ADAM SMITH - HOW THE STATE MIGHT ENHANCE AND PROTECT THE WEALTH OF A NATION



Markets left purely to their own devices will not always achieve equilibrium 

Adam Smith (1723-1790) is well known as the father of the modern capitalist economic system -- especially with his emphasis on efficient manufacturing output and the benefits of the specialisation of labour (Splitting the production of pins into several component parts readily comes to mind). The pin factory example meant that ten people specialising in productive tasks could produce 48,000 pins a day - some 2,000 times more than if the 10 workers had not specialised at all. Firms could vastly increase their production and productivity but they would need to be in a position to sell that increased output. The latter might mean that the UK would need to expand its market for British goods and this would mean foreign trade without barriers. Smith was in favour of free trade as long as it did not increase the military might of the UK's competitors.

However there are some surprising conclusions within Smith's seminal work entitled," The Wealth of Nations"  (1776). For markets to allocate resources optimally some additional conditions must apply and in many popular discussions of Smith's work these are seldom if ever properly examined. The focus is on the laissez faire nature of Smith's thoughts, nevertheless these alternative perspectives do need to be considered by us in this modern day and age.

Smith was in favour of increased production and productivity which would increase a country's national output thus going hand in hand with expanding international trade. However he identified monopoly practises as the enemy of  a country's free trade and economic growth aspirations because monopoly:

1. Inevitably led to higher prices for consumers making them worse of than they could have been.

 

2. He viewed them as " a great enemy to good management." Competition forced managers to be more innovative and more efficient. Monopoly induces managers to stick with tried and trusted profit maximising approaches as they have no need to really do anything radically different. They will only innovate when their monopoly position is threatened by third parties.

 

3. Monopolies were more likely to be successful in pressurising governments to support the status quo in terms of maintaining the monopoly position (Unduly influencing or even corrupting governments) -- Sounds a bit familiar?

 

4. Monopolies lead to the mis-allocation of economic resources -- investment would go into monopolies precisely because they were monopolies not because the goods they produced were necessarily needed by the economy as a whole at the prices that the monopolies sold them at.

 

So whilst he was generally regarded as the father of modern capitalism that is not to say that he did not see a role for the state in guaranteeing economic freedoms . He viewed the role of the state in the following ways:

1. As a vigilant sentinel against the rise of monopoly power in the economy which would guarantee competition and a path towards the greater optimisation of the use of resources.

 

2. Defending the nation against external threats of aggression

 

3. Maintaining internal order and defence. The police and the judiciary and the rule of law. Without the rule of law economic and property rights in a competitive environment could not be protected.

 

4. Approving the provision of public goods where there were significant externalities.

 

The fourth point above is perhaps the most controversial. In a simple world the buyer buys a good or service from the seller. The buyer pays a price for the goods or services and consumes them whilst the producer receives payment for the goods and services which cover his costs of production and gives him a surplus to either consume and\or re-invest in his enterprise.

 

However such transactions are often not a purely private affair between the buyer and the seller. From certain types of transactions outsiders to the main transaction can themselves experience gains or losses and indeed the sum of these gains and losses can be argued to represent the gains and losses of society as a whole resulting from actions which were initially meant to just affect the two original contracting parties. The best examples of externalities are pollution - emanating from industrial processes (a negative externality) and  education\training (a positive externality).

 

The moral of externalities here is that without state intervention -- the market on its own could not hope to guarantee that nearly enough would be spent to properly combat pollution to ensure it does not critically affect our society nor can it guarantee that there will nearly be an adequate level of education\training for all in society. Poor children could not obtain the level of education commensurate with their needs and aspirations because their parents may not be able to pay the market rate for it. Pollution causes costs and dis-benefits which may not much affect the two initial parties to the transaction. These two parties do not have the incentive to, or the financial means of, ensuring that, society is safe from their polluting activities.

 

Hence in both these situations the state would need to ensure that the benefits of positive externalities were amplified as much as possible and the dis benefits  of negative externalities were similarly muted as much as possible.

 

The above four points and especially point four, describe the proper role that the state should play in a potentially thriving economy. Adam Smith recognised this and it is a shame that some people who purport to be his followers focus on laissez faire factors seeming to have forgotten what he said about the role of the state.

 

WHO WILL REPLACE MR PATTEN - AND SAVE THE BBC?

 

 

 

Is the BBC fit for modern Britain?
 - Image credited to the Spectator Blog

  

There is a perception in some quarters that for the highest BBC positions there is a template of a person that the interviewers already have in mind at the start of the process. Usually this encompasses an Oxbridge background and a good public school coupled with a knowledge and strong link to the social circles that person will be operating within during his (Yes his) career. Without many if not all of those prerequisites, a lot of other people just will not bother with such a time consuming process because it is loaded against them right from the start.

Mr Patten's appointment really epitomised this process very well as a merry go round for the great and good in British Society. In all honesty,although he has faced some big challenges - Mr Patten's performance has not met with universal approval. This was epitomised by the parliamentary committee grilling he received recently at the hands of my MP Phillip Davies.

The BBC and its executives also need to hold their hands up as there seems to be a culture of mutual support and admiration for that group of people and this was cruelly exposed in the parliamentary committee process when a number of BBC executives were given extra payments to "keep them focused" before they left the Corporation as part of a redundancy process. This should never have been allowed and reflects how detached the upper echelons of the BBC are from the ordinary viewer\listener -- That is why it is so crucial that a new candidate will be able to re-connect the Corporation with the people. Another person from the same background as the existing group of executives just will not achieve that.

Many years ago I remember listening to an interview with a former head of the Australian Broadcasting Corporation who was born in the UK on a council housing estate. One thing that struck me in his interview was his statement that if he had stayed in the UK he would never have achieved the equivalent position in the UK ( Head of the BBC) that he had achieved in Australia. He said that this would have been due to the class perceptions in UK society which are unfortunately still rife.

It would be great if we could get an effective candidate from an untypical background to move the BBC in a new direction (Please witness how old fashioned the BBC looks in comparison to some of the exciting reporting, coverage and commentaries on Al Jazeera). I was surprised to learn that for all its notoriety and fame  BBC 2's "Newsnight" reportedly averages only 600k viewers per night. Is it it a programme for the elite of our society or do we now get our news and information from different sources?

I won't be holding my breath though -- we will probably still get a candidate from the same narrow and shallow pool who will not rock the BBC boat too much. It is, however, a boat that does need to be rocked

HOW HR AND FINANCE CAN ENABLE BETTER PUBLIC SERVICES

Finance and Human Resources -- Can they re-define Public Services ?

The latest blog by CIPFA's Chief Executive - Rob Whiteman entitled  " In Support of Public Services" discusses how the HR and Finance functions need to evolve to make a difference to public service delivery.

It is entirely appropriate that Finance and HR should be enablers of change but very often that is not how they see themselves or indeed how they have been trained or how the organisation culturally perceives them.We can all be cheer leaders for innovation and enabling service managers to do better but if the organisation has never culturally gone down that path and is not really equipped, willing or ready to do that, then everything can go a bit pear shaped unless the ground is properly prepared. There needs to be a will to change and a recognition that change is necessary

 

For Finance and HR to deliver transformed outcomes they must think radically and outside many of their usual orthodox paradigms. How easy is that for them to contemplate? Not as easy as we think  -- Not as easy as it should be.

 

The organisation must be prepared to challenge itself and to try and meet those challenges. Finance and HR must support that process and they must look at themselves as to how they deliver their own services and whether they can be more successful and focused in the new era of austerity and how they need to get those changed services working properly.

 

Talking about doing transformation is all well and good but delivering transformation is very different because by its very definition transformation challenges existing norms and ways of service delivery. Many Finance and HR professionals find it very difficult to move in these new directions. This is very often a personal challenge for them because financial management and HR approaches need to reach out to the staff in an organisation and they must be far more participative,inclusive and dare I say democratic in the way that their  organisational roles evolve. Many HR and finance staff have great difficulties with these new approaches -- some want to change but cannot whilst others don't know how to. More democratic and participative approaches are challenging and time consuming but will ultimately deliver a more rounded and broad based public service.

 

If we do want to engage with our colleagues and foster creativity then lets set up the processes and mechanisms to do that, but are HR professionals, finance people and other senior leaders and managers really ready for some of the messages they might receive? How might they react to them? Are they themselves prepared to be challenged on how they deliver services and why? I am not so sure.

 

To ameliorate the risks of organisational change, HR and Finance professionals need to properly understand change and how it should be tackled. We need a combination of new skills, new approaches and a mindset geared to delivering change in a compassionate and understanding way. For Finance and HR to really innovate there will need to be serious consideration given to ideas and approaches which would not have been acceptable under traditional HR and Finance regimes.  These would involve greater consultation and involvement with non finance and HR specialists in our agendas, the generation of broader more participative approaches and the phasing out of many top down command and control methodologies which are the enemies of innovation.

 

The discussion of innovatory ideas should be done in an open way without prejudice. Some of the strangest ideas work the best in practise and everyone should be allowed to contribute without fear or favour. The collection of ideas from  diverse groups who have a different perspective on services is critical and must be actively encouraged. Top down approaches of white middle aged men in suits will not by themselves be drivers of innovation, participation and democratic control of public and not for profit services -- even if they come from our current Directors of HR and Finance!

 

SHARED SERVICES -- NOT JUST SIMPLY A TALE OF COST REDUCTION

Just Cutting costs is not enough

Given the austerity that many organisations currently face, is the solution to this a pursuit of a potential shared service agenda whose aim is to increase economies of scale for the organisation's service outputs?  Reducing the average cost of these service outputs is a necessary condition of a shared services  approach but is it sufficient on its own to make a successful shared service arrangement? There are huge pressures to cut costs but is it fair to use shared services as a cloak for cost cutting?

In my view shared services cannot just be taken as a route to speedy cost reduction although that is possibly what many practitioners think. There needs to be evidence of increased efficiency and in my view improved service outcomes from a shared service arrangement, without service improvement as a key element a shared service agreement will be an empty shell. It cannot be solely a tool for cost reduction

A shared services arrangement needs to be measured on a before and after basis showing how services have improved from a shared services approach. Prior organisational success in achieving cost improvements and better service delivery outcomes are helpful but the lack of previous success in these areas should not preclude an authority undertaking a shared service journey for the first time, providing it has got the tools and advice to move forward positively in this area.

Where external partners are brought into the shared services arrangement it is important that the contracts and other service agreements amongst all the key players are watertight and that the lead authority or whatever the structure of the shared service is -- has commercially based approaches which are robust and unflinching. This has not been an area where the public sector has excelled in the past and I believe it still has ground to make up here. The responsibility for the areas of service accountability and service risk ( i.e. avoiding service failure) should be clearly defined within any shared service agreement and the focus should be on service outcomes provided we know what outcomes the shared service is working to deliver and what influence it has over those outcomes.

The before and after approach to the performance measurement of shared services needs to be refined and developed to ensure that any authority embarking on a shared services journey should have the best prospects of successful shared service delivery. Cost  reduction can never be the sole measure of shared services success although it must be recognised that many people mistakenly think it will be. This assertion should be rejected

MAINTAINING HIGH STAFF MORALE IN TIMES OF AUSTERITY

 

The Beatings will continue until morale improves? 

 

The positive attitude of staff in the workplace should never be underestimated -- the state of mind in which they approach their work tasks should be as positive and enthusiastic as possible to ensure that optimal outputs and outcomes are delivered. Unfortunately many employers do not see it that way. Having good morale, defined as the spirit of a group and its level of confidence is not taken as seriously as it should be and actions which damage morale are not properly thought through especially their potential consequences for the organisation as a whole.

 

Equality of treatment of people in different and similar circumstances is a challenge which needs to be met or else the outputs and outcomes of the organisation in question,will, in some way, suffer, sometimes in a tangible way like falling revenues and sometimes in a more intangible way in terms of loss of staff happiness, belief and focus.

 

There are also reputational risks from low morale in that staff will not defend and promote their organisation as much as they possibly would have if they had a higher morale. Insensitive and thoughtless actions by management and other work colleagues can destroy or significantly impair workplace morale This aspect of work needs to be taken much more seriously because it can be tackled if there is a will to do so. Team building,bonding,mutual respect and high levels of ethical behaviour can, when mixed together, provide the secret recipe for creating and maintaining high morale amongst work colleagues.

 

When we are bringing forward new ideas do we assess how they might affect the morale of our co-workers and even our own morale? Do we care? Is there a point where certain actions have engendered a belief that the workforce no longer cares much about what will happen as its morale has fallen to new low depths?  Do we constantly assess morale and do we try and improve it in a concrete way if we find it to be unacceptably low? Probably not but we should.

 

Morale is a difficult concept to pin down but the organisational consequences of low morale can be devastating -- We do need to constantly assess its level and gauge the effects on morale of the major business decisions we take --

 

Indeed we should try to ensure that most of our key decisions do not lessen morale and that even those that might reduce morale are mitigated in some way. This should be addressed by us all because in times of austerity trying to maintain high workforce morale becomes doubly challenging but doubly important. High morale is not necessarily linked with high pay -- there are other motivational approaches to maintaining higher morale which should be explored and they include: improved training, broader work experience, research sabbaticals, financial support for alternative work skills, improved succession planning and on the job skills updating --

 

One thing is for sure the workforce's morale will not improve if it continues to take "beatings" -- these beatings are defined as insensitive and ill conceived strategies that harm morale for everyone -- Do we really do enough to avoid those?