Monday, March 26, 2007

What we made with our hands and our hearts

A mural of unknown origin, adorning a disused railway tunnel ventilation shaft on Dead Edge, above Dunford Bridge, to the south of Holmfirth.

Because iLiKETRAiNS have a new single out today.

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Tuesday, March 20, 2007

How-do, Nick

My old mucker Nick Jaspan bounces back from the collapse of the North West Enquirer with a new regional media networking venture How-Do. The Media Guardian reports:
The portal will target workers in public relations, press, marketing, broadcast, advertising, design and digital media in the same region covered by the North West Enquirer, which folded after just five months.
How-Do will also be a gateway to nearly 200 blogs written by north-west professionals drawn from the media, marketing, broadcast and design industries.
The website will carry daily industry news, features, profiles of companies and major industry figures and blogs.
Mr Jaspan and a team of freelance journalists will compile and edit content.
"There is so much happening across the region within the media and creative sectors that trade publications and the regional press cannot accommodate it all. We plan to cover breaking news, the deals and the gossip together with in-depth analysis and expert comment," Mr Jaspan said.
"We also want people working in these sectors to actively contribute, helping us to showcase all the fantastic creative and commercial work being produced across the region."

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Wednesday, March 14, 2007

Inner city pressure

Interesting story in the Yorkshire Post about concerns in Sheffield over the knock-on effects of the boom in city centre residential development. Big 'urban living' developments have mushroomed across the city centre, and continue to do so, with the number of city centre residents reportedly increasing by 250% in the past four years. Over half of the city centre flats are owned by private landlords.

There are now fears that the situation could have adverse effects on Sheffield's housing market, as speculators help to push up prices and the council's own waiting list for rented property continues to grow.
As a result, councillors have ordered a detailed report into the market changes, where most new apartments are beyond the reach of those with an income below £40,000.
Some councillors are concerned that the housing market has priced many young people out of ownership and created accommodation which may be under-occupied in many cases.
Despite those concerns, statistics produced by council officials suggest only seven per cent of rented apartments are empty at any one time.
The figure is a stark contrast with Leeds, which underwent a similar boom in city living, where the rate is about 40 per cent.

It's hard to see this situation as sustainable - and not just because of the effects on the city's broader housing market. With an over-supply of rented flats, rental yields have already fallen to marginal rates. Private owners (the vast majority of whom are presumably speculative investors) must then rely on continued rises in the capital price for their returns. With a 'correction' in the housing market long overdue, a lot of purchasers are going to find themselves at a loss - with a strong likelihood of a large portion of the stock going on the market at a depressed price. While that might be good news for the housing associations who need to expand their stock, it's probably not for the longer-term prospects for these huge housing schemes. The glamorous urban living apartments of today are likely to be the high-rise hellholes of tomorrow.

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Tuesday, March 13, 2007

The invisible hand disappears

Today sees the release of the new Bank of England £20 notes, featuring Adam Smith. Smith is of course inextricably linked with the 'invisible hand', that magical concept, often invoked to justify free market ideology, which (to borrow the Wikipedia definition) illustrates how those who seek wealth by following their individual self-interest, inadvertently stimulate the economy and assist society as a whole.

That's something of a distortion. The phrase occurs exactly once in Smith's most invoked work, The Weath of Nations. It appears in Book IV, Chapter II:
Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home, in the specific context of merchants choosing domestic products over imports:
By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
This is hardly a major part of the text. Many editions, including the Pelican Classics edition on my own shelf, omit it entirely. And it's highly questionable whether such buy-British behaviour is now a significant phenomenon, if ever it was.

The phrase also occurs once in Smith's other key work, The Theory of Moral Sentiments, in a passage proposing that wealth naturally spreads from a few rich to the mass of poor:
The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.
More recent economic and demographic work on income distributions tends not to support this charming proposition.

The vast majority of Smith's writings runs counter to the instincts of many of his loudest invokers, as set out at length in Iain McLean's recent Adam Smith, Radical and Egalitarian. Personally, I've found that anyone invoking Adam Smith and his Invisible Hand almost certainly doesn't really know what the hell they're talking about.


Option on an option on an option

John Kay weighs into the current private equity debate (or to be precise, the large leveraged buyout debate) in his Financial Times column. Rather than following the union criticisms on asset stripping and job losses, he goes for the financial engineering aspect:

Sitting on my desk is a prospectus for a fund of private equity funds. It offers me some of the best names – Blackstone, Permira etc. I have just received a large cheque for my holding in Equity Office Properties and, if a similar bidding war for Sainsbury’s takes place, I will have a lot of cash to reinvest.
But wait a moment. Was it not Blackstone that just bought Equity Office and are not the names in the frame at J Sainsbury almost exactly those in my fund of funds? The prospectus invites me to buy Equity Office Properties and Sainsbury from myself, at prices around twice what I recently paid.
If management and business operations remain much the same, as does the underlying ownership structure once you drill down through the layers of fee-collecting intermediaries, it is hard to see where value is being added. If financial engineering of the business is not the explanation, can the answer lie in financial engineering among investors?
The private equity promoters propose layer upon layer of debt, leveraged by non-recourse finance. What I get is an option on an option on an option. But the same finance theory also tells us that you do not increase the value of an investment portfolio by increasing gearing: once again the greater risk exactly matches the greater prospect of return.
Perhaps the sophistication of modern financial structures means that the distribution of risks and the design of governance structures can be finely tuned to the needs of individual investors and the businesses they fund. Or perhaps there is a miasma of complexity and confusion in which everyone persuades themselves that the uncertainties of business have been landed on someone else. Make up your own mind: but I have decided to keep my cheque book in my pocket.

Given the recent research suggesting that LBO fund performance is no better, allowing for gearing and cheap borrowing, than the public markets, it's a valid question.

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Thursday, March 08, 2007

Cleantech feature

I've just received the latest copy of 3i's iSight magazine, which focuses on various technology areas which 3i sees as interesting. This one is the first to focus on the emerging area of clean technology. From the blurb:
Clean technology is poised to become one of the biggest creators of wealth and employment in the 21st century. Encompassing energy, air and water treatment, industrial efficiency improvements, new materials and waste management, the products and services which fall under the 'cleantech' banner are playing an increasingly large part in the global economy - with corresponding opportunities and rewards for venture capital investors.
According to one widely-quoted study, the cleantech market is predicted to grow from $25 billion in 2000 to $186 billion by 2012. At the halfway mark, it's certainly entered the mainstream of venture capital investment. In 2006, total venture investment in North American and European cleantech topped $1 billion per quarter for the first time, according to figures compiled by Cleantech Venture Network (CVN)

I wrote the lead article, introducing the cleantech sector and looking at the opportunities and strategy for venture investment (and, inevitably for such a contract publication, explaining why 3i are ideally positioned to back the best companies). The mag is available as a PDF download from here.

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Wednesday, March 07, 2007

Galbraith's legacy

Good article in the latest Post-Autistic Economics Review by Richard Parker of Harvard asking Does John Kenneth Galbraith have a legacy? (Galbraith, of course, quite innocently provided the title for this blog.)

Human beings, Galbraith insisted from his own observation and experience, were subject to all sorts of “irrationalities” – passions, miscalculations, misunderstandings, pressures to conform and pressures to obey – that made our models (especially when too tightly drawn) unstable, and our predictions prone to error.
We needed, he said, to understand that in large groups – especially nations – human beings acted out of collective beliefs (“conventional wisdoms,” he called them) that reflected and reenforced both the unequal distributions of power and wealth that everywhere and always exist, and the ideological justifications that groups – especially dominant groups – impose on the rest of a society and era.
That made for a “softer” sort of economics than my generation was being taught at the time – and made it child’s play for us to sneer and dismiss Galbraith then. In middle age, however, I’ve had to rethink (as all of us should, but not all of us do) my youthful confidences. And in that process, I’ve come to believe that Galbraith has proved, in many absolutely important ways, ultimately “wiser” than the “smarter” and “harder-minded” economics inscribed in rigorously-mathematical models – especially when those models treat government and the politics behind governance either as exogenous to primary models of the market, or simply as a beneficent, wise and evenhanded helpmates in realizing the market’s genius, as many of his Keynesian colleagues did, thinking themselves perfectly able to manipulate aggregate demand in order to achieve permanent growth as the solution to ancient problems of inequality.
Today, after thirty post-Golden Age years, it is fair to say that while there is still some agreement about methodologies in economics, larger agreements still elude us about purposes and goals and visions. And that is a tragedy for the world because it has helped validate a kind of new fundamentalism that Keynes, and Galbraith, and Samuelson (and Solow and Arrow and a host of other heroes of my teachers’ generation) rightly tried to destroy.
We see that new fundamentalism everywhere around us – in shape and size of Washington’s most recent tax cuts, in our military actions in the Middle East and South Asia, in the angry assertions that “the market” – whatever that truly might be – “always knows best,” and that those who would interfere with “the market” are uselessly acting to hold back the natural tide. And not least in the censorious rebukes hurled at those who would challenge these “new” truths. Times columnist Tom Friedman has a pungent phrase to describe the “market as god” core (as Harvey Cox has put it) of this view – but is more sympathetic than Cox. Friedman argues that we live in a world of “golden handcuffs” and ought to get used to it, and indeed celebrate our gilt shackles because of the ever more comfortable world to which they are leading us.
Galbraith doesn’t think so, and neither did Keynes – and in a world today where the economics “Nobel” was given recently to a psychologist, for god’s sake, for investigating the behavioral irrationalities that trump the antique idea of rational maximizing agents, when the promise of game theory has proved greater in nuclear war planning than explaining the ways of markets, when most computer-based forecasting is good for a matter of weeks and months rather than years, and when econometrics, in the words of Lawrence Summers, has never been decisive in settling any economic question of consequence, we ought to at least give pause to think back to the ways in which Prof. Galbraith’s work anticipated every one of these facts that have been discovered in the last 20 years about limits of his and my beloved profession.

Full PDF of the article here.


Tuesday, March 06, 2007

Brass numbers

Some peculiar spin on a new Barclays "white paper" on the national distribution of the wealthiest individuals. The document notes:
We can also examine wealth on an aggregated county level, which again shows that London reigns supreme as the hub of the UK’s wealth. However, the list of the top 10 counties still presents a couple of surprises, including Yorkshire where people are better known for taking caution with their money.

Newspaper reports tended to follow that line, with the Yorkshire Post, for example, reckoning:
areas traditionally seen as less affluent have also made it into the map's top 10, with Yorkshire in third place at 6.1 per cent and Lancashire in sixth (3.8 per cent) behind home counties Surrey (5.8 per cent) and Middlesex (4.8 per cent).

While the Guardian today asks:
Why is Yorkshire so wealthy?
There is a branch of Greggs the bakers at Leeds-Bradford airport. The very presence of competitively priced sandwiches and pies in the vicinity of international flights carries a powerful subtext: "Four-quid sarnies and little boxes of sushi may be all right for them flash buggers flying from Manchester, but here in Yorkshire we like to look after our brass."
Ask any of the paupers in Surrey, Middlesex and Lancashire, lorded over by Yorkshire in the wealth league table, and they will undoubtedly say it is because Yorkshire people never spend any of the damn stuff.

Such stereotyped comment may or may not be entirely fair (I'll keep my penn'orth on that safe in my pocket), but the Barclays statistics hardly require such ponderings. Yorkshire is a big bloody county - in all, about 5 million people, 8.3% of the total UK population, about the same as Scotland. With just 6.1% of the "country's wealthiest people", we're actually punching below our weight in rich buggers. Not so much of a story there, really.

The real question isn't so much "Why is Yorkshire so wealthy?", but 'Why do the critical faculties of so many journalists fall apart when faced with some basic statistics?"

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Thursday, March 01, 2007

The pleasure of books

It's World Book Day, apparently. Enjoy yourself!

I'm just finishing Michael Moorcock's 'Jerusalem Commands', the third book in the gloriously rambling Colonel Pyat series. Given it's also St David's Day I should maybe read something Welsh (Niall Griffiths, probably).