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Destroying Our Most Precious Resource – (It’s Not Air or Water)
By Shlomo Maital
98% geniuses, age 5; 2% geniuses as adults
In an interview with the AARP (retired persons) magazine, Warren Buffett warns against investing in gold, and in doing so, informs us how much gold there is in the world: 170,000 tons, which if melted together would form a cube 68 feet on each side, worth $9.6 trillion (at $1,750 per ounce). Wow…that’s a lot of cash, more than half America’s annual GDP.
Now – imagine reverse alchemy: Irradiating that cube until it becomes…lead. $10 trillion in value disappears instantly. Gone forever.
Insanity? We are doing the equivalent every day to our children.
Studies show that nearly all (98%) 3-to-5 year-olds score as creative geniuses, when measured by their divergent thinking skills (ability to envision multiple solutions to a problem – matching the definition of creativity as ‘widening the range of choices’). [The test is used by NASA to measure creativity among its employees]. By age 10, only 32% scored at genius level. By age 15, 10%. And by adulthood: 2% ! *** [See Figure above].
We can only blame the way kids learn in schools for this. Rigid, regimented, this-is-the-right-way convergent thinking, my way or highway.
What is the value of this destroyed creativity? Far far more than that cube of gold. Imagine all the wonderful ideas we will never have, to enrich our lives and change the world, because our young geniuses have their creative sparks extinguished. And we can never get it back.
If only there were awareness of the problem. If only we could stop destroying creativity in our children, by a few simple ways to foster divergent thinking.
Is anyone listening?
*** Education researcher Y. Zhao notes, in a 2009 book: “In their 1992 book Breakpoint and Beyond: Mastering the Future—Today, Land and Jarman (1992) describe a longitudinal study on creativity beginning in the 1960s. Land administered eight tests of divergent thinking, which measure an individual’s ability to envision multiple solutions to a problem. NASA uses these tests to measure the potential for creative work by its employees. When the tests were first given to 1,600 three- to five- year-olds, Land found 98% of them to score at a level called creative genius. But five years later when the same group of children took the tests, only 32% scored at this level and after another five years, the percentage of geniuses declined to 10%. Figure 0.1 illustrates the sharp decline in one measure of creativity as children get older. By 1992, more than 200,000 adults had taken the same tests and only 2% scored at the genius level.”
AK 47’s biggest fans? Syrians? Congolese? No! Americans!
By Shlomo Maital
A boring short news item datelined Moscow: “Russian maker of AK-47s sells stake to investors”. The Russian government is raising money by selling 49% of the company that makes AK-47 Kalashnikov assault rifles to private investors. The weapon is named after its inventor, General Mikhail T. Kalashnikov.
“Izhevsk Machine Works…returned to profitability in recent years in large part because of robust sales to U.S. civilians. …The U.S. is the world’s largest importer of small arms, bringing in about $1.2 b. worth of guns in 2011. …Because of so many ‘bootlegs’ (copies), producing the gun of choice for a broad spectrum of people who carry firearms, from child soldiers in Africa to terrorists to rappers, was never good business for the factory known as Izhmash, until sales to relatively wealthy U.S. buyers picked up….40 per cent of the factory’s output went to gun buyers there – about the same number as bought by the Russian military.”
Why do ordinary Americans need AK 47’s, or their civilian version? It’s obvious. To protect themselves from the bad guys – who also have AK-47’s.
The crazed shooter at the Washington Navy Yard who mowed down many innocent people used a civilian version of the M-16, a lethal semi-automatic weapon that fires bursts of three bullets – burp burp burp. That way, even if you have poor aim, you still kill your target. And the shooter did use it as a semi-automatic.
Despite this, effective gun control legislation in the U.S. remains a fantasy, as the powerful NRA National Rifle Association dominates politics. The U.S. cannot even ban purchase of semi-automatic weapons, even though such guns have no conceivable use in hunting or self-defense. This is simply insanity.
There is of course an upside to this story. With its fiscal deficits, the U.S. can solve them all forever by zero-ing the defense budget ($729 b. in 2012) and firing every single U.S. soldier. Just put ordinary American citizens into the field, who own an AK-47, and they will easily match Russia’s AK-47 wielding army. And what’s more – the Americans who own AK-47’s are mostly nutty and extreme. So the Russians won’t have a chance.
An Increasingly Messy World: What We Each Must Do About It
By Shlomo Maital
My friend Bilahari Kausikan, a veteran Singapore diplomat and now Ambassador at Large, has written an excellent study titled “East Asia, US-China Relations and A New Global Architecture”. Some of the points he makes have major implications for each and every person. Here are a few excerpts:
1. We need a new ‘global architecture’: “… once an American President has acknowledged the need for a new global architecture, it is a view that must be taken seriously. Only the US can lead and manage the transition from one system to another. To reach a new global architecture, three sets of more or less tandem and inter-related adjustments will be necessary: a) global, b) regional, particularly in East Asia, and c) domestic in key countries, especially in the US and China. All are complicated and the interregnum between one type of international system and whatever may come after will be prolonged, measured in decades. Along the way there will be stresses to be managed and recurring political, financial and economic crises to be navigated. It will be a more than usually messy and unpredictable environment for East Asia and for the world for a quite long time to come.
2. “… while US leadership is still irreplaceable, the imperative of US leadership is no longer self-evident, both to other major countries and to many Americans who now question the burdens and sacrifices of global leadership. America will in all probability look increasingly inwards for some time. This is what it has been historically been prone to do after major wars, and the wars in Iraq and Afghanistan were the longest in American history. It would thus be prudent to anticipate a global leadership deficit of some degree.”
3. “The US and China will eventually grope and stumble their way towards a new modus vivendi. The questions that cannot now be answered are what the contours of the future US-China relationship will look like; what trade-offs they will make between themselves; how long it will take to reach a new equilibrium; and what excitements the region will have to endure along the way?”
4. “In the 21st century, ‘normal’ politics is all too often dysfunctional. This is a global phenomenon manifest in all polities legitimated by some variant of the notion of the sovereignty of the people. The experience of countries around the world has shown that the validation of politics by this 18th century political philosophy sooner or later sets up a dynamic that makes governance more difficult.”
So what does all this mean for ordinary people and for companies?
As Bilahari notes, the world is going to remain highly unstable, for years to come. It is not a multipolar world, but a NONpolar world. America still has the clout to impose order, but it lacks the will do to so, after futile wars in Iraq and Afghanistan. Moreover, normal 18th. C.-style democracy has become dysfunctional, in a fragmented era of social-network protest.
For companies, strategy will need to be flexible, agile, rapid, alacritous. Survivors will be those best able to react quickly and correctly to unanticipated changes.
For individuals, the precise opposite. We cannot forecast labor markets, we do not know which skills, products, industries or even geographies will prevail. So, best to look inward, identify our passions, and work to fulfill them, irregardless of the typhoons raging around us. This was always the best path. It it even more so in the turbulent world that Bilahari Kausikan decribes.
One more thing. A USAToday Poll finds that young Americans have a strong impulse to contribute to their society – but not through politics. Only 17% of Caucasians, and just 8% of all blacks, say they seriously considered running for elective office (at any level); only 22% of college grads, and only 25% of those who earn $100k or more; only 22% of men, and just 8% of women! America’s dysfunctional politics, about to push the Obama administration off the fiscal cliff, will be dominated by second-rate scoundrels, precisely at a time when strong leadership is needed.
How in the world do we get young Americans to clean up America’s political mess, which is polluting not just America but the whole world?
Gifts from the Gifted: Richard Branson (Virgin)
By Shlomo Maital
I just finished a magazine column about a gifted young woman who is 27. She has a Ph.D., is married, created software that can predict the future, has a black belt in karate, won a coveted prize, interned at Microsoft, did Army service, and is now launching a startup. Interviewing her led me to reflect how many wonderful gifts humanity receives from such gifted people. But what is special about them?
I came across a study of a very gifted entrepreneur, Richard Branson, of Virgin fame (I counted over 40 Virgin companies, ranging from travel agencies to music to mobile to…everything; the name ‘Virgin’ happened because Branson and partners felt they were ‘virgins’ in business when they started their first company]. The study is by Larisa V. Shavinina, of the University of Quebec.* (Branson is the 6th richest individual in Britain. ) She lists the causes of Branson’s entrepreneurial giftedness. Here are just a few:
# “rule breaking”. I always enjoyed breaking the rules, Branson says; e.g. ‘no 17-year-old can edit a national magazine’, so he chose to do so.
# “initiative”: He broke rules to do things better, not just to rebel. At school, he wrote the headmaster, making concrete suggestions regarding school meals, etc.
# “create value”: “I never went into business purely to make money. A business has to exercise your creative instincts.”
# “fierce independence”: I never enjoyed being accountable to anyone else or not in control of my own destiny, he notes.
# “love of challenges and adventure”: Balloon flights and the Virgin companies form a seamless series of challenges I can date from my childhood, he writes.
Shavinina notes that Branson’s parents supported his entrepreneurial instincts strongly, and his grandmother holds two British records: Oldest person to hit a hole in one in golf (90), and oldest to pass the advanced Latin-American ballroom-dancing examination. ‘You’ve got one go in life,” she told Branson, “so make the most of it.” He listened. Branson’s aunt Joyce lent him the money to set up his music company, when he was 20, when the banks refused. His Aunt Clare was an entrepreneur who built a business on an endangered species of Welsh Mountain sheep. Clare flew a biplane and liked to parachute. Branson named his first child after her.
* Larisa V. Shavinina, “Early Development of Entrepreneurial Giftedness”, ASAC 2007.
Keynes? Or Friedman? We Now Have an Answer
By Shlomo Maital
Milton Friedman J. M. Keynes
The two leading economists of the 20th C., Milton Friedman and J.M. Keynes, utterly disagreed. Friedman said that it is money that drives economic demand and prices. Keynes said, no, it is the aggregate demand driven by government spending that, in bad times, drives the economy. Recession? Cure it with money, Friedman believed. Recession? Cure it with fiscal policy (deficit spending), Keynes said.
Nature has now conspired to resolve the debate. After the Lehman Bros. bankruptcy on Sept. 17, 2008, the U.S. (and the world) went into a global financial crisis. Political deadlock in the U.S. Congress has now forced sharp budget cuts, curtailing Keynesian stimulus. But the Fed, under Bernanke, continues to pump huge amounts of money into the system. This is a massive natural experiment. Heavy monetary policy, reverse fiscal policy. Let’s see what happens.
If Friedman is right, it will work. If Keynes is right, it won’t work.
Keynes is right. Here is the evidence, taken from today’s Financial Times: “According to the Census Bureau, the median household income fell from $51,100 to $51,017 in 2012, and is now 8.3 per cent below its pre-recession peak in 2007. The annual Census Bureau figures demonstrate what has gradually become a lost generation for the American middle class. “Poverty is higher today than it was in 2000 and household incomes are lower,” said Sheldon Danziger, president of the Russell Sage Foundation, which funds social science research. That is reflected in continued high unemployment, which is currently at 7.3 per cent. Many more people are underemployed or sitting out of the jobs market. “We just haven’t seen enough job growth,” said Justin King, policy director at the New America Foundation in Washington. “There’s so much unemployment and so much slack that it’s a buyers’ market for labour: people haven’t been able to get wage rises or move to better jobs.” There’s so much unemployment and so much slack that it’s a buyers’ market for labour: people haven’t been able to get wage rises or move to better jobs
OK, so now we know the truth. All the heavy money printing, and zero interest rates, have done is enable the fat cats to borrow cheap and invest high. It hasn’t helped with jobs, or family incomes. Meanwhile, budget cuts are keeping the economy in stagnation.
If you disbelieve me, ask Paul Krugman, Nobel Prize laureate. Or Stan Fisher, until recently Israel’s central banker and formerly deputy MD of the IMF. Or, better yet, just look at reality.
Now that the evidence is clear, if we are rational thinking human beings, why is the policy not being changed? Ask the Republicans, locked into their Neanderthal Obamaphobia. Who pays the price? The American people, and to some degree, the rest of the world.
Bethlehem Alemu: Doing Good, Doing Well, in Ethiopia
The story of soleRebels
By Shlomo Maital
Bethlehem Alemu – soleRebels
Bethlehem Alemu is a young Ethiopian woman whose business soleRebels creates beautiful shoes, made entirely in her village and surrounding region (including the materials). She can tell her story far better than I. So, in her own words, here it is. It is a bit lengthy, but worth reading to the end.
“My name is Bethlehem Tilahun Alemu and I am the founder and Managing Director of soleRebels here in Addis Ababa, Ethiopia. It is my immense pleasure to introduce myself and soleRebels to you. For us here at soleRebels, creating great footwear is also a means of creating hope. This is the concept behind soleRebels.
soleRebels began in 2004 as an idea: to bring jobs to our community, Zenabwork, a small village in Addis Ababa, Ethiopia, a place where there literally were none. Having grown up watching our family and neighbors struggling, we decided to create the “better life” we were all waiting for by harnessing our community’s incredible artisan skills and channeling them into a sustainable, global, fair trade footwear business. We have done that and more and we are proud to say that the soleRebels brand is being enjoyed by people in over 30 countries around the world.
We selected shoes because we saw that footwear was an excellent platform to begin to share many of the indigenous eco-sensible craft heritages and artisan talents that we have here in Ethiopia with the world! It also meant that based on the approach we were taking to footwear creation – that being hand crafted and eco-sensible – that we could source and make almost ALL our materials locally, thereby creating an export product from 100% local inputs. This allowed us to riff, recreate, and re-imagine the traditional “selate” and “barabasso” shoes, a recycled car tire soled shoe that has existed in Ethiopia for a LONG time (in fact, it was THE footwear from back in the day when the ORIGINAL “soleRebels” fought off the invading forces and kept Ethiopia as the only African nation to never be colonized!). We took this wonderful indigenous age-old recycling tradition and fused it with fantastic Ethiopian artisan crafts and excellent modern design sensibilities and turned it into footwear that has universal flavor + appeal that is now a market beating export brand being enjoyed by people around the globe!!!!
We carry on that original riff everyday growing the styles, the product range, the quality and the brand. soleRebels features collections of superFresh, comfy + cool sandals, flip flops and shoes featuring recycled car tire soles and an array of recycled and sustainable ingredients like hand spun + hand loomed organic fabrics and a pallete of unique natural fibers including organic pure abyssinian jutes and PURE Abyssinian KOBA. So have fun, help others and be proud that you are making the world a better place. one step at a time. and really, what more could you ask from your shoes… ”
Support Bethlehem Alemu. Buy her shoes; ask your shoe store to stock them. It will do more good than buying Nike’s or Adidas.
Exporting the Bubble to Asia
By Shlomo Maital
Suppose, just suppose, you have a bad cold or a case of the flu. Do you cough into your elbow, avoiding infecting others, or do you blast your germs right into their faces? Obvious, right?
Why then are U.S. and European banks doing the latter – infecting emerging markets (e.g. Asia) with their financial crisis, after ruining their own economies?
In today’s Financial Times, Claire Jones reports that bank lending to emerging markets has reached record levels. She reports:
“Banks piled into emerging markets at a record pace earlier this year, highlighting the scale of the global search for yield that has partially reversed since the US Federal Reserve said it intended to slow its bond buying. Cross-border lending to emerging markets surged by $267bn, to an estimated $3.4tn, in the first quarter of 2013, the Bank for International Settlements said on Sunday. The Bank for International Settlements (the central banks’ central bank) said the 8.4 per cent increase was by far the highest recorded, with the amount of interbank lending rising by almost $200bn, or 12 per cent. … 85 per cent of the rise was accounted for by more lending to China, Brazil and Russia. The publication of the figures comes as the US Federal Open Market Committee gears up for its policy meeting, ending on Wednesday, when it could decide the timing and pace at which it will slow its $85bn worth of monthly bond purchases. “
Jones adds: “With interest rates close to zero across advanced economies and liquidity abundant as a result of their central banks’ mass bond-buying sprees, credit has flowed into emerging markets in recent years as lenders and investors sought higher returns. According to the BIS data, interbank lending to emerging markets in the Asia-Pacific region alone has doubled since the investment bank Lehman Brothers collapsed five years ago.”
What is going on?
Simple. America’s Fed, under Greenspan, purposely created a housing bubble by bashing interest rates down to near zero and flooding the market with cheap credit. That led to the global financial collapse. To fight the recession, the Fed has pumped $85 b. in new credit in the markets every single month (by buying bonds). But what to do with the money? Banks are cautious about lending it and financial returns are miniscule. So, why not export the money to emerging markets, where rates are higher?
The result has been to help foster a housing bubble in China, in Singapore and in other countries.
This is just one more example, though an extreme one, of how the U.S. Fed runs its monetary policy solely for the interest of the United States, while generating major collateral damage to other nations.
It’s time to create a global currency, and run it through a global Central Bank. The U.S. dollar long ago lost all claim or right to its role as the world’s money. It is far too selfish.
Bypassing the Banks: Good News, Bad News
By Shlomo Maital
A new Israeli website called e-loan will open for business in the next few days. It will import an idea proven abroad — Web surfers can borrow up to NIS 50,000 (about $12,500) at 8% – 10% interest, with a 2% commission to the website, from funds invested by surfer-investors with spare funds. Background checks will on would-be borrowers will be done by the website but investors are urged to diversify their loans, and spread the risk.
This is a trend toward what economists typically, in their impossible jargon, call financial disintermediation. That means, we no longer need the banks to intermediate between those who have money and those who need it and want to borrow it. We can bypass the banks. We can do this on the Web. Banks are hoarding their cash anyway, fearful of lending it. So we need to find our own solutions.
Financial disintermediation is already a strong trend, as large corporations access capital markets directly by issuing bonds. This has not proven successful in Israel; tycoons are now struggling to redeem the bonds and ask for ‘haircuts’ (reductions of half or more in the principal of the debt). Will it work better for ordinary small investors and small borrowers? Will they have higher standards than the tycoons?
I think the e-loan phenomenon, bypassing banks, is both good news and bad. Good news, because it provides access to credit when none would be available otherwise. Bad news, because, look at the price! Interest of 8% to 10%, plus 2%, is very high, hard to pay back, hard to find investments that make such debt worthwhile. It is high, because of the risk premium. And because ordinary citizens, and small businesspersons, do not have the privileges that the fat cats have, of borrowing at low interest, without full collateral, or any collateral at all, from banks.
Let’s wish e-loan well. Above all, let’s wish for new alternatives to the banks, disintermediation, to lower their power and to lower our dependence on them. The less power they have, the less they can scalp us.
The Rich 1% Recovered; The Rest of Us Didn’t
Fat Cats: Let’s Have Another Bubble!
By Shlomo Maital
Paul Krugman’s New York Times column “Rich Man’s Recovery” draws our attention to Annie Lowrey’s New York Times blog Economix (Sept. 10). Using data from a study by French economists Emmanuel Saez and Thomas Pikkety, she shows alarmingly that for the U.S.:
* In 2012, the top 10 % of income earners took home more than half the country’s total income. This is the highest recorded level of inequality ever, higher even than in 1929! (Income includes capital gains).
* The top 1 % of income earners took home one fifth (20%) of all income, close to the previous record in 1929, and among the highest levels since 1913, when the income tax was imposed.
Recovery? It’s all gone to the fat cats. None to us, not even crumbs. That is why the ‘recovery’ is so weak and tenuous.
According to Lowrey: “The figures underscore that even after the recession the country remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s, if not more so. High stock prices, rising home values and surging corporate profits have buoyed the recovery-era incomes of the most affluent Americans, with the incomes of the rest still weighed down by high unemployment and stagnant wages for many blue- and white-collar workers.”
I would stress another related explanation. The U.S. Fed has fought the Depression with the only tool available, by printing scads of cheap money, lent at virtually zero interest. Directly and indirectly, this benefits the fat cats. But it hasn’t benefitted us ordinary people. Why? Because the goal of the Fed was to spur investment. But businesses aren’t investing, who needs to invest with demand so weak? Why is demand so weak? Because we don’t have money? Why don’t we have money? Because the fat cats have it. Why? Because they have quickly returned to the games that caused the financial collapse: financial manipulation, in place of real economic investments, leveraging cheap money. Not only that – by manipulating bond prices, they have panicked Fed Chair Bernanke into retreating from his plan to stop printing more and more and more money. If you think the Fed policy is independent, examine what happened when Bernanke just mildly hinted he might stop printing money. Wall St. slammed bond prices down, and stock prices – and Bernanke quickly backtracked.
The Fat Cats caused the crisis. We bailed them out. And now they’re back to their original games. They might as well all put this bumper sticker on their Porsche’s: “Hey…let’s have another bubble. Why the hell not?”
The World is “Pareto”, Not “Bell Curve”
By Shlomo Maital
Writing in the GIBS (Gordon Institute of Business Science) magazine Acumen, entrepreneur and leader Adrian Gore * makes an important point.
“Most things are incredibly skewed in their distribution and follow the Pareto principle, the 80/20 rule”.
We’ve been led to believe that human beings are distributed according to a bell curve, or Normal distribution. True, height is a bell curve. But nothing else is. (IQ is a bell curve, only because that is how it is defined and measured). Nearly everything else is skewed – a “Pareto” distribution. 60% of Twitter messages come from just 2% of users. 20% of the world’s nations won 75% of the gold medals at the London Olympics.
In business, 80% of revenue and profits come from 20% of products and services.
In health care, the sickest 20% generate 79% of health care costs. And within this 20%, the sickest 20% generate 60% of total costs.
What this means, says Gore, is this: To shift a bell curve is very very difficult. You have to shift the whole thing. But to shift a ‘long tail’, in a Pareto world, “a shift of the tail drags the average with it and modifies the system.” And you can shift the tail with just a few remarkable creative individuals.
This poses a huge challenge. To maintain social cohesion, fairness and justice, societies must treat everyone equally and must try to offer everyone equal opportunities. At the same time, society must try hard to identify truly gifted individuals and give them free scope to deploy their talents and pull us all toward that wonderful ‘long tail’. Gore notes that if Steve Jobs were South African and launched Apple in South Africa, he alone would have increased South Africa’s GDP by 20 per cent. And here is the key point: By trying very hard to give everyone equal opportunities, many gifted people whose gifts would otherwise remain unknown and undiscovered, will emerge to change the world.
It takes an average of 250 tons of mined ore to produce one carat of finished diamond ! If we are willing to process so much ore for just one diamond, surely we can also find ways to discover the diamond minds among our disadvantaged children. I wonder how many such undiscovered gifted minds exist, among the South African miners who mine the ore to discover the diamonds – and how much more valuable those minds are than the diamonds they seek.
* GIBS is Africa’s leading business school, located in Johannesburg. Acumen is its periodical. Adrian Gore is CEO of Discovery Holdings, which owns Discovery Health, a healthcare provider for 2.5 million South Africans. He pioneered the Vitality program, which rewards people for maintaining good health.