history

This Republic Of Suffering

I just finished reading the next book on our reading list, within the Houston Nonfiction Book Club that I am part of: This Republic of Suffering – Death and the American Civil War by Harvard President’s Drew Gilpin Faust. It is only fitting, from a timing perspective, that this post coincides with Memorial Day weekend. This book is a dire reminder of the atrocities committed during the civil war:

In the middle of the nineteenth century, the United States embarked on a new relationship with death, entering into a civil war that proved bloodier than any other conflict in American history, a war that would presage the slaughter of World War I’s Western Front and the global carnage of the twentieth century. The number of soldiers who died between 1861 and 1865, an estimated 620,000, is approximately equal to the total American fatalities in the Revolution, the War of 1812, the Mexican War, the Spanish-American War, World War I, World War II, and the Korean War combined. The Civil War’s rate of death, its incidence in comparison with the size of the American population, was six times that of World War II. A similar rate, about 2 percent, in the United States today would mean six million fatalities. As the new southern nation struggled for survival against a wealthier and more populous enemy, its death toll reflected the disproportionate strains on its human capital. Confederate men died at a rate three times that of their Yankee counterparts; one in five white southern men of military age did not survive the Civil War.

These atrocities, however, served as valuable – albeit very costly – lessons of meanings in “race, citizenship, and nationhood” that ultimately lead to re-uniting The Nation:

In the Civil War the United States, North and South, reaped what many participants described as a “harvest of death.” By the midpoint of the conflict, it seemed that in the South, “nearly every household mourns some loved one lost.” Loss became commonplace; death was no longer encountered individually; death’s threat, its proximity, and its actuality became the most widely shared of the war’s experiences. As a Confederate soldier observed, death “reigned with universal sway,” ruling homes and lives, demanding attention and response. The Civil War matters to us today because it ended slavery and helped to define the meanings of freedom, citizenship, and equality. It established a newly centralized nation-state and launched it on a trajectory of economic expansion and world influence. But for those Americans who lived in and through the Civil War, the texture of the experience, its warp and woof, was the presence of death. At war’s end this shared suffering would override persisting differences about the meanings of race, citizenship, and nationhood to establish sacrifice and its memorialization as the ground on which North and South would ultimately reunite. Even in our own time this fundamentally elegiac understanding of the Civil War retains a powerful hold…A war about union, citizenship, freedom, and human dignity required that the government attend to the needs of those who had died in its service. Execution of these newly recognized responsibilities would prove an important vehicle for the expansion of federal power that characterized the transformed postwar nation. The establishment of national cemeteries and the emergence of the Civil War pension system to care for both the dead and their survivors yielded programs of a scale and reach unimaginable before the war. Death created the modern American union—not just by ensuring national survival, but by shaping enduring national structures and commitments.

This civil war reshaped the lives of the soldiers and civilians who participated within it, and for generations to come:

As they faced horrors that forced them to question their ability to cope, their commitment to the war even their faith in a righteous God, soldiers and civilians alike struggled to retain their most cherished beliefs, to make them work in the dramatically altered world that war had introduced. Americans had to identify—find, invent, create—the means and mechanisms to manage more than half a million dead: their deaths, their bodies, their loss. How they accomplished this task reshaped their individual lives—and deaths—at the same time that it redefined their nation and their culture. The work of death was Civil War America’s most fundamental and most demanding undertaking.

Below are key captions from the topics covered within the book, that highlight how the Nation dealt with the Civil War from a perspective of death/suffering, both in the immediate aftermath and how these reactions had the impact they have had on the development of the nation.

On Dying:

Civil War soldiers were, in fact, better prepared to die than to kill, for they lived in a culture that offered many lessons in how life should end. But these lessons had to be adapted to the dramatically changed circumstances of the Civil War. The concept of the Good Death was central to mid-nineteenth-century America, as it had long been at the core of Christian practice. Dying was an art, and the tradition ars moriendi provided rules of conduct for the moribund and their attendants since at least the fifteenth century. Despite clerical efforts, the boundary between duty to God and duty to country blurred, and dying bravely and manfully became an important part of dying well. For some soldiers it almost served to take the place of the more sacred obligations of holy living that had traditionally prepared the way for the Good Death. As the intensity of this war and the size of its death tolls mounted in the months and years that followed, vengeance came to play an ever more important role, joining principles of duty and self-defense in legitimizing violence. The desire for retribution could be almost elemental in its passion, overcoming reason and releasing the restraints of fear and moral inhibition for soldiers who had witnessed the slaughter of their comrades.

On Killing:

Killing was the essence of war. But it also challenged men’s most fundamental assumptions about the sanctity of their own and other human lives. Killing produced transformations that were not readily reversible: the living into the dead, most obviously, but the survivors into different men as well, men required to deny, to numb basic human feeling at costs they may have paid for decades after the war ended, as we know twentieth- and twenty-first-century soldiers from Vietnam to Iraq continue to do; men who, like James Garfield, were never quite the same again after seeing fields of slaughtered bodies destroyed by men just like themselves.

On Burying:

The cemetery at Gettysburg was arranged so that every grave was of equal importance; William Saunders’s design, like Lincoln’s speech, affirmed that every dead soldier mattered equally regardless of rank or station. This was a dramatic departure from the privileging of rank and station that prevailed in the treatment of the war dead and different even from the policies of the Chattanooga cemetery that would be created later in the year. The establishment of the Gettysburg cemetery marked the beginning of significant shifts in attitude and policy produced by the nation’s confrontation with Civil War slaughter…The engagement of the Union government in these matters, first made highly visible in the Gettysburg dedication ceremonies. acknowledged a new public importance for the dead. No longer simply the responsibility of their families, they, and their loss, now belonged to the nation. These men had given their lives that the nation might live; their bodies, repositories of their “selfhood” and “surviving identity,” as Harpers had put it, deserved the nation’s recognition and care. The dead, as well as the living, had claims upon a government “deriving,” as Henry Bowditch proclaimed in his plea for ambulances, “all its powers from the people.”

On Naming:

The commitment to individual rights that emerged as such an important principle of the northern cause made attention to particular soldiers’ fates and identities inescapable; honoring the dead became inseparable from respecting the living. But the strongest impetus for these changes was the anguish of wives, parents, siblings. and children who found undocumented, unconfirmed, and unrecognized loss intolerable…But the dimensions of Civil War loss did not yield to small-scale, individual intervention or even to entrepreneurial improvisations, and Americans turned to the emerging philanthropic bureaucracies of the Sanitary and Christian commissions and ultimately to enhanced state power and responsibility. As Union victory became all but certain in the winter and early spring of 1864-65, the demands of the unnamed dead grew more pressing. At war’s end, the United States would embark on a program of identification and reburial that redefined the nation’s obligation to its fallen, as well as the meaning of both names and bodies as enduring repositories of the human self.

On Realizing:

In the twenty-first century Americans considering the impact of death regularly invoke the notion of “closure,” the hope and anticipation of an end to the disruption of loss. Civil War Americans expected no such relief For hundreds of thousands, the unknown fate of missing kin left a “dread void of uncertainty” that knowledge would never fill. Even for those who had detailed information or, better still, the consolation of a body and a grave, mourning had no easy or finite end. Many bereaved spent the rest of their lives waiting for the promised heavenly reunion with those who had gone before. Wives, parents, children, and siblings struggled with the new identities—widows, orphans, the childless—that now defined their lives. And they carried their losses into the acts of memory that both fed on and nurtured the widely shared grief well into the next century. But if such devastating loss could not be denied, if it was “realized” and acknowledged, it had to be explained. The Civil War’s carnage required that death be given meaning.

On Believing and Doubting:

Lincoln’s Gettysburg Address is perhaps the best-known example of such an explanation and justification of war’s carnage. Determined that “these dead shall not have died in vain,” Lincoln hallowed and sacralized a nation and its purposes with biblical cadences and mentioned God. In the address the dead themselves become the agents of political meaning and devotion; they act even in their silence and anonymity. Lincoln immortalized them as the enduring inspiration for an immortal nation. Unlike the “honored dead,” the Union would not “perish from the earth.” Soldiers’ deaths, like Christ’s sacrifice, become the vehicle of salvation, the means a terrestrial, political redemption. Civil War carnage transformed the mid-nineteenth century’s growing sense of religious doubt into a crisis of belief that propelled many Americans to redefine or even reject their faith in a benevolent and responsive deity. But Civil War death and devastation also planted seeds of a more profound doubt about human ability to know and to understand. In an environment in which man seemed already increasingly undifferentiated from animals, the failure of the uniquely human capacity of language represented another assault upon the foundations of the self. The Civil War compelled Americans to ask with intensified urgency, “What is Death?” and in answering to find themselves wondering why is death, what is life? And can we ever hope to know? We have continued to wonder ever since.

On Accounting:

The reburial program represented an extraordinary departure for the federal government, an indication of the very different sort of nation that had emerged as a result of civil war. The program’s extensiveness, its cost, its location in national rather than state government, and its connection with the most personal dimensions of individuals’ lives all would have been unimaginable before the war created its legions of dead, a constituency of the slain and their mourners, who would change the very definition of the nation and its obligations. “Such a consecration of a nation’s power and resources to a sentiment Whitman observed, “the world has never witnessed.” Honor to the dead required the continuing defense of Confederate principles, which had been “defeated, not necessarily lost.” Only vindication of the original purposes of the conflict could ensure the meaning of so many men’s sacrifice. The Confederacy would not live on as a nation, but its dead would in some sense become its corporeal and corporate representation, not only a symbol of what once was but a summons to what must be. Neither northern nor southern participants in the commemoration and reburial movement were “simply… mourners for the dead.” Instead, they became in a very real sense the instruments of the dead’s immortality. Gathered together in mass cemeteries with graves marshaled in ranks like soldiers on the field of battle, the dead became a living reality, a force in their very presence and visibility. They were also, paradoxically, a force in their anonymity. The establishment of national and Confederate cemeteries created the Civil War Dead as a category, as a collective that represented something more and something different from the many thousands of individual deaths that it comprised. It also separated the Dead from the memories of living individuals mourning their own very particular losses. The Civil War Dead became both powerful and immortal, no longer individual men but instead a force that would shape American public life for at least a century to come. The reburial movement created a constituency of the slain, insistent in both its existence and its silence, men whose very absence from American life made them a presence that could not be ignored.

On Numbering:

The effort to count the Civil War dead was only in part about numbers and casualty reports, only in part about the duties of a nation to its citizens. Numbering the dead was also about more transcendent questions that extended beyond the state and its policies and obligations. As William Fox observed, “Every story, even a statistical one, has a moral.” The rhetoric of Civil War mortality statistics provided the language for a meditation on the deeper human meaning of the conflict and its unprecedented destructiveness, as well as for the exploration of the place of the individual in a world of mass—and increasingly mechanized—slaughter. It was about what counted in a world transformed.

On Surviving:

But even as the Civil War brought new humanity—new attentiveness to “sentiment”—in the management of death, so too it introduced a level of carnage that foreshadowed the wars of the century to come. Even as individuals and their fates assumed new significance, so those individuals threatened to disappear into the bureaucracy and mass slaughter of modern warfare. We still struggle to understand how to preserve our humanity and our selves within such a world. We still seek to use our deaths to create meaning where we are not sure any exists. The Civil War generation glimpsed the fear that still defines us—the sense that death is the only end. We still work to live with the riddle that they—the Civil War dead and their survivors alike—had to solve so long ago.

A highly recommended historical read, with many enduring lessons.

American Icon

American Icon: Alan Mulally and the Fight to Save Ford Motor Company by Bryce G. Hoffman has been on my reading list for quite some time, particularly for the high rating this book had received and my interest in cars. I finally had a chance to read it and despite the high expectations I had of this book, it exceeded them both in terms of content and delivery.

Below are the highlights from this book.

The backdrop of the american car industry in late 20th century:

Ford may have been the company that put the world on wheels, invented the moving assembly line, and created the industrial middle class, but its glory days were long past. Together with General Motors Corporation and Chrysler Corporation, it had been a powerful engine of prosperity in postwar America…That era of easy profit created a culture of entitlement in Detroit that afflicted management and labor alike – inflating salaries, wages, and benefits until they became the envy of the world. Success was viewed as a birthright, not something that had to be fought for and won. As the Big Three’s share of the market had shrunk, they had not. At least not fast enough. They all had too many factories, too many workers, and too many dealers. Generous union contracts negotiated in better times had created enormous legacy costs that their foreign rivals did not have to bear. And none of the American companies had the stomach for the radical reforms that were now necessary just to stay in business. Wall Street had begun a deathwatch, waiting to see which of the Big Three would fail first. Most of the money was on Ford, which had become infamous for lackluster designs, poor quality, and managerial infighting.

Ford itself had some additional challenges of its own:

While many of Ford Motor Company’s problems were shared by the rest of Detroit, the Dearborn automaker also faced some challenges all its own. Ford’s woes had not begun with of the Japanese in the 1960s or the oil crises of the 1970s. The company had been struggling with itself since Henry Ford started it on June 16,1903. It invested massively in game-changing products, and then did nothing to keep them competitive. It allowed cults of personality to form around larger-than-life leaders, but drove away the talent needed to support them. And it allowed a caustic corporate culture to eat away at the company from the inside. These were birth defects that could be traced back to the automaker’s earliest days. Henry Ford liked to boast that he had created the modern world. In many ways, he had. But he also created a company that was its own worst enemy.

Bill Ford who was CEO knew it was time for a big change in leadership of the company was to be saved:

Hockaday commended Ford for having the self-awareness and the lack of ego to admit that, but he gently suggested that Ford needed something more than a new COO. Bill agreed: The time had come to find a CEO who could save Ford from itself…Though he knew it was coming, Hockaday thought Bill Ford’s speech to the directors was one of the most moving he had ever heard in a boardroom. No one ascends to the top of a major corporation without a healthy ego, but those in the automobile industry we’re oversized even by Fortune 500 standards. It took a big man to admit that he could not save his company, particularly when his name was on the side of the building. In other rooms in Detroit, other CEOs were adamantly refusing? to admit defeat. They would stubbornly cling to power and take their companies down with them. Bill Ford cared too much about Ford to let that happen in Dearborn.

Alan Mulally was the man that was chosen for the task:

The Seattle Times called him “Mr. Nice Guy.” Mulally’s lack of pre-tension was evident in his dealings with other people. At formal events, he showed little interest in the rich and powerful, preferring to mingle with those less interested in comparing resumes or other measurables. He asked more questions than he answered and seemed genuinely interested in what people had to say, be they world leader or waitresses. Mulally made a point of remembering something about everyone he met and would often astonish underlings by recalling some scrap of information about their lives they had shared with him months or years before. He was also big on hugs, and had even been known to plant pecks on the cheeks of both men and women when he was in a particularly exuberant mood. All of this made Mulally adored by subordinates. It also kept his rivals off balance. They could never quite figure out how much of it was an act. And Mulally liked to keep it that way.

Despite being and unconventional choice:

The conventional wisdom in Detroit held that outsiders were incapable of understanding the complexities of the automobile business. Bill Ford’s decision to hire an aeronautical engineer to save his car company spawned plenty of jokes during those early weeks. There was a lot of snickering about flying cars and the return of tail fins. “He has no idea how we do things in Detroit” was the common refrain at Ford’s crosstown rivals, as well as within Ford itself And Mulally knew it. They’re right. I don’t know how they do things in Detroit, he thought. But I do know it doesn’t work.

Mulally had a unique management style that he shared and communicated with his team from the beginning:

Mulally called their attention to a list of rules posted on the wall. There were ten of them: • People first • Everyone is included • Compelling vision • Clear performance goals • One plan • Facts and data • Propose a plan, “find-a-way” attitude • Respect, listen, help, and appreciate each other • Emotional resilience … trust the process • Have fun … enjoy the journey and each other

Listening was a key part of his philosophy, even from his competitors:

As he was leaving, Mulally told Wagoner he would like to be able to call him in the future if he had more questions. He was just trying to be polite, but Wagoner took it as another sign of weakness. He would later claim publicly that Mulally had sought his help as he e struggled to understand the industry in those early days. The truth was, Wagoner had been played so well he did not even notice.

He had a clear vision, even for what Ford would look like after he leaves – his legacy:

The Plan…Mulally also looked to Ford’s past for inspiration…Alan Legacy: • Clear, compelling vision going forward •Survive the perfect Storm—commodities, oil, credit, CO2, safety, UAW • Develop a profitable growth plan, global products and product Strategy • A skilled and motivated team • Reliable ongoing BPR process • A leader and leadership team with “One Ford” vision implementation tenacity

An example of, luck favors the prepared mind:

Did Ford see the credit crisis coming? Certainly not the full magnitude of it. But it is clear that Ford knew the game was changing and had the foresight to get as much cash as it could before it was too late. Other automakers would not prove so prescient. In the end, they would have to borrow their money not from the big Wall Street banks, but from the American people. Ford’s financing deal would allow it to survive without a government bailout. If Bill Ford had not convinced his family to stake everything, the Fords likely would have lost control of the company entirely. A few months later, such a deal would have been impossible for any American automaker. A year later, even the most profitable companies in the world would have been unable to borrow half that amount.

Alan never lost touch with what the business was really about – engaging with customers and making a difference in their lives through vehicles:

It would not be the last time Mulally played at being a car sales man. This was a way for him to see firsthand how Ford’s customers approached its cars and trucks. But it also generated a huge amount of goodwill for the company. Everybody who met Mulally walked away an ambassador for Ford. He had that effect on people.

He knew that a successful relationship with the Union of Automotive Workers was paramount to success and worked hard on nurturing it:

Even in the face of this increasing animosity between the UAW and Detroit’s Big Three, Ford managed to maintain a better relationship with the union. Ford family members often dealt directly with UAW officials, even during the period when there was no Ford in the chairman’s seat. None of the company’s factories had been struck since 1976. But even Ford could not get the concessions it needed to be competitive with the growing number of foreign transplants setting up factories of their own in the southern United States…Mulally took a step toward Gettelfinger and looked him in the eye. “We want to prove that we can do this in America,” he said solemnly. “Ron, will you hold hands with me.? We’ll do this together, and we’ll go out there and say we did this together. We’re going to be able to make products in America and make them profitably and successfully. Or, we’ll just go out there and tell everybody it was too hard. We just couldn’t do it. It’s up to you.” Gettelfinger did not hesitate.

Alan kept refining his vision and rallying the company around it:

Beneath the first, Mulally spelled out his vision for the company: People working together as a lean, global enterprise for automotive leadership, as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council, and Community Satisfaction

During the crisis, it was not just about being defensive, it was about the offense – accelerating the transformation with the new product lines:

Accelerating Kuzak’s product time line would require a heroic effort on the part of Ford’s designers and engineers. It would also require other departments to cut deeper. It was a testament to how much Mulally had changed the culture inside the Glass House that they were willing to do so. Fields expressed this new spirit in a speech to his troops that summer “I know this is really a kick in the teeth, but this is not Ford Motor Company not delivering—this is the external environment. This is an egalitarian knock to the industry, and what’s going to separate the winners from the losers is how those companies approach this setback,” he said. “It’s easy to be a victim. It’s harder to say we’re going to take this and we’re going to make lemonade out of lemons.”

While Ford was in a better position than some of its competitors during the financial crisis their were some inter-dependencies within the industry that it had to actively manage with them and with the government:

Both Toyota and Honda were just as concerned as Ford about the impact that the failure of CM or Chrysler could have on their suppliers, as well as about the growing number of parts producers who were already in trouble. When they heard about Ford’s effort to support its suppliers, they wanted in. So Brown forged a tripartite alliance with Ford’s archrivals to prevent a cascading collapse of the entire automobile industry.

Ford was now engaged in a delicate balancing act, trying to convince consumers and investors that it was in better shape than its crosstown competitors while at the same time trying to persuade Washington that it was just as deserving of help. When Mulally was asked why Ford needed taxpayer assistance if it was not in dire financial straits, he said Ford would need help if either GM or Chrysler failed. “It’s just prudent to be prepared together. There’s a lot of issues that we’re all dealing with,” he said. “We are very interdependent, and we’re all dependent on the U.S. economy. If any one of us gets in trouble in a big way, then that’s going to have major ramifications for the entire value stream for the suppliers, for the (automakers), for the dealers.”

The strategy of forgoing the bailout paid off for Ford:

Sales remained depressed, but Ford continued to outperform the market and gain share…The board was pleased. The directors had hoped that Ford would get credit for forgoing a bailout, but none of them expected the decision to generate as much goodwill for the company as it did…The decision to pass on a bailout was a big part of that, but it would have mattered little if the company’s showrooms were still filled with the same old boring products. Fortunately for Ford, transports stacked with new vehicles like the redesigned Fusion and Fusion Hybrid were pulling into dealer lots just as customers decided that the company was worth another look. Once again. Ford’s timing was perfect.

Alan throughout this entire period ensured the team maintained focus on improving Ford’s financials:

Mulally’s focus was now on improving Ford’s balance sheet and beginning the long, slow march out of junk bond territory. The terms of Ford’s massive 2006 financing deal stipulated that all the assets it had pledged to secure those loans would be released once its revolving line of credit was paid off and two of the three major agencies restored the company’s credit rating to investment grade.

For those who down-play Ford’s come back:

There are some who will point to the loans Ford received from the U.S. Department of Energy and the money it borrowed from the U.S. Federal Reserve and say the company did take taxpayer dollars. This is true, but in this sense, so did the rest of the major automakers —and not just the American companies. Japanese and German manufacturers benefited from these programs as well, in addition to receiving support from their own governments. But these were loan programs set up to address systemic problems beyond these companies’ control.

And Alan’s key role in that:

While many of the pieces of Ford’s turnaround were already in place, the company’s own culture was preventing them from being implemented with the speed and scope necessary to effect real change…But Ford would have run out of time and money before it got to where it needed to be if Mulally had not been there to put the pedal to the metal…Mulally ripped off the bandage, cauterized the wound, and cured the disease. Only an outsider could do that. But not just any outsider: It had to be someone who understood the complexities of global manufacturing, labor relations, and heavily engineered products…His disciplined approach cut through the company’s caustic culture and forced everyone to march in the same direction…He taught the other executives how to make decisions based on data instead of boardroom politics. And once he had, most of the decisions that saved Ford were made by the team as a whole.

The keys to Alan’s success in his words:

“What I have learned is the power of a compelling vision, a comprehensive strategy, a relentless implementation process, and talented people working together based on those commitments,” he told me during our last interview for this book, in May 2011. “We laid out a plan, and for four and a half years, we have been relentlessly implementing that plan.”…”You’ve got to trust the process. You need to trust and nurture your emotional resilience,”

Another key, was Bill’s – the chairman – unwavering support:

It was not just Bill Ford’s willingness to step aside and make way for Mulally that helped save the company. It was also his unceasing effort to give him the time, the space, and the resources he needed for his revolution to succeed. Without that, Mulally may well have become just another victim of a company and a culture that seemed impervious to change.

A reminder though that a true test of great leadership is the ability of an organization to sustain itself after the leader leaves:

The ultimate test of Mulally’s revolution will be its ability to endure his absence. Boeing has suffered major setbacks since Mulally left Seattle in 2006. Insiders say that is because his successors have failed to maintain the processes Mulally put in place to guarantee success. When asked if the same thing could happen at Ford, Mulally says simply that he has given Ford the tools it needs to prosper. What the company does with them after he retires is beyond his control. Ford’s history is a long list of stunning successes followed by epic failures, of against-all-odds comebacks that turn into retreats back into mediocrity and mismanagement. But there are important differences this time that augur well for Ford’s future.

On a concluding note:

Henry Ford once said, “A business that makes nothing but money is a poor kind of business.” Ford Motor Company has certainly made a great deal of money since Alan Mulally started there in 2006. But it has also made people believe that the highest principles of American enterprise —ingenuity, innovation, and integrity—have not deserted us entirely. In an economic era marked by avarice and greed, Mulally’s Ford has demonstrated that a company can still succeed by building a good product and selling it at a fair price. As the big Wall Street banks tried to hide their mounting failures, Mulally was exposing Ford’s shortcomings and challenging his company to overcome them. Wall Street’s obfuscation and trickery would ultimately drag the entire world into the Great Recession. With Mulally’s relentless determination to succeed. Ford would defy that downturn and once again become an engine of prosperity. From the day he arrived in Dearborn, Mulally said he was fighting for the soul of American manufacturing. If Ford had failed, a little bit of America would have died, too. But Ford did not fail. Under Mulally’s leadership, it showed the entire world that at least one American automaker could pick itself up, shake off the rust, compete with the best in the business, and win.

A highly compelling, highly valuable and recommended read on leadership, management and corporate transformation as well as on the automotive industry.

On Made In Japan

I recently finished reading Made In Japan – Akio Morita and SONY – by Akio Morito with Edwin M. Reingold and Mitsuko Shumomura.

Below are key excerpts from the book that I found particularly insightful:

1- “I have always believed that a trademark is the life of an enterprise and that it must be protected boldly. A trademark and a company name are not just clever gimmicks—they carry responsibility and guarantee the quality of the product. If someone tries to get a free ride on the reputation and i the ability of another who has worked to build up public trust.”

2- “In the beginning, when our track record for success was not established, our competitors would take a very cautious wait-and-see attitude while we marketed and developed a new product. In the early days, we would often have the market to ourselves for a year or more before the other companies would be convinced that the product would be a success. And we made a lot of money, having the market all to ourselves. But as we became more successful and our track record became clearer, the others waited a shorter and shorter time before jumping in. Now we barely get a three-month head start on some products before the others enter the market to compete with us with their own version of the product we innovated. It is flattering in a way, but it is expensive. We have to keep a premium on innovation.”

3- “My point in digressing to tell this story is simple: I do not believe that any amount of market research could have told us that the Sony Walkman sensational hit that would spawn many imitators. And yet this small item has literally changed the music-listening habits of millions of people all around the world.”

4- “It was this kind of innovation that Ibuka had in mind when we wrote a kind of prospectus and philosophical statement for our company in the very beginning: “If it were possible to establish conditions where persons could become united with a firm spirit of teamwork and exercise to their hearts’ desire their technological capacity,” he wrote, “then such an organization could bring untold pleasure and untold benefits.” He was thinking about industrial creativity, something that is done with teamwork to create new and worthwhile products. Machines and computers cannot be creative in themselves, because creativity requires something more than the processing of existing information. It requires human thought, spontaneous intuition, and a lot of courage, and we had plenty of that in our early days and still do.”

5- “My view was that you must first learn the market.. learn how to sell to it, and build up your corporate confidence before you commit yourself. And when you have confidence, you should commit yourself wholeheartedly.”

6- “…no matter how good or successful you are or how clever or crafty, your business and its future are in the hands of the people you hire. To put it a bit more dramatically, the fate of your business is actually in the hands of the youngest recruit on the staff.”

7- “When most Japanese companies talk about cooperation or consensus, it usually means the elimination of individuality. At our company we are challenged to bring our ideas out into the open. If they clash with others, so much the better, because out of it may come something good at a higher level. Many Japanese companies like to use the words cooperation and consensus because they dislike individualistic employees. When I am asked, and sometimes when I am not, I say that a manager who talks too much about cooperation is one who is saying he doesn’t have the ability to utilize excellent individuals and their ideas and put their ideas in harmony. If my company is successful, it is largely because our managers do have that ability.”

8- “Management officers, knowing that the company’s ordinary business is being done by energetic and enthusiastic younger employees, can devote their energy and effort to planning the future of the company. With is in mind, we think it is unwise and unnecessary to define individual responsibility too clearly, because everyone is taught to act like a family member ready to do what is necessary. If something goes wrong it is considered bad taste for management to inquire who made the mistake. That may seem dangerous, if not silly, but it makes sense to us.”

9- “I cannot understand why there is anything good in laying off people. If management takes the risk and responsibility of hiring personnel, then it is management’s ongoing responsibility to keep them employed. The employee does not have the prime responsibility in this decision, so when a recession comes. why should the employee have to suffer for the management decision to hire him? Therefore, in times of boom we are very careful about increasing our personnel. Once we have hired people, we try to make them understand our concept of a fate-sharing body and how if a recession comes the company is willing to sacrifice profit to keep them in the company.”

10- “What you are showing to your employees is not that you are an artist who performs by himself on the high wire, but you are showing them how you are attempting to attract a large number of people to follow you willingly and with enthusiasm to contribute to the success of the company. If you can do that, the bottom line will take  care of itself.”

11- “It may sound curious, but I learned that an enemy of this innovation could be your own sales organization if it has too much power, because very often these organizations discourage innovation. When you make innovative new products, you must re-educate the sales force about them so the salesmen can educate and sell the public. This is expensive; it means investing sufficient money in R&D and new facilities and advertising and promotion. And it also means making some popular and profitable items obsolete, often the items you can make the most profit on because your development costs are paid for and these products have become easy for your salesmen to sell.”

12- “The primary function of management is decision-making and that means professional knowledge of technology and the ability to foresee the future direction or trends of technology. I believe a manager must have a wide range of general knowledge covering his own business field. It also helps to have a special sense, generated by knowledge and experience—a feel for the business that goes beyond the facts and figures—and this intuitiveness is a gift only human beings can have.”

13- “Next to lawyers, I think these people are the most overused and misused businessmen on the scene in the United States and Japan. I use consultants selectively and have found the best ones can do valuable information gathering and market analysis. But their use can be brought to ridiculous extremes, and it has been.”

14- “I think one of the main advantages of the Japanese system of management over the American or the Western system in general is this sense of corporate philosophy. Even if a new executive takes over he cannot change that. In Japan the long-range planning system and the junior management proposal system guarantee that the relationship between top management and junior management remains very close and that over the years they can formulate a specific program of action that the years they can formulate a specific program of action that will maintain the philosophy of the company. It also may explain why in the initial stages progress is very slow in a Japanese company. But once the company communicates its philosophy to all employees, the company has great strength and flexibility.”

15- “My point is that it is unwise merely to do something different and then rest on your laurels. You have to do something to make a business out of a new development, and that requires that you keep updating the product and staying ahead of the market.”

16- “My prediction is that we can enjoy our lives with less energy, less of the old materials, fewer resources, more recycling, and have more of the essentials for a happy and productive life than ever. Some people in the world, especially the Americans, will have  to learn something of the meaning and spirit of mottainai and conserve more. Step by step, year by year, we must all learn how to be more skillful and efficient in using our resources economically. We must recycle more. As to the expanding populations, that will be a challenge to everyone, for they will have to be fed. clothed, and educated. But as the standard of living of a people increases, the population tends to level off, people live a different way, acquire different tastes and preferences, and develop their own technologies for survival.”

17- “I believe there is a bright future ahead for mankind, and that future holds exciting technological advances that will enrich the lives of everybody on the planet. Only by expanding world trade and stimulating more production can we take advantage of the possibilities that lie before us. We in the free world can do great things. We proved it in Japan by changing the image of the words “Made in Japan” from something shoddy to something fine. But for a single nation or a few nations to have accomplished this is not enough. My vision of the future is of an exciting world of superior goods and services, where every nation’s stamp of origin is a symbol of quality, and where all are competing for the consumers’ hard-earned money at fair prices that reflect appropriate rates of exchange. I believe such a world is within our grasp. The challenge is great; success depends only on the strength of our will.”

Regards,

Omar Halabieh

Made In Japan

On The Master Switch

I recently finished reading The Master Switch – The Rise and Fall of Information Empires – by Tim Wu.

The main premise of the book, as stated by the author: “To understand the forces threatening the Internet as we know it, we must understand how information technologies give rise to industries, and industries to empires. In other words, we must understand the nature of the Cycle, its dynamics, what makes it go, and what can arrest it. As with any economic theory, there are no laboratories but past experience…The pattern is distinctive. Every few decades, a new communications technology appears, bright with promise and possibility. It inspires a generation to dream of a better society, new forms of expression, alternative types of journalism. Yet each new technology eventually reveals its flaws, kinks, and limitations. For consumers, the technical novelty can wear thin, giving way to various kinds of dissatisfaction with the quality of content (which may tend toward the chaotic and the vulgar) and the reliability or security of service. From industry’s perspective, the invention may inspire other dissatisfactions: a threat to the revenues of existing information channels that the new technology makes less essential, if not obsolete; a difficulty commoditizing (i.e., making a salable product out of) the technology’s potential; or too much variation in standards or protocols of use to allow one to market a high quality product that will answer the consumers’ dissatisfactions. “

Below are key excerpts from the book that I found particularly insightful:

1- “In fact, the place we find ourselves now is a place we have been before, albeit in different guise. And so understanding how the fate of the technologies of the twentieth century developed is important in making the twenty-first century better.”

2- “Schumpeter’s cycle of industrial life and death is an inspiration for this book. His thesis is that in the natural course of things, the new only rarely supplements the old; it usually destroys it. The old, however, doesn’t, as it were, simply give up but rather tries to forestall death or co-opt its usurper—a la Kronos—with important implications.”

3- “We have seen how important outsiders are to industrial innovation: they alone have the will or interest to challenge the dominant industry. And we have seen the power of considerations beyond wealth or security—factors outside the motivations of the ideal rational economic actor—in inspiring action to transform an industry.”

4- “Here, then, we come to the second weakness that afflicts centralized systems of innovation: the necessity, by definition, of placing all control in a few hands. This is not to say that doing so holds no benefit. To be sure, there is less “waste”: instead of ten companies competing to develop a better telephone—reinventing the wheel, as it were, every time—society’s resources can be synchronized in their pursuit of the common goal. There is no duplication of research, with many laboratories chasing the same invention. Yet if all resources for solving any problem are directed by a single, centralized intelligence. that mastermind has to be right in predicting the future if innovation is to proceed effectively. And that’s the problem: monopoly presumes a prescience that humans are seldom capable of. “

5- “For the combined forces of a dominant industry and the federal government can arrest the Cycle’s otherwise inexorable progress, intimating for the prevailing order something like Kronos’s fantasy of perpetual rule.”

6- “Whether sanctioned by the state or not, monopolies represent a special kind of industrial concentration, with special consequences flowing from their dissolution. Often the useful results are delayed and unpredictable, while the negative outcomes are immediate and obvious.”

7- “But what prevented monopoly and all centralized systems from realizing these efficiencies, in Hayek’s view, was a fundamental failure to appreciate human limitations. With perfect information, a central planner could effect the best of all possible arrangements, but no such planner could ever hope to have all the relevant facts of local, regional, and national conditions to arrive at an adequately informed, or right, decision.”

8- “As an object lesson in the way information networks can develop, it gives us occasion to consider what we truly want from our news and entertainment, as opposed to what sort of content we might be prepared to sustain, however passively, with our fleeting attention. For cable offered choices really only in the commercial range—(-enough, however, to suggest what a truly open medium could deliver to the nation, for better and for worse.”

9- “With its hefty capitalization, it offers the information industries financial stability, and potentially a great freedom to explore risky projects. Yet despite that promise, the conglomerate can as easily become a hidebound, stifling master, obsessed with maximizing the revenue potential and flow of its intellectual property. At its worst, such an organization can carry the logic of mass cultural production to any extreme of banality as long as it seems financially feasible.”

10- “For the information industries that now account for an ever increasing share of American and world GDP, the coming decade will be given over to a mighty effort to seize territory, to bolt the competition from its habitat. But this is not a case of one pack of wolves chasing another out of a prime valley. While it may sound fanciful, the contest in question is more like one of polar bears batting lions for domination of the world. Each animal, insuperably dominant in its natural element—the polar bear on ice and snow, the lion on the open plains—will undertake a land grab where it has no natural business being. The only practicable strategy will be a campaign of climate change, the polar bears seeking to cover as much of the world with snow as they can, while the lion tries to coax a savannah from the edges of a tundra. Sounds absurd, but for these mighty predators, it’s simply the law of nature.”

11- “The democratization of technological power has made the shape of the future hard to know, even for the best informed. The individual holds more power than at any time in the past century, and literally in the palm of his hand. Whether or not he can hold on to it is another matter.”

12- “The American political system is designed to prevent abuses of pubic power. But where it has proved less vigilant is in those areas where the political meets the economic realm, where private economic power comes to bear on public life…We like to believe that our safeguards against concentrated political power will ultimately protect us from the consequences of accumulated economic power. But this hasn’t always been so.”

13- “For history shows that in seeking to prevent the exercise of abusive power in the information industries, government is among those actors whose power must be restrained. Government may function as a check on abusive power, but government itself is a power that must be checked. What I propose is not a regulatory approach but rather a constitutional approach to the information economy. By that I mean a regime whose goal is to constrain and divide all power that derives from the control of information.”

14- “Let us. then, not fail to protect ourselves from the will of those who might seek domination of those resources we cannot do without. If we do not take this moment to secure our sovereignty over the choices that our information age has allowed us to enjoy, we cannot reasonably blame its loss on those who are free to enrich themselves by taking it from us in a manner history has foretold.”

Regards,

Omar Halabieh

The Master Switch

On Who Says Elephants Can’t Dance

I recently read Who Says Elephants Can’t Dance? Inside IBM’s Historic Turnaround by Louis V. Gerstner, Jr.

Below are key excerpts that I found particularly insightful in this book, detailing the turnaround that Louis Gerstner engineered at IBM in the 1990s:

1- “Thus began a lifelong process of trying to build organizations that allows for hierarchy but at he same time bring people together for problem solving, regardless of where they are positioned within the organization.”

2- “I went on to summarize my management philosophy and practice: I manage by principle, not procedure. The marketplace dictates everything we should do. I’m a big believer in quality, strong competitive strategies and plans, teamwork, payoff for performance, and ethical responsibility. I look for people who work to solve problems and help colleagues. I sack politicians. I am heavily involved in strategy; the rest is yours to implement. Just keep me informed in an informal way. Don’t hide bad information—1 hate surprises. Don’t try to blow things by me. Solve problems laterally; don’t keep bringing them up the line. Move fast. If we make mistakes, let them be because we are too fast rather than too slow. Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position. Reduce committees and meetings to a minimum. No committee decision making. Let’s have lots of candid, straightforward communications. I don’t completely understand the technology. I’ll need to learn it. but don’t expect me to master it. The unit leaders must be the translators into business terms for me.”

3- “After all the customer and employee and industry meetings, as well as weekend and air travel reflection, I was indeed ready to make four critical decisions: Keep the company together. Change our fundamental economic model. Reengineer how we did business. Sell underproductive assets in order to raise cash.”

4- “I’ve had a lot of experience turning around troubled companies, and one of the first things I learned was that whatever hard or painful things you have to do, do them quickly and make sure everyone knows what you are doing and why.”

5- “The sine qua non of any successful corporate transformation is public acknowledgment of the existence of a crisis. If e So there must be a crisis, and it is the job of the CEO to define and communicate that crisis, its magnitude, its severity, and its impact. Just as important, the CEO must also be able to communicate how to end the crisis—the new strategy, the new company model, the new culture. All of this takes enormous commitment from the CEO to communicate, communicate, and communicate some more.”

6- “What drives IBM’s unique complexity is twofold. First, every institution and almost every individual is an actual or potential customer of IBM. In The second complexity factor is the rate and pace of the underlying technology.”

7- “All of our efforts to save IBM—through right-sizing i and reengineering and creating strategy and boosting morale and all the rest—would have been for naught if, while we were hard at work on the other things, the IBM brand fell apart. I have always believed a successful company must have a customer/market•lace orientation and a strong marketing organization. That’s why my second step in creating a global enterprise had to be to fix and focus IBM’s marketing efforts.”

8- “We made four major changes to our compensation system…This was all about pay for performance, not loyalty or tenure. It was all about differentiation: Differentiate our overall pay based on the marketplace; differentiate our increases based on individual performance and pay in the marketplace; differentiate our bonuses based business performance and individual contributions; and differentiate our stock-option awards based on the critical skills of the individual and our risk of loss to competition.”

9- “I wanted IBMers to think and act like long-term shareholders to feel the pressure from the marketplace to deploy assets and forge strategies that create competitive advantage. The market, over time, represents a brutally honest evaluator of relative performance, and what I needed was a strong incentive for IBMers to look at their company from the outside in.”

10- “The skills required in managing services processes are very different from those that drive successful product companies. We had no experience building a labor-based business inside an asset-intensive company. We were expert at managing factories and developing technologies. We understood cost of goods and inventory turns and manufacturing. But a human-intensive services business is entirely different. In services you don’t make a product and then sell it. You sell a capability. You sell knowledge. You create it at the same time you deliver it. The business model is different. The economics are entirely different.”

11- “My point is that all of the assets that the company needed to succeed were in place. But in every case—hardware, technology, software, even services—all of these capabilities were part of a business model that had fallen wildly out of step with marketplace realities…The implications of this kind of leap to a company’s economic model can be devastating. In IBM’s case it meant the collapse of gross profit margins and the attendant changes we had to engineer to lower our cost structure without compromising our effectiveness. Yet the hardest part of these decisions was neither the technological nor economic transformations required. It was changing the culture—the mindset and instincts of hundreds of thousands of people who had grown up in an undeniably successful company, but one that had tor decades been immune to normal competitive and economic forces. The challenge was making that workforce live, compete, and win in the real world. It was like taking a lion raised for all of its life in captivity and suddenly teaching it to survive in the jungle.”

12- “You’ve probably found, as I have, that most companies say their cultures are about the same things—outstanding customer service. excellence, teamwork, shareholder value, responsible corporate behavior, and integrity. But, of course, these kinds of values don’t necessarily translate into the same kind of behavior in all companies—how people actually go about their work, how they interact with one another, what motivates them. That’s because, as with national cultures. most of the really important rules aren’t written down anywhere.”

13- “In comparison, changing the attitude and behavior of hundreds of thousands of people is very, very hard to accomplish. Business schools don’t teach you how to do it. You can’t lead the revolution from the splendid isolation of corporate headquarters. You can’t simply give a couple of speeches or write a new credo for the company and declare that the new culture has taken hold. You can’t mandate it, :an’t engineer it. What you can do is create the conditions for transformation. You can provide incentives. You can define the marketplace realities and goals. But then you have to trust. In fact, in the end, management doesn’t change culture. Management invites the workforce itself to change the culture.”

14- “Thee work-a-day world of business isn’t about fads or miracles. There are fundamentals that characterize successful enterprises anc successful executives. They are focused. They are superb at execution. They abound with personal leadership.”

15- “At the end of the day a successful, focused enterprise is one that has developed a deep understanding of its customers’ needs, its competitive environment, and its economic realities. This comprehensive analysis must then form the basis for specific strategies :hat are translated into day-to-day execution.”

16- “Earlier in this section I mentioned that in every industry it is possible to identify the five or six key success factors that drive leadership performance. The best companies in an industry build processes that allow them to outperform their competitors vis-a-vis these success factors.”

17- “This next generation of leaders—in both the public and private sectors—will have to expand its thinking around a set of economic, political, and social considerations. These leaders will be: Much more able to deal with the relentless, discontinuous change that this technology is creating. Much more global in outlook and practice. Much more able to strike an appropriate balance between the instinct for cultural preservation and the promise of regional or global cooperation. Much more able to embrace the fact that the world is moving to a model in which the “default” in every endeavor will be openness and integration, not isolation.”

Regards,

Omar Halabieh

Who Says Elephants Can’t Dance?

On Boomerang

I recently read Michael’s Lewis Boomerang – Travels In The New Third World.

Below are key excerpts form the book, that I found particularly insightful:

1- “The subprime mortgage crisis was more symptom than cause. The deeper social and economic problems that gave rise to it remained. The moment that investors woke up to this reality, they would cease to think of big Western governments as essentially risk-free and demand higher interest to lend to them. When the interest rates on their borrowing rose, these governments would plunge further into debt, leading to further rises in the interest rates they were charged to borrow. In a few especially alarming cases – Greece, Ireland, Japan – it wouldn’t take much of a rise in interest rates for budgets to be consumed entirely by interest payments on debt…The moment the financial markets realized this, investor sentiment would shift. The moment investor sentiment shifted, these governments would default. And then what? The financial crisis of 2008 was suspended only because investors believed that governments could borrow whatever they needed to rescue their banks. What happened when the governments themselves ceased to be credible. There was another, bigger, financial crisis waiting to happen – the only question in Kyle Bass’s mind was when.”

2- “When you borrow a lot of money to create a false prosperity, you import the future into the present. It isn’t the actual future so much as some grotesque silicone version of it. Leverage buys a glimpse of a prosperity you haven’t really earned. The striking thing about the future the Icelandic male briefly imported was how much it resembled the past that he celebrates. I’m betting now they’ve seen their false future the Icelandic female will have a great deal more o say about the actual one.”

3- “The costs of running the Greek government are only half the failed equation: there’s also the matter of government revenues.”

4- “The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself. Into this system investors had poured hundreds of billions of dollars. And the credit boom had pushed the country over the edge, into total moral collapse.”

5- “The Irish real estate bubble was different from the American version in may ways. It wasn’t disguised, for a start. It didn’t require a lot of complicated financial engineering beyond the understanding of mere mortals. It also wasn’t as cynical. There aren’t a lot Irish financiers, or real estate people, who have emerged with a future. In America the banks went down but the big shots in them still got rich; in Ireland the big shots went down with the banks.”

6- “The Greeks not only have massive debts but are still running big deficits. Trapped by an artificially strong currency, they cannot turn deficits into surpluses, even if they do everything outsiders want them to do. Their exports, priced in euros, remain expensive. The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues. And so one of two things must happen. Either the Germans must agree to integrate Europe fiscally, so that Germany and Greece bear the same relationship to each other as, say, Indiana and Mississippi – the tax dollars of ordinary Germans would go into the coffer and be used to pay for the lifestyle of ordinary Greeks – or the Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for the Germans but painful, possibly even suicidal, for Greeks.”

7- “The curious thing about the eruption of cheap and indiscriminate lending of money between 2002 and 2008 was the different effects it had from country to country. Every developed country was subjected to more or less the same temptation, but no two countries responded in precisely the same way. Much of Europe had borrowed money cheaply to buy stuff it couldn’t honestly afford. In effect, lots of non-Germans had used Germany’s credit rating to indulge their material desires. The Germans were the exception. Given the chance to take something for nothing the German people simply ignored the offer. “There was no credit boom in Germany,” says Asmussen. “Real estate prices were completely flat. There was no borrowing for consumption. Because this behavior is totally unacceptable in Germany. This is what the German people are. This is deeply in German genes. It is perhaps a leftover of the collective memory of the Great Depression and the hyperinflation of the 1920s.” The German government was equally prudent because, he went on, “there is a consensus among the different parties about this: if you’re not adhering to fiscal responsibility you have no chance in elections, because the people are that way.”

8- “When people pile up debts they will find difficult and perhaps even impossible to repay, they are saying several things at once. They are obviously saying that they want more than they can immediately afford. They are saying, less obviously, that their present wants are so important that, to satisfy them, it is worth some future difficulty. But in making that bargain they are implying that when the future difficulty arrives, they’ll figure it out. They don’t always do that. But you can never rule out the possibility that they will. As idiotic as optimism can sometimes seem, it has a weird habit of paying off.”

Regards,

Omar Halabieh

Boomerang

On The Four Pillar of Investing

I recently finished reading The Four Pillars of Investing – Lessons for Building a Winning Portfolio –  by William Bernstein.

As the title suggests, the author presents within this book four essential pillars of successful investing. Each section of the book is then dedicated to investigating and detailing each of these pillars and they are: 1) Theory 2) History 3) Psychology and 4) Business. The first section on theory, is one which the author calls “the most important part of the book”. In his words it “surveys the awesome body of theory and data relevant to everyday investing”. This section centers itself around the “fundamental characteristic of any investment is that its return and risk go hand in hand.” The second section on History postulates that “an understanding of financial history provides an additional dimension of expertise.” The third section, Psychology,  is one in which the author surveys the area of “behavioral finance”. Where one “learns how to avoid the most common behavioral  mistakes and to confront your own dysfunctional investment behavior.” Last but not least the last section – Business – exposes how “the modern financial services industry is designed solely to serve itself.”

What sets this book apart from other investing books is the breadth of areas covered, and also the writing style which is both “understandable and entertaining”. A highly recommended read for any investor regardless of level.

Below are key excerpts from the book, that I found particularly insightful:

1) “The highest returns are obtained by shouldering prudent risk when things look the bleakest.”

2) “Most small investors naturally assume that good companies are good stocks, when the opposite is usually true.”

3) “Sine you cannot successfully time the market or select individual stocks, asset allocation should be the major focus of your investment strategy. because it is the only factor affecting your investment risk and return that you can control.”

4) “Bubbles occur whenever investors begin buying stocks simply because they have been going up.”

5) “Buying assets that everyone else has been running from takes more fortitude than most investors can manage. But if you are equal to the task, you will be rewarded.”

6) “There are really two behavioral errors operating in the overconfidence playground. The first is the “compartmentalization” of success and failure. We tend to remember those activities, or areas of our portfolios, in which we succeeded an forget about those areas where we didn’t…The second is that its far more agreeable to ascribe success to skill than to luck.”

7) “By indexing, you are tapping into the most powerful intelligence in the world of finance – the collective wisdom of the market itself.”

8) “Rebalancing forces you to be a contrarian – someone who does the opposite of what everyone else is doing. Financial contrarians tend to be wealthier than folks who like to simply follow the crowd.”

9) “Risk and return are inextricably enmeshed. Do not expect high returns without frightening risks, and if you desire safety, you must accept low returns.”

10) “This book should be seen as a framework to which you’ll be continuously adding knowledge.”

11) “The overarching message of this book is at once powerful and simple: With relatively little effort, you can design and assemble an investment portfolio that, because of its wide diversification and minimal expense, will prove superior to most professionally managed accounts.”

Regards,

Omar Halabieh

The Four Pillars of Investing

On New Ideas From Dead Economists

I recently finished reading New Ideas from Dead Economists – An Introduction to Modern Economics Thought by Todd G. Buchholz.

The main premise of the book, is best summarized by the author: “It is striking that so many of the lessons of the great economists still speak to us. Each of their wisest theories has a practical point or analogy today. This book seeks their wisdom by looking at mainstream economics and asking, Who first had these insights and built these durable models? We can learn from the masters.”

Todd then embarks his readers on a journey through the contributions of the greatest economists of our time. Clearly explaining how they analysed the existing models and theories of their time, and their own contributions to advance the filed of economics. He does so, in a very simple style that is accessible to any audience regardless of their background in that field.

What truly sets this book apart is the breadth of content, spanning a period of several centuries. Sufficient depth is included so that one gains an appreciation and broad understanding. The included references make it easy for one to dive deeper into more details. A must read for anyone seeking an introduction and/or a broad understanding of the field of economics!

Below are key excerpts from the book that I found particularly insightful:

1- “Russia’s 1998 debacle teaches us that a market economy must rest on a dependable legal system. A free market does not mean utter chaos; it requires ground rules.”

2- “Economics if the study of choice. It does not tell us what to choose. It only helps us understand the consequences of our choices.”

3- “…as an economist isolates causes and estimates their influence, the degree of influence changes…Economics may not be a “hard” science. But that does not mean it is an easy science. Because it is so fluid, it is hard to hold in place and to study.”

4- “Smith clearly defined the proper role for government: first, providing for national defense; second, administering justice through a court system; third, maintaining public institutions and resources such as roads, canals, bridges, educational systems, and the dignity of the sovereign.”

5- “The point of Ricardo’s analysis: free trade makes it possible for households to consume more goods regardless of whether trading partners are more or less economically advanced.”

6- “By investing, the capitalist gives up the immediate gratification of buying goods. His return on investment pays him for waiting, for delaying his pleasure. If everyone consumes everything now, society will produce nothing new. Thus, profits play a crucial role.”

7- “…four very important areas in which economists have dramatically transformed traditional legal analysis: negligence law; property law; criminal law; and corporate finance.”

8- “There is clearly more to economics than prices, profits, rents, and costs. Laws, morals, fashions, and philosophies all contribute to an economy. They may support it, or they may tear it down.”

9- “What does it mean to be Keynesian? Two basis propositions will suffice here: (1) the private economy may not reach full employment; (2) government spending can spur the economy into filling the gap.”

10- “Keynes cleverly speculates that the way to make money in the stock market is not to be the best corporate analyst, but to be the best at guessing what others think is good.”

11- “This movement, called monetarism, admits that the economy does have an accelerator and a brake, but insists that the accelerator should be marked “higher money supply” and the brake “lower money supply…the monetarists portray the Federal Reserve Board…as the driver.”

12- “With perhaps uncustomary humility, Friedman claims that economists do not know enough about monetary policy to manipulate it wisely.”

13- “We are all Keynesians now, thanks to Keynes. We are all monetarists now, thanks to Friedman. And we are all eclectics now, thanks to a turbulent world.”

14- “This problem emerges again and again in democracies. Motivates organizations trample on the interests of consumers, who individually have a small stake in the outcome. Ultimately, the individual consumers are hurt badly as a national efficiency and income fall.”

15- “Rational Expectations theory predicts that government stimulus does not spur the economy and that government contraction does not hurt…Why do most economists tend to agree with Rational Expectations theorists when they talk about the stock market, yet explode in disagreement when speaking of the macroeconomy? The fact is, the stock market is a more efficient…it is quite liquid…In contrast, real markets for goods and services show more complexity and rigidity.”

16- “…each of the economists we have studied, despite their many differences, warned us that governments always face political pressures to take measures that can ruin good economies…Because even good economic policies often produce victims, economists have a very tough time persuading democratic governments to take good advice. Good economics may not be popular economics, especially in the short run.”

17- “Parents must eventually learn to teach their children how to handle uncertainty – not how to ensure stability.”

18- “For most of man’s life on earth, he has lived no better on two legs than he had on four . Give the economist a little credit for explaining and depicting the brief, shining moments when there has been a difference.”

Regards,

Omar Halabieh

New Ideas from Dead Economists

New Ideas from Dead Economists

 

On Against The Gods

I recently finished reading Against The Gods – The Remarkable Story of Risk by Peter L. Bernstein. As the title indicates this book narrates the history of Risk and its role in human advancement.

Peter best summarizes the content of the book in his introduction: “this book tells the story of a group of thinkers whose remarkable vision revealed ow to put the future at the service of the present. By showing the world how to understand risk, measure it, and weight its consequences, they converted risk-taking into one of the prime catalysts that drives modern Western society.”

The book presents the history of Risk in a chronological sequence, and outlines its understanding in the respective timeframe and through the lenses of the people advancing the field. It also reflects on how that understanding affected the advancement in the various aspects of their lives.

A great educational and informative book. Peter manages to present the content in a very fluid manner, without getting caught up in the technicalities and the jargon – making this book accessible to all readers. A recommended read!

Below are excerpts from the book that I found particularly insightful:

1- “The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature. Until human beings discovered a way across that boundary, the future was a mirror of the past or the murky domain of oracles and soothsayers who held a monopoly over knowledge of anticipated events.”

2- “The word “risk” derives from the early Italian risicare, which means “to dare.” In this sense, risk is a choice rather than a date. The action we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.”

3- “Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. Time transforms risk, and the nature of risk is shaped by the time horizon: the future is the playing field.”

4- “The trick is to be flexible enough to recognize that the regression to the mean is only a tool; it is not a religion with immutable dogma and ceremonies. ”

5- “The essence of risk management lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome and the linkage between effect and cause is hidden from us.”

6- “Knight builds his analysis on the distinction between risk and uncertaintly: Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated…It will appear that a measurable uncertainty, or “risk” proper…is so far different from an unmeasurable one that it is not in effect an uncertainty at all.”

7- “Once we understand that we are not obliged to accept the spin of the roulette wheel or the cards we are dealt, we are free souls. Our decisions matter. We can change the world. Keynes’s economic prescriptions reveal that as we make decisions we do change the world. Whether that change turns out to be for better or for worse is up to us. The spin of the roulette wheel has nothing to do with it.”

8- “Game theory brings a new meaning to uncertainty. Earlier theories accepted uncertainty as a fact of life and did little to identify its source. Game theory says that the true source of uncertainty lies in the intentions of others.”

9- “Tversky offers an interesting speculation on this curious behavior: Probably the most significant and pervasive characteristic of the human pleasure machine is that people are much more sensitive to negative than to positive stimuli….[T]hink about how you feel today, and then try to imagine how much better you could feel….[T]here are a few things that would make you feel better, but the number of things that would make you feel worse in unbounded.”

10- “Occasional large gains seem to sustain the interest of investors and gamblers for longer periods of time than consistent small winnings. That response is typical of investors who look on investing as a game and who fail to diversify; diversification is boring. Well-informed investors diversify because they do not believe that investing is a form of entertainment.”

11- “Derivatives are not transactions in shares of stock or interest rates, in human lives, in houses vulnerable to fire, or in home mortgages. The product in derivative transactions is uncertainty itself.”

12- “But there is only a fine line between guaranteeing absolute safety and stifling the development of financial innovations that, properly handled, could reduce the volatility of corporate cash flows. Corporations that shelter their cash flows from volatility  can afford to take greater internal risks in the form of higher levels of investment or expenditures on research and development. Financial institutions themselves are vulnerable to volatility in interest rates and exchange rates; to the extent that they can hedge that volatility, they can extend more credit to a wider universe of deserving borrowers.”

Regards,

Omar Halabieh

Against The Gods

Against The Gods

On The Road to Serfdom

I recently finished reading the book The Road to Serfdom by F. A. Hayek. The central premise of this book is that individual freedom (classical liberalism) goes hand in hand with economic freedom. Hayek argues that centralized economic planning inevitably leads to totalitarianism.

The main content presented is preceded by two prefaces and a foreword that assist the reader in further gaining context around the time the work was written and views on how it applies in a more recent context. The book is divided into sixteen chapter, each adding a viewpoint to the central premise. Topics covered include: democracy, security, freedom, international order to name a few.

A definite must read classic for anyone in interested in the fields of political philosophy, intellectual and cultural history, and economics!

Below are quotes from the book that I found particularly inspiring:

1- “His (Hayek’s) specific fear what that, for a war to be fought effectively, the power and size of the state must grow. No matter what rhetoric they employ, politicians and the bureaucracies over which they preside love power, and power is never easily surrendered once the danger, if there ever was one, has passed. Though eternal vigilance is sage advice, surely “wartime” is when those who value the preservation of individual liberty must be most on guard.”

2- Tocqueville: “Democracy extends the sphere of individuals freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”

3- “Both competition and central direction become poor and inefficient tools if they are incomplete; they are alternative principles used to solve the same problem, and a mixture of the two means that neither will really work and that the result will be worse than if either system had been consistently relied upon. Or, to express it differently, planning and competition can be combined only by planning for competition but not by planning against competition.”

4- “Though in the short run the price we have to pay for variety and freedom of choice may sometimes be high, in the long run even material progress will depend on this very variety, because we can never predict from which of the many forms in which a food or service can be provided something better may develop.”

5- “While there is nothing in modern technological developments which force us toward comprehensive economic planning, there is a great deal in them which makes infinitely more dangerous the power a planning authority would possess.”

6- “Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower – in short, what men should believer and strive for: Central planning means that the economic problem is to be solved by the community instead of by the individual; but this involves that it must also be the community, or rather its representatives, who must decide the relative importance of the different needs.”

7- “The economic freedom which is the prerequisite of any other freedom cannot be the freedom from economic care which the socialists promise us and which can be obtained only by relieving the individual at the same time of the necessity and of the power of choice; it must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and the responsibility of that right.”

8- “The tragedy of collectivist thought is that, which it starts out to make reason supreme, it ends by destroying reason because it misconceives the process on which the growth of reason depends. It may indeed be said that it is the paradox of all collectivist doctrine and its demand for “conscious” control or “conscious” planning that they necessarily lead to the demand that the mind of some individual rule supreme – while only the individualist approach to social phenomena makes us recognize the superindividual forces which guide the growth of reason. Individualism is thus an attitude of humility before this social process and of tolerance to other opinions and is the the exact opposite of that intellectual hubris which is at the root of the demand for comprehensive direction of the social process.”

9- “Planning on an international scale, even more than is true on a national scale, cannot be anything but a naked rule of force, an imposition by a small group on all the rest of that sort of standard and employment which the planners think suitable for the rest.”

10- “…And, even more than in the national sphere, it is essential that these powers of the international authority should be strictly circumscribed by the Rule of Law.”

11- “If in the first attempt to create a world of free men we have failed, we must try again. The guiding principle that a policy of freedom for the individual is the only true progressive policy remains as true today as it was in the nineteenth century.”

Regards,

Omar Halabieh

The Road to Serfdom

The Road to Serfdom