Managing Change

1. Managing Change Did “Management” Contribute to the Global Financial Crisis?

2. The Two Key Terms • Managing: requires us to consider the basic ideals and principles of Management, which we will do. • Change: is a process and we need to understand (a) what change is; (b) its historical evolution; (c) how to control and manage it, so it does not manage us and; (d) what this has to do with the Global Financial Crisis (GFC)

3. Management The Manager needs not only to make sure that his enterprise is connecting supplier and consumer well at the moment. But also the manager has to anticipate how demand may change, or be changed, and this applies to the public and private sectors. This requires prediction of change. Otherwise, success will turn into failure. • This implies the control and/or direction of a process linking supplier and consumer • This can be in the Public or the Private Sector, though we automatically think of “management” as a Private-Sector activity. • We do have “Public Management” and what is meant by that?

4. Key Difference • The Private Sector is directed toward the “bottom line” of making a profit. • Success or Failure is, ultimately, measured this way, and is monitored daily (share price). • The Public Sector has no “bottom line” of profit—only voter satisfaction once the elections come along every few years. But this took 8 years.

5. The Political (ideological) Context. • To what extent the government manages change depends on the cultural idea: “What is the Role of the Government?” • Most countries have their own, individual, ideas about the answer to that question. • This encourages, or limits, the management role of the government.

6. There are several models of This • The American Model has the least role for government, which, traditionally has had almost no role in production or distribution, or even services. • The “European” Welfare-State Model sees the governments very much involved in providing social services such as health, education, and in some cases, transport, communication etc.

7. Managing Operations and Regulation The trend of the last 25 years has been toward “Privatization”and “De-Regulation. The government has been getting out of production, distribution and services. Has the Crisis changed that? • In some countries the public sector is intimately involved in Production and the Delivery of Services, and so management has a very, direct, operational sense. However, the “success” factor may have more than profit in mind. • In other cases the government works through regulating the Public Sector.

8. At the other Extreme • The Communist, or Marxist, model, saw the government almost totally involved in production, distribution and services, for political and social-engineering purposes. • So, the government exists in a continuum from “Free Market” models to “Communist” and every country is somewhere along this line. 1989

9. Macro Changes in State Management • All these models are cultural and political, and change over time. Think of Bulgaria! • America moves backward and forward on the theme of intervention and regulation—Johnson and Reagan. • Reagan, like Mrs. Thatcher, represented the voice of De-Regulation • Johnson and the Labour Party…

10. Changes • America has Medicare, Medicaid, but no national health insurance or delivery system. It also has 50,000,000 people without insurance. • The UK has a “National Health Service” but, increasingly, has allowed the growth of a private medical sector to take pressure off the tax burden. • Is this convergence to a common model?

11. De-Regulation • This will be our central policy theme in this course. • It involves getting the government out of the process of “interfering” in the operation of business and finance. • It accepts the idea of “the hidden hand” or the “the capacity of the market to take care of itself.” • Not everyone believes that this is true. Adam Smith and the idea of the self-correcting market.

12. The “Free Market” • Starting with the work of Adam Smith, 1775, in the “Wealth of Nations” came the idea that the market was a naturally balancing process involving: • Supply • Demand • Market • Price • They work toward equilibrium or balance, and “take care of irregularities.”

13. Government Action. • Government can limit supply, by restricting imports for instance. • It can increase demand, by reducing taxes. • It can restrict the market (by regulating competition, e.g. airlines) • It can alter prices by lowering or increasing, taxes, or by giving subsidies.

14. The Business Cycle • One problem with capitalist market economics is that it is unstable. • Therefore it is characterized by ups and downs, known as the Business Cycle. • The question is, can we control this without “interfering with the market” and is it necessary for this to happen to correct the market?

15. The nature of Man and Society • The problem is that the “free market” might operate in a “perfect world” • But people are not perfect, and can, sometimes, be made into nations that are not perfect either. • This problem has troubled thinkers for a long time. In fact, it has never been resolved, and we need to understand this aspect.

16. The Origins of the Debate Hobbes states what life would be like without government, a condition which he calls the state of nature. In that state, each person would have a right, or license, to everything in the world. This inevitably leads to conflict, a "war of all against all" (bellum omnium contra omnes), and thus lives that are "solitary, poor, nasty, brutish, and short" (xiii). To escape this state of war, men in the state of nature accede to a social contract and establish a civil society. According to Hobbes, society is a population beneath a sovereignauthority, to whom all individuals in that society cede their natural rights for the sake of protection • This goes back to religion, which gives people a set of rules to live by, but these can be distorted by those in power. • In the c.17, Thomas Hobbes expressed the view that people were selfish and self-seeking, and that life was “nasty, brutish and short.” • You needed a wise, strong ruler.

17. This idea was developed also by Machiavelli, who wrote the “Prince” which was a guidebook for such a ruler and how to bring, and keep, order in society often by cruel means. • People had selfish instincts, which they may see as good, but work against other people. There are also criminals who break the rules.

18. The Other View Locke's political theory was founded on social contract theory. Unlike Thomas Hobbes, Locke believed that human nature is characterized by reason and tolerance. Like Hobbes, Locke believed that human nature allowed men to be selfish. This is apparent with the introduction of currency. In a natural state all people were equal and independent, and everyone had a natural right to defend his “life, health, liberty, or possessions.” Like Hobbes, Locke assumed that the sole right to defend in the state of nature was not enough, so people established a civil society to resolve conflicts in a civil way with help from government in a state of society. • We associate the opposite view with John Locke. • He said people are essentially good, but society is threatened by tyrants who seek power and riches. • Government is, in this context, often an instrument of oppression. • This view was developed by Rousseau. • “Man is born free, and is everywhere in chains.”

19. The “Social Contract” • Others who thought like Locke and Rousseau were Voltaire, Montesquieu, Thomas Paine. • These were the inspiration for the American Revolution, and its focus on Individual Liberty, and the freedom to “Get the Job Done.” • The American Constitution represents this type of thinking best.

20. The Social Contract • Government was a “necessary evil” and had to be monitored, open and in the American case, local. • Big government was bad. • This was the “Laissez-Faire” model. • Law and Order, Defense, Sound Money, were about the extent of government, and there was a contract with the public to serve them.

21. “Winners and Losers” • But uncontrolled capitalism, as the urban/industrial society developed, revealed itself as “cruel and heatless.” • People could “drop out of the bottom of the system” • If everyone is working for their personal success, who takes care of society in general. Is the whole more than the sum of its parts? But, what to do About the losers? Is it their “fault?”

22. Darwin. • In the 1840s, Charles Darwin published his book on Evolution. • This said that Nature worked by competition, and that some succeeded and others became extinct. • There was no compassion in Nature, it was just this way. • This seemed to suggest that society would work the same way. But should society allow this to happen? Christianity says we are above the animals

23. Marx The poor became the victims of capital • Karl Marx has been thinking about the way society, especially c19th industrial society seemed to work the same way. • He was inspired by Engels and his work on the condition of the poor. • He was then very inspired by Darwin’s theory, and wanted to dedicated Das Kapital to him. He refused. • So, society needed to prevent this.

24. Marx, 2 • So, Marx said that society had to stand above the individual, and institute fairness from the top. • It was the exact opposite of US Liberty and “the government that governs best, governs least.” • Instead, the state would own and control the means of distribution and production, with fair shares for all.

25. Fascism • The rising middle class saw Marxism as a threat to the accumulation of prosperity. • Fascism developed the idea of a “superman” and even a “super-race” • Imperialism had done this to some extent, bringing the “benefits” of capitalism, Christianity and the White Race to the world.

26. So, there were three models • The Marxist Model • The Fascist Model • The Liberal Democratic Model • And these came into violent conflict in the Second World War. • This, more or less, got rid of Fascism, leaving liberal democracy and communism and the Cold War.

27. And then… • After 1989/91, Communism failed. • In China, they created a hybrid of Communism paid for by Capitalism. • But, by now, since the end of WW2, there had arisen a new view of liberal democracy called “The Welfare State.” • This was based on social policy as the citizen’s right. It took root in Western Europe, but not in the USA.

28. The Present Dilemma • How much freedom do you allow to the “Free Market?” Does it always work in everyone’s best interest? • How do you pay for the huge social welfare costs of the Welfare State, except by huge taxes, and the cost is going up out of control. • Can the Welfare State provide services of quality as a monopoly operator?

29. Crisis—a History • First of all, the present “Global Financial Crisis” is not new—think of the Depression of the 1930s, which was also Global. • However, financial crises are nothing new: Dutch Tulip Crisis, South Sea Bubble, Great Depression, and many others. Plus crooks like Ponzi and Madoff have stolen billions. (See separate PowerPoint).

30. Crises • You can argue that governments only respond to crises, and are not very good at preventing them. • Politicians have a very short-term perspective, because that is what the electors have. Does this make crisis inevitable? • Let’s look at “Katrina” and ask why this is.

31. The Driving Force • It has been said that the two forces that drive economics are: • Greed • Fear • Does this seem to be the case from your reading of crises in the past? • We will examine this when we look at the present GFC.