Monthly Archives: September 2020

Why Free Market Ideology is a Double Lie

The free market, it appears, is not about freedom. It’s about power.
By Blair Fix – As social animals, humans live and die by the success of our groups. This raises a dilemma. What’s best for the group is often not what’s best for individuals within the group. If you’re surrounded by a group of trusting individuals, it’s best for you to lie and cheat. You’ll increase your relative fitness. And in evolutionary terms, that’s what matters.

Given that selfish behavior is often advantageous, why aren’t more of us liars and cheaters? One reason, paradoxically, is that we lie to ourselves. We tell ourselves that what’s best for groups is also what’s best for individuals within the group. I’ll call this the noble prosocial lie.

Propagating this noble lie, I believe, is one of the principle roles of ideologies. A good ideology convinces individuals that selfless behavior is in their self interest. This promotes prosocial behavior, making groups more cohesive. And since cohesive groups tend to beat out incohesive groups, the noble lie tends to spread.

Given the benefits of equating altruism with self interest, you’d think that all ideologies would do it. Yet some do the opposite. They promote selfish behavior as good for the group. I’ll call this the Machiavellian lie.

Now here’s the paradox. The Machiavellian lie should be caustic to social cohesion. So you’d expect that group selection would kill it off. But for one Machiavellian lie, that’s not what happened. Instead of dying out, this lie has thrived. In fact, it’s become the dominant ideology of our time. What is it?

The belief in the free market.

Free-market ideology claims that to help society, we must help ourselves. If we all act selfishly, the thinking goes, the invisible hand will make everyone better off. So here we have an ideology that promotes selfishness in the name of group benefit. It’s a Machiavellian lie that should be caustic to social cohesion. And yet free-market thinking has beat out many other ideologies. How can this be?

Here’s what I think is happening. Free-market ideology, I propose, is a double lie.

First, it’s a lie in the sense that its central claim is false. Acting selfishly does not maximize group well being. Modern evolutionary theory makes this clear. Second, and more subtly, free-market thinking is a lie in the sense that it does not lead to greater freedom and autonomy. Quite the opposite. The evidence suggests that free-market thinking actually leads to greater obedience and subordination. The spread of free-market thinking goes hand in hand with the growth of hierarchy.

So the free market, it appears, is not about freedom. It’s about power. Free market thinking is successful, I argue, because it uses the language of freedom to cloak the accumulation of power. more>

Updates from McKinsey

Zero-based budgeting for health plans: Dealing with uncertainty ahead
Zero-based budgeting may be the right recipe to deal with the cost control and flexibility needed in next year’s budgets.
By Sameer Chowdhary, Duko Hopman, Matt Jochim, and Tim Ward – COVID-19 has been linked to dramatic shifts in demand and extreme uncertainty within payer functions, which in turn could lead to bloated administrative spending in 2021. Executives seeking to right size and create variability in their budgets may want to consider a tried-and-true formula that has not gained traction in the healthcare world: zero-based budgeting.

The upcoming budget cycle, due to start or in the works with many payers this month, is likely to be particularly challenging. Chief financial officers potentially have less information on which to base their budgets due to shifts in “drivers of work,” which are the units of demand on payer functions. This shift is a problem created by the COVID-19 crisis. For example, ambulatory claims have dropped (and since risen) significantly, and the volatility in claims and call volumes may continue through 2021.

Similarly, demand on risk adjustment functions has changed as member and provider engagement adapt to the next normal. As we discussed in “Telehealth: A quarter-trillion-dollar post-COVID-19 reality,” the use of telehealth has accelerated, with providers seeing between 50 and 175 times the number of patients via telehealth as before the pandemic.

At the same time, more members may lose their Commercial health insurance offered through their employer due to the recent economic downturn and instead search for an Individual plan, or seek Medicaid eligibility. If the economy rebounds in specific geographies, membership shift may end up being bidirectional, which could further add to swings and unpredictability in drivers of work volumes. These potential extreme shifts could be accompanied by significant complications in completing necessary work. Like many employers, payers are trying to optimize working-from-home models, while load-balancing a workforce that needs to respond to a geographically staggered crisis.

As top executives know, all this uncertainty may result in budget “buffering”: increasing budgets to be able to respond to any potential scenario. Claims shops, member enrollment or service centers, call centers, and corporate functions may add significant padding to budgets to deal with the possibility of further membership shifts and utilization swings. more>

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Updates from ITU

Leveraging regulations and technology to safeguard maritime communication and navigation
By Mario Maniewicz – Maritime transport is the backbone of international trade. The safety of shipping and protection of the maritime environment are therefore critical to promoting a sustainable maritime transport sector. Moreover, the safe and efficient movement of goods and people at sea is vital to attaining the 2030 Sustainable Development Agenda and especially SDG 14: Life Below Water.

As the United Nations specialized agency for information and communication technologies (ICTs), ITU works to support and improve safety and security in the maritime field through the allocation and protection of frequency spectrum for maritime communications and by developing standards for maritime radio systems.

In addition, ITU updates and makes available its maritime service publications containing information on coast and ship stations used worldwide, as well as the rules for establishing communications at sea. Technical and service information concerning coast and ship stations is also accessible through the ITU Maritime mobile Access and Retrieval System (MARS), which is available 24/7 online.

At the last World Radiocommunication Conference (WRC-19) held in Sharm El-Sheikh, Egypt, ITU Member states took important decisions concerning the enhancement of safety at sea through the introduction of new maritime communication systems and increasing efficiency of spectrum utilization. more>

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Updates from Chicago Booth

How can banks create safe money? Balance competition
By Áine Doris – A conundrum underscores the banking system: banks issue liquid deposits but at the same time supply loans to finance illiquid projects, such as startups. In doing this, they expose themselves to liquidity risk—the kind that can lead to bank runs. It’s a precarious way to build a banking system.

Chicago Booth PhD candidate Douglas Xu tackles this liquidity paradox in a model that identifies two market failures or “inefficiencies” that regulators and policy makers need to keep in balance to reduce systematic risks.

Banks have long occupied a critical role in the creation of money. In today’s global economy, governments create only 3 percent of the money exchanged for goods, products, and services: the paper money and coins issued by central banks or monetary authorities whose trustworthiness or integrity underscore their value. Banks create the rest of the world’s cash—a staggering 97 percent.

From early record-keeping tokens to today’s deposit taking and loan making, banks have long been in the business of issuing money-like assets in one form or another. These assets function as credible payment media and thereby facilitate the kinds of activities and transactions that drive economic fluidity and growth.

But these assets bring inherent risk. Xu created a framework that captures the way that banks create money in the economy and integrates two key concepts: banks’ intrinsic vulnerability to illiquidity, and the so-called money-multiplier effect—the chain of transactions created when a bank makes a loan that generates a concomitant deposit elsewhere in the system. Put simply, loans generate a fresh supply of deposits. more>

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Social democracy in one corner of the world

Branko Milanovic argues that ‘stop the world, we want to get off’ is no basis for a revival of progressive politics.
By Branko Milanovic – Caught between relentless Trumpian protectionism and xenophobia, on the one hand, and the neoliberal coalition of sexual liberators and money bagmen on the other, the left in rich countries seems bereft of new ideas. And worse than lacking new ideas is trying to restore a world gone by, which goes against the grain of modern life and the modern economy.

et this is an exercise in which some parts of the left are engaged. I have in mind several essays in The Great Regression, a book I reviewed here, a recent piece by Chantal Mouffe and, perhaps most overtly, Paul Collier’s The Future of Capitalism (reviewed here and here). Dani Rodrik provided early ideological ammunition for this point of view with his celebrated ‘trilemma’. It is also the context within which my Capitalism, Alone was recently reviewed by Robert Kuttner in the New York Review of Books.

This project aims to recreate the conditions of around 1950 to 1980, which was indeed the period of social-democratic flourishing. Although many people tend to present the period in excessively bright hues, there is no doubt it was in many respects an extraordinarily successful period for the west: economic growth was high, western nations’ incomes were converging, inequality was relatively low, inter-class mobility was higher than today, social mores were becoming more relaxed and egalitarian and the western working class was richer than three-quarters of humankind (and could feel, as Collier writes, proud and superior to the rest of the world). There is much to be nostalgic about.

But that success occurred under very special conditions, none of which can be recreated. What were they?

First, a very large portion of the global workforce was not competing with workers of the first world. Socialist economies, China and India all followed autarkic policies, by design or historical accident. Secondly, capital did not move much. There were not only capital restrictions but foreign investments were often the target of nationalization and even the technical means to move large amounts of money seamlessly did not exist. more>

Updates from McKinsey

What’s keeping you from divesting?
Active portfolio management can create significant competitive advantages. Still, executives routinely shy away from separations. Here are six common roadblocks and some tips for breaking through.
By Gerd Finck, Jamie Koenig, Jan Krause, and Marc Silberstein – You’ve taken a close look at your portfolio and identified the assets that are no longer strategic priorities. Now what? Logic would dictate that you kick off a divestiture process—that is, you would convene a deal team to define key process steps in the separation and then market the assets in question to potential buyers.

A recent survey of business leaders, however, confirms that this process gets abandoned more often than not, for a variety of reasons—among them, senior management’s perceptions that disentangling the assets will be too complicated or that there will be few interested buyers. Executives and boards often fear that divestitures will reduce the size of a company in ways that will make it difficult to replace earnings.

Such fears are often unfounded. In fact, research continues to mount in favor of active portfolio management, in which companies constantly redeploy their capital toward areas of the business where industry dynamics and their competitive advantages maximize returns on invested capital (ROIC). A recent McKinsey study shows that among companies in the sample, the 23 percent that regularly refresh 10 to 30 percent of their portfolios through acquisitions and divestitures outperform the others in total returns to shareholders (TRS) by an average of 5.2 percent a year.

A recent survey of 128 senior business leaders helped us pinpoint the most common obstacles to divestitures. Executives said one or more of the following six concerns had prevented them from pursuing a divestiture in the past ten years: misperceptions of asset value, underestimating buyer interest, concerns about damage to the rest of the business, concerns about timing, fear of sunk costs, and emotional attachment to the asset (Exhibit 1). With 52 percent of the respondents also indicating that they expect to conduct divestitures in the next 18 months (Exhibit 2), now is the time to confront these challenges. In this article, we take a close look at each obstacle and suggest possible moves business leaders can take to overcome them. more>

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Updates from ITU

Reducing harmful interference to satellites near Earth, the Moon and beyond
ITU News – A month ago, you were watching a football match using your new satellite dish when suddenly the image went fuzzy – only to return after a game-winning goal that you had just missed. Last week, while paying for groceries your card transaction didn’t go through – even though you had just received your monthly salary. And today, while working from home your internet connection was abruptly cut – with social media services down and no mobile service reception, there was simply no way to deliver that project on deadline!

These common frustrations we have all experienced on the ground could very well be chalked up to the increasing demands being placed on satellite systems orbiting high above our heads. Not only can the obstruction of these systems affect our daily lives, but it can also prevent the collection of accurate scientific measurements, distort navigation by air and sea, and interrupt many other space services, from satellite broadcasting to deep space research.

During the first in a series of three ITU Satellite webinars, over 600 participants from around the world examined how harmful interference impacts the space ecosystem, focusing on how ITU and stakeholders can prevent and reduce interference so that space services can operate unimpeded. “Space services play a key role in achieving the SDGs,” said ITU Radiocommunication Bureau Director Mario Maniewicz in his opening remarks. “But these services need to be protected from harmful interference to do so.”

One of the main mandates of ITU, according to its Constitution and through its Radiocommunication Sector (ITU-R), is to enable radiocommunication services to operate without receiving or causing harmful radio-frequency interference (RFI). According to the ITU Radio Regulations, interference is defined as harmful if it endangers the functioning of a radio navigation or of other safety services, or if it degrades, obstructs, or interrupts a radiocommunication service that is operating in accordance with the Radio Regulations. more>

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Updates from Chicago Booth

Looking for a promotion? Control your temper
By Meena Thiruvengadam – Expressing anger may be a tool for attaining prestige or status, in some circles. Observers associate anger with dominance, strength, competence, and smarts, according to research published in 2001.

But a study by Chicago Booth’s Celia Gaertig and Emma Levine, New York University’s Alixandra Barasch, and University of Pennsylvania’s Maurice Schweitzer suggests there’s a limit to the respect anger commands. Too much anger, particularly in relation to the offense committed, can backfire, especially on people climbing corporate or social ladders, the researchers argue. Exhibiting too much anger can harm the perceptions of competence and warmth, traits that tend to drive hiring and leadership decisions. The more intense the anger, the more likely others may suspect self-serving or harmfully intentioned motives.

The researchers conducted seven studies, some involving fake beverage tasting. In one of the studies, they asked groups of six participants to rate the best-tasting beverage presented in a lab. Both options were actually Coca-Cola, and the researchers didn’t tabulate participants’ responses, as the study was essentially just a decoy. Each group secretly included two actors, one of whom spilled soda on the other’s cell phone, eliciting an angry reaction that was either moderate or more intense. Then the participants had to pick a leader for a group activity, and in doing so rated each other’s (including the angry actor’s) competence and leadership potential.

Actors who reacted with intense anger rather than annoyance were perceived as less competent and were less likely to be selected for leadership roles. The responses held for participants who watched a video of the lab charade rather than participating in it. “Expressing high-intensity anger can be harmful for how an individual is perceived in social settings,” the researchers write. more>

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We have to accelerate clean energy innovation to curb the climate crisis. Here’s how.

A detailed road map for building a US energy innovation ecosystem.
By David Roberts – “Innovation” is a fraught concept in climate politics. For years, it was used as a kind of fig leaf to cover for delaying tactics, as though climate progress must wait on some kind of technological breakthrough or miracle. That left climate advocates with an enduring suspicion toward the notion, and hostility toward those championing it.

Lately, though, that has changed. Arguably, some Republicans in Congress are still using innovation as a way to create the illusion of climate concern (without any conflict with fossil fuel companies). But among people serious about the climate crisis, it is now widely acknowledged that hitting the world’s ambitious emissions targets will require both aggressive deployment of existing technologies and an equally aggressive push to improve those technologies and develop nascent ones.

There is legitimate disagreement about the ratio — about how far and how fast existing, mature technologies can go — but there is virtually no analyst who thinks the current energy innovation system in the US is adequate to decarbonize the country by midcentury. It needs reform.

What kind of reform? Here, as in other areas of climate policy, there is increasing alignment across the left-of-center spectrum. Two recent reports illustrate this.

The first — a report so long they’re calling it a book — is from a group of scholars at the Columbia University Center on Global Energy Policy (CGEP), led by energy scholar Varun Sivaram; it is the first in what will be three volumes on what CGEP is calling a “National Energy Innovation Mission.” The second is from the progressive think tank Data for Progress, on “A Progressive Climate Innovation Agenda,” accompanied by a policy brief and some polling.

Both reports accept the International Energy Agency (IEA) conclusion that “roughly half of the reductions that the world needs to swiftly achieve net-zero emissions in the coming decades must come from technologies that have not yet reached the market today.” There are reasons to think this might be an overly gloomy assessment, but whether it’s 20 percent or 50 percent, aggressive innovation will be required to pull it off.

Both reports set out to put some meat on the bones of a clean energy innovation agenda. And they both end up in roughly the same place, with roughly the same set of policy recommendations. more>

Updates from McKinsey

Holding warming to 1.5°C above preindustrial levels could limit the most dangerous and irreversible effects of climate change.
The 1.5-degree challenge
McKinsey – All of the 1.5°C scenarios would require major business, economic, and societal shifts—each enormous in its own right, and with intricate interdependencies. We identified five critical shifts and determined what it would take for them to occur.

1. Reform food and forestry

2. Electrify our lives

3. Reshape industrial operations

4. Decarbonize power and fuel

5. Ramp up carbon management and markets
more>