Corporate Bias: When Projects Go Bad

Bypass Surgery

As I recently blogged in Mobile Bypass Surgery For Banks over on Tomorrow’s Transactions, where the more technical side of my financial blogging occurs these days, the recent system outages at Royal Bank of Scotland, where customers were once again unable to access their own money, are just the tip of an industry-wide problem.  But that’s only half the story, because technology failures are always mediated by psychological ones.

As we know well enough – the Big List of Behavioral Biases is testament to the issue - individuals suffer from a vast range of behavioral issues, with predictably depressing financial consequences. But similar problems also afflict corporations, because managers suffer from the same issues as investors, and the results can be catastrophic for investors.

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Capitalism in Crisis Again (Not)

Beans

I imagine we all think that what the world needs is a conference on the topic of Inclusive Capitalism, a jolly beanfest of the world’s great and the good dedicated to discussing how to renew trust in capitalism.  Even better to hold it in London, where the dreadful consequences and devastating effects of the last financial crisis are plain for all to see in the proliferation of designer retail outlets, the high rise growth of iconic skyscrapers and the influx of the world’s billionaire elite seeking democratic boltholes. 

But let’s face it, you couldn't get the world’s top brains to attend a conference in downtown Mogadishu could you? Although, frankly, that might provide them with a better perspective on the pros and cons of capitalism.

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Stuxnetting the Eurozone’s Trust

Mistrust and Misrule

Markets and investors have long been possessed of a peculiar and unsubstantiatable notion, that the problems of the Eurozone are solvable as soon as people come to their senses and start engaging with financial reality rather than political theatre.  This is an amusing conceit bound up with the idea that the Euro project is too big to fail, but one that ignores the problem that cultures aren’t malleable, no matter how much politicians like to pretend they are.

The European single currency is a massive centrifuge which needs to keep whirling around at speed to keep itself together.  Unfortunately it’s got its own equivalent of the Stuxnet worm: incompatible cultures and attitudes to risk.  Infected with a lack of trust, the centrifuge is out of control and it’s only going to stop throwing off pieces when it’s finally shut down or the fundamental disease of mistrust is properly addressed. 

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History’s Financial Shadow

Wealth Depends on History Not Geography

Jared Diamond in his superb book Guns, Germs and Steel outlined a theory of human economic development that regards Western Europe’s original pre-eminence in this regard as being contingent on geography combined with a large slice of luck. Great book though it is more recent work casts doubt on the main findings. Increasingly it looks like success in economic terms depends less on geography and more on history.

Quite how history impacts differential economic development as seen in the world today is a booming and fascinating area of research. Teasing out the relevant factors from a jumble of data is a difficult and delicate art but one theme seems to be increasingly prevalent. It rather looks like current economic success and failure is predictable from the robustness or otherwise of institutions established hundreds of years ago. History casts a long financial shadow it seems.

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