The Trouble with Market Forces...

It’s now more than thirty years since Margaret Thatcher’s landslide election victory of 1979.  Unusually for the UK, power has only changed hands once more in that entire period – in 1997 when Tony Blair won a landslide for Labour.  In fact though, in many ways nothing changed at all in 1997.  One of the main themes of British politics since 1979 continued under Labour:  the enthusiastic divesting of publicly-owned industries and companies, and the attempt to introduce the rule of market forces in industries which it isn’t possible (either politically or practically) to divest.

First in the early 1980s we had the privatisation of government-owned utilities, car manufacturers, coal mines, steel mills and everything else that could be got rid of.  The whole process came as a shock to many.  I was practically a babe in arms in 1980 but I remember asking my father why the new government was taking so much trouble and spending so much money on separating-out the telephone section of the Post Office.  The answer shocked me:  “so that they can sell off the phones.”  At the time this was such an outlandish idea that I simply didn’t believe it.  But thirty years later, what was once the phone section of the UK Post Office now operates in 170 countries, and it’s impossible to conceive of British Telecom doing almost all of what it now does, had Thatcher not come along and shocked us all.

On the other hand, it never even occurred to Margaret Thatcher to privatise the Royal Mail, the other half of the Post Office.  And yet this is exactly what the current Labour government wanted to do, until they ran out of parliamentary time and political capital.  What would have been too Thatcherite even for Thatcher had become Labour policy.

Meanwhile under both parties a year never goes by without some new scheme to increase the influence of market forces (either real or ersatz) into education, health and every other sector where the state still has some kind of control. 

Recently it emerged that London Metropolitan University has been fraudulently maximising its income by neglecting to notice when students left its courses.  Since all universities are now paid per student from public funds, this amalgamation of former polytechnics actually benefited from its own lax procedures, to the tune of at least £36million.  In other words, in this case the attempt to introduce market forces in education – which even today most would agree should essentially be a public service – has had the opposite effect to that intended.  The reward of a flat fee for every student attracted to its courses was meant to encourage London Metropolitan, and every other university, to improve its standards of education, accommodation, and everything else that could attract students.  Instead, the incentive actively encouraged universities to become lax in their monitoring of which students continue to turn up.  Usually where genuine market forces apply, an organisation is eventually punished for its inefficiencies.  In this case, the opposite has taken place.

Until very recently there was a clear consensus in British politics that it’s necessarily a good thing for governments to minimise their own involvement and oversight wherever it's possible for a sector to be run by blind market forces.  This assumption is lazy economics and lazy politics.  Thankfully, it's now being challenged – it was, after all, one of the causes of the banking crisis.  Perhaps it should now be challenged elsewhere.  

We study the problems of trying to impose market forces in Module 1 (Introduction) and Module 11 (Economics) of the Mini-MBA.

Meanwhile on the Markets...
I hope you took advantage of the rugby tip I gave you on Friday, which came in at 13/8.  
I've been watching the Autumn Internationals with a view to picking out a good bet for the 2011 Rugby World Cup.  I can't see New Zealand hitting a peak at the right time.  They never do, and show few signs of reversing the trend.  As usual, though, their very short odds (typically 5/4 at present) are distorting the rest of the market.
The result is a worthwhile price for the team which looks like it will peak at the right time - Australia.  Matt Giteau has matured into a superb fly half, and in Genia he now has a promising halfback partner who should be at his peak in two years' time.  Australia finally have an excellent scrum which no longer lets down their backline.  I have gone for Australia for the 2011 RWC, currently available at 5/1 with Ladbrokes but as short at 7/2 with some other bookies.  If you don't already have an account with Ladbrokes, use this link to take advantage of their current joining offer.
   

Good Strategy + Time = Bad Strategy?

In recent months Rupert Murdoch has been trying to find a way to make money from the online versions of his newspapers. The reason, of course, is that News Corp are no longer making any real money from the print versions.

You and I are both part of Murdoch’s problem. The more we read our news online, and the more we seek the opinions of bloggers instead of leader writers, the less money Murdoch makes out of us. Murdoch has fingers in many pies, and he no longer needs newspapers to make his money. But newspaper ownership is in his blood – he inherited the Adelaide News from his father – so it’s hardly surprising that he wants that side of his business to survive and thrive even in difficult times.

In the developed world, the newspaper industry has been in decline for many decades. Technology actually saved the industry once – in the 1980s the typesetting and printing process was computerised, helping to bring many titles back into profit. But now, of course, the rise of the internet is a real threat to the future of the printed newspaper. People no longer have to pay for news and opinions, and the print barons are casting around for a remedy.

In Britain this desperation has become more and more obvious. Back in August, James Murdoch (Rupert’s son and probable successor) used the high-profile MacTaggart Lecture to launch a sustained attack on the BBC, and in particular the extensive, free-of-charge, provision of news content on www.bbc.co.uk. To him, the BBC is an “unaccountable institution” which “threatens significant damage to the provision of independent news, investment in professional journalism, and the innovation and growth of the creative industries.”

Wee Jimmy certainly has a point. The BBC is a public sector organisation competing in the private sector. It has a guaranteed income funded by British tax payers, and the ways in which it spends this income can distort the free market. Without the BBC, perhaps other providers would by now be able to charge for online news provision – which is what News Corp want to do.

But on the other hand, the Murdochs are surely barking up the wrong tree if they think the BBC is the root of all their problems. If the BBC wasn’t providing free news content, someone else would. Now that the internet exists, it can’t be uninvented, and it’s likely that there will always be someone willing to publish the news online for free, if only for advertising revenue.

Perhaps it’s time the press barons recognised reality and stopped trying to make money from their papers. There are industries where company owners don’t expect to make money but still get involved. There are other rewards available in these industries – perhaps a higher public profile or the hope of increasing their power and influence, perhaps simply fun. Football team ownership is an obvious example. Perhaps in future Murdoch should view The Times and his other titles in the same way as Roman Abramovich treats Chelsea FC – as a vanity project with benefits.

We study the issue of Strategy over time in Module 9 (Management of Change) of the Mini-MBA.

Meanwhile on the markets… Wales against Australia could be the best game of the Autumn Internationals, with both teams apparently keen keep the ball in hand. Wales’ efforts to use their backs should be helped by the inclusion of Peel instead of Cooper at scrum half, which should lead to quicker service.
Having beaten Australia 21-18 this time last year, Wales fancy their chances of a repeat. The Welsh are coming off a win last week (33-16 over Argentina) and Australia a loss (9-8 to Scotland), but still the bookies make Australia the narrow favourites.
Despite my many Welsh connections, I agree with the bookies. I can’t see this relatively poor Wallaby side playing so atrociously two weeks running, and I’ve gone for William Hill’s 13/8 handicap bet on Australia minus 5 points.

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Virgin on the Ridiculous?

Back in May, Richard Branson announced that the first of his Virgin Galactic spaceships would be built by December, ready to start test flights in 2010.  He’s been back in the media recently to confirm that all is going to plan.  Branson says he’s confident that commercial space travel will soon be much more than just a millionaire’s dream. 

This is heady stuff, and I couldn’t stop myself from buying this month’s Focus Magazine, which Branson has “guest-edited”.  (In other words, much of this month’s magazine is one big advert for Virgin Galactic.)

Branson’s an example and an inspiration to all business-owners.  In forty years he’s gone from a market stall with a mail-order sideline, to a group of 400 companies worth a total of £5billion.  Impressive by any standards.  And of course he’s helped his empire grow by staying in the public eye.  He’s an excellent self-publicist, always willing to trade dignity for attention.  Whether it’s long-distance balloon flights or beardy cross-dressing, our Dick’s there, giving it all he’s got.  Who could doubt his enthusiasm and his self-belief when he talks about “the dream of the world’s first commercial human space launch system becoming a reality…. I can see the end of the beginning of the most exciting project I’ve ever been involved in.  I’m looking forward to the spaceship being unveiled and flown for the first time next year.” (Focus Magazine, December 2009)

And yet… and yet…

It happened over ten years ago, but I find it hard to forget an interview Branson gave to Sky TV back in 1998.  He’d just bought London Broncos rugby league club, and Sky sought him out at half time during his first game as owner.

He was his usual enthusiastic, committed self, and he said how excited he was to have been able to buy such a wonderful team, which he’d been following for some time.  He finished by saying something like “I’ve really enjoyed the first 45 minutes, and I’m looking forward to the next 45.” 

Oooh dear, Richard old chap.  Every last TV viewer, and certainly everyone in the ground – except him – knew that rugby matches (of either code) take 80 minutes to complete, not 90.  90’s that other code, old fruit.  I couldn’t have been the only viewer who felt embarrassed for him.

We discuss Branson’s hugely successful sequence of strategic about-turns in both Module 2 (Strategic Management) and Module 9 (Management of Change) of the Mini-MBA.  Since 1969 he’s made a lot more right decisions than wrong ones, but let’s not forget the times when he’s let his enthusiasm get the better of him.  You can join the waiting list for his commercial space flights here.  I for one will be keeping my money in my pocket.

Meanwhile on the markets… Before he beat Valuev and picked up a heavyweight world championship, I’d been tipping David Haye for BBC Sports Personality of the Year on another blog.  The really long odds have gone of course, but I believe he’s still good value.  Joe Calzaghe won this award two years ago, so we know there’s a boxing constituency willing to pick up the phone and vote for the SPOTY.  The odds-on favourite is Jenson Button, but last year Lewis Hamilton could only manage second place, and I believe Haye at around 6/1 (or 7/1 at Betfair) is a much better value bet than the 8/13 generally available for Button.