Lessons in Building Consensus from the New Zealand Flag Debacle

Before having kids, my wife and I decided that we couldn't possibly settle down to a life of changing diapers without having been to Australia.  One last amazing trip and then we would become real grown-ups.  Of course, after watching an intriguing episode of The Bachelor in which women threw themselves at the eponymous man on a picturesque Kiwi farm, we swapped Australia for New Zealand.  That spring, we spent almost two weeks in New Zealand drinking some of the best Sauvignon Blanc in the world, seeing the Hobbiton set from Lord of the Rings, attending cultural demonstrations by the local Māori, and generally having a great time.  Oh, and about twelve months after we flew home, she gave birth to a wonderful baby boy and we couldn't be happier.

All that is to say I have a tiny bit of personal experience with New Zealand (also I have no idea how to start blog posts in an engaging way).  During my time there, I saw the above fern logo in every single store in the entire country.  It was on hats, shirts, underwear, pins, and posters.  It was even the livery on one of the Air New Zealand planes that we took.  Turns out that it is the logo of the All Blacks, which is the national rugby team of New Zealand.  I was shocked when I found out that it wasn't the official country flag, given the ubiquity.

It turns out that I'm not the only one thinking the actual New Zealand flag needs changing, as the country is currently going through the process of selecting a new official flag.  I think this is generally a good idea; the current flag doesn't seem to represent the New Zealand as much as it represents the United Kingdom.  It is also virtually indistinguishable from the Australian flag, and anyone who has seen Flight of the Conchords knows that Kiwis are a little touchy about being confused with Aussies.  Unfortunately, New Zealand has gone about changing the flag in the worst way possible.  Fortunately, there are a lot of lessons to be learned that are applicable in any situation where consensus is required.

The first step of the process of changing the flag was issuing an open call for designs.  Over 10,000 entries were submitted.  Some were good, and others had kiwi birds with lasers coming out of their eyes.  From this, a government-appointed panel of 12 selected the "long list" of 40 flags that were to be considered.  Already, many people were upset that their favorite design (or the design they submitted) was not in consideration.  However, many presumably were able to find an agreeable design among the 40 selected, and became attached to one of the long list flags.  Three weeks later, without any official consultation with the public, the panel reduced the list of 40 down to 4.  Already there are Kiwis petitioning to add their favorite designs back to the list of 4.  Essentially, the government has assured that everyone has now been spurned at least once, and many have been twice.  This brings us to the first lesson: engagement decreases each time stakeholders feel their opinions are not taken into consideration, so minimize the number of times that this occurs.  All this does is create animosity and a feeling of betrayal.  These individuals then remove themselves from the process completely or, even worse, protest.  The New Zealand flag process feels like it was designed to give the impression of popular vote without the messiness of actually needing to abide by popular opinion.  By conducting the search under the guise of popular opinion, but reducing the choices to the ones the government deems acceptable, all they have done is get the hopes up of everyone in the country multiple times, only to have them dashed.

Unsurprisingly, a very high percentage of the proposed flags featured the silver fern design.  However, the official silver fern logo is a registered trademark of the NZ Rugby Union.  All those shirts and hats that I saw containing the design?  All licensed (for a fee) from this group.  If this design was selected as the national flag, the NZ Rugby Union would have to sign over all rights to the design, without charge, to the government of New Zealand.  Needless to say, the union is not eager to do this.  As an intellectual property lawyer from New Zealand commented: "It's almost like handing over the crown jewels, so to speak, of their business to someone for no commercial gain."  So any design with the silver fern had to be removed from contention.  The government should have known: never present a group with a popular option unless you know it is viable.  The fact that nobody in the government checked about the feasibility of this logo prior to the initial design submission is honestly shocking.  Everyone in the entire country knew this would be the design to beat.  Giving the citizens false hope that the logo could be the selected design ensured a lack of commitment to the process.

Though the official fern from the All Blacks has been disqualified, other fern logos are still allowed.  In fact, all four of the final designs feature a fern in some way.  Two of these designs are literally identical except for the coloring, and both look somewhat like they were designed by committee by incorporating the four stars from the current flag.  The fourth flag is a Māori design, which technically represents a fern as well.  Now there is no doubt in my mind that the committee wanted to make sure that one Māori design made the final four, as about 15% of the population identifies as Māori and the group tends to be very protective of their culture and traditions.  However, with the incredible variety of original submissions, how did the final four all end up with variations of a fern?  New Zealand officials should have known that if you're presenting a group with a choice between multiple options, make sure there is a real choice.  Allowing the country to choose between option 1 or option 1a doesn't truly provide much of a selection for the citizens, especially when it isn't representative of the breadth of options that truly existed.  The way the final four has played out gives the appearance that the government wanted to ensure that there would be a fern on the flag and wasn't going to take any chances at letting the public screw that up.

Now that the final four designs have been selected, the citizens (through postal referendum) will vote for their favorite of those four.  The winning design will then go against the current flag in a second referendum in March 2016, with the winner of that becoming (or remaining) the official flag of New Zealand.

In the end, I think this process will end right where it started: with New Zealand's flag having a small Union Jack next to some stars.  The government has done such a poor job of building consensus that I think the majority of Kiwis will vote to retain the current flag either out of spite or in the hope that there will be another chance to change the flag soon.  It is a shame, because the current flag of New Zealand truly should be changed, and New Zealand's half-hearted reliance on popular democracy has hindered progress.  If the government had merely picked a design without any input from the citizens, at least those citizens would not have felt as deceived as they currently do.  By providing multiple instances for the citizens to provide input, then disregarding that input, the government has created a public relations nightmare that has overshadowed the entire process.

Think about these lessons next time you try to build consensus in a group.  If you ask for input, make sure you genuinely take that input into consideration.  Don't let the group get carried away with options that have no chance of being implemented.  And give the group real choice, or none at all.  If there truly is only one possible right decision, realize that you may be better off just making the decision yourself.  In the long run, your co-workers may be happier and more engaged if you do.

How All Global Business Is Driven by One Meeting at a New Hampshire Ski Resort

If I told you that every decision your business makes is affected by agreements made between an American Treasury official who was probably a Soviet spy and a homosexual British celebrity in a luxurious ski hotel in New Hampshire during WWII, would you believe me?

I recently finished reading The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil.  This was a very detailed history of the conference between delegates from 44 nations in Bretton Woods, New Hampshire near the end of WWII to determine the financial order of the post-war world.  The first thing I learned from this book is that dense, wonky, academic books are very difficult for me to read.  I suppose there's a reason I got an MBA and not a PhD.  But, as someone not familiar with the entire history of global finance, some of the implications of the conference were fascinating.

As WWII was drawing to a close, it became obvious that the financial order of the post-war world would need to be decided in advance of the final shot fired.  The British, probably aware of their waning power in the world, were very reluctant to cede the position of leader to the Americans.  However, the British were also up to their ears in war debt from fighting Germany--a debt that was not fully repaid until 2006!  Enter British celebrity economist John Maynard Keynes.  If you've heard of one economist (and it's not Milton Friedman), you've probably heard of Keynes.  He's so well-known that his theory of economics, appropriately referred to as Keynesian economics, persists to this day.

Facing off with Keynes was American Harry Dexter White.  While it is clear that the Americans were sometimes overly charmed with Keynes, White was determined to push an American agenda at the conference.  First and foremost, this meant establishing the US Dollar as the world's reserve currency in the post-war world.  The other countries represented at the conference would peg their currencies to the US Dollar, essentially adopting US monetary policy as their own.

So what is a reserve currency and why is it important?  With so much business occurring between two nations with different currencies, it is important to have one standard for exchange.  Theoretically, this is the most commonly-accepted, credible, and sound currency available.  By maintaining a store of this currency, transactions can occur without constant need for foreign exchange.  As you can imagine, there are tremendous network benefits: in other words, there is a great incentive for an entity's reserve currency to be whichever reserve currency is most popular for other entities.  This might even outweigh concerns about the currency's viability.  Think Facebook: as much as you may hate it, you won't delete your account as long as everyone else is on it.

There are major advantages to the country that has its currency as the predominant reserve currency.  For one, there will always be demand for that currency, contributing to its strength (though this can also hurt exports).  This also decreases costs for businesses in that country, as they will deal exclusively in that currency, and enables those businesses to borrow at lower rates.  This can provide downward pressure on prices of goods from that country.  The reserve currency is also the currency in which major commodities are priced, such as oil and gold, so the strength of the currency can have a major affect on commodity prices.  Finally, and somewhat ominously, the country issuing this currency has great power over other countries, and is thus in a position of additional military power.  After all, it is Mayer Amschel Rothschild who is quoted as saying "Let me issue and control a nation's money and I care not who writes the laws."

Knowing full well this meant that the country with the world's reserve currency would be the preeminent super power in the post-war world, White somewhat deviously maneuvered to make sure that this currency was the US Dollar, which he claimed was as good as gold.  As Steil explains in the book, this was done in a way that it was part of the agreement without Keynes becoming aware until after the conference had ended.  The US government then promised to allow any country to redeem their dollars for the value in gold at any point.  Eventually, this system became unsustainable as the US could not maintain required gold reserves and Nixon severed the tie between the US dollar and gold in 1971.  As Steil points out, somewhat cheekily, "Dollars were not synonymous with gold, as White had contended; only gold was gold."

There were numerous other agreements made at the Bretton Woods conference, such as establishment of the International Monetary Fund.  But if the core agreement of a US Dollar global reserve currency, redeemable in gold, is no longer valid today, why is the conference still important?

Just because the dollar lacked gold convertibility did not mean it lost its designation as the most widely used "safe" currency.  According to Wikipedia (I'm not writing this for a class, so Wikipedia is a legitimate source), to this day around 63% of the world's reserves are held in dollars.  Looking at the history of reserves, it is clear that increased confidence in the Euro has been one major detractor to the usage of US Dollars.  What does this mean if the Greeks exit the Eurozone and the Euro eventually collapses?  Will the increased demand for dollars increase imports to the United States?  Even if the Euro remains a legitimate reserve currency, where would American business be today without the borrowing advantage that it is continually afforded?  What would have happened in the Cold War if another currency had been selected as the world's reserve, such as the Soviet ruble?  What will happen if the Chinese Yuan is elevated to be the dominant global reserve currency?

The book quoted a government report around the time of the conference: "There is virtually no public opinion about the Bretton Woods conference...there is no interest because there is no comprehension of the issues involved and the plans proposed, or their importance."  Even Keynes and White didn't have much time to care about the results of the conference; Keynes suffered health problems almost immediately after the conference that would eventually kill him while White was accused by Joseph McCarthy (with fairly convincing evidence, actually) of being a Soviet spy.  Both were dead from heart attacks within three years of the war ending.  Personally, I have sympathy for an apathetic public, as I can't say that I understood the implications of every action at the conference even after spending so much time learning about it.  But the results of Bretton Woods undoubtedly have had a tremendous affect on the landscape of business and finance, even 70 years later.

The Future of Computing: Why You'll Never Buy Another PC Again

Before starting, a small confession: when I say you'll "never" buy another PC, I actually mean that you'll probably continue to buy PCs for another 10-15 years and then never again after that.  One lesson I've learned in blogging (and perusing the metrics for the website I manage for AT&T), is that click-bait titles really drive engagement.  If I wanted to maximize clicks, I would have titled this blog post "Taylor Swift and Jennifer Lawrence just wanted to catch a cab...you won't believe what happened next."

Semi-provocative title notwithstanding, I do have a serious point about the future of the market for personal computers and what it means for the business and you as a consumer.  The market for PCs has endured changes through the years, but one thing has remained constant: people generally purchase a computer for themselves or their family that has the features they want at a price they can afford, use it until it breaks down or no longer performs the functions they require, then sell it for a fraction of what they paid and buy a new one.

So, what's wrong with this?  First of all, it's bad for consumers for a variety of reasons.  Despite their ubiquity, computers are actually very complicated machines and most people simply do not have the technical expertise to maintain them, much less repair them.  Support from the manufacturer tends to be expensive, and, in my experience, generally just recommends creative ways you can spend more money to fix it.  And when the computer starts to break down, it tends to happen at the most inconvenient time.  This process is also extremely inflexible.  Buying a new computer is a big purchase and not something people do frequently.  In fact, sometimes computing needs change drastically and in unexpected ways, for instance when someone returns to school, starts a new job, or sees that a new version of Doom is released.  And when a new computer is purchased, just the process of transferring data and setting it up can be painful.

The solution to this problem is something corporations are already starting to do: cloud computing.  When most people hear the "cloud", they probably think about Google Drive or Dropbox or some similar service (though I did read a statistic that 1/3 of people think it refers to actual rain clouds or something to do with weather).  That is cloud storage, but I'm referring to cloud computing.  If your hard drive can reside in a remote location over the internet, why can't your processor, memory, and applications as well?  In fact, the only aspects of your computer that need to be physically present with you are your monitor, any input devices (keyboard, mouse, etc.), and some way to connect to the internet.  The computer you will use will become a "thin client" that is almost completely dependent on the cloud for functionality.

Think about what this means for consumers.  First of all, these "thin clients" will literally be much thinner, as powerful processors and hard drives will not need to be present.  The real computer that a consumer uses will exist in another physical location, which means that it can be maintained by a professional.  No more worrying about virus scans, upgrades of operating systems, or updated drivers; that will all be taken care of.  When your computer no longer suits your needs, your cloud computing provider will have an option to upgrade to a more powerful machine in a matter of minutes (and you won't have to go through the indignity of selling the old one on Craigslist).  All of your data will exist in the cloud and will be automatically backed up on redundant, secure servers.  All of this with no massive one-time fee to purchase a machine, but rather a small monthly fee to gain access.

That's not to say that there are no negatives to this new model.  First, connectivity goes from being fairly essential to absolutely and utterly indispensable.  Any outage could paralyze a user or business from doing anything.  Security will also be more important, as all of a user's data is stored remotely, though the industry is trending in this direction anyway.  This will make practices such as two-factor authentication much more common.  Also, privacy policies will need to be monitored.  Consumers are accustomed to seeing targeted ads on the websites they visit, but what if a company decided to put ads on your actual computer?  Are you ready to fire up your machine in the morning and see Flo from Progressive Insurance as your desktop background (even if it means your monthly rate is reduced)?

As stated earlier, corporations have already started down this path.  There are a variety of reasons this is a more obvious step for a company than an individual.  For starters, this provides scalability options that companies would not otherwise have.  A company that has seasonal needs (think a tax return preparation firm, for example) would want to scale up during peak season and down during off-peak.  Many corporations would prefer the ability to book the cost of computing as an expense rather than a capital expenditure (which will depreciate) as well.  And some companies just do not have the resources to staff an IT department devoted to maintenance of employee machines.

What does this mean for the industry as a whole?  With apologies to Apple, computers will become even more of a commodity than they already are.  Design, style, or brand of the actual computer will not matter at all (though this may still be an issue with the thin clients that consumers use).  Consumers will buy based on price, reliability, and service level.  Presumably, the total cost of computing will come down.  The industry of cloud computing power will be able to pool resources; in other words, they will not have one computer for every user, because every user does not need their computer 24/7.  The concept is similar to fractional reserve banking: the bank does not actually have the money that it claims is in your checking account, because it's highly unlikely everyone will need their money at the same time.

Furthering the analogy of fractional reserve banking, will government require a "reserve ratio" of computing power as a percentage of total users?  How will this be enforced?  Could there be a "run on the computers" that would leave some users with slower speeds or potentially without computing power at all?

I, for one, am excited about the future of personal computers.  By using a cloud computing model with monthly access fees, users will receive a machine more suited to their needs, probably at a lower overall cost.  Less technologically-savvy users will have better support and upgrades will be more seamless.  It'll be interesting to see how the industry reacts to such a disruption and how the new cloud computing providers will differentiate their businesses in what is sure to be a competitive market.

A President's Day Look at the History of U.S. Presidents and American Business

"The chief business of the American people is business."
- Calvin Coolidge

This President's Day weekend, I got to thinking about which Presidents have generally been thought of as "pro-business" and why.  This is an issue that generates a lot of debate, as everyone seems to want a President who promotes American business, but not everyone agrees as to what constitutes a policy that is favorable to business.  Virtually every President since Washington has paid lip service to the ingenuity of American business, particularly small business, and extolled its role as the driver of the economy.  But in reality, what does it mean to be pro-business?  I've included my thoughts on what the American people view as "pro-business" policies and, as a special bonus, I've included quotes from semi-randomly-selected Presidents on each subject!

Corporate Taxes

"Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."
- John F. Kennedy

Certainly, this would be seem to be one of the most obvious (or, at least, easily quantifiable) ways to be pro-business: lower corporate tax rates.  In fact, businesses nearly universally do support lower corporate taxes, since the U.S. has the highest statutory corporate tax in the developed world.  It's safe to conclude that, whether or not corporate taxes should be higher or lower, it is generally seen as "pro-business" when Presidents seek to reduce corporate tax rates.  If only everything else were so simple...

Industry Regulation

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."
- Ronald Reagan

Regulation is a little more tricky.  Many believe that it is "pro-business" to reduce regulation and red tape, but businesses often do not agree with that assessment.  First, businesses (particularly big businesses) routinely favor additional regulation of their own industries.  For instance, the airlines are all very much in favor of government regulation of airport security through the TSA.  None of the major airlines (to my knowledge) want to abolish TSA and have security handled by the airports or the airlines themselves.  Why?  Because, should a terrorist attack occur due to a failure of security, the airlines can now blame the government and avoid being sued by the families of the victims.  With TSA funded on a per-passenger basis, there is no need for airlines to worry about increasing costs by beefing up security, as that is entirely the job of the government, and the risk can be passed on.

Another very highly-regulated industry is banking; would it not follow that banks would prefer less regulation?  Big banks are actually huge beneficiaries of a Federal Reserve controlling the money supply and setting interest rates and an FDIC insuring deposits.  In fact, the concept of the Federal Reserve was first envisioned by big banking interests (while at Jekyll Island, in my home state of Georgia!) due to their concern about the rapid expansion of non-national banks as well as a trend towards business being financed from profits rather than borrowed capital.  Big banks knew that if all banks were forced to have the same reserve ratio, individual banks could not be blamed for failures to produce deposits.  With the FDIC insuring deposits at the same price for all banks regardless of past behavior or size, banks are incentivized to continue risky (and highly profitable) behaviors.  All this is to say that industry regulation is a difficult subject to clearly define and categorize as pro- or anti-business.

Minimum Wage

"Americans support raising the minimum wage.  And that’s because we believe that in the wealthiest nation on Earth, nobody who works full-time should ever have to raise a family in poverty."
- Barack Obama

The minimum wage is a very divisive subject, with both sides pitching theirs as the pro-business argument.  Proponents say that employers that raise wages see higher retention rates, more satisfied workers, and therefore higher profits.  They say that society also has a moral obligation to provide a living wage to all full-time workers.  Opponents say that the minimum wage increases unemployment, makes it harder for small businesses to compete, increases prices, and disproportionately negatively affects the poorest in society.  They think that the minimum wage is an economically-inefficient kickback to unions.  The best I can discern is that either side can be spun as being pro-business to the respective supporters, though it's probably safe to say that lower minimum wages resonate as being "pro-business" (though possibly anti-worker) to more people.

Tariffs

"I am a tariff man, standing on a tariff platform."
- William McKinley

On its surface, this should be a no-brainer.  In fact, U.S. Presidents have been implementing steep tariffs on imports for centuries under the guise of protecting American businesses.  Unfortunately, high tariffs do result in higher prices for consumers.  What is more important is that the consumers and the producers are often entirely separate, as was the case with the Tariff of 1828, set up to protect northern businesses from British competition.  Unfortunately, this resulted in higher prices for the southern states, which were not seeing the windfall of profits that the north was enjoying.  Similarly, high tariffs often result in retaliatory tariffs from the nations affected, thus drying up markets for exports from the U.S. and hurting American business in the process.  There does not seem to be a consensus on tariffs, but it is possibly seen as more "pro-business" (obviously American businesses only) to implement tariffs to protect these businesses from competition that is deemed to be unfair.

Monopolies

"Even the most monopolistic business man disapproves of all monopolies but his own."
- Franklin Delano Roosevelt

Americans have an almost universal distaste for monopolies, price-fixing or other anti-competitive behaviors.  These businesses harm consumers through higher prices through a lack of competition for business.  In fact, around the turn of the 20th century, there was a whole movement (led by Theodore Roosevelt) towards "trust busting", during which monopolistic corporations were dissolved.   It's safe to say that it is seen as "pro-business" to be anti-monopoly and anti-cartel, and nearly all Presidents have stated this to be their view.  Of course, this Presidential distaste for monopolies does not extend to the money supply, infrastructure, education, lotteries, etc.

Bailouts

"In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed."
- George W. Bush

This might be the most confusing issue of all.  The businesses that campaigned for bailouts during the financial crisis said that these were not only necessary for the shareholders, but for the jobs of their employees.  The economy could fall into total collapse and never recover if short-term loans from the government were not issued.  This may be true, but the offer was not extended to small businesses and start-ups, many of which filed bankruptcy during this time.  Essentially, these businesses were forced to subsidize their competitors' insolvency.  And it is difficult (possibly impossible) to say what the long-term effect on corporate decision-making has been now that a potential bailout is a part of the discussion of risk.  In the end, I believe that TARP was generally abhorred by most Americans not working at the companies that received bailouts, though many still viewed it as "pro-business" in that it was a necessary evil for the preservation of the economy.

So what are the takeaways?  First, the term "pro-business" is very difficult to clearly define.  Every individual has a different definition and hardly anyone (in the U.S., anyway) would willingly admit to being "anti-business" regardless of their views.  Second, a policy can be favorable to business in some ways and not in others.  For instance, what is good for big business is not always good for small business.  What is good for business in the short term is not always good for the economy in the long term.  Finally, though virtually every President has ostensibly supported American business, their policies have not always been consistent with their publicly-stated views.  So when thinking about American Presidents and their policies on business, skip the speeches and watch their actions...and remember that not all policies are as simple as they may seem.