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Paper money
Focus on Books
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85 not be ineffective at those variables which are crucial for the organization at that point in time. The authors discuss the case of Ed Carlson and United Airlines; Carlson's style is most easily described as the "Theory Y " type. Pascale and Athos list severn crucial characteristics: a people orientation, highly visible management, decentralization of decision making through profit centers and matrix structures, "touching base" to sell higher-level decisions before announcement, participative planning and effective control systems to monitor the decentralized operations, support for senior executives, and team huddles. Unfortunately, lacking long-term socialization of organization members into this people-oriented structure and lacking a successor with similar style, the system disintegrated when Carlson stepped down. Superordinate goals, the authors say, should not violate "higherorder human values"; they should be consistent with the other S's, especially style, staffing, and systems; they must be respected by management, even at the risk of sacrificing short-term profit, to give them credibility. They may concern the company as an entity (e.g., its cohesiveness), its external markets (e.g., service), its internal operations (e.g., efficiency), its employees (e.g., management development program), its relation to society and the state or its relation to the larger culture (e.g., moral principles). The authors' concern is not so much that firms have such
goals (often termed a "mission"), since most do even if they are not explicit, but rather that the goals are somehow "right," in the sense that they contribute to the firm's long-term effectiveness and integration with its society. As such, "short-term profit at all costs" does not seem an acceptable goal, if one agrees with the authors' premises about what makes firms successful. What Pascale and Athos say in
The Art of Japanese Management
methods may prove soleiy an exercise in frustration. Pascale and Athos imply that this is not the case: that is, they seem to believe that Japanese practices can be implemented in American firms; indeed, they provide many examples of firms where this has been accomplished. But the reader retains a more lasting memory of their detailed descriptions of cultural differences between the two countries. These prove so enormous that the reader must feel disheartened about successfully implementing Japanese managerial practices in U.S. firms. In all fairness to Pascale and Athos, recent books and articles on the Japanese difference vary widely on this point. At least for the present, the best advice to managers seems to be: Borrow from the Japanese those methods which you think can be integrated with American culture-and ignore the rest. [:2] Simon & Schuster, 1981.
does not differ greatly from management prescriptions offered by various writers over the last thirty years, beginning with Theory Y. Their model is somewhat snappier, and they stress the unique and important point that simply being effective at each of the seven S's is not sufficient, if they are not integrated with one another in a coherent way. They also do a good job of describing Japanese culture and its influence on managerial practice. The book is well worth reading for anyone wondering why ISBN: 0-671-22539-1. $11.95. the Japanese seem to be so successful currently. What the authors do not address explicitly is whether differential rates of success are due to dif- Paper Money ferences in the seven S's or to the cultural differences which support them. This is the most crucial ques- by Adam Smith tion for any American manager concerned with implementing Jap- The reviewer, Robert C. Klemanese practices in his or her firm. If koshy, is a professor of finance at these techniques cannot be success- the Indiana University School of fully implemented in American Business. firms, due to the enormous cultural differences between Japan and the Adam Smith is the pseudonym U.S., then reading about these
86 of George J.W. Goodman, author of two previous number-one best sellers, The Money Game and Supermoney. In Paper Money, he helps us understand why we sometimes get that "skidding feeling, that feeling y o u get in the supermarket when the clerk gives y o u c h a n g e very little change." In a far-reaching b o o k that connects everthing-from the consistent errors of economic forecasts, to the crazed housing market in Beverly Hills, to currency speculation, to OPEC and the energy crisis-Smith illuminates the world's economic troubles and untangles the mystery of our present inflationary pressures on money. He believes we are not facing runof-the-mill inflation, b u t an extraordinary situation. We have new factors to deal with which are not part of the old Keynesian m o d e l s Eurodollars b e y o n d the control of the Federal Reserve, a liquid fuels energy crisis unforeseen in the 1960s, and the most phenomenal transfer of wealth that has ever taken place in history. Smith reveals his feelings towards economists b y telling an old joke. Three men are stranded on a desert island. All they have to eat is one large can of tuna, b u t the can is unopened and they have no opener. The first man, a physicist, suggests making a fire hot enough to melt the can. The second man, an engineer, thinks up a complicated slingshot that will hurl the can against a rock with enough force to puncture it. The third man, an economist, has the answer. He says, "Assume a can opener." Smith uses
this story to illustrate his point that economists are most often wrong because they assume people are like numbers and behave in a rational and predictable manner. The economists' explanation for their erroneous forecasts are always exogenous variables, or those factors outside their system or m o d e l - a n ayatollah, a crop failure in Russia, the missing anchovies off the coast of Peru, war in the Mid-East. " L i f e , " says Smith, "is exogenous variables."
" S m i t h o f f e r s no sure-fire answers for our f i n a n c i a l probl e m s , o n l y a very l u c i d e x p l a n a t i o n o f the e v e n t s that h a v e b r o u g h t us to our p r e s e n t state. H e l e a v e n s his tale w i t h historical a n e c d o t e s a n d c o m b i n e s t h e s e w i t h s h a r p a n a l y s i s to offer a most entertaining and e n l i g h t e n i n g book, o n e that I would highly recommend." To create the proper atmosphere for thinking about inflation, Smith devotes two chapters to the topic of hyperinflation, one fictitious and one real life. He makes up an apocalyptic scenario about a Japanese student writing home to his professor from New York City in 1987. He talks about the unreliable phone service, the long lines of people wanting to exchange their shabby dollars for External Dollars or Petrofrancs, a $27,000 cab ride from the airport
to the hotel, the Arabs on the plane being greeted b y their American business servants, the bandit members of the Revolutionary Party, the hundreds of beggars, constant gunfire, the packed government-owned trains, and so on. Smith follows this apocalyptic fiction with real-world stories of postWWI Germany and the wheelbarrows full of money needed for ordinary purchases. These two chapters do alert the reader to the perils of hyperinflation. Smith has a chapter on housing, the American answer for an inflation hedge in the 1970s. Housing offers a way to borrow now and pay later with cheaper dollars, and the mortgage provides a form of leverage to the home owner. In addition, the government subsidizes home ownership: interest on the mortgage and property taxes are deductible, any appreciation on the home can be deferred if sold or taxed at the more favorable capital gains tax rate, and the government has set up a system of borrowing for housing that doesn't exist elsewhere. As a consequence, Americans increased their mortgage debt b y over $400 billion in the 1970s. However, Smith believes the free ride in housing may be over. Higher interest rates and new variable rate mortgages doom the speculation in housing. The development of the Eurodollar market is also covered in the book. A Eurodollar is any dollar deposited outside the U.S. domestic banking system. After WWII, the dollar was the key cur-
Focus on Books
PAPER .ll)j01 87 rency in the world for financing international trade. Thus, millions of dollars were being used to settle international trade transactions. Ironically, the Eurodollar market was started b y the Russians. After the Hungarian Revolt in 1956, a Russian bureaucrat moved his country's dollar balances to the Russian-owned bank in London in case the U.S. tried to freeze those dollars in New York. A year later some of these dollars were loaned out and repaid, all outside the U.S. banking system. The size of this market is difficult to measure, but most estimates place it between $800 billion and $1 trillion. Needless to say, this vast market is outside the control of the Federal Reserve and will have an impact on the American and world economics in the 1980s. The main theme of Smith's b o o k concerns the history and development of OPEC, the Organizational of Petroleum Exporting Countries. OPEC wasn't formed in the Middle East, nor b y Arabs. The idea originated with a scholarly Venezuelan lawyer named J u a n Pablo Perez Alfonso. Ironically, it was modeled after an American institution, the Texas Railroad Commission, which was founded in
the 1930s to regulate the production of oil and to protect the independent oil producers in Texas. If the price of oil started to sag, the Commission would reduce the number of days per month that oil could be produced. In 1960, Alfonso, working with a Saudi oil technocrat, persuaded the oil-producting Arab states to do the same thing on a larger scale, and OPEC was born. The impact of OPEC was minimal in the 1960s as the price of oil from the Arab producing states actually declined. In May 1970, a French bulldozer on a job in Syria accidentally broke the TransArabian Pipeline running to the Mediterranean. The Syrians refused to repair the pipeline until it got higher transmission fees. With a temporary shortage, the new regime of Colonal Qaddafi of Libya confronted the oil companies with a demand for an extra 40 cents per barrel. The oil companies relented and OPEC for the first time dictated terms and flexed its muscles. We are all aware of the first major oil crisis in the fall of 1973 and the second crisis in 1979. The first crisis took oil from $2.69 to $11.65 per barrel. The second crisis, following the arrival of the
Ayatollah Khomeini, pushed prices up to $28 a barrel. The repercussions have been too evident: gas lines, higher energy costs, conservation, and the fueling of inflation. Smith points out that the real impact has been an enormous transfer of wealth to the OPEC countries, approximately $100 billion per y e a r - e n o u g h to b u y all the c o m m o n stocks listed on the New York Stock Exchange over ten to twelve years at today's stock prices. Smith rightly points out that what we have is not an energy crisis, but a liquid fuels crisis and the possibility of a catastrophic financial crisis. What about the future? If a third oil crisis can be avoided, Adam Smith is cautiously optimistic and makes a good case for the stock market as a place to invest in the 1980s. What else, he asks, still sells for its 1967 price. Smith offers no sure-fire answers for our financial problems, only a very lucid explanation of the events that have brought us to our present state. He leavens his tale with historical anecdote and combines these with sharp analysis to offer a most entertaining and enlightening book, one that I would highly recommend. [23 Simon & Schuster, 1981. ISBN: 0-671-44825-0. $13.95.
[H]]RTM JtPI E ]
ILIL I(,I: 11[11
i|11 Illl;ll I I ~ l . l | PPd II.I I~ IIHI~I 5. IIHl),~
85 not be ineffective at those variables which are crucial for the organization at that point in time. The authors discuss the case of Ed Carlson and United Airlines; Carlson's style is most easily described as the "Theory Y " type. Pascale and Athos list severn crucial characteristics: a people orientation, highly visible management, decentralization of decision making through profit centers and matrix structures, "touching base" to sell higher-level decisions before announcement, participative planning and effective control systems to monitor the decentralized operations, support for senior executives, and team huddles. Unfortunately, lacking long-term socialization of organization members into this people-oriented structure and lacking a successor with similar style, the system disintegrated when Carlson stepped down. Superordinate goals, the authors say, should not violate "higherorder human values"; they should be consistent with the other S's, especially style, staffing, and systems; they must be respected by management, even at the risk of sacrificing short-term profit, to give them credibility. They may concern the company as an entity (e.g., its cohesiveness), its external markets (e.g., service), its internal operations (e.g., efficiency), its employees (e.g., management development program), its relation to society and the state or its relation to the larger culture (e.g., moral principles). The authors' concern is not so much that firms have such
goals (often termed a "mission"), since most do even if they are not explicit, but rather that the goals are somehow "right," in the sense that they contribute to the firm's long-term effectiveness and integration with its society. As such, "short-term profit at all costs" does not seem an acceptable goal, if one agrees with the authors' premises about what makes firms successful. What Pascale and Athos say in
The Art of Japanese Management
methods may prove soleiy an exercise in frustration. Pascale and Athos imply that this is not the case: that is, they seem to believe that Japanese practices can be implemented in American firms; indeed, they provide many examples of firms where this has been accomplished. But the reader retains a more lasting memory of their detailed descriptions of cultural differences between the two countries. These prove so enormous that the reader must feel disheartened about successfully implementing Japanese managerial practices in U.S. firms. In all fairness to Pascale and Athos, recent books and articles on the Japanese difference vary widely on this point. At least for the present, the best advice to managers seems to be: Borrow from the Japanese those methods which you think can be integrated with American culture-and ignore the rest. [:2] Simon & Schuster, 1981.
does not differ greatly from management prescriptions offered by various writers over the last thirty years, beginning with Theory Y. Their model is somewhat snappier, and they stress the unique and important point that simply being effective at each of the seven S's is not sufficient, if they are not integrated with one another in a coherent way. They also do a good job of describing Japanese culture and its influence on managerial practice. The book is well worth reading for anyone wondering why ISBN: 0-671-22539-1. $11.95. the Japanese seem to be so successful currently. What the authors do not address explicitly is whether differential rates of success are due to dif- Paper Money ferences in the seven S's or to the cultural differences which support them. This is the most crucial ques- by Adam Smith tion for any American manager concerned with implementing Jap- The reviewer, Robert C. Klemanese practices in his or her firm. If koshy, is a professor of finance at these techniques cannot be success- the Indiana University School of fully implemented in American Business. firms, due to the enormous cultural differences between Japan and the Adam Smith is the pseudonym U.S., then reading about these
86 of George J.W. Goodman, author of two previous number-one best sellers, The Money Game and Supermoney. In Paper Money, he helps us understand why we sometimes get that "skidding feeling, that feeling y o u get in the supermarket when the clerk gives y o u c h a n g e very little change." In a far-reaching b o o k that connects everthing-from the consistent errors of economic forecasts, to the crazed housing market in Beverly Hills, to currency speculation, to OPEC and the energy crisis-Smith illuminates the world's economic troubles and untangles the mystery of our present inflationary pressures on money. He believes we are not facing runof-the-mill inflation, b u t an extraordinary situation. We have new factors to deal with which are not part of the old Keynesian m o d e l s Eurodollars b e y o n d the control of the Federal Reserve, a liquid fuels energy crisis unforeseen in the 1960s, and the most phenomenal transfer of wealth that has ever taken place in history. Smith reveals his feelings towards economists b y telling an old joke. Three men are stranded on a desert island. All they have to eat is one large can of tuna, b u t the can is unopened and they have no opener. The first man, a physicist, suggests making a fire hot enough to melt the can. The second man, an engineer, thinks up a complicated slingshot that will hurl the can against a rock with enough force to puncture it. The third man, an economist, has the answer. He says, "Assume a can opener." Smith uses
this story to illustrate his point that economists are most often wrong because they assume people are like numbers and behave in a rational and predictable manner. The economists' explanation for their erroneous forecasts are always exogenous variables, or those factors outside their system or m o d e l - a n ayatollah, a crop failure in Russia, the missing anchovies off the coast of Peru, war in the Mid-East. " L i f e , " says Smith, "is exogenous variables."
" S m i t h o f f e r s no sure-fire answers for our f i n a n c i a l probl e m s , o n l y a very l u c i d e x p l a n a t i o n o f the e v e n t s that h a v e b r o u g h t us to our p r e s e n t state. H e l e a v e n s his tale w i t h historical a n e c d o t e s a n d c o m b i n e s t h e s e w i t h s h a r p a n a l y s i s to offer a most entertaining and e n l i g h t e n i n g book, o n e that I would highly recommend." To create the proper atmosphere for thinking about inflation, Smith devotes two chapters to the topic of hyperinflation, one fictitious and one real life. He makes up an apocalyptic scenario about a Japanese student writing home to his professor from New York City in 1987. He talks about the unreliable phone service, the long lines of people wanting to exchange their shabby dollars for External Dollars or Petrofrancs, a $27,000 cab ride from the airport
to the hotel, the Arabs on the plane being greeted b y their American business servants, the bandit members of the Revolutionary Party, the hundreds of beggars, constant gunfire, the packed government-owned trains, and so on. Smith follows this apocalyptic fiction with real-world stories of postWWI Germany and the wheelbarrows full of money needed for ordinary purchases. These two chapters do alert the reader to the perils of hyperinflation. Smith has a chapter on housing, the American answer for an inflation hedge in the 1970s. Housing offers a way to borrow now and pay later with cheaper dollars, and the mortgage provides a form of leverage to the home owner. In addition, the government subsidizes home ownership: interest on the mortgage and property taxes are deductible, any appreciation on the home can be deferred if sold or taxed at the more favorable capital gains tax rate, and the government has set up a system of borrowing for housing that doesn't exist elsewhere. As a consequence, Americans increased their mortgage debt b y over $400 billion in the 1970s. However, Smith believes the free ride in housing may be over. Higher interest rates and new variable rate mortgages doom the speculation in housing. The development of the Eurodollar market is also covered in the book. A Eurodollar is any dollar deposited outside the U.S. domestic banking system. After WWII, the dollar was the key cur-
Focus on Books
PAPER .ll)j01 87 rency in the world for financing international trade. Thus, millions of dollars were being used to settle international trade transactions. Ironically, the Eurodollar market was started b y the Russians. After the Hungarian Revolt in 1956, a Russian bureaucrat moved his country's dollar balances to the Russian-owned bank in London in case the U.S. tried to freeze those dollars in New York. A year later some of these dollars were loaned out and repaid, all outside the U.S. banking system. The size of this market is difficult to measure, but most estimates place it between $800 billion and $1 trillion. Needless to say, this vast market is outside the control of the Federal Reserve and will have an impact on the American and world economics in the 1980s. The main theme of Smith's b o o k concerns the history and development of OPEC, the Organizational of Petroleum Exporting Countries. OPEC wasn't formed in the Middle East, nor b y Arabs. The idea originated with a scholarly Venezuelan lawyer named J u a n Pablo Perez Alfonso. Ironically, it was modeled after an American institution, the Texas Railroad Commission, which was founded in
the 1930s to regulate the production of oil and to protect the independent oil producers in Texas. If the price of oil started to sag, the Commission would reduce the number of days per month that oil could be produced. In 1960, Alfonso, working with a Saudi oil technocrat, persuaded the oil-producting Arab states to do the same thing on a larger scale, and OPEC was born. The impact of OPEC was minimal in the 1960s as the price of oil from the Arab producing states actually declined. In May 1970, a French bulldozer on a job in Syria accidentally broke the TransArabian Pipeline running to the Mediterranean. The Syrians refused to repair the pipeline until it got higher transmission fees. With a temporary shortage, the new regime of Colonal Qaddafi of Libya confronted the oil companies with a demand for an extra 40 cents per barrel. The oil companies relented and OPEC for the first time dictated terms and flexed its muscles. We are all aware of the first major oil crisis in the fall of 1973 and the second crisis in 1979. The first crisis took oil from $2.69 to $11.65 per barrel. The second crisis, following the arrival of the
Ayatollah Khomeini, pushed prices up to $28 a barrel. The repercussions have been too evident: gas lines, higher energy costs, conservation, and the fueling of inflation. Smith points out that the real impact has been an enormous transfer of wealth to the OPEC countries, approximately $100 billion per y e a r - e n o u g h to b u y all the c o m m o n stocks listed on the New York Stock Exchange over ten to twelve years at today's stock prices. Smith rightly points out that what we have is not an energy crisis, but a liquid fuels crisis and the possibility of a catastrophic financial crisis. What about the future? If a third oil crisis can be avoided, Adam Smith is cautiously optimistic and makes a good case for the stock market as a place to invest in the 1980s. What else, he asks, still sells for its 1967 price. Smith offers no sure-fire answers for our financial problems, only a very lucid explanation of the events that have brought us to our present state. He leavens his tale with historical anecdote and combines these with sharp analysis to offer a most entertaining and enlightening book, one that I would highly recommend. [23 Simon & Schuster, 1981. ISBN: 0-671-44825-0. $13.95.