Leadership Notes #27
What to Read
Two standout scholars and gifted prognosticators examine our fault lines and offer possible prescriptions.
The Third Pillar: hOw Markets and the State Leave the Community Behind BY Raghuram Rajan
Identity: The Demand For Dignity and the POlitics of Resentment BY Francis Fukuyama
Interview: Neil Osborn
Neil Osborn is chairman of REDD Intelligence Inc, the emerging markets information service, and also has roles at a number of young companies in the US, Europe and Asia. Previously, he was Group Publisher at Euromoney Institutional Investor PLC and a board member of that company. After graduating from Oxford University, he became a financial journalist for a number of years and was editor of Euromoney magazine from 1986 to 1990.
Potolicchio: What is a book that every leader should read?
Osborn: Little Dorrit, by Charles Dickens. Writing in 1857, Dickens described the dead hand the government’s Office of Circumlocution placed on all initiative. For hundreds of pages Daniel Doyce struggles to win a patent for his magnificent invention, but is led in circles and fails. Pity Dickens is not around to write about the thicket of regulation and bureaucracy today’s world – he particularly would have loved to lampoon the EU. Leaders, please note.
Potolicchio: When you invest in companies, what are you looking for?
Osborn: I try to judge the character of the founders of a business I am considering. Are they crooked? Some of the investment mistakes I have made have involved company insiders stealing money. Are they arrogant, inflexible people? To succeed, new companies usually have to alter their product and their plans along the way in response to feedback from the market. Will these people listen to potential clients and take in the information they receive? Are they weak? Will they give up too quickly? And – big red flag this – will they behave inappropriately and deflate the enthusiasm of their colleagues? One founder brought his latest girlfriend in as a high-level employee. I should have bailed when I saw that. Sometimes all this has led me to backing start-ups from founders I already knew because I worked with them previously.
Potolicchio: What’s a prediction that would shock most observers?
Osborn: Immigration from emerging market countries is widely feared today in the US, much of Europe and Japan. Soon it will be regarded as highly desirable, perhaps even as a necessity. Populations are falling, or about to fall, in some important developed economies – Germany and Japan most obviously. US and UK populations would be static or falling, were it not for strong flows of new citizens arriving from Latin America, the Middle East and Africa. If a nation’s population ages and shrinks, that nation’s economy shrinks as well. And there will not be enough able- bodied people to do less desirable work – caring for old people, for instance. Some leaders have thought about this – I believe Angela Merkel was thinking about demographics when she let a million Syrian and Afghan refugees into Germany in 2015, to howls of protest.
Potolicchio: What has been the most surprising thing about global markets recently?
Osborn: It’s remarkable that the fire that began the 2008 financial meltdown was lit in the United States, but the United States has emerged with greater dominance over the world’s financial system than it had before. Look, for example, at investment banking: Deutsche Bank is just the latest non-American competitor to shrink and fall away, leaving the field open for Wall Street firms in the international capital markets. Similarly the US venture capital and private equity funds are disproportionately large compared with those elsewhere, and the same can be said of the US stock markets. Overlay this with the dollar’s reserve currency role – the Euro and Renminbi have disappointed their backers in this regard –and you have a recipe for overarching non-military power in the hands of America. Fine, if that power is used with responsibility. But I am not alone in already being wary of America’s ability to take extra-territorial action. Most EU nations would like to trade normally with Iran, to take one example, but do not do so for fear of US actions against their banks and corporations.
Potolicchio: What’s your take on Brexit?
Osborn: How long have you got?
I voted, after some hesitation, to leave the EU. For me and, I suspect, many others, the issue was democracy. I did not want to be governed by remote and unelected officials in Brussels, shaped by a very different history and culture than the United Kingdom. Put it this way: be I never so humble, if I wish to say something to the Member of Parliament for my constituency in the UK, that MP will always find time to see me sooner or later, because they want my vote. If an ordinary Brit wants to put a point of view to the EU, it’s almost impossible to find who to speak to because of secrecy and complacency, not to mention a Byzantine constitution and electoral system.
Even if all those aspects were not the case, I still find the general precepts of the EU not to my taste: at bottom, this is a protectionist, statist, anti-immigration (from outside the EU) and often anti-Islamic construct.
Ah, but won’t the UK economy suffer a devastating blow? We have had lots of scary predictions, none of which have proved true so far, and I doubt they will. You have to have very little faith in the adaptability of Britain’s companies and market system to think that the country will be damaged in the medium and long term by exit. We have an independent currency which helps soften turbulence – thank goodness Chancellor Gordon Brown saw the value of that when Prime Minister Blair wanted the UK to join the Euro. And because of our tax system and universities, the UK thrives in new fields of technology, biosciences, fashion and media. Company formation outstrips the rest of the EU put together.
Potolicchio: What’s the best book that describes the modern world and where we are going?
Osborn: There are many history books littering my home and fewer volumes of writing about where we are going. Knowledge of history is the most useful insight we have when thinking about the future – which is not quite the same thing as saying history repeats itself. It is not possible to understand how China behaves without understanding that China has millennia of civil wars and disruption in its history – at least six civil wars since 1850. Above all else, China’s leadership wants to avoid civil commotion and knowing this illuminates their policies towards Hong Kong, the current treatment of the Uigurs and the love of modern surveillance equipment in China. By the same token, it helps to remember a bit about Napoleon when considering the different attitudes to the European Union in the UK and on the Continent. Russia? Read the record of how that country has developed. The reign of Peter the Great is a good place to start.