From:†††††††††††††††††††† Noel Hodson [firstname.lastname@example.org]
To:†††††††††††††††††††††††† email@example.com; firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; RLSmithNet@aol.com; Rebecca.email@example.com; firstname.lastname@example.org; email@example.com; Mike.Hall1@BellSouth.COM; firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; John.Vivadelli@agilquest.com; email@example.com; firstname.lastname@example.org; email@example.com; firstname.lastname@example.org; deLay_Nancy@Lilly.com; email@example.com; firstname.lastname@example.org
Cc:†††††††††††††††††††††††† Evan Davis - BBC; Christine Lester WMTL; Andrew Smith; Gil@Gilgordon. Com
Subject:†††††††††††††††† After ENRON - The Future of Auditors & Pensions - in the Information Society.
SW2000 TELESW2000 TELEWORK STUDIES
TELEWORK, TRANSPORT, ECONOMICS, ENVIRONMENT
3rd July 2002.
Recent financial scandals and market fluctuations will, I believe, have far reaching consequences that ITAC members may like to factor into their planning.
1) The populace will learn to count, with consequences for government.
2) The Big Four auditors will break up.
3) Pension Fund Managers will have to fight for their lives.
4) Telework makes it different - Financial Modellers had better get it right.
5) The race for unearned income. Invest in reality. The corporates are not dead yet.
Thanks for your notes about my forecasts. In essence I believe as do several famous commentators that the ENRON etc Bubble may prove to be a greater force for change than the 911 disaster. Telework and the Information Society have a role and an influence that has never existed before, for example with the sale in April 02 of the one-billionth personal computer and with up to 28 million USA telework home-offices and mobile-offices established. A large percentage of these have programmes like EXCEL that enable unprecedented arithmetic calculation.
To date the majority has been innumerate concerning "Big Business" and "Government Financing" and have trusted the professionals (The City/Wall Street) who purport to understand and are able to read the runes. This latter elite have shown themselves to have feet of clay and, comparable to the social transformation at the† time of translating the Bible into English and enabling the populace to read it for themselves and to think for themselves, rather than accept the authority of The Church, ordinary people, thanks to computers, will now learn how to (ac)count. This ability to comprehend financial matters, previously the exclusive, hermetic preserve of a tiny, priest-caste elite will transform society. And it has already started.
The immediate problem in this the wealthiest of any society in history, is that computers enable ever more automation, daily reducing necessity work - and taking jobs out of the market. EG, the Oxford (UK) car factory employed about 12,000 men 15 years ago. It now employs less than 2,000 and makes as many cars; but rewards for "necessary" work remains the largest and most accepted means of distributing wealth. Wealth is more and more generated by machines, not by people. The rapid disappearance of the historic mechanism for sharing wealth - paid necessity work - is the cause of the underlying panic behind the anxious search for early retirement and unearned income (pensions) that afflicts most OECD countries and underlies the insatiable greed displayed at ENRON and in many board-rooms. All unearned income (investments, rents, dividends etc) are (A) governed by the (necessarily decreasing) Bank Base Rate and (B) are pyramid selling systems where the older generation (expanding population) rely on the efforts of the younger generation (now a reducing population) to maintain them.
Today there is too much capital chasing too little unearned income and this will get worse as my (our) generation, the War Bulge, dump ourselves onto the retirement market - to be retired for 30 years or more. Governments' problem is not that we don't have the wealth - automation has given us that - but that the (work-ethic) mechanisms to share it out are no longer appropriate. The circumstances have changed but nobody knows how to change the rules of the game. And Economics has never been a science - but an occult art.
The panic engendered by the frantic thought that we might starve to death, in our old age, in a land of unprecedented vast wealth and plenitude, is what drives the guy with $10m to "need" another $100M - enough is never enough. And hence to ENRON and the other corporate fraud/theft cases that sabotage society's sanity.
Government must stop the panic. Education and truly scientific and fair economics, without the crazy distortions of the dogma of political parties (tribes of mutual help-ourselves-supporters), are the ways forward. But we are unlikely to get to the new wealth distribution methods for an automated society without first suffering systemic collapse and frightening dislocations.
PS - and remember to move to higher ground.
There is nothing new about "Bubbles" and the financial world survives them bursting. What is new is the power of computing at everyone's fingertips and the speed and availability of information.
In 1969 at Pergammon Press in Oxford, the novel, punch card fed computers that recorded the business (the global sales of exclusive academic papers) occupied 1,000 cubic feet and had the power of today's pocket calculators. A financial reporting scandal at that company, the Leasco affair, occupied some 50 external auditors from three firms for six months. Access to the computing room was highly restricted. The chances of any non-professional grappling with the numbers or the flow of transactions were zero. The outside world had to trust the auditors.
This will be as profound a change as was the majority learning to read. It will be a transformational power in society. Governments, banks and all financial officers have only a little time to sweep their stables clean before the general populace spots the errors and scams - and loses all faith in, and stops investing in, leaders.
It is imperative that the Stock Exchange authorities clean up the reports on all quoted companies. This will inevitably mean huge adjustments in most reports to remove the distortions. Acceptable world standards will have to be forged (no pun intended) and applied. Arthur Andersen have lost their moral authority and their business. The partners are likely to be sued for everything they have by small and large shareholders and by employees. The other Big Four will swiftly follow.† This collapse will be rapid, as it too important to leave to chance and to "laissez faire".
From the remaining 2,520,000 registered OECD auditors, tough specialist audit firms will spring up to become trusted by the Stock Exchange managers, financial journalists and, most important of all, by individual investors.† A key factor in these trends is the response of the insurers when/if the Big Four are pursued for professional negligence on an unprecedented scale.
Where? the question will slowly dawn on the emerging accounting and
arithmetically empowered consciousness of the ordinary citizenís mind, were the
powerful, skilled and hugely well paid
Not only have
specific shareholders and tens of thousands of employees been cheated but
hundreds of millions of pension investors, having saved for up to 40 years, are
currently being braced to anticipate crushingly low returns when they
retire.† In the
All Financial Services Products will be examined using common-sense criteria and the sellers will lose their credibility as the arithmetically enabled population figure out the sums. Then we will ask where the money has gone. This will lead to a rapid decline in the incomes of brokers and of all financial services providers. Governments will introduce reliable investment and savings vehicles where the transactions, investments and running costs are entirely transparent and accessible to investors on their home computers.
The Information Society and the population's ability to access and process data and to communicate findings, makes this scandal different from all the ones that have preceded it. Up to the advent of the personal computer a tiny fraction of society could address major financial and economic matters. They were the privileged minority who could count and most have looked after number-one first and society second.† As recently as 1992, in Thatcher's Shareholders' Democracy, the millions of small shareholders who had bought via the Internet, were locked out of transactions when share prices collapsed; while the big players could get out. Handling money, other than weekly cash wages, has been a very restricted practice. Income has been more secretive than incest. After ENRON that level of secrecy is already changing and, just as youngsters astonish their elders with their computer skills, so will they astonish professional financial analysts whose errors will be spotted by small investors checking their finances.†††
5) The race for unearned income. Invest in reality. The corporates are not dead yet.
Most of the world's valuable assets are owned by major companies. Governments own diverse public monopolies, chief among them being their right to collect taxes and to hold public land. Safe Government Bonds do not greatly increase in value but do pay interest.
countries change their breeding habits, for example the UK and Italy are now
below replacement levels at 1.6 children per family, and as we all are
increasingly reluctant to die on time; and as technology automatically creates
ever greater amounts of real wealth (houses, tables, food, cars, clothes, TV's
etc) with fewer jobs, an ageing population, sold on and fixed on the idea of
early retirement, is applying its capital to acquire unearned income. The basic
economic problem is too much capital chasing too little unearned income to
support as much as 30 years of retirement in an ever shrinking job market. All
unearned income is governed by the Bank Base Rate - still high in the
Society makes the problem more acute. The minute one of us would-be-capitalists
finds a good investment, the whole world wants to join in, swamps the source of
our retirement income and wrecks our hopes. As investors are
frightened away from the Stock Markets by bent accountants supporting insatiably
greedy managers, share prices falter and fall, making the dividends a better
return, attracting buyers. Those who quit the stock markets may buy
houses to rent out. This has been particularly encouraged in the
In the medium and long term the best bet is to invest, for the long term, into the shares of stable, working corporations. These, properly managed and accurately reporting results, will yield a sensible dividend and steady growth in the share price (look back over the past 25 years).† Apart from owning your own business - and probably running it until you drop - investing in the major companies is the safest way to proceed. Most have secure Balance Sheets of real, fixed assets that increase in value. Make sure they do not have lurking Class-Action problems (tobacco, Bophal etc) that will bankrupt them. Borrowing to make an investment and a quick buck is however perilous and like all betting is doomed to fail. Property is a safe option, but needs intensive management (hard work) and can be subject to long capital value cycles.
Oct 01 - USA Stats from ITAC show 28.8M
Noel Hodson, Director
SW2000 Telework Studies
CEO, Experts Unlimited
Director, The International Telework Association and Council (ITAC)
Tel +44(0)1865 760994 fax 764520