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Monday, 22 September 2014

Based on new methodology of the Central Bureau of Statistics, Dutch intra-crisis growth has been higher than estimated previously. Before you raise the flag: this could actually be bad news for the whole retail industry

Every now and then you hear new theories and concepts, that almost sound too good to true. But sometimes it happens that such ‘good’ news is actually a burden-in-disguise.

Mathijs Bouman, the distinguished financial/economic columnist and co-host of the Dutch economic television magazine RTL-Z presented such “good news as bad news-in-disguise”  in his weekly column in Het Financieele Dagblad.

The following lines contain the most important snippets from his column of Saturday, September 20th.

Starting this year, the Dutch Gross Domestic Product is calculated in a new way. A better way, according to the Dutch Central Bureau of Statistics (CBS), using new sources and in accordance with new, international agreements.

This revision of the national accounts, as the operation is called, has considerable consequences for the most important core data of the Dutch economy. Apparently, the Dutch GDP is 7% higher than previously calculated by the CBS. Consequently, the state debt as a percentage of GDP is immediately much better bearable. The revision also changed the economic history of the past crisis years.

This news made this week’s Macro Economic Outlook (i.e. MEV) from the Dutch Central Planning Bureau – the first one based on the new CBS data – particularly interesting.
According to the new data, the investments have dropped less considerably than initially estimated. The gloomy trend of constantly decreasing investments and thus decreasing economic growth potential is not visible anymore in the new data. One worry less…

There is another story which should be rewritten: that of the dropped available income.

According to the old data, there had been a steep drop of total available income coming from labour, by over 7%. It made sense that the consumer had been so frugal, that consumption dropped for years and years and utter silence struck the shopping malls and streets.

However, in the new MEV things look much more favourable. The total available income from labour actually rose during the crisis years and in 2015 it will end almost 4.5% higher than in 2008. This is the consequence of a bigger-than-initially-forecasted growth in 2009, when Finance Minister Wouter Bos skipped the employees’  share of the unemployment benefit premiums.

Nevertheless, this does not mean that national consumption also developed more favourable. The old and new consumption data differ marginally. Why has the consumer been so frugal, when the available income developed much more favourable than expected. The answer is: as a consequence of the dropping housing prices.

The development of the available income from labour had and will have a positive effect on consumption during the period from 2008 until 2015. Only in 2013, this factor suppressed consumption.

But then look at the dropping housing prices; these have suppressed consumption during all years since 2010.

The cashing of surplusses in residential real estate value, through new and higher mortgages, came to an sudden end. The comforting idea of the eternally rising housing prices got replaced by the fear that the own house would come underwater. The shopping streets became empty and abandoned, as a consequence of the plummeting value of owner-occupied houses. The house as private ATM came to a bitter end…

How is that for a bombshell…?!

Personally, I always get a little uptight, when research bureaus of impeccable reputation, like the Dutch CBS, suddenly adopt a new methodology, which is (almost) a new paradigm.

Was their old methodology that wrong?! Have their earlier data in fact been unreliable for all those years? Or is it just a small twist in the reliability of the data: merely a drop of water in the ocean?

Hence, a 7% higher GDP than initially estimated is more than a drop of water. It is rather a landslide difference in these crisis years, even when this higher percentage is earned during 7 crisis years.

If the new CBS methodology is more accurate than the old one indeed, we were actually all much richer than we thought we were.

Nevertheless, we FELT much poorer instead, as we couldn’t use our own house as ATM anymore, due to the steadily dropping housing prices. Personally, I consider this quite hard to believe and not only because my own salary is back at pre-2008 levels these days.

The last seven years have been the years of wage restraint for many middle- and lower class citizens, with a fixed contract in The Netherlands.

It have also been the years of endless flex-contracts for youngsters. And of freelancers, having a race to the bottom with their tariffs and fees, as they have been in fierce competition with knowledge-workers and professionals from the low-wage countries, who were willing to do the same work for much, much less salary.

Yesterday, my dear neighbour told me that her 17-year old grandson had to work long and hard hours in the supermarket, in exchange for very low payment; sometimes even without having a break during six or seven hours of working. And the foreman of this kid still had the nerves to complain that he worked too slow.

As the boy had a zero hour contract without any formal rights, he had to hope and prey every week that his supermarket had some work for him to spare. The “salary” this kid earned, was €3 per hour. This is roughly the same hourly fee as I earned 30 (!) years ago, as a “professional” dishwasher. However, the purchase power of this boy’s money is a fraction of what it was in the eighties.

So, when the CBS states that we – as a nation – earned 7% more money than we thought we did, I take this news with a few grains of salt. Can I be wrong?! I can be wrong!

Yet, if this new methodology of CBS is indeed better and more reliable, and it were actually the dropping housing prices which caused the stalling consumption in The Netherlands and not a stalling or slightly dropping average in personal income, this might have fierce implications on future consumption in The Netherlands.

This is the reason….

I expect that the Dutch economy will cautiously start to grow again in a few years, when the worst effects of the crisis have become a thing of the past. As the aging population has a narrowing effect on the labour market, skilled (knowledge) workers could become scarce, in spite of the influx of foreign workers.

It is implausible that these foreign workers can totally fulfil the demand for ICT-workers, engineers, skilled craftsmen and administrative personnel in The Netherlands. English is the ‘lingua franca’ in many multinational companies, but Dutch SME companies often require thorough knowledge of Dutch, as their main operational language.

I also don’t believe in the full robotization of human labour, which some pundits see as our immediate future; simply for the reason that people are still suckers for top notch quality and handmade objects.

In other words: the average quality of Chinese, robot-made products still distinguishes  Dutch, French, German and Italian quality as exceptional. I do believe that people still want to pay top-dollar for exceptional craftsmanship in any aspect.

This means that salary increases close to or even substantially higher than the Dutch inflation rates are very likely to occur in the near future.

However, when the new CBS data are indeed more reliable and it were indeed the dropping housing prices, which were to blame for the lackluster consumption in The Netherlands, the increased salaries in the near future will not matter much for domestic consumption. Arguably, we already ‘have been there’ after all, during the last seven years.

This would be extremely bad news for the retail industry in The Netherlands, which is already suffering from blatant, excess store capacity, the comeuppance of online shopping and plumetting numbers of spending-happy consumers.

A housing frenzy,  like the one we had between 1995 and 2007, is unlikely to ever happen again within the next 70 years. The mixture of artifical housing scarcity and interest rates hitting rock-bottom in The Netherlands, is really unique and one-off.

This means that the soaring housing prices during those years and the emergence of owner-occupied houses, used as ATM’s for mass consumption, will never come back again. Yet, almost the whole Dutch retail industry and the shocking amount of excess shopping space is based on particularly these years of exuberance and conspicuous consumption.

The result of the coming, prolongued period of reduced growth in housing prices will be – when CBS is right – that the whole retail industry will go through a long and painful process of starvation and annihilation of the weakest representatives in the retail industry. 

Contrary to what you might think, these are not necessarily the owner-operated small shops and unique niche-stores. No, those could very well be the massive store chains with lackluster performance and a boring assortment, which have turned Dutch shopping centres in oceans of boredom, monotony and lack of surprise. I bet you can name one or two of such chains…

Sunday, 21 September 2014

Hopefully, Westminster realizes now that there is “life outside London”, as Moscow-at-the-Thames: not only in Scotland, but also in the rest of the United Kingdom

It's so much better when everyone is in, are you in?

In spite of the fact that the Scottish ‘yes-vote’ officially lost the referendum and a quite convincing majority chose to stick with the United Kingdom after all, it was far from business-as-usual in Westminster the day after.

The leaders of the three largest parties in the United Kingdom David Cameron (Tories), Nick Clegg (LibDem) and Ed Miliband (Labour), aka “The Three Amigo’s” as they were scornfully called in Scotland, probably realized they had a very close escape Thursday.

They also discovered that there was a whole world within the United Kingdom that didn’t saw London as the centre of the universe. And that world had been screaming for attention…

Today, Mathijs Schiffers, the correspondent for the United Kingdom of Dutch financial / economic newspaper Het Financieele Dagblad  wrote an excellent article about the aftermath of the Scottish referendum for independence. One of the most striking quotes in the article was this one:

The high attendance to the referendum is the achievement of Salmond. The former economist showed that the people in Westminster, the political centre of the United Kingdom, are totally clueless about what is going on outside the British capital. Only at the time when an opinion poll put the ‘yes’-camp in front, two weeks ago, London came into motion.

After reading this quote, I suddenly saw the striking resemblance between London, the British capital, and Moscow, the capital of Russia.

Both London and Moscow are the capitals of large countries with a vast, merely rural hinterland (albeit each on its own scale, of course) and very different levels of progress, economic and social development. On top of that, both cities earn an extraordinary large amount of the Gross Domestic Product for their respective countries and form the epitomy of wealth, luxury and blatant exuberance there.

London does so through its role of financial reserve-capital of the world, while Moscow is the narrow centre of the Russian commodities ‘hourglass’, where almost all the Russian money flows through.

And most important: both cities are genuine tinseltowns, which seem to have a bedazzling influence on the politicians who work there, seemingly making them forget their descent and the grassroots for whom they are working.

The skyscrapers, penthouses, theatres, luxurious restaurants and expensive shops of their capitals become their universe and not the hard-working, but often not very wealthy people, who these politicians are supposed to represent in their parliaments.

There is one big difference, however…  Russians outside Moscow (or St-Petersburg) have very little confidence in themselves ever being able to attract the attention of the powers-that-be in their national capital.

They mostly live their lives with the meekness and fatalism of people, who know in reality that nothing is going to change … ever: there have been different singers over the years, but the song always ended the same.

These people also know that protests against the rulers will eventually end in violence and further suppression. When the pain and despair become too heavy, then they turn to their old friend ‘King Vodka’ and drink themselves out of the misery. Others try to escape from the rural country or the large, gloomy cities through a foreign boyfriend/girlfriend or through finding labour abroad. However, these are only exceptions, applicable to people with good looks or a good, sought-after education.

The people in the United Kingdom, however, never gave up their fight for attention. Especially in the era of Margaret Thatcher, they did so through massive strikes, riots and protests, which brought England almost on the brink of catastrophy.

And even in the 21st century a little spark is enough to start massive, violent riots or massive protests against the government in Westminster. Also pop music and popular culture (f.i. punk and new wave music) have always been powerful tools in the United Kingdom for people to utter themselves in protests against their situation and lift themselves out of obscurity.

Nevertheless, there are still big differences in income and wealth within the United Kingdom and during the crisis years these differences have rather increased than decreased. And – like the Russians - the Brittons have their own versions of problematic drinking and alcohol- or football-related violence. However, this was something that could always be easily detested or ignored by the leading British politicians in their London-based cocoon of luxury and wealth: annoying, but not at all dangerous for their position.

To this respect, you can say that the Scottish referendum has been a massive wake-up call for the central government in London. This referendum, which started so innocently for the British central government, suddenly threatened to turn into a nightmare.

The yes-voters seemed in the lead one weak ago and had a fair chance of winning the referendum, in spite of the ubiquitous fearmongering by the central British government and the large Scotland-based corporations.

Would these yes-voters have indeed won the referendum, then David Cameron would have been confronted with an exodus, leading to an untwining operation of epic proportions: not the British exodus out of the European Union, but the Scottish exodus out of the UK.

And the worst would have been, that this could have become a signal for other British nations within the UK (Wales, Northern Ireland and perhaps even England itself) to turn their back on London too. In that case the United Kingdom would have become a landless kingdom and London a capital without hinterland.

That was the reason that there sounded a lot of hope in Cameron’s speech, when he stated that the Scottish plan to leave the Union ‘was now settled for at least one generation’. Probably it is hope against better knowing.

The Scots got rewarded for their ‘close call’ referendum through a series of new commitments and privileges from Westminster, which will give them more freedom and independence from the central government in London.

However, the other nations within the UK will undoubtedly also demand their ‘slice of the pie’, when it comes to more independence, privileges and attention (!) from the government in London.

Consequently, it could very well be that “The Three Amigo’s” might have to ride again in an upcoming sequel, in their struggle to keep their whole country together.

Westminster will definitely realize that there is life outside London, as with the ‘referendum for independence’ the Scottish population have given the other Brittons a powerful weapon to draw the unconditional attention of the central British government: a weapon that will probably not become blunt in the next few years. 

Of course, it would be grotesque to compare the situation in the United Kingdom with the situation in Russia and that is not the purpose of this article. It is, however, useful to look at the similarities between Moscow and London as centres of their own universe.

Friday, 19 September 2014

The banker’s oath and the value of symbol politics in The Netherlands and abroad

Today, my principal, one of the largest banks in The Netherlands, had a slightly surprising message for me.

On 18 September 2014, the Second Chamber of Dutch Parliament has decided that I, as an employee – albeit it a temporary one – of a Dutch bank, have to make the banker’s oath. This will be effectuated in the beginning of 2015, for all employees of all Dutch banks. Translated, the oath contains the following promises:

I swear / promise that, within the boundaries of my function, which I fulfil at any moment in the banking industry:
  • That I will practice my function with integrity and scrupulousness;
  • That I will choose a cautious balance between the interests of all stakeholders, which are involved in the company:
    • Customers;
    • Shareholders;
    • Employees;
    • The society in which the company operates;
  • That I will put the interest of the customer in centre of this deliberation;
  • That I will behave in accordance of the laws, the regulations and the codes of conduct, which are applicable to me:
    • That I will keep a secret the knowledge that I’m entrusted with;
    • That I will not abuse my knowledge;
    • That I will behave myself open and assessable and will be aware of my responsibility against society;
    • That I will make efforts to maintain and spur the trust in the financial industry
So help me God almighty / I declare and promise that!

This is an official oath and consequently, it brings one ‘under oath’ for the rest of one’s career in the banking industry! Or doesn’t it?!

Probably  as I am a consultant with only temporary assignments  I have to make the same oath over and over again, every time when I return to the banking industry for a new assignment at the ICT department of a Dutch bank. 

This – as a matter of fact – makes the value of this very oath “null and void”.

And a big question is: when I’m ‘under oath’ through this oath, I am under oath of what?!

I neither want to speak about the blatantly religious and grandiloquent texts of this oath, nor about the fact that some texts are slightly contradictory:
  • “Keeping a secret the knowledge that I’m entrusted with”, versus “Behaving open and assessable”;
  • “Choosing a cautious balance between the interests of all stakeholders”, versus “putting the customer in centre of this deliberation”; 
My problem with this oath is much more structural and fundamental in nature: 
  • Which problem is exactly solved with this oath?
  • Against which kind of behaviour of bank employees this oath will help, while not having it would leave the problematic behaviour intact?
    • Why would this oath help already honest people to remain honest, while at the same time putting people, with a slight tendency to dishonesty and undignified behaviour, on the right track again?! 
  • Why would this oath help to put the customer back in centre again, when this is such an easy sounding, but very hard thing to do?
  • And why would this oath help to make banks more accessible and approachable for their customers, when their whole operation is aimed – under pressure of the fierce competition from inside and outside the banking industry - in the direction of:
    • more efficiency;
    • a more computerized, robotized and virtualized handling of all transactions;
    • much lower expenses;
    • much less personnel;
    • much less handling of physical money and, consequently, less Automated Teller Machines (ATM’s) and less brick-and-mortar bank offices?!
And of course the Million Dollar Question-of-Conscience is:

What is this oath more than a sop for Dutch and European politicians and a blatant example of symbol politics, without any tangible value for the banking industry itself or for society? 

This oath will not do anything to restore the confidence of the Dutch and European citizens in the banking industry and it will not do anything to restore the trust of European politicians in the banking industry?!

The only thing that the banking industry can do to restore trust in the future is being simply honest (!) and straightforward for many, many years, while giving real value and service to their customers. Many banks already do so these days and some banks have never stopped doing so; even in the prelude to 2008.

Then – at one beautiful day – the banking industry will have earned back the confidence that they enjoyed and also thorougly deserved during many years in the past.

And politicians and central bankers themselves could help this process enormously, by not chosing for the easy solutions every time: solutions which help their wealthy grassroots getting more rich, but ruin the middle classes of their societies in the process.

No, they should make the hard decisions, like “raising the interest rates”, in spite of the large investors, stock traders and massive borrowers of ‘virtually free money’. 

And they should finally make a real start with deploying the legal framework, which is needed to enable the ‘list of things-to-do’ that every economist with half-a-brain can sum up for you.

And what about the oath…? I will make it!

First, because I have to, to keep my job. 

And second, because I endorse most paragraphs in this oath by heart… 

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