smarter’ about crime and look to the accuracy and conclusive study of human behaviour and the use of incentives.
As crimes continue to ravage communities, cities and countries, we can question why government officials have relatives who own or have stakes in security companies.
It basically places less of an ‘incentive’ for officials to do much about crime.
So, conceivably, those with such vested interests in the third economy would need to be weeded out of the system for crime to be curbed.

That would be the first major step in order to bring about some rationality to society.

17 May 2018
Nine Reasons Why Globalization Can’t Be Permanent

We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.

It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.

We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:

Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:

Read about the 9 reasons here: https://wp.me/p3dRG-b4w

Also read more on how Globalization has evolved here

Hope you enjoy it as much as we did, and that it has the same effect it had – getting one to think outside the box and look at the big picture.

31 March 2018
How countries operate

At times, we can all become frustrated by political agendas, misfortunes, and perceived lack of planning by various governments around the world. As a result, not quite often see the bigger picture – or the economics of how countries work.

Naturally, the political fracases provide fuel for media companies who in turn bombard us with their 24-hour news cycles. But we need to understand that politicians are only temporary custodians of the country and its economy. Each economic model is built on the same premise that started many hundreds of years ago – that of bartering.

Two pillars of government

There are two main mandates or rather tasks that a ruling party is assigned by the electorate when it comes to governing. These are: controlling the country’s fiscal and monetary policy.

Fiscal policy is the internal running of the country and basically deals with tax and how it is allocated. The fiscal budget is then awarded to the various sectors of any economy.

These include education, transport, healthcare, finance, trade and industry, defense, agriculture, and many other building blocks of your country.
How the government prioritizes the spending on each of these sectors will determine its policy priorities.

It will also be a signal of its wider political intentions. And this not only to voters but also to its neighbouring countries in regard to international trade and security.

A nation concerned with information and its human capital will prioritize education in its budget. There are however other approaches to budgetary allocation such as funding trade and industrial activities.
This leads to job creation that will, in turn, drive a need for tradesmen and women to diversify and obtain the new skills required.

This also provides an incentive for state-run schools, privately funded schools, and institutions to develop new skill sets. Doing both is ideal – as governments must foster innovation by promoting and funding higher learning institutions where top talent can be nurtured and developed.

Fiscal policy forms the larger mandate as this budget is derived from the collective taxation of income, capital gains, trading and customs, sin taxes, corporate, and simple public services.
That way allocation of the fiscal budget to finance will pave the way for monetary policy to function.

International trade is the key to generating further income as a government cannot rely on an internally driven economy to sustain wealth. The same applies to business so an agreed trade policy would need to accommodate all aspects of the country’s economy.

National specialization

Every thriving nation has been built on either skilfully utilizing internal resources or have created global demand for a service or industry.
The UK has strong financial and corporate offerings plus its geo-positioning (GMT) allows it to be a central commercial trading point for the world.
Germany has always had a rich source of steel enabling the production of cars, rail brands, and manufacturing.

In addition, it continues to be a market leader in developing technologies to complement those industries thus allowing the country to thrive as a major European power.

The Nordic countries are rich in mineral resources of which they have converted the revenues into national trust funds. These are used to aid its citizens; many of whom develop skills in trade, innovation, and finance (and now Fintech).

Though Japan is geographically smaller and is made up of two islands it continues to prosper by becoming a global leader. This comes from its exports of tech innovation, artificial intelligence (robotics), and fishing stocks.
It even ‘exports’ financial aid (loans) to other countries due to its strong and disciplined monetary policy.

The US has invested heavily in services, human capital, and innovation – to large extent immigration has played a major role in these areas of growth.

The emerging economies

Russia is mineral-rich and has outsourced its intelligence gathering skills, military technology, and training for years.

China continues to grow and subsidizes its agriculture and manufacturing industries fully utilizing the abundance of manual labour at its disposal.

China even exports this labour thus gaining influence and soft power enabling Chinese goods and services to be exported more freely to other economies.

The ability to offer the global economy a form of expertise or goods/service can attribute hugely to each country’s economic wealth. Israel – military and intelligence; Brazil agriculture and tourism not to mention countries in the Far East – oil and fossil fuels.

Most African countries obtain their sources of income (though not as much as they should) from natural minerals, agriculture, and tourism.

Ghana has gold and cocoa; Nigeria – oil; South Africa – gold and many mineral resources; Kenya and Tanzania – tourism. Even a poor country like Zambia has survived because of its coal and coffee reserves.

Any country without resources or the ability to offer goods and services would have to be more subsistence-like. This usually means having to rely on aid or import goods and services.

That, however, comes at a price and leads to the country functioning with an unsustainable debt burden.

Application of policies

Interesting food for thought by Dr. Jagdish Bhagwati, a famous Indian-born economist in the US:

Americans spend, save little. Also US imports more than it exports.

Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.

The Japanese on a contrary, save a lot. They do not spend much. Also, Japan exports far more than it imports, has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing.

Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then the Japanese did not spend (habits don’t change, even with taxes, do they?). Their traditional postal savings alone is over $1.2 trillion.

Thus, savings, far from being the strength of Japan, has become its pain.

International trade

This then gives way to various trading blocs, which over time have been built, broken, or renegotiated when it was not suiting either of the participants.

The strength of a country’s currency is primarily determined by supply and demand for its sovereign currency. This demand can only be fostered by trade.

The more the demand for a countries commodity the greater the demand for its currency. This is the medium we use to compensate for transactions. In terms of a country’s monetary policy, it is more of a singular relationship between a government and its banks.

The banking system

Banking is the system to which you can place your disposable income (gross income after-tax) in a digital repository. The central (reserve) bank regulates the money supply into the economy ensuring that locally, inflation does not corrode the value of its currency. The central bank controls how much it lends to local banks and at which payable interest rate.

The central bank is independent of the government. They have their policies shaped by fiscal influences and are under obligation to impact the strength of the economy through its interest rates and exchange rates.
So, the central bank sets the mandate by which banks offer security interest, loans, and building deposits to help you benefit from their hard-earned cash.

Banks, however, have a wide range of consumer charges so transacting doesn’t offer much protection against inflation. In some cases, banks offer you zero interest on savings deposited!

You can therefore understand the frustration of citizens who would like to see increased corporate taxes, especially for banks. This especially as they reward executives with excessive remuneration packages even in a failing economy.

Financial governance and regulations

The new wave of Cryptocurrency aims to shake-up these long-standing benefits banks have enjoyed. Benefits such as the bailouts from taxpayers’ money from risk-taking behaviour that nearly brought the global economy to its knees.

Banks behave like a petulant child knowing well that their ‘parents’ will only mildly reprimand them. This ultimately enables the continuation of behaviour with as they get away with only a slap on the wrist.

Governments tolerate bank’s excessive salary packages and risk-taking because they play a strategic role in the stability and growth of an economy.

This is just the tip of the iceberg and paints a big picture of how a country is managed – or indeed can be mismanaged.

24 February 2018
Globalization 2.0

The implementation of globalization has not been without its major flaws. Abolishing it, however, is paramount to anti-socialist behaviour or looking inwards. This concept is against the tendencies of human nature.

If you read up on any definition of globalization, you will see that the intention was always genuine. The need to integrate and collaborate for the mutual benefit of nations.

It can, however, like any product (like knowledge), be exploited out of selfish desires and lead to exploitation.

Of course, it also doesn’t mean that globalization must apply to every sector of your economy. Some inward investment is always healthy. It should, however, not lead to extreme nationalism for a fear of loss of national identity.

Trust issues

The problem, like many others, lies in the hands of politicians who are controlled and dictated to by a handful of large corporations. These ‘corps’ have one and only self-interest – profit, power, and control.

The main concern for sovereign governments is that ‘giving up’ or sharing one’s technological, innovative, or manufacturing secrets to other countries. The premise is that this would make them ‘vulnerable’.

The real issue lies in a lack of trust – leading to the notion: “I will not let you know how I do it because you may use it against me – in trade or war”.

Despite the existence of supposedly ‘compartmentalized’ trading blocs and free trade areas like NAFTA, EU, ECOWAS, SADC, etc, the rate of globalization has sped up significantly in the past decade.

This is due to boundless advances in information technology as accurately predicted by Neoclassical Growth Theory.

Information technology has now given us valuable new tools to identify and engage in economic activity.

Tech provides access to and faster, more informed analysis of information, transfers of assets, and collaboration.

The impact on finance

A globalized world means that with the aid of technology, you can buy and sell shares of an Italian firm from a desktop in Namibia!

You would then only have to deal with the commissions and transaction fees (capital gains tax) locally pertaining to your online trades.

And think about it, on a micro-level. If globalization is entirely a bad concept then no-one should be using Amazon, eating MacDonalds, or watching Netflix in protest. Hard to imagine, isn’t it?

We must praise its positive outcomes and work hard against the negative impacts. The negative ones are also giving rise to a new era of extreme nationalism or populism.

You can only do your bit by promoting and backing policy-makers who can enforce good trade laws. This would force both local and international competitors to play by the same rules.

Penalties for financial misconduct should be a lot greater to deter exploitation. Rather, perpetrators still get the proverbial slap on the wrist.

The creative destruction of the financial system will be brought about by cryptocurrency and its underlying blockchain technology.

Depending on its uptake, and whether the authorities can legitimize its legality, we may see individuals and governments using decentralized currencies.

The Venezuelan president is investigating the concept of a national cryptocurrency dubbed ´Petro´. They would use it to alleviate dependency on (heavily interest-ridden) loans.

10 December 2017
Sustainability – the greatest farce?

We exist not to exist. Now, what does that really mean? Well, in simple terms, it means we are born to die. As grim as this unwanted reality sounds, it is the basis of why people do what they do and behave the way they do.

Some live to enjoy that short moment and blissfully hope it doesn’t come sooner than later. Others strive and prepare for that day with the hope they make an impact and leave a lasting impression.

That lasting impression, in turn, can be for good or bad reasons – often confused by the individual.

Martyrs and suicide committers, for example, tend to feel that their unpleasant actions are doing a great cause to society.

Though their loved ones would beg to differ, it is the individual who decides whether that impact they leave behind is a good or terrible one.

The irrational human mind

One thing one learned in earlier days as undergraduates studying economics was that as individuals, we are mostly self-consumed and irrational.

Some refer to it as being emotional – but all irrational traits to what ideal? After all, that is what separates us from machines and robots!

Living for the present is an inherent human attribute that is hard to change or condition.

We have so quickly moved on to adopt artificial intelligence without mastering our own level of intellect and compassion.

We are certainly not advocating for a utopian state where everyone gets to the level of Albert Einstein. Emotional intelligence, however, unlike the more numerically rigid intelligence quotient, is inherent but can be honed or learned if one is willing.

Difficulty implementing

The problem with its adoption is that it takes effort. This is something not everyone is enthusiastic about – like math, chemistry, or gym class in high school.

One must ponder why significantly less than 10 percent of the world owns all the riches. Meanwhile, we currently still must deal with world hunger, disease, and abject poverty.

We must revisit the above notion of emotional intelligence. This is because one of its inherent traits is compassion – something most of those individuals don’t have or consciously try to avoid. Though this should be one of the obvious attributes that separate us from so-called beasts. Animals only have instincts to help with their decision-making processes. We, on the other hand, still struggle to use them.

Sociopaths, psychopaths, dictators, and oppressors are, therefore, not far from beasts. They lack the compassion that would even amaze the most ruthless animal predator if they had the consciousness to see what was going on in our world. These people also lack what we basically have mythologically termed – a soul.

A greater role to play

This piece is however not to criticize or state the obvious about such people but to try to explain why they behave as they do.
Psychologists and sociologists alike perhaps need to revisit their curricula and amend them to focus more on this very important but often ignored concept.

This should be added in both subject areas but must begin the analysis from the grassroots level – from childhood.
The stigma of seeing a psychologist (clinical, child, or industrial) would first need to be eradicated somehow for this to happen.

These professions play a much larger role in shaping the world that we live in. A lot more than they may realize.

It is when we learn to be compassionate and more emotionally conscious, that the concept of sustainability, conservation of any resource for future generations becomes a reality.

11 November 2017

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