Reinert, Erik S. – How Rich Countries Got Rich and Why Poor Countries Stay Poor

Constable, 2007 [Economics] Grade 2

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The governments in developing countries should actively nurture and protect a number of value adding industries and only allow them to be subject to full international trade competition when they have grown to their full strength. This is a highly acclaimed book in development economics and it is partly written to help developing countries. The author, the Norwegian Eric Reinert, is Professor of Technology Governance and Development Strategies at the Tallinn University of Technology in Estonia and has been advising a number of developing countries through the years, mainly in Latin America. Although, the author has several useful insights this is a frustrating book to read.

Broadly two thirds of the content of the book relate to how the author view the world with regards to the efforts of helping poorer counrties to develop economically and then the rest describes how it should be according to Reinert. In the author’s view the actions of UN institutions like the World Bank and IMF matters hugely, since the end of the 1980’s these institutions employ the wrong economic tools and due to this the “poor countries stay poor”. Some of those tools are deregulations, legal property rights, functioning societal institutions etc. that Reinert doesn’t object to but often downplays. The most important culprit is instead instant free trade and the use of David Ricardo’s trade theories that forces countries to specialize where they have their comparative advantage. Through this poor countries often specialize in low value adding, commodity based industries with scale diseconomies while rich countries do the opposite and over time this expands the inequalities. On top of this the rich countries’ international aid is of a type that further passivizes the developing countries and hinders them from taking self-sustaining actions.

Instead of setting up a structure for free markets with perfect competition in the economist’s sense, Reinert advocates an industry politic that under temporary protectionism tries to copy developed world companies, by this creating synergetic clusters of value adding, knowledge and innovation based companies soon strong enough to face the world competition. This will allow for increasing real wages and a growing middle class. With the growing wealth the societal institutions will develop over time.

The first objection to the book is that the “poor didn’t stay poor”. The last few decades have seen the largest wealth increase in human history. The mindset of the book is grounded in the period of the 1970s to the 1990s. The first paragraph states that half of the world’s population lives on less than $2 a day and the situation is getting worse. This wasn’t true at publication in 2007 and it’s not true today. According to UN statistics 6,6 percent of the world population lived in so-called extreme poverty (below 1,9$ a day) in 2019 – after a massive and steady decline over time. This is not to say that the situation is not often awful for a lot of people in the world, but still. Much of the wealth increase in Asia has in fact partly utilized the industry politics that Reinert advocates in combination with the active institutional development of the mentioned UN institutions (who since at least 10 to 15 years mostly focus on sustainability instead of “neoliberalism”).

The second objection to the book is its structure and tone. The author is highly polemical and borderline conspiracy theoretical with regards to how the rich keep the poor impoverished - Reinert seams undetermined if this is driven by malicious intent or stupidity. The book is insanely repetitive and wordy with the same few obsessive main points stated throughout all chapters without any obvious progress in the narrative.

This book feels extremely dated. It’s stuck in-between the 1970s North-South debate and the anti-globalist movement of the 1990s. This is a shame since it contains some valuable thoughts.

Mats Larsson, January 25, 2022

Stigter, Marc & Cooper, Sir Cary - Boards That Dare

Bloomsbury Business, 2018, [Business] Grade 2

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The premise of this book is that most if not all corporate boards are stodgy and complacent and due to this either don’t see - or outright reject - the requests from sustainability focused institutional owners and the purchasing demand from likeminded customers. Business leaders are said to only focus on short-term profitability and CSR has degenerated to a green washing, box-ticking exercise. Hence, the directors risk leading their companies to their demise. This creates a need for a new bread of directors that fills the governance void and also a new model go guide them.

The authors are business consultants in Australia and the UK and Sir Cary Cooper is one of the UK’s leading academics in management studies. I very much question if the above really is the status of the boards they consult to or the views held by the 61 directors interviewed for the book. To me the thesis is an overly spectacular and speculative one that misrepresents the situation. Yes, there are bad boards and some are overly stodgy. Yes, some directors are bad. Still, most boards are in my view fairly decent and there is rarely a lack of focus on sustainability issues.

This book offers one set of chapters, number 2, 3 and 4, that are well balanced and grounded in reality, flanked by chapters 1 and 5 that are sweeping, cynically un-balanced, bordering on flawed as they, in my view, label the exceptions - the bad eggs - as the majority. The middle chapters argue for more active boards and a mix change in the time spent, from compliance towards business strategy, by doubling the hours spent on the directorship. Diversity is a key requirement in composing the board and IT-competence and CSR-competence should according to the authors be added to the boards.

While much of this is good, it is also very much in vogue right now and doesn’t need much promotion as I see it. Also, of the same reason I don’t generally want to see lawyers and management consultants on boards, I don’t agree that CSR or IT-specialists should be there either. Narrow competences can be added on a consultancy basis. Although they might have specialties, directors in my view must be broad enough to have well grounded opinions on most issues. The authors’ objection to the above might be that sustainability encompasses everything in today’s world. However, if everything counts as sustainability issues then in reality nothing counts as sustainability issues.

The foundation of the authors’ view on sustainability is Michael Porter and Mark Kramer’s concept of Shared Value. Stigter and Coopter from this launch their own concept called Total Value and Care Governance. Boards that “can, know, want, are and dare” first cater to the employees, then to consumers and other stakeholders and finally to the society and the environment. By doing this they will be financially successful and consequently will also reward the shareholders. This “broadened fiduciary duty” is obviously a hugely popular notion today, implying that there are no tradeoffs in business. Optimize for all at the same time and paradise is waiting. There is no notion of how to manage compromises between conflicting goals.

Ironically, the model Stigter and Coopter present share many similarities with the shareholder value and balance scorecard models of the late 1990’s as it sees a sequential process from personnel and customers to financial results. The difference is that in the original models there was a method to allocate limited resources. Since the owners receive the present value of the future residuals after all other stakeholders have been satisfied, the owners have the incentive to balance and satisfy the interests of all stakeholders. By their pursuit to generate the highest return on capital over time societies’ resources are put to their most efficient use and this makes all of us better off.

Some passable corporate governance advice is mixed up with a light version of Porter and Kramer’s shared value concept. Adds very little.

Mats Larsson, May 27, 2018

Madura, Jeff - What Every Investor Needs to Know About Accounting Fraud

McGraw-Hill, 2004, [Equity Investing] Grade 2

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Reading this book I went from mildly pleased, to incurious and finally downright irritated. The subtitle is “Proven Techniques to Avoid Questionable Stocks”. In reality Jeff Madura, a finance professor at Florida Atlantic University and an author of several finance textbooks, provides nothing of the kind in this book written after the Enron and WorldCom scandals burst in the early 2000s.

The author has divided the text in 5 different parts and the book starts off by displaying a number of ways that companies historically have used to look more profitable - by increasing sales alternatively decreasing costs - or look more financially stable than they actually were and Madura clarifies with some of the then recent examples from the bust after the TMT-bubble. It is fairly basic but illuminating and written in good spirit. It’s an okay introduction to the subject of financial deception.

In the next chapter Madura tries to explain why so few have the ability but more importantly the incentive to uncover the shenanigans. The short answer is that they are all on the payroll of the corporations who cheat. Auditors are paid by the companies and apart from doing audits earn money on doing extra corporate consulting. The firms that Wall-Street analysts work for earn the big bucks from corporate finance services for the companies and the analysts are dependent on the goodwill of the companies for their flow of information. Credit rating agencies depend on the audited accounts prepared by the auditors who are on the take. This was prior to the debacles of the rating agencies in the GFC so the fact that companies pay for the rating agencies’ ratings as well isn’t discussed. Still the bottom line is that no one wants to bite the hand that feeds them.

Then follows two sections on how board practices should serve the owners of the companies and governmental regulatory initiatives and bodies related to financial supervision. These sections are fairly basic (SEC should get more resources), they have a kind of academic ivory tower touch to them (FASB should be allowed to write really detailed accounting rules), also they are a bit dull and don’t really speak to the investor who wants to understand how to protect himself from investing in the wrong kind of stocks.

The last part is called “How Investors Can Cope With Deceptive Accounting” and at last we should presumably in the six chapters that follow learn how to “protect your investing portfolio from accounting fraud”. I expected some discussion on how to use financial tools like cash conversion, change in accruals, change in Days Sales Outstanding, Days Sales in Inventory or other less frequently used metrics perhaps in combination with other more subtle signs of ethical collapse in companies.

One of the chapters can be summed up with that the reader shouldn’t trust anyone. This is a rather superfluous message since it has to a large extent been the overall message so far. However, Madura now also adds that the reader shouldn’t even trust his own ability to uncover financial tricksters. Consequently the advice in three of the other chapters is “give up”! Invest in mutual funds, ETFs, T-bills and bonds instead of individual stocks. Talk about a let down! Yes, by investing in bonds the investor clearly “avoids questionable stocks” but that was probably not quite the type of advice that people expected to get and what got them interested in purchasing the book.

In all honesty there are two other chapters that look into investing in stocks. The author advices the reader to look for corporate management teams that run their companies for the long term and to do detailed fundamental research on all aspects of the company’s business operations, sector and management and then make common sense judgments on the corporate quality. This is fair advice, but it’s hardly very specific.

Buy Howard Schilit’s Financial Shenanigans or Thornton O’glove’s Quality of Earnings instead.

Mats Larsson, March 25, 2017

Covert, Jack & Sattersten, Todd - The 100 Best Business Books of All Time

Penguin Group, 2009, [Business] Grade 2

As any newspaper publisher knows people love top lists. This entire book is a top list of business books. Jack Covert who is the founder of the business book retailer 800-CEO-READS and publisher of “Jack Covert Reads” has read and reviewed business literature for several decades... Further reading... Link to Amazon...

Young, James Webb - A Technique for Producing Ideas

McGraw-Hill, 2003, [Surrounding Knowledge] Grade 2

In his last year as an advertising agency executive, James Webb Young was taking an apparently urgent meeting with a client at a well-known magazine. It turned out that the magazine had decided that their future strategy should be to “sell ideas”. However, after that they got stuck... Further reading... Link to Amazon...

Gummesson, Evert – Total Relationship Marketing

Butterworth Heinemann, 2002, [Business] Grade 2

This is an over ten-year-old book on a subject – relationship marketing - that has grown in importance with the spreading of the Internet, e-commerce and of what’s become know as “big data”. Evert Gummesson is Professor Emeritus of Service Marketing and Management at the... Further Reading...  Link to Amazon...

Rasiel, Ethan M. – The McKinsey Way

McGraw-Hill, 1999, [Business] Grade 2

This is a dual tail. The McKinsey Way on the one hand gives an account of the work that the consultants at “the Firm” perform. On the other hand it describes the character and corporate culture of the world’s most prestigious management consultant firm. Unfortunately everything is...  Further reading...  Link to Amazon...