Analysis

The hardest year and the rediscovery of talent

What the world needs now

Unearned economic success breeds ever greater braggadocio and draws even the most reluctant investors into pledging the family silver to chase miraculous returns.

If a total stranger offered to give you 10% return on your investments, beating the market come hell or Jacob Zuma, you would be right to be sceptical. However, when that person was Bernard Madoff, stalwart of the investor clique, numerous fund managers threw discretion out of the window. Madoff took advantage of the mood of the time and defrauded investors out of an estimated $ 50 billion.

And so was built the credit crisis, where few gave thought to where “guaranteed” returns were supposed to come from, or what underpinned all this economic frivolity. Even the totalitarian and Communist dictatorship of Cuba seems genuinely astonished that a trade deficit that grew 43% has cut their economic growth forecasts by half.

In the UK, the 99-year-old Woolworths is shutting 200 stores as it declares bankruptcy. 27,000 people have lost their jobs. Several other major high-street brands have followed. In the US, GM, Chrysler and Ford are in peril and await a multi-billion dollar bailout from government to protect over 1 million jobs.

The nature of ownership changes as property becomes more intangible

Not all are equal...

Digital music is now 15% of the total music market, or $ 2.9 billion in 2007 – up 40% from 2006; however, the market as a whole has shrunk by 10% to $ 17.6 billion; for every song sold legally, some 20 songs are swapped illegally.

The Warner Music Group (WMG) is well aware of the problem, and also recognises the limitations of the current approach to dealing with illegal file and music sharing. The current approach is that, where file-sharers are identified, they get lawyer’s letters demanding that they pay a fine and license fees. Students around the world have been threatened in this way and the result has been raging animosity.

File-sharing hosts, such as Napster, have been shut down, but file-sharing continues.

Entrenching the Wealth Gap

Big City ... beyond the shacks

Ex-President Thabo Mbeki used to lament conspicuous consumption by the wealthy, even as governments of the world push trillions of dollars of borrowed cash at consumers so that they can conspicuously consume.

First among things that cause rage are the massive salaries paid to senior executives in both the public and private sectors. “Paying these outrageous salaries and bonuses to chief executives has become a South African fetish. There is no correlation between what CEOs earn and how their companies perform,” says Kimani Ndungu, research director at the COSATU -aligned National Economic Development and Labour Institute.

The remedy that COSATU, and other left-leaning organisations, offer is massive redistributive taxes levied on the rich.

Why do these massive salaries exist at all? After all, if business really is about the optimum pursuit of wealth, why would the owners of a company choose to pay so much to senior executives if they got nothing in return?

Iceland, Crisis and the Wrong Way to Recovery

Northern Bright-lights

It is a 50-minute journey along a straight and isolated highway from Keflavic International Airport to Iceland’s capital city, Reykjavik. Time enough for my taxi-driver to wind himself up into a tower of apoplexy over the British behaviour during the Cod Wars.

The Cod Wars ended in 1976, and were triggered by Iceland unilaterally expanding their territorial waters from 50 to 200 nautical miles. At their height, the British supplied 22 frigates, seven supply ships, nine tug-boats, and three support ships to protect only six to nine fishing trawlers from having their nets cut by plucky Icelandic coast-guard.

The war ended when the British realised that there weren’t enough fish in the world to justify the expense of such a ridiculous military operation.

Iceland has been invisible since then. Its total population is only 313,000 people. They pop up only briefly when the annual league tables of nations with the highest standard of living are published. Then Iceland is usually in the top three for per-capita income, education, health care, life expectancy and that sort of thing.