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A few weeks ago I had dinner with an old friend. Having noticed my reviews of several business books, he asked me to recommend my favourite ever book on ‘personal effectiveness.’ I didn’t have to think for long before responding: the book I have found most compelling has been ‘The Seven Habits of Highly Effective People’ by Stephen Covey.
I’m not an expert on the ‘success’ and ‘self-improvement’ literature, but I’m not a cynic either. Several of my friends would never pick up a book of this genre, believing that they’re aimed at people who have low self-esteem, who lack confidence or who otherwise feel that they are in some way flawed. While some proportion of self-improvement books is aimed at this kind of audience, I have found many titles with a lot to offer readers who are already confident and well-adjusted individuals.‘The Seven Habits’ is one of these. It has several great things going for it:
The one thing I can see putting off some readers (particularly English ones) is Covey’s earnest tone. To quote Kate Fox’s classic, ‘Watching the English:’
- Stephen Covey is an expert in what he is writing about. He has a thorough knowledge of the existing success literature which he has studied at length. His depth of knowledge shows through in what he writes.
- Covey acknowledges up front the low quality of much of the self-improvement literature. He has a clear disdain for books that promise a ‘quick fix.’ This honest approach make much of what he recommends that bit more compelling.
- His writing style is very accessible; he illustrates all his points with anecdotes either from his own experiences of those related to him by others. This puts all of his ‘Seven Habits’ into context and prevents the book becoming dry and overly theoretical. He includes some ‘thought exercises’ which engage the reader, but not to the point it reads like an instruction manual.
- The content itself makes a lot of sense, but without coming across as something obvious. Each of the ‘Habits’ stands up by itself as useful advice. Added together, they mesh into a sensible structure giving an overall picture which is more than the sum of its parts.
“At the most basic level, an underlying rule in all English conversation is the proscription of ‘earnestness ’… seriousness is allowed, earnestness is prohibited. …To take a deliberately extreme example, the kind of hand-on-heart, gushing earnestness and pompous, Bible-thumping solemnity favoured by almost all American politicians would never win a single vote in this country.”With this health-warning aside*, I would highly recommend ‘The Seven Habits.’ Even if you have never thought of reading a ‘self-improvement’ book in your life, I think you would find it accessible, practical, stimulating and altogether a worthwhile read.Notes: *In writing this I realise that this blog is sometimes guilty of excessive 'earnestness' (!)
I’m always on the look-out for articles that educate, stimulate and generally challenge my view of the world. This week I found one in an unexpected place: the JD Wetherspoon pub chain’s company magazine. Sitting in the pub, leafing through the magazine, I was anticipating finding commentary on their latest pub openings and newest real ales. Instead I found myself reading an intelligent editorial piece on the troubles in the Eurozone by Tim Martin, Chairman of JD Wetherspoons.While criticising the Euro is now in fashion due to the sovereign debt crisis, Tim Martin has long been opposed to the idea of the single European currency. He recounts in his article how he campaigned, in his capacity as a business leader, against its introduction in the UK. At the time, the accepted wisdom in intellectual circles was that the Euro would strengthen trade with Europe and would be an asset to the UK economy. He came up against politicians, economists and financial journalists all clamouring for its acceptance. But, along with hundreds of other citizens who rejected the idea of surrendering more powers to bureaucrats on the continent, he vocally rejected the Euro.He characterises the debate over the Euro as pitting the intellectual elite, with their neoliberal economic agenda, against the ordinary citizen who values local freedoms (such as the control over our own currency) more highly than the theoretical benefits of global integration. And in the case of the Euro, his side appears to have won. This got me thinking whether simple, unsophisticated, folk wisdom might triumph over complex theorising in other areas of business and finance. For example, how much management theory applies in real life? Do economic models include too many assumptions to really reflect reality? Is all the effort we spend making quantitative forecasts really much better going with your gut feeling?One piece of folk wisdom that the world of business and finance would do well to learn from is “you can’t get something from nothing” (or, more familiarly, “there’s no such thing as a free lunch”). This simple maxim seems to have been forgotten in the pursuit of quick profits – but the profits prove illusory when the hidden costs are taken into account. For example, in business, switching to a cheaper supplier might seem like an easy win – but no switch comes without risks that might end up costing you. In finance, increasing your leverage is an easy way to flatter your return on equity – until a crunch arrives and you wind up with nothing. In economics, keeping interest rates low seems like an easy win in terms of stimulating the economy – but excess credit sows the seeds of the next bubble.How the Eurozone debt crisis plays out will be fascinating and potentially terrifying to watch. As such, I am thankful to Tim Martin and others for opposing the Euro in the UK. And I am also grateful to him for reminding me that even the best theoretical ideas frequently fall flat on their faces when confronted by reality.
Last year I wrote about the difficulties inherent in organising healthcare services. Another industry with in-built instability is financial services. Several characteristics of this sector make it especially difficult to regulate effectively. I have explored some of these below.
Financial regulation is in a constant state of tension between two approaches. The ‘Laissez-faire’ (i.e. hands-off) approach advocates minimal interference, based on the assumption that the best interests of society are served through free markets. The alternate approach (‘interventionist’) suggests that free markets often act irrationally; they require close supervision and restrictions to avoid damaging financial crashes, amongst other problems.
The decision of where in the regulatory continuum between these two extremes a particular regulator should sit is fraught with difficulty. I’d like to draw attention to four particular problems.
Financial systems are full of feedback mechanisms that we don’t completely understand. The actions of millions of market participants combine to set asset prices, provide capital and transfer risks. What happens in the markets affects their behaviour, which in turn has an effect on the markets. George Soros calls the feedback patterns ‘reflexivity’ and blames the recent financial crisis on it.
Complexity in the markets might be seen as a good reason not to intervene, as regulators’ actions are liable to have ‘unintended consequences’. However it could also justify interventions which prevent increases in complexity (such as restrictions on derivative products). Regulatory rules may also help companies deal with the unexpected (such as capital requirements for banks). Market complexity is a double-edged sword that makes regulators’ jobs extremely difficult.
2.) Revolving Doors
The Oscar-winning documentary ‘Inside Job’ highlights how top roles in financial regulators are frequently filled by ex-bankers. This isn’t surprising, given the specialised knowledge these roles require. However it can reasonably cause concerns about conflicts of interest. Social ties, political contributions, and the ‘revolving doors’ between jobs in regulation, banking, and lobbying create strong disincentives to individual regulators taking hard line.
3.) Race to the Bottom
Financial services firms can base themselves where they like. As a result, some countries try to attract them by offering low regulatory burdens. The risk that firms will flee financial centres such as New York or London is a major disincentive to regulators in the US and UK from tightening up their supervisory regime.
4.) Financial Innovation
As Merton H. Miller explained in his 1986 paper on Financial Innovation, “the major impulses to successful financial innovations have come from regulations and taxes.” More specifically, financial institutions use new products as a way to get around regulatory restrictions, rendering them ineffective. (As an example, the US withholding tax on interest payments remitted abroad triggered the creation of the market for Eurobonds, to allow US firms to raise money outside of the US.) In addition, continuous financial innovation makes it extremely difficult for regulators to stay up-to-date with the latest financial instruments being created.
This is a very cursory treatment of a subject that could inspire whole volumes. I am sure I have missed out other important reasons behind the difficulty of regulating financial services. Ultimately, it will be the widespread recognition of these potential roadblocks to effective regulation that allows us to make progress overcoming them.