Dialog International

Niall Ferguson on "American Schadenfreude"

The other day Gabor Steingart in Der Spiegel was highly critical of US fiscal policy and President Obama's stimulus package for jump-starting the stalled US economy.  Steingart was echoing Germany's finance minister Peer Steinbrück, who has accused the US of recklessness.  Well, Harvard historian Niall Ferguson has a different point of view, and blasts Steinbrück in a commentary in Die Zeit (print edition only).  Ferguson is the anti-Steingart.  America, he states, will have the last laugh:

"Am besten hat Finanzminister Peer Steinbrück wohl die deutsche Haltung zusammengefasst, als er 2008 vorhersagte, die USA würden infolge der Krise' 'ihren Status als die Supermacht des globalen Finanzsystems verlieren. Doch bald werden die Amerikaner dran sein mit der Schadenfreude. Eine bedrückende Realität wird die Deutschen zwingen, ihre Verdrängungshaltung aufzugeben." (Finance minister Peer Steinbrück summed up the German position best when he predicted that the USA would lose its status as the the global superpower of the financial system because of the global economic crisis. But soon the Americans will have their Schadenfreude. The brutal reality will force the Germans to recognize the enormity of the situation.)

Ferguson was a bit more expansive in an interview with Die Welt:

Offenbar wissen die Deutschen nicht genau, wie schwer diese Krise ist. Gegenwärtig stöhnen sie über die Liste der Firmen, die Kredite vom deutschen Staat fordern. Dabei könnte sich diese Zahl innerhalb weniger Monate vervielfachen. Die Deutschen sind in einer viel schlimmeren ökonomischen Lage, als sie glauben. Sie werden viel langsamerer aus der Krise kommen als die Amerikaner. (Evidently the Germans do not understand the severity of the crisis. At the moment, they groan about the number of companies that are looking for subsidies from the German government.  But this number could very well multipy in just a few months. The Germans are in a much worse economic situation than they are willing to admit. They will come out of this crisis much more slowly than the Americans.)

 

Gabor Steingart Stinks Up the Place Again

Millions of Germans get perspective on the United States from Der Spiegel's Washington correspondent Gabor Steingart.  Problem is, Steingart's analysis is usually distorted and wrong.  During the presidential campaign, Steingart told his readers that Barack Obama's candidacy was a "fairy tale" :he had no chance of capturing the Democratic nomination.  After candidate Obama was nominated, Steingart insisted that he had no chance of beating John McCain. Meanwhile, Steingart published op/ed pieces in Rupert Murdoch's Wall Street Journal mocking Americans for wanting universal coverage for health care.  Now that the Obama administration is serious about health care reform in America, Steingart blasts Barack Obama for his serious economic mistakes. (Spiegel piece in English / German):

Just as the US public initially rallied behind the war President Bush -- even to the point of re-electing him -- Americans have now thrown their support behind the debt president Obama. The mistakes of the Bush administration are now widely accepted. The mistakes of the Obama administration are still not recognized as such. They are seen as the truth.

Make no mistake: the US is facing the worst economic crisis in half a century brought about by the era of deregulation and fiscal mismanagement of the Bush administration.  Steingart and his neo-liberal pals in Washington were champions of the unfettered free markets.  When President Bush pushed through the largest tax cut in history, leading to a massive transfer of wealth from the middle class to the wealthy, Steingart cheered, even though the end result was a gigantic budget deficit.  Now that tens of millions of Americans have lost their employment, their health insurance, their homes through foreclosure, Steingart says it is time for the US to balance the budget. 

American borrowing in 2009 comprises about half of Obama's budget. The country is living beyond its means -- and it still would have been even if it weren't for the economic crisis.

Presumably Steingart would be happier if President Obama would let the magic of the free markets get us out of our current crisis, even if it results in the dramatic increase of suffering beyond the Beltway of Washington DC, where Steingart lunches with the neocon elite.

Gabor Steingart knows nothing about Americans, and very little about America beyond Washington.  He has been proven wrong over and over again, and yet he remains the principal "America Expert" for Der Spiegel.  Why can't Spiegel replace him with someone who has a clue about the US, such as Alexander Osang?

Facebook Loses Suit Aganst StudiVZ

Facebook stumbles in its march to take over the (online) world as a court in Cologne ruled against it in the Web site's lawsuit against German knock-off StudiVZ:

"Although there are overlaps and similarities between the two sites that are impossible to overlook, no dishonest copying could be established by the judge," the court said in a statement.StudiVZ had little to gain from trying to look like Facebook when it launched in 2005 because until September 2006 Facebook was only available in English and was popular only in North America, the court said.A German-language version of Facebook was not launched until March 2008, it said, by which time StudiVZ had over 10 million subscribers, StudiVZ spokesman Dirk Hensen told AFP.The court also said that Facebook had provided insufficient proof to support its allegation that StudiVZ had illicitly taken information from it, and that in any case its programming data were freely available on the Internet.

Of course, anyone who spends any time on StudiVZ can confirm that it IS a pure clone of Facebook:

The German court's decision was not legally binding, and Facebook has the right to appeal.  It might choose to do so, since the Germany has by far the largest number of Internet users in the European market.

Surprisingly, no German knock-off (that I'm aware of) has emerged for Twitter, which is growing even faster than Facebook.  According to Heise.de, there are more than 30,000 Germans who already "zwitschern".  The recent re-election of president Horst Köhler generated a large number of Tweets. The blogger and photographer Olaf Bathke has the most Twitter Followers in Germany (3,586), followed by The German Green Party, according to Twitterholic.com.

Deutsche Bank Spied on Employees

The business daily Handelsblatt reports that the head of security for Deutsche Bank has been put on temporary leave pending an internal investigation concerning  possible snooping on bank employees:

Aufsichtsratsmitglieder, Kunden und Journalisten sollen jedoch nicht ausgespäht worden sein. Im Visier standen dagegen hochrangige Mitarbeiter des Konzerns. Darunter soll sich auch der für das Tagesgeschäft verantwortliche Vorstand Hermann-Josef Lamberti befunden haben. Möglicherweise soll auch der für die Konzernsicherheit zuständige Risiko-Vorstand Hugo Bänziger betroffen sein. (Supposedly, members of the advisory board, bank clients and journalists were not targets of the spying. On the other hand, high-level employees of the bank were being spied upon.  This allegedly included Hermann-Josef Lamberti, DB board member responsible for day-to-day business and the head of risk management Hugo Baenziger).

The question now is whether this spying operation will expand into a major scandal such as at Deutsche Telekom which engaged in Stasi-like spying into sex lives of its employees.

But profits trump ethics at Deutsche Bank, and spy scandal failed to derail the extension of CEO Josef Ackermann's contract to continue running the bank through 2013.   A jubilant Ackermann reiterated his commitment to achieve a 25% return on equity, which prompted this observation in the TAZ:

Offenbar ist von vielen Bankern noch nicht verstanden worden, was diese Finanzkrise in Wahrheit bedeutet: Ihr Geschäftsmodell ist am Ende. Oder anders gesagt: Die Banken werden stark schrumpfen müssen, wenn es nicht zu einer neuen Krise kommen soll. (Evidently many bankers haven't understood what the financial crisis really means: their business model is finished.  Or, to put it in other words, the banks will have to shrink substantially to avoid yet another crisis.)

Die exorbitanten Gewinne der Banken sind bisher entstanden, indem die Institute dramatisch "gehebelt" haben: Auf gigantische Bilanzsummen kam nur geringes Eigenkapital. Der Rest waren Schulden und Spareinlagen. Die Banken operierten, als wären sie Hedgefonds. Sie setzten möglichst viel fremdes Geld ein, um den eigenen Gewinn zu steigern. Da war es leicht, eindrucksvolle Eigenkapitalrenditen vorzuzeigen. Das war ein Geschäftsmodell für Hasardeure und dürfte keine Zukunft haben. (The exorbitant profits of the banks were achieved through excessive leverage.  There was only minimal equity capital supporting gigantic balance sheets. The rest was debt and savings accounts. The banks operated like hedge funds. They deployed as many borrowed funds as possible in order to increase profits.  So it was not hard to display impressibe returns on capital.  It was the business model for gamblers and is unsustainable.)(Note: this is the same "culture of risk" that DB employee Deepak Moorjani warned about.)

Separately, attac in Germany has criticized Deutsche Bank for profiting from the financial crisis for which it is partially responsible:

"Die Deutsche Bank hat mit ihrem Schwerpunkt auf Investmentbanking die Krise mitverursacht, dann durch Rettungspakete profitiert und verdient nun über das Geschäft mit Staatsanleihen auch noch an der Krise. Daher muss sichergestellt werden, dass die Gewinne der Gesellschaft zurückgegeben werden. (With its focus on investment banking, Deutsche Bank is in part responsible for the crisis, but then profited from the rescue packages and now is earning fees in the crises from underwriting government bonds. Everything must be done to ensure that these profits are returned....)

German VC: European Start-Ups "Lack Passion"

As a long-time observer of the venture capital scene, I've often wondered why a handful of firms on Sand Hill Road in Silicon Valley dominate globally.  Is it the investment acumen of the partners?  Or does it have to do with quality of the start-ups they back?  Paul Jozefak, managing partner of the German venture capital firm Neuhaus Partners has some interesting thoughts about this on his blog:

The Valley may be sunny and inviting but everyone is there to win. If you don't, you tend to leave quickly. Those who've stayed and continued to start new businesses or finance them have the loftiest of goals. They're probably also not about the money. Sure, they enjoy the perks of an exit but my experience is that lots of people there want to change the world. If not change it, at least try. You hear it in their pitch and you see it in their eyes. Ask me the one thing I see lacking most often when it comes to start-ups in Europe and I'll answer "hunger, drive and lofty goals." The few that have it you recognize immediately. They usually end up succeeding quickly and you chase them to invest in their companies. Those that don't have it probably never will. It's also not about being "American", which also often comes up. The Valley is made up of people from every corner of the earth. Each and every start-up I've visited there was a pot pourri of backgrounds, often Europeans.

I think Jozefak makes a good point.  Too many of the start-ups in Europe are merely imitations of American start-ups.   These "copy-cats" ramp up quickly to grab a slice of the local market.  But the exit strategy is to be taken out by the US company - more often than not backed by a "Valley" VC.  Good way to make a quick profit, but hardly a "world-changing" business model. I'd love to be proven wrong and learn about start-ups in Europe that have the "hunger,drive and lofty goals" that Jozefak mentions.

Daimler Invests in Tesla Motors

Big news this morning in Silicon Valley.  From the Wall Street Journal Venture Capital Dispatch blog:

This morning at a press conference, German automaker Daimler AG announced it invested a “double-digit million dollars sum” in Tesla for a 10% stake. Daimler will also buy more of Tesla’s lithium ion battery packs for the electric version of the Smart car slated for deliver later this year, and work with Tesla on future versions of the electric car. Tesla originally agreed with Daimler in January for an initial run of 1,000 battery packs, and CEO Elon Musk said that deal could eventually expand to include tens of thousands of cars per year. This is a huge victory for Tesla, both from a revenue and funding standpoint, since Tesla ran into financial problems late last year and has been trying to get back on track. Musk has said all along Tesla will be profitable by mid-year….

Der Spiegel also has a report: Daimler steigt bei Eletroauto-Pionier Tesla ein.

Let's hope this has a happier outcome than Daimler's last adventure in US auto manufacturing.  Evidently Daimler is serious about its pledge to be petroleum-free by 2015.

Deutsche Bank Forces NYTimes to Pull Unflattering Op/Ed Piece

Recently I wrote about how Deepak Moorjani of Deutsche Bank in Tokyo had blown the whistle on the bank's reckless culture of risk-taking.  DB management is retaliating with legal action against Deepak.  In a strange turn of events, the New York Times DealBook blog published Deepak's op'ed piece on on DB's culture of risk, but it soon mysteriously disappeared (http://dealbook.blogs.nytimes.com/2009/04/16/another-view-deutsche-banks-culture-of-risk/). I have written DealBook editor Andrew Ross Sorkin for an explanation; so far have not received any response from the newspaper.  But you can read Deepak's piece on Tyler Darden's blog Zero Hedge

Tyler has taken up Deepak's cause, and has published a long article about the controversy, complete with the pertinent documents.  Tyler notes that Deepak had cc'd German Chancellor Angela Merkel on several pieces of correspondence with Deutsche Bank:

Has Ms. Merkel taken these allegations seriously? The German bank, that by some estimates, has a leverage ratio that far surpasses even the wildest dreams of its U.S. counterparts, has been considered the epitome of European systemic risk, and the prudent course of action for not just her, but all DB executives (not to mention the gentlemen at the Federal Reserve) would be to take all the warnings presented by Mr. Moorjani and act upon them, instead of continuing to pursue allegedly retaliatory litigation.

In the meantime, Mr. Moorjani's story waits to be told. As I pointed out, the removal of his opinion letter from Dealbook without a reason leaves many unanswered questions. The questions only become louder if one considers the lack of response by other mainstream media sources to capture this story and present it in its entirety: as Mr. Moorjani points out, a dissemination of this case could simply "offend powerful interests" and as such, various media outlets would be loathe to shut out powerful and wealthy clients from the ranks of sponsors and revenue generators. Zero Hedge does not have that problem.

We certainly haven't heard the end of this scandal, and I will persist in demanding a response from the NYTImes. 

Separately, a housing court judge in Cleveland is pursuing criminal charges against Deutsche Bank and other corporate owners of foreclosed properties in the city.  The judge has written to Deutsche Bank CEO Josef Ackermann: 

Judge Pianka has begun issuing notices to corporate property owners of hearings to show why they should not be found in contempt of court. On April 13, he issued a notice of such a hearing to Josef Ackermann, CEO of Deutsche Bank, which is listed as the owner of more than 150 foreclosed homes in Cleveland. Deutsche Bank officials have not appeared in cases for housing and health code violations, some dating back two years, the city has brought against 11 bank-owned houses.

In Praise of Peter Drucker

Hegel-scholar Matthew Stewart has a funny piece in The Atlantic on management fads and gurus and the management consultant biz.  In Stewart's view, businesses would be better off studying Nietzsche and Heidegger.

But in fact the greatest "guru" of the last century had absorbed German classical philosophy.  This year is the centennial celebration of Peter Drucker, and The Drucker Institute has a run-down of the planned events.

Peter Drucker was hounded out of Germany by the Nazis and this turned out be huge benefit to American business.  Unfortunately, many of Drucker's lessons have been forgotten or ignored, which explains, in part, why we are in the worst economic recession since the Great Depression. The purpose of the business enterprise, Drucker believed, was NOT to maximize shareholder value, but to create a "plant community" in which not only a person's economic needs but his social ones could be fulfilled. A good manager was a "community builder" and not just focused on the pursuit of profits. Drucker was one the biggest critics of obscene CEO salaries, not just because of the money, but because he feared that such salaries were “the embodiment of the ethics and values of American business and management,” and undermined the legitimacy of the business system itself.  Long before Wall Street imploded from a reckless pursuit of mortgage-backed riches Drucker criticized traders as "pigs gorging themselves at the trough". With amazing prescience, Drucker predicted that the breakdown in the social contract between business leaders and community would result in the center of financial power shifting from Wall Street to Washington DC.

Peter Drucker never abandoned his understanding of the corporation as fundamentally a social institution:

Since the big-business corporation has become America's representative social institution it must realize the basic beliefs of American society - at least enough to satisfy minimal requirements.  It must give status and function to the individual, and it must give him the justice of equal opportunities.  This does not mean that the economic purpose of the corporation, efficient production, is to be subordinated to the social function, or that the fulfillment of society's basic belief is to be subordinated to the profit and survival interest of the individual business. The corporation can only function as the representative social institution of our society if it can fulfill its social functions in a manner which strengthens it as an efficient producer, and vice versa.  But as the representative social institution of our society the corporation in addition to being an economic tool is a political and social body; its social function as a community is as important as its economic function as an efficient producer. (Peter Drucker, Concept of the Corporation 1946)

Unemployed in Germany and America

Very good piece in the Wall Street Journal on how the current economic crisis is impacting the unemployed in Germany and the US very differently. Now the rate of unemployment in both Germany and the US is roughly the same - 8.5% - but the lack of a meaningful safety net in the US means that the misery index here is much higher. The article also illustrates why the dire warnings of "social unrest" in Germany are off base.

Life is very different for Dylan DeRoberts, an unemployed auto worker in Rockford, Illinois than it is for Alfred Butt, who lost his factory job in Hohenlockenstedt:

In Germany, losing his factory job didn't stop Alfred Butt from taking a Mediterranean vacation this winter. Thanks to generous jobless benefits, being out of work "hasn't changed my life that much," Mr. Butt says.

In the U.S., Dylan DeRoberts lost similar work -- but there's no seaside getaway for him. Instead, he's giving up life's little pleasures, like riding his snowmobile, because he lost his insurance, too. "I've learned to live at a new level," Mr. DeRoberts says.

The article highlights the biggest difference between the quality of life in both countries.  In the US, the economic recession is creating a full-scale crisis in health care, as millions of workers, like Mr. DeRoberts, have lost their health insurance. 

For Mr. Butt, losing his job as a raw-materials buyer for a German auto-parts maker was a serious blow. But state benefits will replace the bulk of his salary until May 2010. And he still has full medical insurance under Germany's universal system.

Mr. DeRoberts, who lost his job at a Chrysler assembly plant in Belvidere, Ill., near Rockford, last year, saw his medical benefits expire several months later. He says he can't afford to pay the premiums on his own.

"It's scary being without insurance," Mr. DeRoberts says, but adds: "What do I give up? Food?"

For months, leaders of the Republican Party have been trying to scare the public by warning that the United States is heading towards European-style "socialism".  But millions of Americans like Dylan DeRoberts ,trying desperately to keep their families fed and healthy, are asking:"Where do I sign up?"

Facebook Sues StudiVZ ...Again

I may be one of the last human being not to have a Facebook account, but I'm sure that doesn't concern Mark Zuckerberg.  Facebook now has over 200 million users and is taking Europe by storm. In fact, Facebook is the leading social networking site in every country in Europe - except Germany. The German knock-off StudiVZ, now owned by Holtzbrinck, has more than double the uses of German Facebook.  That doesn't sit well with the US juggernaut, which at one time tried to by StudiVZ.  Now Facebook is taking action, this time in a German court:

According to Facebook, which filed for an injunction with the Cologne regional court, StudiVZ violated copyright laws by mimicking its logo, features and service. The company also claimed that StudiVZ secretly used Facebook code in order to copy the site.

A spokesperson for the German website, which launched about one year after Facebook in 2005, told the paper that the case was groundless. But the two sites do indeed look and function very similarly – with a few minor style differences. Facebook, which has some 2 million users within Germany, features blue as its main colour, meanwhile StudiVZ, with 5.5 million users in German-speaking countries, uses red.

The Web site of Der Spiegel has a pretty thorough report on the legal complaint.  Of course, the whole thing is rather ironic, since Zuckerberg himself built Facebook with code stolen from his Harvard classmates.  I am not a user of either Facebook or StudiVZ, but on the "face" of it, there is little that is innovative about Facebook, and not much that distinguishes its UI from other social networking sites like MySpace.  StudiVZ simply took a fairly straightforward idea and adapted it to the German market, as was recently pointed out on USLAW.com:

We personally know people who use StudiVZ and the reason they chose StudiVZ was because the site was designed suitably to their tastes and wishes in German. Just compare the registration pages of the The Facebook.de website and the studiVZ.de website and you will already see the strong difference in style, with the studiVZ interface much more European in format. Indeed, the German registration page for Facebook is a strict translation of the American version, with no cultural adjustments. Facebook thus has simply been unable to match German tastes, although no one doubts that all the many social networking sites are by nature similar.

Indeed, the co-founder of StudiVZ, Ehssan Dariani, freely admits that he took some of the basic ideas of Facebook and simply improved them.  That's how product innovation is done:

Wir haben amerikanische Plattformen analysiert, die besten Ideen miteinander kombiniert und an die europäische Campuskultur angepasst. Kreativität und Originalität gehören zu den wichtigsten Werten des StudiVZ. Deshalb verzichtet StudiVZ - anders als die meisten anderen Internet-Seiten - auf Anglizismen, und es wurden bestehende Dinge weiterentwickelt. (We analyzed the American platforms, put together the best ideas and adapted them to the European campus culture. Creativity and originality are the core values of StuiVZ. Therefore StudiVZ - in contrast to most of the other Internet sites - has discarded anglicisms, and existing aspects were developed further.)