The picture above is of me and three friends and a guide at the top of Kilimanjaro about ten days ago.
36 hours after this photo was taken we were in a sports bar in Arusha, the nearby city. Kilimanjaro and Arusha are in Tanzania, one of the poorest countries on the planet. After our 8 day trek we were desperate for a few beers. Standing there in a decrepit bar that hadn’t seen a lick of paint in 40 years in a mud street way off the beaten track, underneath a house of ill repute, next to a butcher’s shop where every order came with ten free flies, we were far away from ‘our normal’.
Being the only mzungus (while guys) the bar had seen for years, we were ill at ease, at least at first. The first game on the tv was between 2 local professional football teams, Yaf v Azam, it seemed to them to be an important game, the bar was buzzing. Then the Watford v Arsenal and Everton v Man United games came on. A few more beers later, the international language of sport broke through the language barrier leading to some great interaction with the locals, and their English was a hell of a lot better than our Swahili (in fact English is the Tanzanian second language). The boundaries disappeared – there really isn’t that much of a difference between us mzungus and the local Chagga tribe after all. Not that that should have surprised us, a week being supported by such hard working, ever smiling Chagga porters and guides should have told us that would be the case. Normally on our trips we enjoy the challenge of self guiding and we go light, carrying our own kit – but to go up Kili you are obliged to use local labour – to maximise the money put into the local economy – and we are glad we did, the 4 of us provided work for 22 people for a week. And we were now doing our level best to keep the local brewery and bar solvent!
You may recall from my last newsletter that I’ve been dipping into and out of a book by Nicholas Taleb called the Black Swan – he talks about the massive impact, beneficial or not, of the highly improbable unforeseen event. There we were in a bar where our presence was highly improbable getting on great with the regulars. It certainly had a major effect on our and we hope the locals’ minds. Outside of ‘our normal’ was good, it was expansive.
In his book Taleb also talks about the ‘Matthew Effect’ – about how those with a slightly higher skillset than the norm (for example footballers slightly better than Sunday league status), better resources or education enjoy ‘consistent cumulative advantages’ – they experience massively higher income. The reason he cites for this is our living in a ‘winner takes all’ society. Taleb claims this applies equally to countries, companies and individuals, for example those starting off with strong infrastructure, a good education, a good level of level of resources/cash do far better than those less lucky. Taleb makes the point that the richer seem to get richer, the big get bigger, the poorer stay poor, the small tend to stay small, and the difference between the extremes gets bigger over time, largely because the bigger, stronger attract more opportunities and are better able to capitalise on them. And people will pay more to the bigger/stronger/more successful.
That is what we were seeing right before our own eyes, every day, in Tanzania… you see the people took education very seriously – and English was a high priority – and they were trying to improve their infrastructure, for example by upgrading the local A road – yet 99% of the people we saw remained incredibly poor. This is possibly best demonstrated by the daily rate for a porter – and by golly they work incredibly hard – the daily rate is just 5 US Dollars. Another example is the various bars we went into, where we spent just $1 a pint (a decent pint at that) with the owner treating us like kings for having bought a round each and throwing in a few dollars in tips! The problem for most businesses was a combination of low prices and the low frequency of transactions because they started off ‘poor’ because of the Matthew effect.
And yet when we looked at them, the people in Tanzania weren’t really that much different from here in the UK. They just happen to be poorer than we were by an accident of birth.
It was surreal standing there watching professional footballers paid hundreds of thousands of pounds a week, when the locals barely make $50 a week. Yet they didn’t complain nor draw any adverse comparisons.
This got me thinking about this winner taking all thing. It applies in all sports, it also applied in real life there, and it applies here at home. Here, right now I’m seeing some big companies benefit massively from the Matthew effect… they have more resources, they seem to be better able to control their destiny, they negotiate from a position of strength, they leverage the goodwill of others, … and even where they make bad decisions – and they do – they just seem to be better able to get away with them. They seem to make a lot of money very easily. Meanwhile, smaller UK businesses, like our porters, eke out a living even if they provide an exemplary service and work incredibly long hours.
But it’s worthwhile remembering that nothing is forever, ‘everything will pass’. Look at any stock market in any capitalist country and track its members over say a thirty year period… you’ll find that only one fifth of those companies in the market at the beginning are still there at the end, the four fifths will either have reduced in size and thus dropped out or gone bust, to be replaced by new and upcoming businesses. The same applies with countries, cities and regions – what makes you think the UK, Birmingham or the Black Country are immune from the catastrophic falls from grace suffered by any of the historical giants to have fallen from grace such as the Egyptian Empire, Rome etc? It’s foolish to think that we’re somehow cleverer than our forefathers, that somehow we’re ‘special’ or immune and such a decline will never happen to us.
There’s a phrase that’s oft quoted in trading circles – ‘the trend is your friend…. until the end’- and that’s the point, you are only safe to assume the trend will continue until it’s no longer safe to do so… you just don’t know when that may be. It probably won’t be today, it might not be tomorrow, but you can be sure that the trend will break at some time. And from what I suggested in my last writing, that event is unpredictable as to timing or impact. Let me ask you readers in the Black Country a question – did you see Caparo’s administration coming? The firm seemed to be part of the local fixtures and fittings, with an experienced management team. I didn’t see it coming. In fact after its failure I looked up its credit rating using the expensive business information system I subscribe to and they didn’t see it coming! I guess like the credit rating agencies vis a vis the banks in 2008.
In my game I see a lot of people who have gone through either personal bankruptcy or company failure. Taleb argues in his book that good fortune follows those who started off in a privileged position, and bad fortune follows those who don’t start off in a privileged position or for whatever reason experience significant misfortune – it’s almost as if good luck breeds more good luck, bad breeds bad. I often see people who are hit hard by three things at the same time, but to me, it’s not as simple as Taleb suggests, people often do bounce back from misfortune, some very well indeed. What I find is regaining that successful streak after any formal insolvency depends on a combination of variable factors including support from family, friends, and others; health; the availability of resources; the willingness of others to offer up opportunities at times of need; and getting your head right. Taleb says that most people tend to overestimate the impact on them of bad things happening like bankruptcy or business failure – perhaps people at a low ebb struggle to anticipate help being offered – and I find that women tend to be more adaptable than women. Where I do think Taleb could be right is people are happier where they experience a consistently good level in their income, rather than large swings with large profits one year offset by slightly smaller losses the next year. Perhaps the people of Tanzania are happy with what little they have because at least there’s some degree of consistency?
Here are a few questions for you:
How much of your own personal success do you attribute to the Matthew Principle? Who do you thank for that? Do you thank them enough?
How much of your success you do attribute to luck and how much to hard work? (Taleb argues there’s far more luck in business and life in general than people give credit for)
Now ask yourself the same questions about the people around you. What does that do to your views about them?
Could you do anything to make your income more consistent, year on year, even if it isn’t spectacular and doing so means dropping some other more exciting opportunities, clients or customers? Is it worth considering?
Are you treating a local supplier unfairly – say by screwing them to the floor in terms of price? Remembering that nothing is forever, how’s that going to help you long term when they fail or walk way from supplying you? (I’ve heard numerous stories straight from the horse’s mouth of the worm turning!). Is it time for a change of heart?
If you work for a large business, can you better use your buying power to do more for the local economy, either in terms of allowing sustainable price increases or increasing the frequency of local purchasing? Are you using a large firm outside of the area simply because you find it comfortable sticking to the beaten track? Would giving a small local business an opportunity to show what they can do stretch your mind?
Who do you know would appreciate a leg up because they’ve suffered some misfortune? What’s stopping you from helping them out? How would you feel if you gave them that leg up? How would they repay that support?
Who’s next to fail as a result of the factors that led to Caparo’s demise?
By the way, I’m asking people to donate to Katherine House Hospice in Stafford for the Kili climb – it was tough – if you would like to donate, here’s my Justgiving page – Here
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