Sunday, August 28, 2011

Willful Practice of Ignorance

Plato could have scarcely imaged a state of civilization in which the Court of Appeals for the Federal Circuit would coin as obtuse an argument as the ‘willful practice of ignorance’. In my Pantheon of the Ludicrous, just beyond my Foyer of Incredulity, abutting the verdant Courtyard of Folly, the notion that anyone would actively ‘practice’ ignorance is embodied with a marble deity with a considerable portion of his cerebral structure deeply embedded in his own lower digestive, alimentary and excretory tract. This idol, affectionately known as Occidentus, is bathed in modified corn starch three times a day. The effluent of this offering fattens his priests while starving his worshipers with a bizarre famine of cerebral nourishment. Note that visiting my pantheon is not for the faint hearted.

While I encountered the far flung consequences of Occidentian adherents during my recent sojourn in Papua New Guinea and Australia, I was most intrigued by the juxtaposition of these encounters.

The first encounter was the published interview of one Mr. Greg Anderson, Executive Director for the PNG Chamber of Mines and Petroleum. When confronted with statements made by newly appointed Mining Minister Byron Chan regarding the constitutional and Organic Law fact that the resources of the land and sea belong to the people of the country (this is where you should recoil in horror at such a heretical idea), he stated that such an allegation is ‘playing with fire’ as it will ‘scare off investors’. Now, I’m sure that Mr. Anderson has a literal truth defense. If, by investors, he means the operators who have robbed the country of its resources with the cunning use of shell corporations, overt financing tactics to evade sovereign commitments, and explicit dealings to remove cash-flow from the reach of their local ‘partners’, he may be telling the truth. Alternatively, he may also be stating a truth if, by investors, he means the ventriloquists who have their hands firmly placed within him and by whom, if he doesn’t yell bloody murder at such a benign recollection of the law, his cushy compensation may be ‘down-sized’. In a world where China has declared a de facto policy intonation advocating for a commodity (possibly metal) currency standard, what he doesn’t mean is bona fide financial investors seeking to participate in genuine, risk managed resource production.

His fear mongering is analogous to the driver of a getaway car who, while dozing off fails to alert the robbers that police are on the front steps of the bank as they run out with bags of money. Such a driver should be appropriately scared of: the police who might nab him; his robber buddies for whom he was supposed to keep watch; and, any future hope at being a driver for another group of thugs. There’s plenty of fear available for those who have willfully exploited ignorance but, to ascribe it to a resource endowed country is, well, the evidence of an Occidentus adherent behavior. Given that billions of dollars are being minted on the hype of companies exploiting PNG and this wealth is accumulating on the expanding impoverishment of the country, it’s time for investors to stop turning a blind eye towards this behavior and start realizing that stable cashflows and sovereign risk are best managed with ethical treatment of sovereigns and people. The intangible assets – the rights granted by the government – are the key to economic engagement and it’s time that the global markets participate with, rather than exploit, the granting interests.

Far from the specter of ‘nationalization’ (reignited in the public with recent statements by Venezuela’s Hugo Chavez), Minister Chan was merely reminding current operators that he intends to enforce the constitution and the law. And while the World Bank and IFC may exert strong-arm tactics to intimidate this affirmation of an appreciation for law and order at the bidding of their patrons, the rest of the world should be encouraged that a member of the new government is actually referring to the law as a standard.

The second encounter was in the Sydney Morning Herald in which I read about the grave concerns about the faltering Australian economy with specific focus on the manufacturing and technology sectors. Following – belatedly – in the footsteps of the U.S., Europe, Singapore, South Africa, India and China, Australia made a number of untimely economic and policy choices. The one that struck me the most in reading about the sagging manufacturing and technology sectors was the ill-conceived notion that providing domestic proprietary pseudo-protection in the form of Australian ‘innovation’ patents (an internationally unrecognized proprietary seduction to make people believe they’ve invented something when they’ve really just incrementally modified other stuff). Promoted as a way to ‘stimulate’ entrepreneurial activity and venture capital, this policy has backfired. Not only have countless technologies developed by CSIRO and Australian universities and businesses been reverse engineered and expropriated by others, but, in some instances, the recklessness around this policy’s implementation has enticed investors into the illusion of value that has neither export nor domestic market value. Peddled by well-positioned consultants who plied their empty Silicon Valley wares across Australia just as the indictments of failure were surfacing in the U.S., the charlatans failed to point out that entrepreneurial success is about customers, not investors. And, as an island, continent nation, constraining innovation to domestic relevance alone is antithetical to a global, export-denominated world. Regrettably, unlike Japan and China (and the U.S. back during the creation of Silicon Valley’s illusion), the government as a primary and premium purchaser from entrepreneurial ventures did not materialize and, without this absolute necessity, the model fell like an ill-prepared soufflĂ©.

Ironically, these events were unfolding as a macro-system reality was playing out on the global scene. In the past several weeks, Google, Apple, and Microsoft have been engaging in an unprecedented intangible asset buying spree. Rewarding bankrupt and defunct companies for thousands of patent artifacts with billions of dollars of transactions, these titans have been validating the existence and notional value of assets which are key to solving our looming second global financial crisis in banks. Every bank holds liens within their security agreements on intangible assets. Yet, to date, no bank on Earth can count the value of these assets against the collateral entered to calculate credit quality – a criteria for determining reserve capital. BIS and other regulators appear incapable of considering the possibility that accounting behavior last reformed in the post-World War II industrial era needs to be updated if there’s any hope of stabilizing a future banking system. Whether it’s resource rights in PNG or intangible innovation rights in Australia, these assets which govern all marginal cashflow from enterprise productivity are being ignored by financial institutions precisely at the moment that they’re achieving their most publicly recognized value.

Which leads me back to my mythical idol whose presence seems to be anything but mythical. Like Demetri Martin’s Paradoxataur – a creature that only exists if you don’t believe in it – current policy behavior seems to observe changing conditions and growing uncertainty and then willfully respond with solutions known not to be applicable. Word has it that Occidentus is riding across Jackson Hole on a Paradoxataur. Keep your eyes shut and persist in disbelief and in so doing, we just may have a chance of seeing some order emerge from the madness.

No comments:

Post a Comment

Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave