Saturday, August 4, 2018


382. The short term virus

As suggested by Haldane (and others), there is an increasing preoccupation with the fast and short term in finance and investment, knowledge and learning, and organization and work. It happens not only within these fields, but operates as a virus that contaminates one field from the other.

I gave an example in the preceding blog. Fast, short term politics drives out slow, long term knowledge to feed policy. This lures students into shallow knowledge. And a generation later there will no longer be capacity in policy making to absorb deep knowledge, if the use of it ever again becomes viable and attractive.

The media are under pressure to satisfy to hunger for the fast and shallow, they are under financial pressure to replace the expensive, older carriers of deep knowledge by the younger, cheaper novices carrying the faster and more shallow. Weaned on shallow media, the new world waxes more shallow.

The virus operates especially, most spectacularly, infamously, in the financial sector, contaminating the ‘real economy’, in imposing the imperative of quick returns. Profits in the financial industry are increasingly made more with financial products than with production in the real economy. The snake fattens by biting its tail.

We see it also within firms. I have personal experience with Shell International Oil Company. Shell was populated by two cultures. First there was the slow culture of the engineers (often Dutch), in exploring and surfacing oil and gas, refining oil in manufacturing, liquefying gas, and storing, and transporting and distributing them. Then there was the increasingly fast culture of the financiers, investors and accountants (often British).

With a head of the firm from the accounting function (though a Dutchman), the virus broke through. Financial wizardry and blowing the bubbles of share value led the firm into the temptation of overvaluing its oil reserves, by hiding the probabilities of ‘dry’ or commercially difficult to exploit wells. The engineers protested but were overruled.

With rising remuneration, in salary and bonus, for workers in the financial sector, there is pressure to apply them also in other firms. This yields a widening gap in remuneration between the finance people and the engineers, discouraging engineers to come in, or encouraging them to clamber onto the grandstand of finance.

In organization and work the pressure towards fast, short term returns has led to an imperative of flexibility, with short term, maximally flexible labour, in projects rather than jobs, and, with suppliers, spot contracts rather than more durable collaboration. This muscles out the slower process of making investments that are ‘specific’ to the firm, in workers, in training, education, and teams or communities within the firm, and more durable, deep relations with suppliers, in joint development.

People are willing to invest in such firm-specific investments, needed to produce specialties,  high quality, and innovative products, yielding higher and longer-term profits, only if the duration of the job or relationship is long enough to recoup the firm-specific investment. The upshot is that one should go not for maximum but for intermediate, optimal flexibility: enough to prevent rigidity but not so much as to discourage depth.

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