Office Politics: The Abuse of Power

I published this post about a year ago – under the title “Office Politics: Prisoners, Prison Guards and Power Peversion“. Probably because the economies of the world in general continue to be quite depressing, I’ve been hearing of plenty more bad-job situations recently. So I thought this was worth re-sharing.

power corrupts

In 1971, Stanford psychologist Philip Zimbardo conducted his now-infamous prison experiment. It lasted 6 days before he eventually had to shut it down. And you should watch this clip (FYI – that’s the link for the email subscribers), because there is video footage from the experiment, and it’s incredible how rapidly human nature can transform.

The Background

  • Zimbardo wanted to conduct an experiment that would be somewhat akin to the Milgram experiment (I wrote about that one in Office Politics: Mindless Compliance). But instead of testing how far someone would go when given orders, he investigated how far someone would go when they were giving the orders.
  • And he did this in the context of a prison experience, where 24 male students from Stanford were selected and then randomly split in two: one group of 12 prison guards, and one ground of 12 prisoners.
  • The students were all to be paid $15 per day for their time in the experiment.
  • The advert:

stanford-prison-study-ad

  • ±70 men applied, and were all subjected to a psychological tests. Zimbardo selected the most normal and psychologically-stable of the group in order to test the impact that roles can have on even the most normal of us.
  • The roles of prisoner and prison guard were randomly divided between the 24 subjects.
  • Zimbardo then led a workshop with the prison guards the day before the experiment officially began, instructing them not to physically harm the prisoners. He can be heard (in the original footage) saying:

“You can create in the prisoners feelings of boredom, a sense of fear to some degree, you can create a notion of arbitrariness that their life is totally controlled by us, by the system, you, me, and they’ll have no privacy… We’re going to take away their individuality in various ways. In general what all this leads to is a sense of powerlessness. That is, in this situation we’ll have all the power and they’ll have none.”

  • The prison guards were given uniforms, handcuffs, whistles, batons and mirrored aviators (to prevent eye contact). The aviators allowed the prison guards to feel “masked”*. *Just goes to show you how important eye contact can be…
  • The prisoners were then “arrested” for armed robbery, processed (fingerprints, mug shots, etc), and then taken to the holding cells (the basement of Stanford’s psychology building). Here, they were strip-searched, and then handed prison clothing and new identities (each prisoner was given a number which would be his “name” for the duration of the experiment).

The Results

  • The first day was quite boring, with the guards feeling a bit awkward about their new roles.
  • But in response to the minor levels of antagonism shown toward them on Day 1, the prisoners blockaded themselves in their rooms overnight.
  • On Day 2, the guards responded to this “challenge” to their authority by subduing the prisoners with fire extinguishers, creating a privilege cell for inmates that weren’t involved in the “revolt” (with better food and rewards), using physical punishment (forced exercises), humiliating prisoners (forcing them to clean toilet bowls with their bare hands; only allowing prisoners to defecate in a bucket in their cells; not allowing prisoners to empty the buckets), and reinforcing the number “names” of the prisoners.
  • After only 36 hours, the first prisoner had a mental breakdown. In Zimbardo’s words:

“#8612 then began to act crazy, to scream, to curse, to go into a rage that seemed out of control. It took a while before we became convinced that he was really suffering and that we had to release him.”

  • After that, things degenerated even further. Mattresses were taken away; prisoners were forced to walk around naked; there was imposed solitary confinement (a closet that was not large enough to sit down in). By Day 4, the mistreatment had taken on a strong sexual element.
  • Zimbardo himself, as the “superintendent” of this prison, became complicit in the process. Even to the point of moving the prisoners into a separate complex on the rumour that one of the released prisoners was returning to stop the experiment, and remaining behind to lie and say that the experiment had been terminated.
  • On the 6th day, Zimbardo’s girlfriend (and later, wife) came to see the experiment and conduct interviews. She was horrified by the conditions, and said as much.
  • Zimbardo then aborted the experiment.

Obviously, these types of experiments attract equal amounts of attention and criticism. But the experiment does suggest something unnerving: that our behaviour can be situational rather than a question of internal disposition. And that even skilled therapists are capable of condoning gross immorality without being aware of it.

In The Corporate Environment… 

I think that there are a number of parallels. In theory, we live in a world where you have a willing employer and a willing employee that meet at arm’s length, agree on a wage and a job spec, and then proceed equally into the career sunset.

In practice, the employee is often trapped, and the line is “I’ve got bills to pay”. Most employees cannot just leave a job on a whim – they need the paycheck, and they need the paycheck regularly.

If you combine this with a workplace culture that is dehumanising (for example, where people are referred to as “resources”), or an environment where staff turnover is high and human connection hindered by it (like law firms and audit firms, where article clerks move through in droves), the conditions are in place for the Stanford prison experiment to play out daily.

Those in power internalise it, turn their workers into minions, and act to suppress rebellion with humiliation, punishment and reward. The powerless, in turn, accept the dehumanisation and internalise the position of subservient victim of the system.

To show how easily someone can become complicit in their own degradation, you just have to go back to the experiment. At one point in those 6 days, some of the prisoners lost their monetary compensation through some kind of parole application denial (I’m not quite sure how). But the point is, even after they had lost all monetary compensation for being part of the experiment, they stayed. Zimbardo argued that they had internalised the prisoner identity.

And I think that makes sense. We all know people who continue in jobs where they are mistreated and underpaid and keep claiming that it just isn’t worth it. And yet, there they go on Monday mornings…

The Silver Lining

Yes, I think there is one. The experiment seemed to hinge on the lack of human connection between the guards and the prisoners, which means that the situation is avoidable.

For those of us that manage others, I believe that it’s better to err on the side of empathy. Too little, and you become the tyrant that only feels emotion when his or her authority is threatened, and sees employees as just one-dimensional task-performers that are either efficient or useless.

And for those that are managed, it’s also your responsibility to engage in human connection. If you embrace your victimhood, then you become responsible for allowing your own mistreatment.

To end on a lighter-but-still-related note, here is another youtube clip: this time, an animation of author Brene Brown talking about empathy.

Happy weekend.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

The Crises Of Capitalism

Here is 11 minutes and 11 seconds of animated articulation (for the subscribers, here’s the youtube link: “RSA Animate – Crises of Capitalism“).

It’s based on David Harvey’s book, “The Enigma of Capital“.

If you’re looking for a summary of the essential crisis, my understanding is:

  • Capitalism is all about the investment of capital in productive assets
  • Assets are only productive because they produce things that people will consume
  • But the wage-earners that would consume stuff are earning less money
  • Because the holders of capital are interested in maximising their profits, not in maximising their workers’ wages
  • And therein lies the internal crisis.

But that’s not a very good summary. Rather take the 11 minutes and 11 seconds and watch the animation.

Happy Thursday.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Venezuelan Shopping

Here is a youtube clip that was reasonably entertaining (although I’m not sure if entertaining is the right word). For those of you reading this in your inbox, here is the link: “Watch What Happened When A Reporter Tried To Buy 8 Basic Goods in Venezuela“. It’ll take you 3 minutes, give or take some buffering time.

The basic summary if you don’t have 3 minutes:

  • Reporter wakes up to go shopping in Caracas.
  • Reporter shows 8 item shopping list to camera.

  • Reporter spends time in queue to buy cooking oil.
  • Fails.
  • Reporter spends time in second queue.
  • Many pictures of queues.
  • Reporter manages to buy some corn flour.
  • Cut to: Metro Stop.
  • Reporter reports that he eventually managed to get three items on his list.

What the reporter doesn’t report on is the price of the goods that he’s not able to buy – which I guess makes sense if he couldn’t buy them. But this is the really fun part of economic madness. For two reasons:

  1. Whenever you have a country that has both official and black market rates of exchange, you get absurd prices.
  2. But particularly when that country is experiencing goods shortages due to price controls (or, as President Bus Driver would have it, “due to economic warfare and sabotage from the West”).

Here are some fun cost-of-living-in-Caracas numbers from expatistan.com:

Food

Why eat anything if you can drink beer?

Transportation

Expensive cars, cheap gas

So no coffee then...

So no coffee then…

Of course, those numbers are mostly fictional because there is the enormous disparity between the official and black market exchange rates:

So what you actually need to do with those prices is divide them by 30 to get a feel for how much it would cost a visitor to visit Venezuela (after all, we don’t earn Bolivars – we get to arrive in Caracas with real money). Some examples:

  • A lunchtime menu will cost you $2.36
  • A beer: $0.20
  • A dozen eggs: $0.90
  • Half a kilogram of cheese: $1.43
  • A litre of petrol: less than a cent.
  • A fancy dinner for two: $17
  • A cocktail: less than a buck

Caracas – here I come!

The Important Point

In real terms, living expenses in Caracas are cheap as chips. Which is exactly why there are such shortages.

You can talk about price controls – which I have done before, in this post: “That Venezuelan Bus Driver Is Crazed.” Or you can talk about economic sabotage.

But the real problem (pun intended) is:

  • Most Venezuelans earn in bolivars – which means that their salaries are constantly losing purchasing power.
  • Shop owners can do one of two things with every bolivar they receive in sales:
    • Buy more goods to sell in Bolivars; or
    • Buy US dollars and hold them as the black market continues to depreciate.
  • Unless the price of goods can stay the same in real terms, it makes no sense to buy more goods to sell.
  • Prices can’t adjust properly, because of logistics, administration, and customers who are earning bolivars.
  • There’s also greater risk with buying the goods, because Victor Maduro rules by decree and you can almost certainly expect him to be a drama queen with his price controls and shut-downs and general crazy.
  • So the easiest and best thing to do is buy US dollars on the black market.
  • Cue: shortages.

Other entertaining articles worth reading:

To be continued.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

How To Feel Like A Million Bucks

As an almost thirtysomething, surrounded by the already thirtysomethings of my peer group, I feel a certain deep-seated anxiety that sounds a lot like “Why aren’t I well-off already?”

Off the top of my head, two reasons for that:

  1. Most of us were making our degree/professional qualification decisions during the early 2000s, right as the Global Boom was flipping into swing. We then embarked down our respective yellow brick roads, only to discover that Emerald City was all coloured lighting, with the downsizing and the no-bonuses right at the moment we professionally entered the workforce. So there’s that, unfortunately. But also:
  2. Facebook. And Linkedin. With all the self-congratulation (however unjustified/embellished).

And there was also a certain amount of expectation mis-management that took place. This:

  1. “Dear First Year Article Clerks. We know it seems like you’re not earning a lot. And that’s because you’re not. But don’t worry – it’ll all even itself out by the time you’re in third year.”
  2. “Dear Third Year Article Clerks. Yes, we know we said it’d even itself out. And it has, sort of. We also know that it’s less than you were hoping for. But don’t worry – you’ll really feel a difference when you’re fully qualified.”
  3. “Dear Newly Fully-Qualified. We know that you’re not really feeling too much of a difference. But it’s because you don’t quite have the experience yet. So don’t worry – you’ll get the real pay-bumps in a few years’ time, when you’re experienced.”
  4. “Dear Fully-Qualified with four/five years of experience. You’re certainly earning more than you were, but less than you’d like. To be honest, you only really earn the big bucks when you make partner. Give it until then.”
  5. “Dear Partner. Oh – sorry – I meant junior partner…”
  6. *leaves and forms own practice*

As I see it, all the above has two sad outcomes for the millennial advance guard:

  1. We constantly feel underpaid; and
  2. Disillusioned fears of worthlessness*
    *Not completely worthless – just worth less.

The good news: it seems that everyone everywhere feels generally underpaid. So we’re not alone in that.

The bad news: fears of worthlessness annihilate joy. Which is properly tragic, given that our late 20s/early 30s is the golden age of less responsibility, more disposable income, and the good health to take advantage of it.

How To Make It Better

Two approaches:

  1. The high road: see a therapist, find a spiritual mystic, cultivate inner peace, discover joy.
  2. The band-aid: self-appraise more accurately. As in, with a spreadsheet. To make the high road feel less like toil and more like a frolic.

Self-Appraising More Accurately

When most people (and financial planners) calculate your net worth, they do something like this:

  1. Calculate the value of your assets (house, car, savings, provident fund contributions, miscellaneous trinkets of some value);
  2. Calculate the value of your liabilities (mortgage outstanding, car finance, overdraft, student loans, etc);
  3. Subtract 2 from 1
  4. And voilà – your Net Worth.

This is wrong.

In fact, for a thirtysomething, this is wildly wrong.

Because as I’ve pointed out elsewhere (in particular, this post on risk diversification), your most signficant asset is missing from that equation.

Some points:

  1. Each year, you generate an income by using your skills/abilities/networks.
  2. You have a limited lifespan within which to generate that income.
  3. And all the other assets – the homes, cars, savings and trinkets – are the residual leftovers from the proceeds of the income that you generate.
  4. Call it your “earnings potential”. Or perhaps “the cumulative education and experience that led to you finding yourself in this position”.
  5. Either way, for a thirtysomething, that is your real asset.
  6. It even earns capital appreciation – by increasing in value as you go on to gain more experience simply by virtue of being in a workplace.
  7. And as time passes, you draw down on more of it.
  8. Until eventually, by the time you hit retirement, the asset is fully realised in cash/savings/tangible assets.

You have to include the value of that asset in your equation.

Of course, it also means that you have to include the value of the implied liability as well (after all, we require maintenance – food, shelter, medical cover, entertainment – so a large portion the asset’s return gets spent each year).

But helpfully, this also starts to illustrate the power of our habits. Which I’ll get to shortly.

Firstly, the Simple Scenario

The easiest starting point is to assume that you’ll earn exactly what you earn today (and save what you save, and spend what you spend), for the next 40 years (until you’re 70). And you’ll do that in real terms*.
*I’m going to keep saying “in real terms” because I’m talking about purchasing power. If a 70 year old earns R2 million today – then by the time you turn 70, you should expect to earn the future equivalent of whatever can buy the same volume and quality of goods as can be purchased for R2 million today.

And you then calculate the value of that using a real return figure (let’s call it 2% – because that’s about the historic norm).

Here’s an example:

  1. Let’s say that you earn R400,000 a year after tax.
  2. 12.5% of that goes into a pension fund.
  3. 30% goes into your mortgage bond.
  4. You manage to save R20,000 a year.
  5. The rest gets spent on food, clothing, home maintenance and holidays.

What that means:

  1. Annual real income generated from the asset: R400,000 after tax
  2. Annual non-recoverable costs of running the asset: R210,000*
    *R400,000 – invested income of R190,000 – see below.
  3. Annual real residual income placed into investment portfolio: R190,000*
    *Pension contribution of R50,000 (12.5% of R400,000) + Mortgage Bond payments of R120,000 (30% of R400,000) + Cash Savings of R20,000 = R190,000

If you were to save R190,000 per year for 40 years, the cumulative total is R7.8 million.

And because the return of the asset is keeping pace with the real return of the economy, the value of the asset is R7.8 million.

As in: that’s what you’re worth today, if your earning and spending habits don’t change.

Then, the Increased Value Proposition

But that’s not realistic, because of the greater value that most professionals represent to society as they go on.

So if you assume that your relative worth to an employer goes up by 10% per year until you hit 40, and thereafter you’re up by 5% a year, your real earnings graph looks like this (and for the sake of simplicity, I’m just going to assume that your spending habit stays a constant proportion of your income):

Annual Real Earnings

Annual Real Return on Your Investment

And that’s not an outrageous assumption. If you want a real earnings projection, you’d look at the people on a similar career path to your own and what they earn today, and you’d say “my best estimate is that I’ll be earning what they earn in real terms by the time I reach their age”. And if they’re earning more than R2 million a year – then you’re sounding conservative, son.

Then if you look at the cumulative real returns, you get this:

Cumulative Real Earnings on Your Investment

Cumulative Real Earnings on Your Investment

If we were to calculate a value of what your increasing-return asset is worth today, then you’re looking at a number of around R22.8 million.

That’s R22.8 million. In real terms. Assuming that your savings only earn a real return of 2%.

So if you’re feeling a bit panicked, then just relax. There’s no need to panic.

You need a paradigm shift, because you’re currently discounting the value of your largest asset down to zero.

It’s not worth zero.

Here’s a better self-image analogy:

  1. Your talents and skills are like an oil well.
  2. The oil is already a proven reserve.
  3. The only conversation we’re really having is one of extraction and distribution- as in, are you getting the good stuff out as efficiently and cost-effectively as possible; and are you selling it for the right price.
  4. But if you keep trying to prove that there are reserves, over and over again, before you do any more digging, then you’re just wasting time. And energy. And time is ticking.

Finally, the power of good habits

New proposition: because you’re a believer in good habits, you decide that you’re only going to let yourself spend 50% of the new disposable income you have arising from any increase your receive (ie. after all those increased pension fund and mortgage repayments). The rest is going to go into a new savings account, and accumulate.

Your new return graph looks like this:

Annual Real Returns When Saving 50% of increased disposable income

Annual Real Returns When Saving 50% of increased disposable income

And cumulatively:

Cumulative Real Returns of saving 50% of new disposable income

Cumulative Real Returns of saving 50% of new disposable income

So what is that worth today?

About R32.3 million.

Making that a roughly R10 million habit.

The Take-Home Messages

  1. Relax.
  2. Savings habits maketh the man (more valuable).
  3. Get good insurance: income protection, disability, health… You have to protect the vital asset. Don’t be foolish.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

 

Singapore. A Success Story. Not A Free Market One.

Filling up the sea? [Thanks this website]

Filling up the sea? [Thanks this website]

Earlier today, Lee Kuan Yew, the founding father and architect of Modern Singapore, passed away. And with his death, the blogosphere is already awash with obituaries and reflections on his policies.

I’ve mentioned Singapore before – mainly because it’s often proclaimed as a Free Market success story. Case in point: “Singapore: A Remarkable Free Market Success Story

Some quotes:

Singapore’s corporate tax rate is just 17 percent and the top tax rate for households is only 20 percent. In other words, there’s no Obama-Hollande class warfare against successful taxpayers. Lesson? Free markets create wealth; socialism creates poverty.

Also:

So why is Singapore so rich? Well, there aren’t many natural resources other than ocean access, so the only reasonable explanation is that the country has good economic policy.

Only, Singapore isn’t a free market economy.

To quote economywatch.com*
*I owe thanks to this blog post for pointing me in their direction.

The economy of Singapore is best described as a mixed economy. Although the country strongly advocates free-market policies and practices, government intervention is also evident in macroeconomic management and major factors of production such as land, labour and capital resources. This innovative and highly successful economic system – where both the market and the state have equally strong roles in the government – is dubbed as the Singapore Model.

The Singapore Model was born out of necessity. Singapore has a relatively small domestic market, and thus has to open its economy to external markets in order for the economy to thrive. However, the inherent vulnerability in depending on external markets compelled the government to enact economic policies that would safeguard the country from perturbations in the global market. Apart from these policies, the government has also actively encouraged new industries to develop in Singapore so as to respond to the needs of the global market.

The underlying influence of the government can also be felt in other various facets of the society – from education, to transportation, to housing and to the media. However, many social policies that have been implemented are often seen to be supplementary for the economy. As such, many people have labelled the country as “Singapore Inc.” – where the country appears to be run more like a corporation than a nation.

So Singapore is a very much pro free markets, except where it isn’t. The classic example: 17% of the Singapore Stock Exchange (by market cap) belongs to six of the top Government-Linked Corporations*.
*the official term for a successful parastatal.

Here is economic pluralist Ha-Joon Chang on Singapore:

If you read the standard account of Singapore’s economic success in The Economist,The Wall Street Journal, or some textbook, you only learn about Singapore’s free trade and welcoming attitude towards foreign investment. But you will never be told that all the land in Singapore is owned by the government, and 85 percent of housing is supplied by the government’s own housing corporation. 22 percent of GDP is produced by state-owned enterprises (including Singapore Airlines), when the world average in that respect is only about 9 percent.

So I challenge my students to tell me one economic theory, Neo-Classical or Marxist or whatever, that can explain Singapore’s success. There is no such theory because Singaporean reality combines extreme elements of capitalism and socialism. The point that I’m trying to make as an example is that all theories are partial. The Classical school or Marxist school focuses more on production than exchanges, in contrast to the Neo-Classical school. They make different assumptions, and they are interested in different issues. They all have their weakness and strengths. In recognition of the fact that the real world is very complex, we need to teach our students and the general public that there are different ways of understanding the economy.

It is terrible that students these days are taught there is only one flavor of ice cream, when there are 9 or 10 different ones. At least, let them taste them all, and if they conclude that neoclassical is the best, then so be it. But you have to at least tell them that there are all other kinds of theories. Otherwise, it’s like North Korea. They’re not told that there are other types of society because the information is blocked.

And the man most directly responsible for this curious dichotomy is Lee Kuan Yew. Which makes sense, I guess:

  • He was anti-communist, but he was also a socialist.
  • He put in place strong free market policies, but coupled them with even stronger government intervention.
  • He eliminated corruption, but once put in place match-making policies amongst the elite and well-educated.

It’s the kind of story I love: something that works in practice, but doesn’t work in theory.

Paradox much?

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Office Politics: Stop Doing Stuff For Free [Repost]

future protests for free stuff

There is that moment in the life of many employees when they realise that their job description has…expanded. It started as small favours, and things that just needed to be done, and emergencies. But then one day it became routine, expected, and you could be shouted at for letting it slide.

And you ask yourself “How, how, did this happen?”

The trouble, you see, is that there was a time when you were doing a favour. And favours carry the promise of a reciprocal favour. But if you don’t collect, and you continue to do the work, then you are basically doing it for free.

And free stuff makes people go crazy.

Consider Facebook

Most of us check Facebook every day. Some of us every hour. We use it to stay in touch with distant friends. We share stuff that we find interesting. We post status updates about the things that annoy us, and then feel vindicated because we just slammed someone in public.

Facebook is there for bragging. And hating. And stalking. It’s the ultimate occupation of dead time. It’s also there for romance: how many of us test the waters of interest with a friend request?

In short: Facebook has become as natural as owning a cellphone. You just do it.

So, rationally, you might think that Facebook could say to itself:

“Look at all this great service we provide! For years now, we’ve demonstrated that we add value to people’s lives. People come play in our ecosystem every day. Hell – most of them visit us every few minutes! Surely people would pay an annual subscription of 99 cents for this incredible service? It’s barely the price of an ice-cream. A single ice-cream! Once a year!”

But Facebook will never do this: because that would be corporate suicide. We would flee in droves. For 99 cents. Because how dare they.

And actually, more importantly, Whatsapp

Every year, I save many many dollars in airtime by not smsing. Would you like to check how much you’ve saved? Go into your Whatsapp settings, then look at your Whatsapp account. Have a look at the number of messages sent.

I am not a huge messaging person (I prefer phonecalls), but as of this morning, I have sent 70,081 messages on Whatsapp. Had I messaged on my Vodacom contract, assuming that all of my messages were sent to other South African mobile numbers (they were not), that’s a saving of R35,000 (R0.50 per sms).

And if you considered that at least half of my messages went to international numbers (I’m a third culture kid, after all), then that’s a saving of R78,491*!!
*International smses cost R1.74 a pop.

Perhaps I would have messaged less if it wasn’t free. But I would still have sent some messages, so I’ve definitely saved money overall.

And yet, despite the clear evidence of significant savings, I regularly get whatsapp chain messages telling me to watch out because Whatsapp wants to charge a 99 cent annual subscription. Because, again, how dare they.

And the trouble is, if Whatsapp did try and charge an annual subscription fee, users would just stop. In protest. As though they’re somehow entitled to this free service.

The Universe Giveth On One Hand…

None of us is bigger than Whatsapp or Facebook. We all face the same psychological reaction toward the craziness of “free”.

So when we offer a service without asking for payment in return (and I’m not only talking in terms of monetary value), then we place ourselves in a difficult position. And in an employment environment, once you’ve established the baseline of what you’re prepared to do for your salary each month, it’s awkward to turn around and say “Hey guys! Pay me more for what I’m doing.”

For most people, the easiest thing to do is move jobs and hope that they don’t repeat the pattern.

Unfortunately, the problem is more systemic than that. It’s the difficulty of finding the dividing line between “favour” and “expectation”, which requires a bit of forethought.

Here are two possible forethoughts:

  1. When you do a favour, make sure that you ask for a favour in return. Does this seem mean-spirited? Consider this: studies have shown that the best way to form a friendship is to get them to do you a favour. Because we think: “I only do favours for people I like, so if I did him a favour, then I must like him”. It’s called the Benjamin Franklin effect. And/or the resolution of cognitive dissonance.
  2. Have a time limit, then have a conversation. If you’re being asked to work on projects that are “outside the scope”, then it is not grasping or uncouth to request a meeting where you acknowledge the fact that your scope is now extended. As you start your second project, you need to take a moment and call a meeting. Something along the lines of “I’m so happy to be doing this, but I’m uncomfortable leaving this as a tacit agreement. Can we just clarify now what the process will be going forward? Perhaps we can agree to sit down in 3 month’s time to review the progress, and if this has become a regular part of my work here, then I’d like that to be reflected in my package and possibly my title.” What’s important is that everyone is kept aware that your work deserves compensation.

At the same time, don’t forget that there are other good reasons to go beyond the scope. It can give you promotional preference, and first dibs on popular vacation periods (like that string of public holidays in April). As long as you know why you’re working harder.

I guess my point is: jobs are just economic transactions, even if employees generally bargain from a position of less power. That’s not a problem – it’s just a factor to be managed. But if you throw your hands up and hope that you don’t have to bargain, and that your employer will be munificent and recognise your worth without you having to bargain, then you’re going to get screwed.

And once you’re screwed…

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.

Keynesian Economics versus Austrian Economics: Infographic

Whenever you cast your eye over to the macroeconomic debate, there are generally two voices:

  1. The first declares “This is the result of too much government intervention and government spending – what we need is a period of adjustment to get back to a stable norm. If we treat this problem by throwing money at it, we’re only delaying the inevitable, and exacerbating the extent of the future comeuppance. Live within your means, as freely as possible. Is that so hard?”
  2. The second: “This is the result of market forces operating irrationally and exuberantly, then despairingly, and now we’re stuck in a zero-sum game: where one man’s spending is another man’s income, and without the spending there is no income, and without the income, there is even less likelihood of spending, and so on ad depression. What we need is stimulus to pull the general sentiment back on track. No one cares how – we just need to lift the mood.”

The first is Austrian, and the second, Keynesian. I see truth in both those voices, which I guess makes me a heretic. But I found this infographic, which I think is beautifully succinct and worth reading through:

I’ve been flipping between these two voices for years now, and I think the point that I’m now approaching is this:

  1. Sometimes I get ill.
  2. There are times when I’m stressed out and run down, which makes me vulnerable to colds and the like.
  3. But there are also times when I catch a cold because I was on the subway and surrounded by sick people – and then being sick stresses me out and runs me down.
  4. In order to recover fully, I’ll need symptomatic relief from the physical cold regardless. So hot toddies, bed rest, etc.
  5. When the symptoms start to abate – I’ll only fully recover if the stress came from being sick.
  6. But if the stress caused the weakness in my immune system – then I’ll have to make some hard lifestyle choices.
  7. And it’s almost impossible to know which is which.

In some ways, I guess the economic debate between those two schools revolves around something similar: there are demand problems (colds) and credit problems (stress). For Austrians, too much credit weakens the system and inevitably causes demand problems; for Keynesians, demand problems cause a crisis of credit.

So perhaps both can be true at different times?

PS: check out these rap videos on the topic: first here and then here.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha.