Wednesday, 27 May 2015

The world of exclusion or inclusion

When you shake a kaleidoscope, all the tiny slivers tumble in chaos, finally settling and forming a beautiful pattern. Every shake creates a form never before seen, and likely not to be seen again.

A kaleidoscope metaphor is useful because it reflects a world where everything appears unruly. Yet one crucial aspect is missing here: the hollow tube housing the shiny flakes. No matter how much anarchy occurs inside the tube, the tube organises the constraints – rules about what the flakes can and cannot do.

What about the hand that shakes? Is there not an assumed human agency involved in stirring the slivers into new designs? The hand is not important, it is the tube that matters. The hand could be anyone’s or no ones. The hollow tube of world order is the international rule of law, its various cultures and conflicts are the colourful bouncing flakes.

And if there is one central thread overarching this modern global system’s rule of law, it is the concept of exclusion or inclusion in this rule of law. This isn’t simply a devious United States’ manipulation, plenty of countries around the world vote daily with their feet for inclusion rather than exclusion. That’s extremely important.

Exclusion or inclusion is the question. There is no third option. This arrangement is not necessarily a bad thing, but it would be a mistake to say the form of this question is universally recognised or accepted. Our international rule of law is a largely Western framework which emerged slowly over centuries as the default operation of the world market system.

There have always been human forces which don’t accept the form of this question. Russia wishes to tear up the default rule of law in Ukraine and hasn’t elucidated exactly what a ruleless world might look like. To Russian president Vladimir Putin it is not where a person is born which dictates her nationality, it is decided by the language she speaks in the family kitchen.

Others, such as China, wish to formulate its own framework of rules. Beijing certainly doesn’t want to live in a world without rules, however it prefers to carve rules of its own making. In the Asia Pacific, which is both the focus and the limitation of Chinese power, multilateral trade deals are Beijing’s way of making the world a better place – for China.

Both the Chinese and Russian movements are the rejection of answering the question of exclusion or inclusion. How they manoeuvre in the future is up to them, yet it isn’t certain that belligerent Russia wishes to encourage outright war over who writes the rules. That’s exclusion even Russia couldn’t survive.

Carl von Clausewitz described war as the continuation of politics by other means. The key point here is that politics is always occurring. He knew war might make headlines, yet wars are avoided every day because the process of politics doesn’t have to lead to a continuation by other means.

It’s a cliché to say victors write history, but it isn’t at all obvious to point out that wars aren’t the only way winners and losers are decided in this world. Often it is those small, quiet political decisions made in hallways at meetings which move the chess pieces in the game of nations most significantly.

This is the context of the Trans Pacific Partnership (TPP). It is not simply a trade deal between 40% of the world’s economies or a selfish national security strategy for participants. The TPP is forcing nations around the Pacific to respond to the question by choosing exclusion or inclusion.

With all the forces tugging the world in various directions, there has never been a more important time for nations which respect the idea of liberty central to the rule of law to cooperate on encouraging the best egalitarian rules for living in the 21st century.

New Zealand’s future also depends on answering the question by choosing continued inclusion. It might sound hypocritical to respect the importance of competition in the marketplace and then reject competition when it comes to who sets the rules for this marketplace. Yet that is the dilemma the world is grappling with in these early years of the new century.

Economic interdependence isn’t a panacea for war, the history of Europe over the past 100 years should make this obvious. And the current economic system may not be perfect. Yet the alternative of a world without a rule of law or one which is radically different is sure to weaken and disintegrate every aspiration for freedom and self-determination.

That is why Mr Putin’s vision for Ukraine and Beijing’s ideals for its near abroad must be challenged. Because they represent a fundamental restructuring of the international system. This isn’t just about the West anymore, it’s about everybody.

After all, Clausewitz says there’s always the option of the continuation of politics by other means. Don’t for a second think this option is impossible even if it doesn’t seem likely right now. Even the Russians prepare for the inevitable moment when people and intentions change.

Monday, 25 May 2015

UK referendum and the backfiring of Cameron's democracy threat

The British government confirmed it will pass an early law to hold an in/out referendum on European Union membership by the end of 2017.

Queen Elizabeth, speaking at the House of Lords, opened parliament with a speech outlining the United Kingdom’s plans for membership in the supranational organisation.

“My government will renegotiate the United Kingdom's relationship with the European Union and pursue reform of the European Union for the benefit of all member states,” the queen says.

Prime Minister David Cameron – who was re-elected May 7 – has been orchestrating the national conversation about EU membership for two years. This new law could bring a referendum to Britain perhaps as early as 2016. Mr Cameron is now facing a situation he didn’t exactly plan for.

The British leader doesn’t necessarily want to leave the organisation, and opinion polls currently show the British populace also wishes to remain in the EU. Mr Cameron knows a departure would hurt Britain both economically and strategically, but his plan hoped to avoid this.

Originally, the referendum was a political counter to rising eurosceptic sentiments in the UK which was being unfairly conflated with the immigration issue. The referendum was linked with the larger renegotiation of Britain’s relationship with the EU. That renegotiation is about to start, as timing would have it.

In this light, including the UK public in the in/out decision ticked two boxes for Mr Cameron. It would quieten pressure from the right of his own party and gain a measure of important leverage in the upcoming renegotiations with Europe.

The Europeans were so far reacting as expected. Brussels knows a British departure is possible if concessions weren’t made on greater opt-out clauses for the UK and increased protection from immigration flows, for instance. So any uncertainty threat could only help the British renegotiating stance.

But while this was the early plan, the Conservatives now find themselves with a majority in parliament and the wider UK political dynamics shifting around the ruling party. On the one hand, the Liberal Democrats failed miserably in the elections. And although the eurosceptic party UKIP didn’t gain significant representation in parliament, its influence grew markedly, indicating widespread desire for a British exit probably isn’t going away anytime soon.

These British eurosceptics can now use a new-found power base to make more stringent demands for the larger EU renegotiation – a tactic made far simpler now the Liberal Democrats are no longer around to balance out eurosceptics inside Mr Cameron’s own party.

So Mr Cameron watches as his options shrink. He is committed to a referendum and can’t backtrack now. It would only embolden the eurosceptics, undermining his negotiating position with Europe. But he can’t be sure a referendum will deliver the result of continued EU membership.

All of which lead to Mr Cameron announcing confidently today that the referendum will go ahead. He’ll now want to speed up the process to capitalise on a few advantages, many of which can’t exist forever.

The election will eventually fade for the public, so moving quickly to leverage the British people’s current support for both the Conservatives and EU membership will be critical.

And there’s also grumblings emerging from the international business community which use the UK as a base to launch into Europe. Many of those corporations may decide to postpone further investment into Britain until the renegotiation issue is complete. That won’t be good for anybody.

For these reasons, Mr Cameron is betting a fast referendum process is more likely to gain him an “in” vote. He knows the British public often changes its mind, and as the eurosceptics gain in power, “out” thoughts are bound to creep into the wider consciousness.

Every UK generation redefines its relationship with Europe. The EU was meant to galvanise the continent but a weak European centre, financial pressures, immigration controversies and hostile politics have supplied this generation with a chance to once again ask the Europe question.

One thing’s for sure: using the threat of democratic process as a political weapon doesn’t always work out in your favour. Mr Cameron right now might be wishing he wasn’t so forceful on the referendum.

Friday, 22 May 2015

How 2015 will look for Asia Pacific

INTL and Analysis last year laid out an annual forecast for Asia Pacific countries excluding China. This year the feature will assess those predictions before turning its attention to the next 12 months.

Three dominant expectations were isolated in 2014. First, China would struggle to reform its economy amid slowing growth. Second, other major Asian powers would respond to China’s growing influence. Third, some developing states would become volatile as China slows and US monetary policy alters.

China did experience slowing economic growth in 2014, reaching GDP growth of 7.4%, down from 7.7% in 2013. Other Asia Pacific countries are steadily capitalising on a slowing China. Growth of about 5.5% is still expected in the region in 2015. Tightening global liquidity also remains a concern for regional stability in some economies.

Looking to the year ahead, China’s graduation to a consumer economy will see it hover near 7% GDP growth. Second, serious movement will be made to integrate Southeast Asia into a stronger regional community. Third, limited regional growth will benefit from low oil prices while struggling to contain political instability.

Low energy prices will be the central story in Asia for 2015 as each country takes advantage to boost GDP. However, countries with domestic energy sectors will see declines in revenue and potential cancellation of exploration and development contracts.

The US is also experiencing slower than expected growth, registering only 1% in the first quarter of 2015. This limits the likelihood of an increase in interest rates higher than 0.25% where they have stayed since 2008-2009. Although the US is unlikely to restart quantitative easing, a stuttering US economy may alter the growth calculations for the Asia Pacific.


NZ’s top 3 trading partners

Indonesia (pop: 255 million)

Cheaper energy prices will affect Indonesia in different ways. The island of Java, Indonesia’s heartland will experience the greatest boon. The island houses 70% of the country’s population and the vast bulk of its factories. Other parts of the archipelago will suffer from low oil prices. Sumatra, East Kalimantan and Sulawesi rely on energy resource extraction to maintain the local economy. President Joko Widodo won the election as predicted in 2014. He began his first term with vigour, overhauling the costly fuel-subsidy programme. However, government effectiveness will be limited as he struggles to sustain political authority. Mr Widodo’s fuel subsidy reductions offer Indonesia a buffer to expand its dilapidated and inadequate infrastructure and social services should oil prices remain low. It also provides a healthy base for consumption growth. Total GDP growth for Indonesia is expected to reach 5.2%.

Japan (pop: 126 million)

The Liberal Democratic Party easily defeated competition in snap elections last December. The LDP’s leader Shinzo Abe will now be in power for the next four years. Mr Abe will use a strong position to push through politically sensitive structural and economic reforms important for managing the first two “arrows” of his so-called Abenomics strategy – monetary easing and fiscal stimulus. Japan’s agricultural lobbies are also firmly in his sights as tension on the Trans Pacific Partnership FTA rises. Low energy prices will benefit Japan as it currently relies heavily on fossil fuel imports. Japan may reinvigorate its nuclear energy portfolio, with attempts to change public opinion. Japan is also expected to deepen ties to the Association of Southeast Asian Nations (ASEAN). Improved consumer sentiment and sustained export growth is expected to push Japan’s GDP up 1.3%.

South Korea (pop: 49 million)

Southeast Asia will continue attracting serious investment interest from South Korea in 2015. New Zealand and South Korea signed a free trade agreement to boost trade ties. South Korea and China may pass a FTA in 2015, however other talks have stalled over a tripartite agreement between South Korea, China and Japan. Both agreements reflect the interdependency of the three Asian heavyweights. At home, president Park Geun-hye’s approval ratings slipped after a series of negative events last year, although she will remain leader until 2017. Economic growth has been due to high household debt and weak exports, a situation predicted to ease if the FTA deals pass. Ms Park is pursuing her “creative economy” agenda to fix structural challenges to South Korea’s economy. However, given the inherent lag in economic alterations those polices will take time for significant impact on the economy to filter down. GDP growth will reach 3.7%.


Asia’s other billions

Bangladesh (pop: 158 million)

With domestic demand in Bangladesh recovering as activities normalise following a year of political unrest, the country should experience swift growth. Although the current government should complete a full term, political tensions may deter higher foreign investment. The opposition party will pressure the administration, but snap elections are not expected. Bangladesh should grow by 6.8%.

Brunei (pop: 423 thousand)

Politically, the sultanate of Hassanal Bolkiah Mu'izzaddin is not expected to meet serious challenge over the next year. Brunei exports more than 70% of its GDP as oil and gas so low oil prices will diminish Brunei’s trade surplus, pushing its budget into deficit. Any resulting unrest should be contained with the tiny country. Should energy prices recover, Brunei’s GDP will grow by 2.3%.

Burma/Myanmar (pop: 53 million)

The country will seek to secure some accommodation with rebel groups as part of its optimistic process of long-term economic “reform and opening”. A deal will however remain distant this year. Aung San Suu Kyi’s National League for Democracy party should do well at the election in October-November, if the election is free and fair. Myanmar’s GDP growth should reach 7.8%.

Cambodia (pop: 15 million)

Falling global energy prices will benefit Cambodia, which imports all 43,000 bpd of oil. Both the ruling CPP and the opposition CNRP parties are willing to cooperate on electoral reform following a significant political strife in 2014. Along with strengthening external demand for its garments and higher domestic consumption due to low inflation, Cambodia looks set to grow by 7.3%.

Laos (pop: 6.8 million)

The ruling Lao People’s Revolutionary Party should win the National assembly election in 2016 stabilising the country as a one-party state. Civil service pay has being halted to address the country’s fiscal debt, however a large current account deficit will be recorded this year. GDP growth will rise to 7.6% supported by rising tourism and the recovery of the neighbouring Thai economy.

Malaysia (pop: 30 million)

As a net oil exporter, Malaysia is most at risk from falling oil prices. Not only will it affect oil exporters, but the dip will tighten the government’s coffers which earned 29.5% in 2013 from taxes on energy exports. Prime minister Najib Razak is expected to retain his position until 2018. Domestic demand will remain the engine of Malaysia’s growth which will grow 5.6%.

Mongolia (pop: 2.8 million)

Should two massive mining deals with Rio Tinto – developing the Oyu Tolgoi mine and the Tavan Tolgoi coal mine – succeed, Mongolia will see significantly increased GDP growth. If the shaky deals do go ahead, the landlocked country may reach 11% growth this year.

Papua New Guinea (pop: 7.4 million)

Rapid growth fuelled by a liquid natural gas boom will propel Papua New Guinea’s economy to an estimated 15% growth. Once again, low energy prices may negatively affect government revenues although the enormous LNG refinery has come online since 2014. Political instability however could return as prime minister Peter O’Neill fights off scandals over alleged illegal payments.

The Philippines (pop: 100 million)

The central government still battles rebel Muslim groups in the south of the country. The popularity of the president Benigno Aquino has suffered from the raids, one of which resulted in the deaths of 44 police commandos. Infrastructure development will remain a top priority along with greater employment generation. Boosted by post-typhoon spending, private consumption will help grow the economy by 6.7%.

Singapore (pop: 5.5 million)

The death of Singapore’s leader Lee Kuan Yew makes the future of the ruling People’s Action Party uncertain. Geography and strict immigration laws will constrain Singapore’s labour pools. Along with expanded welfare benefits for elderly and low-income workers, Singapore will struggle to cover rising costs. A higher tax on the top 5% of earners will assist in reaching 3.8% GDP growth.

Thailand (pop: 67 million)

Unity and cohesion remian priorities for a government still reeling from recent political unrest. A looming royal succession indicate elections are unlikely this year. Nevertheless, the military remains in control, stabilising Thailand’s politics. Large infrastructure projects and minor political reforms will see a rise in GDP of 4.2% after a sharp slip in 2014.

Timor Leste (pop: 1.1 million)

New prime minister, Rui Maria de Araújo, will lead a national unity government. However, low oil and gas output will hamper GDP growth this year expected at -0.7%. As energy prices decline, Timor Leste’s oil investments will provide a diminished income stream sufficient to cover a budget deficit.

Vietnam (pop: 92 million)

While the country’s economic expansion continues apace with a 6% GDP rise predicted, Vietnam’s energy outlook is less certain. The benefits of cheap oil will be positive for consumers and industry but could hurt government revenues. But low oil prices should keep Vietnam’s monetary policy in check. The economy continues to diversify its exports and new regulations should help encourage investment activity.


Oceania (pop: 3 million)

Fiji

Last year’s election cemented Voreqe (Frank) Bainimarama’s place in Fiji’s politics. The largely democratic election will increase its foreign relations. Both a rising consumer base and heightened investment, along with a continually developing tourism sector, will lift the country’s GDP to 3.2%.

New Caledonia

The territorial government collapsed in December over fiscal reforms only six months into a five-year term. The reconfirmed government of Philippe Germain’s Caledonie party may now improve stability. The country’s nickel mining, and financial transfers from France, will boost GDP by 3.2%.

Samoa

The political situation is likely to remain steady over the next few years as the ruling Human Rights Protection Party should win elections in 2016. Consumer prices are predicted to surge due to a depreciating tala while inflation will rise. A contraction in the agriculture, construction and manufacturing sectors continues, slowing Samoa’s GDP growth to 1.4%.

The Solomon Islands

The government of prime minister Manasseh Sogavare’s Democratic Coalition for Change still struggles to find an alternative to the country’s overdependence on logging. Forests remain near exhaustion. Progress on reforms will be hampered however by the administration’s limited capacity while political loyalties to Mr Sogavare are tenuous. Its GDP will expand by 4.1%.

Tonga

Recently elected Samiuela 'Akilisi Pohiva wishes to implement minor political reforms but will be constrained by the country’s reliance on foreign aid. An increase in tourism and remittances, including some new construction projects, should however bump the country’s GDP to 2%.

Vanuatu

Cyclone Pam smashed parts of the island chain in March causing widespread damage. International relief efforts are in process but building damage will isolate aid and construction work in the year ahead. Many industries are affected, including tourism, and GDP will rise only 4%.

Sunday, 17 May 2015

Europe’s tragedy close to climax

The temperature is rising in Greece, both metaphorically and meteorologically. On the one hand, it’s coming into the Mediterranean summer months and June will also mark the end of Athens’ existing bailout package forcing it to make what’s become an insidiously familiar decision.

The Greek crisis is moving closer towards the fourth act. The world watches as the actors and narrative structures reach a climax. It’s hard to know how this story will end, but if it is a tragedy the outcome is essentially foregone.

Next month’s question is whether Greece will ask the Eurozone for more money, kicking its debt can further down the road, or risk leaving the European Union altogether. A third option does not exist. Greece’s interior minister Nikos Voutsis said recently the country cannot make its June debt repayments to the International Monetary Fund unless it reaches a deal with creditors. Mr Voutsis sounds optimistic, but he does need to be explicit about the consequences of failed talks because no one gets away with defaulting on the IMF.

Greece wants 7.2 billion euros ($10.83 billion) of new aid to avoid bankruptcy. Its ruling Syriza party, despite heavy rhetoric about leaving the Eurozone, is presently more interested in staying in the supranational organisation than trying its luck on the outside.

Much of the world’s media believed that rhetoric during the January election when it threatened a referendum on Eurozone membership. A referendum was wielded as a political weapon in the battle against Greece’s creditors, but polls continue to show Greek citizens don’t want to leave Europe.

Essentially, Syriza’s empty words clashed against the immovable national imperatives and came off second-best. And once again, Greece offers a chance to assess the underlying issues of Europe. The EU’s mounting trials can no longer be simply defined as a financial crisis. It is much more dangerous than that.

In theory, Europe should have been robust enough to withstand an event such as the sub-prime crisis of 2008. But it wasn’t able to let a cyclical, and arguably routine, financial crisis slide past with minimal damage.

What should have been a predictable crisis in which the question about who bears the debt burden – the creditors or the debtors – was resolved with smooth decisions and powerful financial assistance, quickly transformed the narrative into asking political and existential questions instead.

From the very beginning, the teleology driving the creation of the European Union was a desire to keep continent from another immolation by encouraging an idea of a “European citizen”, rather than deferring to the status quo of citizens with national entities. The idea was supposed to be an impetus for common cause.

History aside, and the Greeks are as saddled with long memories as are their European neighbours, the geography of the European landmass made the EU idea laudable but extremely difficult. In the north lies fertile and prosperous land. But the south is broken by mountains and cannot compete on riches. In other words, it’s not just human history that divides Europe.

Going even deeper, Germany was whole the point of the EU. Its inherent geographic vulnerability (threatened by France in the West with Russia in the East) and dynamism (blessed by the arable North European Plain) led to a Germany lashing out for security twice over a single century. The EU now constrains a rich but vulnerable Germany by offering security and ample trade partners.

The EU allows Germany to earn 50% of its GDP from exports, most of which are bought by other European members. This is a phenomenal export figure. And there is little chance, when the United States languishes in low growth and with a China not ready to pick up the consumption slack, Germany could maintain such high figures if the EU reaches a fragmentation point.

If this is the reality of the EU, and the current distribution of debtors (in the South) and creditors (in the North) certainly suggests accuracy, then it’s clear why the EU crisis is more than simply financial. The political and social crises forming the decisions about austerity and bailouts are complicating what might otherwise be tough but manageable.

Recently, geopolitical realities have called Greece and Britain’s bluff about threats of referendums – for now. Yet no matter how many bailout bandages are placed over Europe’s wounds, the fundamental splits resulting from geography’s cruel favours will remain. This worries Greece and Germany alike, although for very different reasons.

Ultimately, if there were a solution for the Greek financial problems, then policymakers would have found one already. But the situation appears largely insoluble without serious restructuring of the narrative and how it is discussed in Brussels.

Germany does not wish to leave, but it also wants to export in ever greater quantities. It will need to accept limits on this. Greece and the periphery countries cannot compete economically so will need to accept a ceiling on their collective lifestyles.

But the splits in Europe cannot let the necessary concessions occur, at least in the current political framework. Greece’s deadline for new funds will arrive and will likely be met with some of the required funds. There is nothing else to do. But the gaps between the members will only grow wider, weakening the power of the EU institutions.

Friday, 15 May 2015

How Britain’s election reflects Europe’s problem

Perhaps it helps to be on the ground in the United Kingdom during the lead up to an election, but then again, almost all the pollsters picked the final margin phenomenally poorly. At least foreign analysts have an excuse for ignorance and terrible prediction.

In the weeks and days before the United Kingdom’s general election, Labour and the Conservatives were tipped to be neck and neck, and UKIP (formerly the UK Independence Party) was predicted to gain far more than its ultimate tally of one lonely seat.

At the close of the day, the Conservatives polled 6% more votes than Labour and won an unexpected majority in the House of Commons. The Scottish National Party stormed home in the high north. Scotland last year achieved 45% approval for secession from the United Kingdom.

So its relative victory last week surprised only those who weren’t paying attention. The obvious criticism of the elections is to despair at the seemingly broken political system of what’s left of Her Majesty’s kingdom.

Many are saying its balkanised parties are no longer suitable for a first-past-the-post voting system. Analysis of election data shows the 2015 challenge delivered the least proportional result in the country’s history. With those numbers, the UK has done nothing to solve a growing crisis of legitimacy. Voter turnout only reached 66% which means Prime Minister David Cameron won re-election with the support of only 24.7% of the adult population. Nevertheless, those results gave the Tories their first majority since 1992 and theoretically puts more power in the hands of Mr Cameron.

However, his power now has different constraints. The Conservatives’ majority is thinner than under previous coalition governments and could be held hostage to a small number of potentially discordant lawmakers whose defection would put the party’s number of seats below the majority threshold. Add to this a growing movement of Euroskeptics in the Conservative party, and Mr Cameron’s room to manoeuvre could be tighter than he thinks. Following these elections, it could be said that the UK is essentially an unrepresentative democracy.

However, the UK elections’ true importance is what it says about the state of the European Union and whether it can remain a strong entity or will devolve into a toothless organisation similar to the United Nations where every constituent member prioritises its national imperatives over the supranational. Taken as a microcosm of the larger EU financial and social crisis, the UK has all the threads of what’s going wrong in Europe.

UKIP represents a deep and growing displeasure about the European Union which has led to a number of right-leaning political parties coming to power since 2008. However, it has been the larger conservative parties in control, not the smaller and more tenacious rightist parties, which are yet to show competency in controlling the larger EU system.

Although it has weathered its fair share of militancy and terrorism over the decades, a pronounced anti-immigration sentiment driven by a justified but largely overblown fear of Islamic jihadism also runs through the modern British society. This is reflected in the policies and rhetoric of many parties in the UK and elsewhere.

And the UK is facing its own returning questions about nationalism – questions both the continent and Britain hoped had been settled decades or centuries ago. While the EU struggles to balance its budget, these movements are getting louder and more powerful with each passing election.

These tectonics displaying in the UK have real geopolitical consequences. They raise dangerous issues about Britain’s relationship with both the EU system and its Atlantic alliance with the United States. After all, should the Scots choose to make good on their departure plans, the contiguous integrity of the United Kingdom would be at risk.

Britain no longer controls the seas nor has an empire spread across the world, so it must balance the interests of the EU and the US. Splitting from one risks subsuming too greatly with the other, which could threaten Britain’s freedom of action.

How Britain balances the necessities of national imperatives with the demands of the larger organisation is the central story of the EU’s struggle. Britain’s electoral system may be flawed, but the fact that the Scottish National Party won a significant amount of the vote speaks volumes to how UK citizens feel about the greater socio-political reality.

Mr Cameron is now beholden to his promise of setting a referendum on EU membership in 2017. It is entirely unclear at this point whether Britain will remain part of the community, and that should raise questions of far greater import than those surrounding Greece’s choice.

After all, Greece represents a fiscal failure. Whatever it decides about its position or is compelled to do is driven by wholly different forces than those occurring in the UK. Should the maelstrom of nationalism, anti-immigration and Euroscepticism in Britain spin faster, Catalonians in Spain or the Flemish in Belgium may push their political power much further. And that would be just the start.

What this brewing storm in Europe might do to the organisation is unclear. But if its members value national interests over those of the larger community’s, then the union’s power and existence could be in question.

Thursday, 14 May 2015

After tragic death, John Nash's game theory lives on

John Forbes Nash Jr, the Princeton University mathematician who shared a Nobel Prize in 1994, was killed with his wife in a car crash on Saturday.

Mr Nash, 86, and Alicia Nash, 82, were in a taxi when the incident occurred, according to New Jersey police reports. The vehicle lost control trying to pass another car. The couple was pronounced dead at the scene.

The fiercely intelligent Mr Nash, who inspired the movie “A Beautiful Mind” was widely regarded as one of the greatest economics and mathematics minds of the 20th Century.

His pioneering equations created during the Cold War was integral to keeping the United States and the Soviet Union from war, as well as a foundation for a wider socio-political theory of human society which would impact the modern world in revolutionary ways.

The film, which stared Russell Crowe, was highly regarded by movie critics and yet also considered “historical revisionism” by those who knew Mr Nash and by independent historians. A Beautiful Mind focused on Mr Nash’s apparent paranoid schizophrenia while paralleling his Nobel Prize-winning economics achievements.

Perhaps the most important insight to come from his long career was his formalisation of the concept known today as game theory – the mathematics of decision-making.

While working for the RAND Corporation, Mr Nash developed ideas based on a vision of humans as driven by only self-interest and as being continually distrustful of others. Left to their own devices, humans could be expected to pursue their own ends – an insight with potentially terrible consequences for the two great Cold War belligerents.

The theory of games
Mr Nash thought he could stabilise this self-interest not just in the geopolitical arena but also in human society. The mathematician worked on a series of experimental games called “FUCK YOU BUDDY” in which the only way to win was to calculatedly and brutally betray one’s partner.

In order for game theory to work, Mr Nash had to presume regular humans behaved in exactly the same way as the policy-makers and military leaders involved in the intercontinental nuclear standoff. Hs ideas assumed that humans constantly monitor each other in a life-long tussle to achieve their own selfish ends.

Employing the equations which eventually won him the Nobel Prize, Mr Nash showed that a system driven by suspicion and self-interest did not have to lead to chaos. His games proved there was an equilibrium point at which everyone’s self-interest was balanced against everyone else’s.

Mr Nash was recorded as saying normal people “seek optimisation like poker players”. The key was that all players must behave selfishly for the balancing to work. Despite what more optimistic social scientists believed at the time, the theory suggested that cooperation would mean the games became predictable and dangerous.

This game was officially called the “Prisoner’s Dilemma”, and many versions were invented after the first experimental iterations. Perhaps the most famous was the game show called “Golden Balls

The Library of Economics and Liberty describe the Prisoner’s Dilemma as the “best-known game of strategy in social science”.

“In the traditional version of the game, the police have arrested two suspects and are interrogating them in separate rooms. Each can either confess, thereby implicating the other, or keep silent. No matter what the other suspect does, each can improve his own position by confessing.

“If the other confesses, then one had better do the same to avoid the especially harsh sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the favourable treatment accorded a state’s witness by confessing. Thus, confession is the dominant strategy for each. But when both confess, the outcome is worse for both than when both keep silent.”

How game theory grew
In the Cold War, his equations intriguingly helped show that any hope of both the Russians and the Americans mutually giving up their nuclear weapons, so long as the other side followed suit, could never happen. Unfortunately for world peace, neither was able to trust the other not to cheat.

Yet while the predictions for nuclear conflict might have appeared more pessimistic, there was a strange logic in Mr Nash’s theories which kept the Cold War frozen. No nuclear exchange occurred during the decades of standoff, although it is still unclear whether game theory was integral to this outcome.

Nevertheless, social scientists used Mr Nash’s theory to explain how the rest of human society operated. Politicians also loved his ideas because it showed that society could exist based on individual freedom and that it wouldn’t devolve into chaos as some had suspected.

One consequence meant this reinvigorated idea of freedom encouraged citizens to be suspicious and distrustful of everyone else if the system of political organisation was going to work.

Before Mr Nash’s theories entered public consciousness, most politicians were worried a society fundamentally based on self-interest would lead to chaos. But these new game theory equations proved the fear might be misguided.

In the real world however, the Prisoner’s Dilemma doesn’t quite operate to the extent Mr Nash hypothesised. Rather than betray each other, as the equations suggest participants will, human players tend to trust each other and generally end the game by choosing cooperation.

Despite the conflicting trials with human subjects – and the eventual recognition that the mathematician suffered from paranoid schizophrenia by which he was intensely distrustful of people – Mr Nash’s ideas quickly percolated through Cold War politics in the United States.

New society of order
His game theory equations helped set up a new ordering of society in the mid-20th century based on the foundational concept of individual freedom. Those ideas were not from Mr Nash, rather they emerged from the thinking of Austrian-born Friedrich von Hayek in the 1940s and 1950s.

Mr Nash’s ideas have been influential beyond the mathematical sphere and many who attended Princeton University and studied under the Nobel Prize winner remember him as an inspiring person. Others who interacted with Mr Nash recall him as prickly and difficult to work with.

Mr Nash’s schizophrenia symptoms eventually faded in the late 1970s as his condition slowly improved. He also helped activists organise new legislation for mental health in the United States by being open about his illness and from his position as a mathematics celebrity.

He is survived by his two sons, John David Stier and John Charles Martin Nash, and a sister, Martha Nash Legg.

Tuesday, 12 May 2015

What's wrong with David Seymour's welfare reform is what no one noticed

A call to help people off welfare benefits and into jobs will sound to most people like a goose chase. However, it comes from ACT MP David Seymour, which means he’s going to tell you it’s an easy task – and it isn’t.

Reforming the current welfare structure is all but impossible unless one is willing to radically alter or bring down the overarching consumer system – but he isn’t willing to do that either. Politicians do enjoy the odd bluster. How do I know he’s not willing? His aim in changing welfare (which is only the latest example of a much larger political belief) requires looking beyond the system for some answers about how it might be possible to alter that system.

True change means he needs to step outside the system but all he’s ever been fed is the system. I know he can’t do this because almost straight away in the article, which appeared online in the NBR's Weekend Review, he shows he has no idea this system even exists. Maybe that’s because no one can be told what the system is – they have to see it for themselves.

Imagine a large machine mobilised for people to buy things we don't need at ridiculously inflated costs, complete with advertising and branding convincing us we’re not cool if we don't have this or that thing. But when we get one of those things we discover it's of terrible quality and obsolete in six months. That’s how the system works.

The system is an inherently stratified concept, with some people occupying top positions and others the bottom. This is called controlling the capital. All movements must maintain this stratification. For instance, the creation of a welfare state was also the entrenchment of an aristocracy. They are two sides of the same leaf – inseparable. These are the system rules.

The system cannot be modified through playing by its rules. It appears immoral to most people but changing the system requires truly fresh ideas. Not ideas offering only the fetish of change. Mr Seymour’s only achieves the latter. Which is why his suggestion that jobs help poor people is precisely what the system wants him to say.

Let me explain.

Welfare and the system
When most people see a welfare mum they assume she can’t or won’t find work. This connection is understood to be a bad thing but no one stops to ask why it’s a bad thing. So let’s start with the basics: what is the system telling us is the form of the question? More importantly, what is the question the system forbids from asking?

Mr Seymour frames his question by positing a choice between either welfare or employment. In this binary junction, it is assumed welfare is the less desirable option. So we know he wishes to change the structure but these are the questions it occurs to him to ask:

Are they available for work? Have they appropriate skills or qualifications? Do single parents face the right incentives to get work?

His plan is to ameliorate poverty by offering greater employment. Simple as that. But observe he doesn’t suggest corporations invent new jobs to soak up all this wasted potential labour – that would be silly. Creating jobs springing fully formed from the head of Zeus always leads to economic pain in the long run, everyone knows that.

He might truthfully have the poor’s interests at heart but his words and ideas do nothing to change the status quo. What’s worse is those ideas make theoretical sense to all of us precisely because they reinforce the larger, all-important consumer system. Nevertheless there’s still a nasty reality in the welfare debate: the further  down the income distribution ladder you are, the more likely you are to be a single mother in a large city.

That’s certainly tragic but, from the perspective of the economy, single mothers are actually model citizens. She’s already produced a child and is willing to go all in on production/consumption because she has no other choice. This isn’t to say the woman wants to be a single mother on benefits but this is what the system wants her to be. If this mother is on benefits and working multiple jobs, then it begins to get clearer why the system’s desires line up exactly with what Mr Seymour the politician also wants:

Consideration should be given to requiring more sole parents of children younger than five to work, with appropriate support for childcare and flexibility for particular circumstances. The path out of poverty is through employment.

Yes, employment is the path out of poverty. There are plenty of studies supporting this assertion but I can still see the dollar signs dripping from that paragraph. So what exactly does Mr Seymour understand to be “poverty” here? No one lives in grass huts anymore. Poverty, according to the logic of the system, means this single mother is simply not consuming enough. Therefore, she needs either more benefits or higher wages.

Reform is defined not by the ends but by the means. Consumption is the end, and cash is the means. The form of the question assumes the ends are already decided – consume/produce – so the problem of welfare is apparently solvable by redistribution of capital.

It’s all about labour costs
When a single mother has a job, not only is she producing, she can use all that juicy extra income to consume even more while being unable to earn enough to pull herself out of the eat-sleep-consume cycle. That’s not reform, that’s the status quo.

The welfare argument is set to condition the public to believe the answer is to give these poor people something. The political argument differs only on what to give them: cash payments or jobs. The system also convinces us that staying off welfare and becoming employed has some intrinsic honour in itself. As if when a person pulls on a suit in the morning or laces a pair of work boots they are more, not less, respectable. But I recognise a long con when I see it. This ruse is designed specifically to get people to unquestionably accept the form of the question.

And it hides the true question that no one is allowed to ask. The system has persuaded Mr Seymour to frame the choice as binary: either you work in a job or you receive benefits and stay home with the kids – as if there’s no other option, no middle ground. However, from an economic perspective the real irony is that the debate isn’t actually about reform, and never was. It has always been about labour costs.

I mentioned earlier that Mr Seymour won’t deal with the elephant in the shopping mall: non-existent jobs. That’s worth teasing out a bit here. Hopefully it’s not a revelation when I say it’s no longer clear everyone needs to work. More people than ever are drawing benefits while corporations are earning record amounts. So what gives? I understand the importance of working from an ethical/character perspective, but that isn’t my point. Since the New Zealand economy no longer requires much domestic manufacturing work – China/robots can do it cheaper – and since most labour costs have evaporated, could this surplus go toward paying single mothers to think about something other than throwing rocks?

Is there a natural economic balance price where, say, a single mother can do no economically productive work at all but still be paid to be a one-person day-care centre and stay out of trouble? Let me be absolutely clear, my question isn’t: wouldn’t this be a good idea. My question is: considering this is exactly what's happening already, is the system sustainable? So what’s the cost of this programme to the New Zealand economy?

I don't have to run the numbers, Statistics New Zealand already has: $299 per week for one person, over an average of 17 years, accruing a total of $230,000. And that’s just for one solo parent. Those numbers might look destructive, but they are entirely necessary for the functioning of the system. And Mr Seymour wishes to change this? Something smells fishy, and I don’t think the winner will be the single mother.

Irrelevant forever
It’s time to ask who would benefit from his proposed amendment. Single mothers would remain one of the poorest groups in society, and have less time to look after their kids. And they certainly won’t be paid anywhere near what the company earns from their labour – that’s called controlling the capital. So who is being empowered?

Mr Seymour might not see it but, while his idea appears altruistic, it is a distraction constructed by and in favour of the status quo. It is the corporations, which are empowered by gaining both more production and more consumption with zero effort. Heads I win, tails you lose. He wants single mothers to escape poverty but he has approached the problem exactly backward. It is poverty that cannot escape single mothers. Recall that the whole point of the system is to stratify society, not equalise it. Some people at the top, some at the bottom.

This is why, to the consumer system, any skills a single mother might possess are irrelevant. Not irrelevant for now, not irrelevant “until the economy improves” – irrelevant forever. The only thing she is useful for is the exact action she’s already undertaking: purchasing Huggies.

The system makes plenty of money from single mothers just as they are. Now someone important wishes to give them extra and make them work for it? Happy days! Mr Seymour probably thinks he’s a radical progressive. He believes the move represents a shift away from heartless capitalism toward better social outcomes.

This is not a change, it is simply the maintenance of the amoral status quo for the benefit of those who control the capital. Single mothers might “appear” better off, but ask yourself one question: in his utopia, do retail sales go up or down? Exactly. The system has won.

Wednesday, 6 May 2015

Keeping score in Yemen

Yemen isn’t a country generally integral to geopolitics. It’s a hot, arid and barely coherent, but it is the newest stage for a hegemonic battle raging between the Arab and Persian power bases and that makes Yemen important.

The last country on the peripheral southern end of the Arabian Peninsula is once again immolating but while the fighting is scorching the country, perhaps more significant for its long-term stability is that it has almost no fresh water resources to douse the flames.

Yemen is experiencing acute water scarcity defined as 500 cubic metres of water per person, per year. Its 24 million population currently lives on 88 cubic metres of water per person, per year. This is an essential fact in understanding the present conflict in the country and what to expect.

The current rebel offensive in Yemen is a continuance of the Arab state’s hyper-fragmentation. Since the establishment of a republican polity in 1962,

Yemen has existed in a tenuous fusion of tribal, sectarian, religious, geographical and ideological forces. The Arab Spring of 2011 collapsed this façade of stability and returned the country to its natural state of “balancing weakness” where no single group or entity can attain supremacy.

Presently, militiamen of the al Houthi rebel movement – affiliated with the Zaidi sect of Shi’ism found in northern Yemen – along with supporters of the ousted former President Ali Abdullah Saleh are fighting against the forces of President Abd Rabboh Mansour Hadi for control of the country. The militiamen have pushed deep into Aden in the south where Mr Hadi’s forces are fortified. Last week, a number of bold attacks by regime forces capitalised on the overstretched al Houthi forces by slicing the rebels supply lines near the Aden airport.

That move was likely only made possible because of a concerted air campaign conducted by Saudi Arabia and Gulf Cooperation Council countries against the rebels. The rebel’s momentum has been curtailed significantly, although not until they almost threatened to push regime forces into the sea.

The inclusion of Saudi fighter jets above Yemen striking al Houthis equipment brings this conflict into the wider strategic context. Yemen borders Saudi Arabia and for years has been an unstable neighbour harbouring militants and al Qaeda forces. Riyadh has chosen not to directly intervene against these groups over the last decade. However the threat of the al Houthis is changing the Saudi’s calculus. Not because the militia group threatens Saudi Arabia, but because the group is Shia and rumoured to be supported by Iran.

Iran’s pending rapprochement with the United States over the former’s nuclear programme has led Tehran to make some belligerent moves over the past few months. Iran may not have direct control over the al Houthi campaign in Yemen, but even limited Iranian influence on Saudi Arabia’s border is unacceptable to the House of Saud.

The Yemen conflict is not only a Sunni-Shia conflict. It is certainly part of the realities of the Yemen geography, resources and fragmented people groups. It is also crucially a test of resolve for both Iran and Saudi Arabia.

Should the al Houthis succeed in removing Mr Hadi, this may not alter the security of the region drastically. Al Qaeda in the Arabian Peninsula (AQAP) - al Qaeda’s local affiliate – is growing stronger amidst the chaos and will need to be dealt with again.

The US can shoulder that burden. Where it will matter is in showing how the region’s power dynamics may play in the future. With the US military sitting on the bench for this conflict, the question of how much control Saudi Arabia truly can leverage over its near abroad will become crystallise. Hopefully, for Riyadh’s sake, in a beneficial direction.

Iran risks less in this fight. To whatever extent Tehran is assisting the rebels, the militia is largely on its own. Iran will be observing closely how competently the Saudi military and intelligence services operate in Yemen. Both countries are sending signals about how far they’re willing to go. Yemen will continue struggling with incoherency and a growing water scarcity problem, and it will remain a proxy battlefield in the wider power conflict.

The takeaway: the Yemeni condition represents a broader trend of instability within the Arab world as old foes carve out influence. This dynamic could become much bloodier and is certain to expand into the foreseeable future.

Friday, 1 May 2015

A history of corporate reputation as seen by the system

It’s possible to approach the concept of corporate reputation from two angles: the first as a consumer, the second as a producer. Rarely can an individual occupy both angles simultaneously.

A consumer isn’t allowed to enunciate exactly what they want, largely because, as Apple founder Steve Jobs once said, it’s not the job of the consumer to know what they want. The consumer is told what they should want to buy from corporations. And, more importantly, the consumer is being told how to want. 

Artificial demand was created in the consumer when reputation was discovered as a necessary component to sell essentially the same product to greater numbers of people. Well-known packages of meaning, known as signs, are now used to sell us those products. Businesses must attempt to formalise strategies to take control of the way products are bought –otherwise the whims of the market will too strongly influence consumer decisions. The problem is how to achieve this. 

Crucially, no business is an island, and the system for creating reputation in the 21st century benefits from a concerted effort over that last 50 years to construct an average ideal consumer who wants to buy from a business with good reputation. According to Reputation Institute founder Dr Charles Fombrun, a good reputation enhances profitability because it attracts customers to products, investors to securities and employees to its jobs. A good reputation is told to the consumer. They must be led to the conclusion that this product, not that product, represents something outside of its immediate utility.

So who or what is doing all this telling? Originally, it was the people with the megaphones – the producers. The notion of “customer” implies a conversation is occurring. It implies that an individual could decide not to buy a product to fulfill their needs and urges. But that’s not the reality. From a production viewpoint, a customer implies agency and the ability to choose but a “consumer” implies the removal of individual agency. Customers don’t exist anymore, only consumers. 

Commerce and doing business used to be relatively simple. If a person ran out of bread, they could find a shop that sold more bread. Reaching into their pockets, they could grasp just enough currency to transfer the bread into the bread-desiring person’s possession and walk away. In other words, need could be ameliorated by financial transactions. 

The reputation of a producer mattered to the consumer only to the extent that the product or service was appropriately utilitarian, sufficiently robust and affordable. As companies began leveraging different cultural signs to better portray their “good” reputation, it encouraged a new phenomenon. Increasing social pressures on consumers changed the emphasis from “can this product do the job affordably”, to “what does this product say about me?” 

Companies that noticed this trend managed to keep up by offering consumers products to satisfy individualistic needs and reinforce the consumer’s chosen personal identities (for example, environmental, techy, frugal, girly etc). If people were going to be told how to want, businesses needed to encourage individuals to choose an identity. 

Rather than attempt a futile effort to conform to “the masses,” individuals were encouraged in the US after World War II, and later in other Western countries, to attempt to discover this “true” identity. But since few people knew how to create a truly unique identity, most people choose from society’s long list of pre-packaged identities.

Businesses understood that, if a person were to conform to society’s identity, it would make market competition extremely difficult. The concept of reputation was transformed to encourage a growing individualisation in society. Instead of pushing against this tide, corporations decided to turn around and swim with it. The more individualised the consumer, the easier it is to sell. 

The key was in shaping a corporation’s product or service into whatever form was necessary to reinforce a consumer’s chosen identity. If the consumer believed they cared about the environment, a product would be created that was “eco-friendly.” If they cared about health, a company would create a product with “healthy” ingredients. Caring about human rights could encourage a company to remove palm oil from chocolate.

How does a company know the consumer is the type of person who shops at Foodstuffs? Because the consumer is standing in the shop and not standing in a Progressive Enterprises shop. Foodstuffs spends millions of dollars to construct a reputational identity to attract the consumer to its supermarkets. How do you know if you’re one of these consumers? Well, if you’re seeing the corporate’s reputation efforts, then it’s for you.

Essentially, corporations figured out a way to sell the consumer’s chosen identity back to them. Whatever the individual wanted, they got – for a price. What the individual thought they wanted was what they were told to want, and how to want, by the corporations. Consumers are sold back the same identity corporations encouraged the consumer to construct in the first place. The feedback loop for greater consumption was thus complete.

This systemic construction worked because the singular goal of corporations is to sell more products to greater numbers of people. But corporations understood the need to mask this mercantilist goal by convincing the consumer that their purchase represented the values of “good” or “trustworthy” or “fair.” Prioritising reputation as a way to grasp market share became essential from this process.

If products met the identity needs of a consumer, then by extension the corporation could be considered reputable. The downside is that, if the chosen identities of enough consumers aren’t being reinforced by the signals of a product, the corporation will lose market share and collapse. Maintenance of reputation became the top priority.

After decades of consumers being told how to want, corporations discovered that consumers preferred to pretend they were buying symbols that displayed to other people their chosen identities even though they were only buying a product. The idea that a product “represents who I am” now drives the purchasing decisions of the average consumer. The base utility of a product was trumped by the commercialisation of ethics.

This has proven to be a remarkably effective strategy: convincing people they were unique, yet part of a crowd; giving people products but selling people ethics. It is one of the most efficient methods ever created to sell goods to people. To understand why these little packages of meaning have been so effective for selling and creating reputation requires knowing how semiotics operates in human culture.

The powers of semiotics
In essence, semiotics is the study of signs. 

A sign is something which can be interpreted by humans as having a meaning connected with something other than itself. So, in the context of corporate reputation, a company with a “good” reputation in China, for instance, would generally associate with an image of a dragon. In China, a dragon is widely understood to be a sign of power and a good repute. 

In New Zealand, a common signal of a good reputation is to associate with the All Blacks or clean and green images. Whatever meaning or cultural capital these famous people possess is expected to represent onto the brand and also the company by simple association. Swiss linguist Ferdinand de Saussure pioneered the analytical study of structuralism and semiotics. Structuralism is the study of human language, culture and society as structures. It claims the elemental components of a structure are related to each other. 

In structural linguistics, it’s the interaction of those elements which produces meaning. For Mr de Saussure, this happens in two ways. First, meaning is produced on the creation of signs as two-sided entities, similar to a leaf of paper that cannot be separated. Second, meaning is produced by the interaction of these two sides. Essentially, a sign has two aspects, one sensible and the other intelligible: the signifier and the signified. 

A signifier, for Mr de Saussure, is a sensory perception (a spoken word is something we can hear; a written word is something we can see). And the signified is a concept or meaning associated with the sensory perception, a mental concept. A sign, to be a sign, needs both aspects. It needs something we sense and something we think. Semiotics diverges from linguistics by generalising the classification of a sign to include all the ways humans perceive the world. Practically, semiotics is the procedure which forms the meaning drawn from human comprehension of the world.

Mr de Saussure broke with previous approaches to linguistics. Those approaches had tracked the evolution of sounds and words across time. He instead focused on how language worked, not on how it developed. Language can be viewed as if in a single moment. It can be seen as a structure or system, a set of elements situated in relation to each other. 

It is important to note that, according to Mr de Saussure, the final choice of sign is wholly arbitrary. In other words, the sign has no necessary connection to the meaning, so for the Chinese to choose a dragon as representing good reputation is simply a choice. A word is only a signifier. It must be combined in the brain with the thing itself, to form a meaning-imbued "sign". Thoughts do need language but, even if we can imagine words “inside our head,” we are always conjuring their signifiers. 

This reflects the fundamentals of Western thinking about language. Plato introduced the idea in his Cratylus, the Stoics formalised the concept, and it has since passed into modern linguistics via early Christian thinkers. St Augustine described a sign as something which, in addition to the substance absorbed by the senses, calls to mind of itself some other thing. Mr de Saussure emphasises that signifier and signified are inextricably connected. He insists that each requires the other – they cannot exist apart. 

If Mr de Saussure is correct, we can’t be lured into the notion that concepts or meanings exist independently of signifiers, even if that is what a company dearly wishes for consumers to attempt when comprehending corporate reputation.

How reputation became imperative
The view from how the consumer comprehends a good corporate reputation and how the concept became an imperative is a useful place to start. But it’s not the only explanation. 

If Mr Jobs were correct – and the entire economic system pivots on the accuracy of his statement – then a corporation’s top priority of attaining a good reputation isn’t an accident. As described above, this market demand for a better corporate reputation didn’t initially come from the consumer.

No single company, such as Coca Cola or IBM, invented the concept of corporate reputation as a competitive tool. The entire business system operates this way, like an anthill. Considering the way the market works and the nature of competition, after a few companies decided to emphasise reputation and attracted greater market share, the rest followed. Whether the decisions were unconscious or conscious is largely unimportant; the competitive demand was too great to refuse to join.

Telling the consumer about a company’s good reputation sent the early spoils to established brands. But as thousands of new companies emerged over the decades, the concept of reputation was chosen as a market differentiation. The difficulty was that none of the newer brands actually had reputation in the minds of consumers. And the companies attain reputation, without existing for decades. There needed to be another way to convince consumers to buy their products.

Two problems emerged in the new competitive environment. The first was this lack of legitimacy and public recognition. To deal with this, advertising and marketing was created. Today, establishing public legitimacy and developing a good reputation is available for any company with a budget. They Just pick up the phone and dial a public relations or marketing agency. 

The second problem was in manufacturing a method to convince consumers that choosing a company with a good reputation is more important than the utility of the product. Businesses developed new ways to show the consumer how they should desire. But having a well-known product is a fragile position. Basic human psychology and the academic study of semiotics needed to be used to create ideas of reputation where it didn’t exist before.

Concepts such as “trust,” “fairness,” “success” and “responsibility” and others were chosen by corporations to be applied to a new business or product. Both the emergence of a consumer culture, and the artificially magnified importance of a good reputation boosted business to new heights. 

This arms race for better reputation has created a consumer system in which words, concepts and ethics bolster the selling of goods or services. It has also created a system in which consumers are told which of these words, concepts and ethics they should care about. The advice comes not from philosophers or through quiet contemplation but told from corporations.