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Could this be a Solution to Economic Crisis and the Future of Business?

The Importance of Philanthropy and The Rise of The Nonprofit Organisation

It takes an evolved individual to recognise that the only response that will solve this economic crisis is to give money away. The reasoning is simple; if you do not reinvest into the roots of society then its flower will surely whither.

There are any number of phrases and sayings that reinforce this, but a purely economic reasoning that underpins this is; if less money comes down from the top of the wealth pyramid than goes up, then there is going to be a ‘cash flow” problem.

The people at the bottom can’t create wealth or employment unless they are given something to work with, and if the governments print money it disappears in overhead, loan repayments and spiralling inflation, filtering upwards into the ‘safe’ commodity markets. Nature hates imbalance in all things and will always seek to achieve an equilibrium, the greater the imbalance, the bigger the impetus is to push back, which is why nonprofit organisations are the fastest growing sector in business today.

There is recognition here that there is significant pressure on decision makers in the private sector to provide substantial returns for their investors and this necessarily leads to questionable decisions being made. Banks who repackage high risk loans, energy companies who falsify oil reserves or cut corners with safety, food and drink manufacturers who bulk with addictive and harmful chemicals, you name it. The irony is that this does not necessarily represent greed as many of the share holders are pension funds trying to provide security for the old at the cost of a future for the young.

Nonprofits are free of these pressures, because of donations and accounting rules all transactions are transparent. Salaries are open to scrutiny and bonuses non excitant. Other businesses find that they prefer to deal with the nonprofit organisation as there are no hidden agendas a trust reputation relationship is easier to establish; equally there may even be the possibility of positive PR!

The lesson of the Chinese monkey trap is clear; the monkey is trapped by his desire to acquire the fruit and his inability to let go of it when it is in his grasp. It takes a lot of courage to trust and let go, by some it is called “a leap of faith”.

“Be the change you want to see

– Mohandas Mahatma Ghandi

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WHAT ARE THE DANGERS OF PREDICTION?

On 15th February 2012, Mervyn King, head of the Bank of England, made a lengthy speech giving economic projections about the economy of the United Kingdom.  Undoubtedly, a great deal of work had gone into preparing and processing the data, the interpretation of which was:  Modest growth might be expected and that the UK would not slip back in to recession, UNLESS the price of oil increased.

Four days later Iran announces that it will no longer sell oil to the UK or France, as a direct response to the pressure being applied to them about the nuclear energy generation.  Their justification could easily be – “if we are not allowed nuclear power then we are going to need out oil for energy”.  Consequently, oil, and the commodity market in general, has risen sharply, rendering all its forecasts meaningless in an instant.

The credit rating agencies use similar financial predictive mechanisms as a service to investors to show how likely it will be that a country will repay their debts.  When a country’s rating is downgraded, the investors demand a higher interest rate because of the greater risk, which in turn makes it more difficult for that country to meet their obligations. This is a known issue called “pro-cyclic” and despite proposals to prevent it from happening, it is impossible to do so.

Physicists and philosophers have long understood the problem concerning interactions between the observer and the observed.  From the Heisenberg uncertainty principle to the “if a tree falls in a forest and no one is around to hear it, does it make a sound?” thought experiment, the issue remains the same.

The instant someone makes an observation about the future, the future changes.

There is something known as a self fulfilling prophecy, this happens when enough people believe in a prediction, they change their behaviour because of their belief.  This change in behaviour then brings about the future that was predicted.

I am certain that this was what Mervyn King was hoping when he delivered his speech – if enough people believe that recovery is happening then they will start to reinvest in the economy, thus causing the recovery he wishes to see.

In the case of the credit agencies it is exactly the same, by predicting that a country or organisation will fail to repay their debts, they create a situation where this event is even more likely to occur than if they had made no prediction at all.

Despite all the mathematic modelling that has been done, there appears to be one very important thing being missed, especially when dealing with people:

“Future success can’t be judged on past performance”

or, as Albert Einstein put it:

“Anyone who has never made a mistake has never tried anything new.”

Most people tend to learn from their mistakes, either that or they just want to prove you wrong.  Either way, predicting the market or financial system is not a good idea, as it can be viewed as no more than a misguided attempt to influence or control those mechanisms.

The power of belief is not a thing to take lightly, and in this current  economic and political climate people need to believe that the world of finance are starting to see a bigger picture than the narrow view of a bottom line.