How to destroy a community –and your reputation

Regular readers of this blog will have noticed that I have replaced the Video of the Month with a link to the “Keep Johnnie Walker in Kilmarnock” campaign. Please read the different pages of the site that explain the link between Kilmarnock and Johnnie Walker and how Diageo, the owners of the brand want to close Johnnie Walker’s bottling plant in Kilmarnock with the loss of 700 jobs. Johnnie Walker was a man from Ayrshire who started selling blended whisky in the town over 100 years ago. Kilmarnock and Johnnie Walker are like Detroit and cars.

With my wife being from Kilmarnock, I had been aware of the issue for many weeks but one thing or another kept me busy. There is far too many news to write about and then I get comments from people with very limited horizons who deserve to be put in their place.

Today however I was having my tea at home when Paul Walsh, CEO of Diageo came on TV in a BBC interview during Reporting Scotland at 1830h. His fake concern for the future of the town and the workers in Kilmarnock, his disguised threats, and above all this snooty bullying attitude enraged me. A not very good summary of the piece is available here.

The company, of course, has a section on its website about Corporate Citizenship.

[link].

Kilmarnock is a town of just over 45,000 people. Diageo is by far the largest individual employer after the local council. It employs about 700 people in the town plus many in indirect services. The people of the town are very proud of being the birthplace of Johnnie Walker and have worked hard to ensure Diageo is a profitable business. Diageo now want to close the bottling plant and leave 700 people out of a job and move the bottling operation somewhere else.

Today in the BBC, Mr Walsh came across as an arrogant man without a soul. This issue proves than Mr Walsh and his management team have not done their homework and have let themselves open for some very harsh questioning.

None of the stakeholders are free of blame in this story, but Diageo’s directors, being in charge of the company, have the ultimate responsibility.

Diaego’s senior management:

If there is a problem with the productivity of the Kilmarnock plant, relative to other plants or to the peer-group, the company ought to have identified it earlier. If this problem had been identified, then a working party could have been set up to look at alternative options. Admittedly, the location of the plant right in the centre of town must be a limiting factor when considering potential for growth, logistics of transportation, etc. However, the responsibility of the Directors is to ensure that the company remains profitable whilst looking after employees and the local communities in which the operate. In this regard, Diageo has failed four times:

1) It has failed to identify the problem in advance, and find a suitable solution.

2) It has failed to understand the importance to the town of Kilmarnock of the continuation of the plant.

3) It has failed to anticipate the level of public outrage and disbelief and the social irresponsibility to put forward such plans without first seeking alternative solutions.

4) Having failed at all the above, it has failed as well in understanding that relations with the workforce are difficult to improve after such destructive plans have apparently been agreed, and made public.

The local council:

The local authority, East Ayrshire Council, are not blameless in this sorry affair. Everyone with the most basic business knowledge knows that having a bottling plant right in the middle of town in an area of prime land is not sustainable. But the local council was complacent in the extreme and are now contemplating the loss of 700 jobs in the local economy. The second and third order impacts of the closure of Diageo’s operations in Kilmarnock will have repercussions for years to come. Higher unemployment, higher benefits count, loss of related employment in suppliers to the plant, etc. It is scary to consider what Kilmarnock will look like if the plant closes.

Anybody in the Council with half a brain should have anticipated that this would be a problem sooner or later. A working party would have been set up with Diageo. A brownfield site outside the town, with good access to the motorway or even better to the various freight lines around Kilmarnock could have identified and presented to Diageo’s management. That would have secured the future of Johnnie Walker in Kilmarnock for generations to come.

The local council has been Labour for decades and the SNP became the largest party only at the last elections. However, this is no excuse. Anybody in the SNP with business experience should have highlighted this to the previous Labour administration or done something about it since they took power of the council last year.

I strongly suggest that someone in the Council engages with Brusch-Barclay (the train business) to make sure that the physical location of the plant is not a constraint on growth and the long-term future of this business in Kilmarnock. If there has to be investment to relocate the facility so be it, if this guarantees its long term future. If Barclay closes, Kilmarnock will become like Motherwell, historically a heavy-industry centre, but now a place full of neds and alkies who live on benefits one generation after another. At present, Kilmarnock is not as depressing as Motherwell, but if the local council is not careful, it will happen.

Employees and the unions:

Last but not least, the unions.

If a workforce is unionised, the local union representatives have the responsibility to look after the long-term future of the employees and engage constructively with management and politicians to raise any concerns.

I don’t know the statistics for productivity, unauthorised absence, etc for this plant. But if they were poor, [management and ] the union should have identified the problem and react accordingly.

When people are not happy at work, they should leave for another job. As employee recruiting and training is very expensive, it will be in the best interests of employers and the owners of capital to keep such variable costs down.

When it comes to employee relations, the UK is probably at the bottom of Europe, probably in a par with Spain. On the one hand management often treat the workforce with contempt and as necessary nuisance. On the other hand, unions treat employers as if they were slave merchants and encourage employees to nurture grievances instead of resolving them. Whether it was the chicken or the egg first is neither here nor there. The bottom line is that the refractive behavioural dynamics that occur in the British workplace have to stop and someone has to make the first move. Since labour is now a globally interchangeable commodity, I would strongly suggest that it should be the trade union movement who takes the first step.

And if employers keep treating employees like crap, like some of them do, then I would suggest to the unions that they try running a business themselves via co-operatives or whatever legal structure, and pressing for a change in the law so that self-employment and small-medium enterprises are encouraged. At present, politicians are held by ransom by the big corporations who threaten relocate somewhere else unless they are given more tax breaks and incentives. If we had an economy less dependant on big employers and more reliant on SMEs, this bribery would not happen so regularly.

As far as I am concerned, if Diageo closes their bottling plant in Kilmarnock, the town that gave birth to Johnnie Walker over 150 years ago, it will have destroyed any credibility it had with regards to social responsibility, stakeholder management and being a good corporate citizen. When a business that relies on brand image so much sets out plans that tarnish its reputation, it is a sign that things can only go down from here. Despite today’s announcement, if this plan goes ahead, Diaego is definitely a sell.

Flimsier reporting

A few days ago, I wrote how foreign correspondents write newspaper articles devoid of any insight and sometimes accuracy when reporting on political developments.

Last Tuesday, the FT carries an article about Spain signed by Victor Mallet, who seems the be the only person who writes about Spanish politics in the FT. Newspaper AVUI provides a decent summary translation and gist of the article.

Here is the Letter to the Editor I sent to the FT. I doubt it will be published.

======

Dear Sir,

It is with despair that I read another article about Spanish politics by Mr Mallet in which he once again limits his sources to the Spanish nationalist side of the debate.

May I ask what knowledge or experience does Mr Mallet have of current Spanish politics whilst being the FT correspondent in Asia? In any case, despite or because of his experience as Madrid correspondent, I am afraid Mr Mallet does what he does best: recycling the usual protestations from the Spanish press like El Mundo, ABC, El Pais, etc, without providing any alternative viewpoint or ideological framework outside the Spanish-centric rhetoric he borrows from his [Spanish] friends in Madrid.

First, the alleged “high-cost of Spanish devolution”.

Funnily enough, there is never any mention of the cost of devolution in Germany or Belgium or Switzerland, each of which allows its Länders, “communities” or cantons far greater powers than Catalonia could ever have under the 1978 Spanish Constitution. Mr Mallet does not provide any source for this claim, let alone empirical data.

Then an often-repeated claim: “The regions absorb about half of all public spending (…)leaving only about one-fifth of outgoings under the direct control of the centre”.

Well, since most services are delivered locally, by either local councils (ayuntamiento) or regional governments (CCAA) it is quite normal that 50% of expenditure is allocated to the administrations that actually deliver services to the public. If anything, I find quite astonishing that central government is plundering 20% the budget providing what services? Perhaps Mr Mallet should explore why central government has a series of bloated departments for powers that have been devolved to the local and regional administrations for two decades now. I think fiscal pressure on Spanish businesses and households could be lowered if they do away with central government duplication.

Mr Mallet then goes on quoting Mr Anson, a known right-wing Spanish nationalist. His tenure as the Editor of ABC and La Razón were marked by his aggressiveness profound antipathy towards anything Catalan. Then another source, this time from El Mundo newspaper.

The problem with Mr Mallet is that his sources are all one and the same: aggressive Spanish nationalism intent of suppressing Catalan or Basque culture and “assertiveness” in the name of a mythological Spanish unity that fails to recognise the right of self-determination for the people of Catalonia or the Basque Country and their ability to decide their own future without any interference. The same obsession that occupied Franco for 40 years.

Mr Mallet writes “Cultural separatism can be seen in the promotion of local languages in schools and other areas of public life, particularly in Catalonia.”.

Local languages are not promoted, they are used with normality by the public and the administration –whenever they are not banned as we have witnessed so often in Spanish history. Would Mr Mallet write that French is promoted in French schools? Of course not. French schools use French and Catalan schools use Catalan. It is what is normal. This of course, as Mr Mallet accurately points out, sparks heated protests from Spanish nationalists. At least they are not sending the tanks –not yet anyway, although I wonder what Mr Anson would think about it.

Next time the FT writes an article about Spanish politics, for the sake of completeness and good journalism, could someone please bother to travel to Barcelona or Bilbao and find out what the other side of the argument is? It is not much to ask.

=======================

Update Friday 21 August 2009:

Well, they did not publish my letter -too many spelling mistakes and bad grammar probably... but they published a brilliant reply by someone else.

Sir, Regarding your article about Spain (“Flimsier footings”, Analysis August 19), I write as economy and organisation deputy mayor from one of the most dynamic of Catalan cities that shares most of your points of view about growth, values, political accountability and competitiveness.

I could reply to your assessment of the political problem of Catalonia and our obsession with our language, political power and money, which is quite inaccurate to say the least. Instead, let me reply by saying that you are absolutely right: we are a real problem for Spain, and as we believe in competitiveness, productivity and a prosperous future in the way you do, I conclude that the best and only way for Spain, Catalonia and Europe to achieve a promising future and to contribute to the world economy is through our independence from Spain.

Thank you very much for such valuable insight.

Jordi Joly Lena,
Economy and
Organisation Deputy Mayor,
Sant Cugat del
Vallès, Barcelona,
Spain

The legacy of Fascism in Spain

These days I hardly write about Catalan politics. It is far too depressing and it only serves to highlight the absolute mediocrity of Catalan politicians, and their treacherous cowardice falsely disguised as pragmatism and prudence. Even those with a mandate to pursue more sovereignty have betrayed their electorate and opted for the gravy train instead of sticking to their principles. Shame on them.

But every now and then, there is an event that defines the ideological framework of Spanish democracy and reveals the extent of the sub-standard democratic nature of the Spanish post-Franco politics. I have wrote about it before. [Spain]

This time, the issue is again the asymmetric application of the law in Spain.

If you are familiar with Spanish politics, you will know that the Spanish state has banned the political wing of the Basque radical movement. This party used to be known as Herri Batasuna, Batasuna, etc… it has changed name and organisational structure a few times but it does not matter: Spain keeps banning the political wing of the radical Basque pro-independence movement so about 10-20% of the electorate, depending on the area, are unable for vote for the political party of their choice. Talk about democracy. This is done under the pretence of a law called “Ley de Partidos”.

There is a problem with this law however. It has only been applied to one side: those pursuing Basque self-determination.

In Spain, there is a fringe party called Falange Española de las JONS [wiki]. Falange is perhaps one of the first Fascists parties in Europe. They were Franco’s party. A Fascist party that was the only party allowed during 40 years. Nowadays, there are many other parties with a similar ideology to this one and they are perfectly legal. They advocate racist policies, a return to Fascist Spain, abolition of self-government, suppression of official recognition of other languages like Catalan or Basque, etc.

Next month, a town north of Barcelona is going to organise a non-binding referendum where the question to be asked is whether Catalonia should be an independent state in Europe or continue as part of Spain. The referendum has been approved by the local council by a majority of elected representatives.

But a Spanish Fascist party, Falange Española de las JONS, has called for a rally against this popular vote. A party with no representation whatsoever in the town, and with fringe representation in Catalonia, has made a call to supporters to demonstrate against the referendum. Fascists thugs and skinheads will be bussed from other areas of Spain to descend into Arenys de Munt, near Barcelona, with the declared intention of preventing local residents from expressing their view on the constitutional future of Catalonia.

At the same time, the Spanish judiciary has prohibited any rallies organised by radical Basque pro-independence movement in Bilbao during the local fiestas, as it has been happening since the end of Franco’s dictatorship. The local comparsas (similar to brass bands, local groups who participate in the festivities), fed up with the interference of the Spanish state in their local fiesta have called for a demonstration in favour of freedom of expression and democracy. These people have no operational link to Batasuna so we will have to wait and see if this one will also be banned or not.

So here we have it:

1) Basque separatists which command about 10-20% of support in the Basque Country are not allowed to exercise their freedom of association and expression through the orchestrated actions of the Spanish government and the judiciary. They are illegalised and unable to get political representation;

2) Spanish Fascists, with sub-marginal representation in Catalonia are allowed to march through the streets of a small town to intimidate their residents into not taking part in a non-binding consultation about the future of Catalonia and Spain.

As I have written before, it is blatantly obvious that the Spanish state condones and allows the development and activities of some radical groups and prohibits the activities of others. It all depends whether you are a Spanish radical nationalist or a Basque radical nationalist. Another example of the asymmetric nature of Spanish democracy.

The only way is down for Obama

Everybody seems to have been taken by surprise with regards to the vitriol directed at the proposed health-care plan by the new US administration led by Barack Obama. Town halls have been hijacked by Republican activists and the “debate” has turned nasty. It has even evolved into an international conflict, with the British PM Gordon Brown twittering in support of the NHS. A loony Tory has joined the “debate” and spoiled the party for David Cameron, for he has all but won the next General Election save a monumental surprise or reversal of fortune. Mr Hannah’s extreme views makes someone like Cameron, a True Blue since birth, look positively socialist.

The public and the media have very short memories. Have we collectively forgotten that a huge percentage of the US public have not accepted, and will never accept the legitimacy of Barack Obama’s presidency? Not only he is a Democrat, which is bad enough for these people, but he is also a black man (ok, technically mixed race), from a foreign father, and his middle name is Hussein. Against all the odds, he won the presidential election and, against all the odds, is still alive. Still, this has not deterred hardcore Republicans from doing anything possible to get him out of office. Some even have started a campaign to question his place of birth [BBC] and thus his eligibility for Presidency.

I have never believed in Obama’s message of hope. I never bought the dream that Obama will change the USA, let alone the world, for the better. [previous post]

It is beyond the powers of any politician, head of super power or not, to improve the world –whatever that means. Obviously, almost anybody is going to be better than that ignoramus of George W Bush and his cohort of reactionary, corrupt, war-mongering lunatics. At least Obama will not make things worst, which is all we can hope for with regards to anything coming from the US politics establishment.

The Obama-bashing excuse now is the proposal for a reform on how to provide health care in the US. Perhaps one could argue that his mistake was to start a consultation. Blair did not have such qualms when he introduced a defacto privatisation of the NHS in England. But then again, he had an absolute majority in Parliament and did not need to bother with silly things like seeking consensus.

For my sins, as part of my job I have spent some time in the past poring over the financial statements of American companies. Most people now that some companies (like Ford or General Motors) have pension liabilities well in excess of their assets. But most people don’t know that health-care premiums are crippling American companies as much as their pension payouts.

In the US, there is no National Health Service (or a publicly funded health service of any kind) that provides universal health coverage. In the land of free-market dogma, health care has been completely privatised and some 47m of Americans do not have any health cover. Health provision is covered by private health insurance. If you are taken ill, and have no insurance or insufficient insurance, the hospital will recover the cost via any legal means, including forcing the patient into bankruptcy and selling his assets, including his home if he owns one.

The problem with such a system is the same as the car sales problem identified by Akerlof. Since the vast majority of us are ignorant about health matters, the insurers have more information about the potential cost of future health care than we have. It is a classic problem of information asymmetry and it will produce the same result in any market, whether is used cars or small company shares.

In the US, employers provide employees with private health cover. This is not the same as in the UK, where many of us have private cover provided by BUPA or a similar organisation. Private health cover in the UK is mostly a way to jump the queue for minor operations like a hernia or sport injuries, or bowel disease. If you need heart surgery, you will be treated in the NHS.

In the US, there is no universal provision of health care so you are left to your own devices. If you have a job, your employer will pay contributions towards a given level of cover. However, this level of cover is sometimes minimal, particularly if you don’t have a management or professional job, so the employee tops up the private health insurance cover with tax deductible contributions. The more you pay, the more you are covered for. In the last few years, the costs have rising so rapidly that companies are cutting on the level of cover provided, leaving employees to fork out the remaining contributions. This has also been driving lower disposable income for salaried Americans.

And it is this discretionary aspect of private health care in the US that is at the core of the problem. If people are pushed to decided whether to have an improved lifestyle (bigger house, bigger car, second residence, golf club membership, etc) or to have better medical insurance, a lot of people will not have the discipline and willpower to pay an ever rising percentage of their income towards their medical plan. It is easier to keep up with the Joneses by diverting that extra income into discretionary expenditure with higher utility.

Hard-line Republicans and the far-right lunatics have come out against any reform claiming that the NHS is almost a Stalinist government death machine. They sprout that any attempt to introduce any kind of social welfare in the US will be the start of socialism. Nothing should surprise us about these collection of ignorant thickos. What is surprising (or perhaps not so) is that they have chosen the British NHS as their target instead of say, the French or Canadian systems which are much better and cheaper to run.

Once again, while I was writing about this topic, I came across a column that explains in a more succinct way what I am trying to get at. [Sunday Herald].

And herein lies the problem, something the author only hints at: most Americans believe that if you don’t have adequate insurance is because you have not done well in life, because you are not trying hard enough. (it can also be because you value playing golf above your family's health). Work hard and you will have good medical cover. Introducing a minimum of state-sponsored medical health care system would be akin to providing something for nothing. This is anathema in the US.

This may strikes us Europeans as mean-spirited and downright nasty. No Christian compassion in the most evangelical Christian nation on earth. It is one of life’s paradoxes (do you remember when I wrote about how people who are in support of the death penalty tend to be against abortion and vice versa?). In US politics, the same people who reject the teaching of evolution in schools, are the most outspoken defenders of economic evolution for other human beings: survival of the fittest is alright for your fellow citizen but not for the rest of the species.

Obama will not win this battle, because he is trying to change something at the core of American citizenship: you get what you work for. Most US citizens believe that people who do not have insurance are layabouts, work-shy, socialists or even worse atheists, and therefore have zero-sympathy for their “self-inflicted” plight.

This will be the first of a many battles that Obama will lose. Half the country has not accepted and will not accept his presidency and will do their utmost to derail any possibility of a second mandate. The countdown has already started. The Obama dream is already fading away and the only way is down, down, down...

Fantasy news in La Vanguardia

Sometimes I wonder what newspaper foreign correspondents get up to that their reporting is so unreliable and often just plain wrong.

Many of us are used to the ignorant reporting of Spanish and in particular Catalan politics by the usual rent-a-word suspects who write for The Independent, Guardian, Times, and even The Economist and the FT. They tend to recycle whatever El País or El Mundo says without contrasting viewpoints or providing any insight whatsoever. I tend not to read them because there is just nothing to be gained from someone else’s ignorance.

I thought they were poor until I read this article from Rafael Ramos in La Vanguardia about Scottish politics. I almost choke on my porridge. According to Sr Ramos, the SNP government in Edinburgh has postponed the Referendum Bill.

I happen to spend the first 10-15min of my working day reading the news and I had not noticed such a big manifesto u-turn. Neither the FT nor any other newspaper had carried the big news. I normally watch Reporting Scotland at 1830h and they also seem to have missed this significant development. How is it possible for La Vanguardia to get such a scoop beating all of the Scottish media?

Except, of course, there is no scoop, because the SNP has not dropped the Referendum Bill and according to Salmond, they have no intention of doing so.

If La Vanguardia or any other media organisation need a Scottish correspondent who knows what is actually going on in this rainy corner of Europe, I am sure we could agree on a reasonable fee.

Bubbles

While I was in Barcelona visiting friends and family, one of my friends asked me (as if I had a clue about anything…) what was the likely outcome of the current financial crisis and what can be done.

I did not venture to suggest any investment strategy or anything like that, apart from avoiding investing in equities unless you had already saved about 1 year of salary. Maybe hedging against long-term inflation by buying gold (via ETF), if you have lots of money spare. In general, my advise for people wondering whether to invest in the stock-market is “don’t”.

But I did try to make the point that in my view we are in so much trouble that the politicians are scared of telling the public. I, like many other people, think that there are no asset bubbles left to burst:

1997-1997: Russian rubble
1999-2001: dot.com
2003-2006: equity
2004-2007: corporate debt
2005-2008: property
2007-2008: commodities
2008-?: government debt

In my view, there are no other assets whose value can be inflated so as to give the general public the illusion of wealth and thus keep consumption going. Every bubble in the last decade has been punctured but as one bubble was burst, another was created and so forth until there is only one bubble standing: sovereign debt.

In order to prevent a banking collapse of unknown consequences, our governments have beefed up the financial system with fiat currency, a posh term for paper money. That is, money that is not secured on any other asset, but on the ability of the issuing central bank to repay the creditor.

In the past, currencies were linked to the gold standard. This system stopped operating in the ‘70s and since then, we have just been in a massive super-bull market lasting over a quarter of a century, navigating our way from bubble to bubble. This is the view of people like Soros in his latest book. From the small perspective that only 34 years of age and some cultured reading can give me, I fully agree with the man. You might think that Gold could be the next asset whose value will be inflated beyond any measure of fundamental value, and you might be right. The problem is that it is not possible to generate the illusion of wealth amongst the wider public by propping up the value of Gold or even Gold derivatives.

As someone said during dinner, if that is true, we are all fucked. Aye big man.

But a few days ago, I read this article in my Bloomberg terminal. I was wrong. There is another bubble left to burst: banking bonuses and salaries.
The author is spot on.

If anybody thought that the current crisis would serve to change the investment banks business model, they are showing that they have never been in a trading&sales floor, or in the bars around Canary Wharf, or have never met anybody working in M&A, or a trader, or a junior Vice-President in an investment bank, etc.

The politicians do not have the balls to let any bank, investment bank or market maker go under so the party will continue for a while.

“Too big to fail”, “systemic importance”, “market confidence and stability”, empty words used by those who would not hesitate sell their mother in a reverse auction if their Excel models told them to do so.

The government has an easy solution to the banker’s bonuses corporate fraud: any employee in a taxpayer supported institution (either by government guarantees of their debt, TARP, etc) should be taxed at 60% on any remuneration exceeding £200k, including pension contributions, and be ineligible for any tax relief over this amount. I think ten times the UK’s average wage should be enough for anybody and if it is not, then they should not be employees of government-funded organisations, but proper business-people and set up their own business without government support.

The usual suspects will bark about “talent”, “highly educated” and the usual protectionist bull. I have not meet more uneducated and uncultured people in my life as when I was working in Canary Wharf a few years ago.

The industry is so powerful and politicians are so weak and spineless that nothing will happen of course. But the industry is rotten to the core, devoid of any ethics or morality, self-focused and detached from the wider society. And you and everybody who does not work in a financial institution are paying for all this.