5.- DO BANKS MAKE 'GIFTS'?

(Escrito en English)

The subject of this post has to do with the measures taken by banks in recent years aimed at fund-raising from savers with bank deposits which are remunerated with 'gifts'.

Each year, and in some cases on a regular basis, banks launch campaigns designed specifically to attract new customers. The system is very simple: the customer deposits money in the bank in exchange for a 'gift'. You have a lot of different 'gifts'. Do you want a TV?. A tablet?. A  robot vacuum cleaner?. A car?. Do not worry. Make a deposit into a bank and you will get a 'gift'.

I worked in banks some years ago and I drew two conclusions: banks rarely lose (although there are some exceptions); and banks never give anything. So, be careful because these could be expensive 'gifts'.

Let's do an analysis. When we open a term deposit we are committed to provide the bank an amount of money and we should receive some interest in return. This was what usually happened. But, what is happening today?. What banks  do is pay the interests as payment in kind, i.e., banks do not get you the money in cash, but in ‘products’, and this payment in kind must be included in your tax return. But, it was a gift, wasn’t it?. Let’s go a step further. As it is considered that the bank is giving you a good, you must pay VAT on goods received (a percentage of the market value). And, what is more, there are strong penalties to deter customers who want to withdraw money before the agreed period. In view of the above, it always appears some problems because banks often do not explain clearly to their customers all the conditions of these kinds of term deposits. And I am not saying that these deposits are never profitable for the customers. What I am trying to explain is that the ‘gift’ has cost and it will only generate a profit when the value of the final retribution received is higher than if we open a ‘traditional deposit’, or when we are interested in the product and the price of the product at the end of the transaction is less than the market value of that product if we bought it in a store. All this, considering that you must wait a specified period until you can have access to that money in the bank unless we want to pay a penalty.

On the other hand, don’t you think that banks forget ‘quality management systems’ or ‘customer loyalty’ when they offer these kinds of deposits?. I mean, what if a customer who has had his money in a bank  account for years felt that new customers are treated better than old customers?. My experience tells me that regular customers may feel angry, especially if banks advertise something like ‘make a deposit of 3,000 euros in the ‘Bank X’ and get this fantastic free gift’. Regular customers often feel slighted.

To sum up, I would say that, from now on, if you open this kind of deposit you should calculate the return on your investment. And, be careful, don’t think that banks are NGOs because I think that the only gifts they make are gifts that have been made to mitigate the anger of a dissatisfied customer.

4.- DOES SPAIN KNOW HOW TO SELL?

(Escrito en English)

This post is related to macroeconomics. I guess we have all heard about GDP (Gross Domestic Product). It is the main indicator to quantify the economic activity of a country. It is defined as “the market value of all officially recognized final goods and services produced within a country in a given period of time (usually a year)”. Well, although there are several methods to calculate the GDP of a country, one of them tells us that it can be calculated as follows:

PIB = C + I + G + (X – M)

'C' is private consumption, i.e., the amount of goods and services purchased by households in that time period.

'I' represents investment. Or, in other words, they are the goods purchased by businesses to incorporate them into their production processes.

'G' is public spending. It is the amount of public money spent on consumption or investment in goods and services in that time period.

'(X – M)' is the difference between what a country exports (what it sells to other countries ) and what a country imports(what it has to buy from other countries). Exports are 'X' and imports are 'M'.

That said, let's get down to business. Our starting point is that, nowadays,  Spain has a serious problem. GDP growth rates in Japan for the last five years have been close to '0' and even negative and this has caused many problems (need to increase its public debt and high unemployment rates). Let's do a brief analysis of the situation and we will try to find a solution.

Our objective is to increase the GDP. To do this, if we look at the above formula, we have several options:

1.- We could increase 'C', i.e., private consumption. The problem is that families are heavily in debt and their capacity to save has been in freefall in recent years (except the record high of 2009 due to rising unemployment and fear of losing employment). Currently, I think that an increase in 'C' in the short term is really difficult.

2.- We could increase 'I'. The economic situation or the low domestic consumption, as well as the lack of credit does not allow an increase in investment. It is not feasible to increase 'I'. Really?. We will see a bit later.

3.- We could increase 'G'. Do I need to explain to you this point?. I do not think so. The increase in public spending will have to wait a few years because of the  current government policy of cuts.

4.- We could increase '(X – M)'. Let's see. This means reduce imports, increase exports or both. The problem is that in Spain, historically, imports have always been greater than exports. Considering that it is very difficult to reduce our imports because of our dependence on imported energy and industrial technology, I have one question: 'Why we can not increase our exports?'. Do not we know how to sell?. Is there no one to buy our products?. What are we doing to promote our exports?. Do Spanish companies know how to export?. Is Spain underutilizing agencies related to foreign trade?.

If we got an increase in exports, Spanish GDP would increase, and this would create a favorable situation so that companies could increase their production and, therefore, they could increase their investments, which would generate an increase in GDP. Is it easy?. Apparently not. We have one of the largest potential markets in the world, Latin America, with an average unemployment rate of 6.5% and estimated growth of 4% for 2013 in which Spanish products are appreciated but we are not taking advantage; we are the gateway to Africa and we are its link with Europe; Spain is a country with more than 3,000 kilometres of coastline and it has some of the most important ports of Europe; Spain has 52 airports (13 more than Germany). But we only know how to sell sun and beaches because it requieres no effort. I think the government should take this a little more seriously because this could be one of the few solutions to  overcome this situation.

I would sum this up by saying that Spain is the first world producer of olive oil but when you travel to another country and ask people, 'what do you know about Spain?', they answer: 'Almost nothing'. And you tell them: 'Do you know our olive oil?. And they answer: 'But, olive oil is Italian, isn't it?'.

3.- CAN SPAIN BE 'TOYOTIST'?

(Escrito en English)

To begin with, I would like to explain what we mean by the term 'Toyotism'. It is a concept that appears to define the new production and management system that replaced the 'Fordism', created at the beginning of the last century by Henry Ford. 'Fordism' had been the reference system worldwide until then. Ford, realized that, despite the variety of car manufacturers, the offer was insufficient. So, he proposed a new system based on: production line; standardization of products (if a company specializated in a particular product, the production costs decreased); product popularization (there was a wider product choice and this made possible the sale price may be lower) and   efficiency wages (the companies paid a bonus to workers to reduce staffing changes). Curiously, 'the Ford Model T', was four times cheaper than other cars in the market and it was always black painted because the paint was less slow to dry, which made possible a quicker sale.

Faced with all this, at the beginning of the 70s, appeared Taiichi Ohno. As an engineer of a Japanese car company called Toyota, he was asked to turn around the company policy seeking greater effiency. Ohno, developed a system known as 'Toyotism'. After many observations, he established these guidelines: decrease of the stock in the warehouse (the company works on demand with orders to the supplier as needed in a system called 'Just in Time'); workers are flexible and versatile (they are able to work with the machinery and help solve production problems); companies can make great variety of products; there are some 'new concepts' ('Poka-Yoke', 'Kaizen',...); teamwork.

Does it sound familiar?. Since the 80s, Western society looked to Japan trying to find the answer to this question: 'Why the 'Japanese system' was better?'. And, the answer was to adapt this method to Western society. In Spain, this meant to promote teamwork, among other things. But, as we said before, the 'Japanese method' was not based exclusively on teamwork. This was just a cog in a much bigger machine which worked perfectly in a country that barely knew the terms 'free-rider' or shirk.

And I say it is absurd to think you can do this sort of extrapolation.Teamwork, for example, is no better or worse than Individual work. You just have to see under what conditions can be implemented. In addition, issues such as the need for a strong coordination with suppliers; the fact that each worker must be responsible for the machines they are working with; Improvement Groups (groups of workers who voluntarily meet outside the working hours to discuss possible improvements in the work); etc. suggest that it is possible that this system might not be suitable for Spain.

What really made Taiichi Ohno was identify the pieces and design a system to fit them. Ohno did not adapt 'Fordism' to Japan but created a new system based in the peculiarities of the country, as well as 'Fordism' was a system tailored to the needs of the United States.

In my opinion, we should not assume that the systems are universal. We can not think that what is done in Germany, for example, could be applied in Spain. Each issue has a solution and to find it we should analyze what we want to improve and how we can do it, forgetting 'easy solutions' applied in other contexts. So, in Spain, we should investigate what we have, what objective we want to achieve and how we can get it. We should analyze what is special here and what can we do to have a more efficient system. And this analysis should be done at all levels. Do you agree?.

2.- RECYCLING, WHY?

(Escrito en English)

In recent years, the word “recycling” is often in our everyday life. There are blue, yellow and green recycling bins and we recycle all kind of products: paper and cardboard, glass, plastic, batteries, used oil, … Most of these products, follow a path that begins in our homes and goes to recycling plants, after passing through the recycling bins. In these plants, it begins a process to separate the usable material and other waste and it is carried out a waste treatment. There are even waste treatment plants, for example in COGERSA (Consortium for Solid Waste Management of Asturias), in Spain, that uses Methane (CH4) generated in this process for their own use so they can be self-sufficient.

It is a simple method and it seems to be a win-win situation. Well, we are going to do an analysis to see what conclusions we can draw.

The 'recyclers' have to make the separation of products in an unselfish way, i.e., the only compensation they receive is the satisfaction that they have done the right thing. I mean when, for example, they go to the shop to buy a package of recycled sheets, they have to pay the same money that pays a person who has not recycled.

On the other hand, the City Councils. They have to pay recycling companies a fee in return for waste collection service. Part of that fee is passed on to the citizens in taxes.

The waste management company is the last link in the recycling chain. It gets raw material from the 'recyclers' and not only it does not have to pay for these raw materials but also charges for collect them. Nowadays, there are companies working with raw materials which costs could be considered 0 euros (I am talking about renewable energy companies, for example) but I think this is more unusual. Have you ever wondered whether these companies should pay for this raw material?.

Returning to the title of the post: 'Recycling, why?' I think you can get an idea about which is my reasoning. As we said before, recycling is a chain so if one link fails the chain breaks. What would happen if one day the 'recyclers' consider it is not worth recycling because their utility does not increase when they do it?. Apart from ethical issues, is there any reason so this will not happen someday?. Perhaps this is related to the changes in environmental policy on the issue of recycling since some years ago. Therefore, in some cases, what began as an unselfish way to collaborate with Environmental protection has turned into “something else”. I am referring to the case of, for example, the city of Madrid. This City Council, establishes penalties for citizens, or residents’ associations if they do not identify the offender, which could be 750 euros. Even it could make appropriate inquires to find out the ‘offender’.

So, I wonder, have we started to do something voluntary which could become compulsory?. Probably. Surely, we will end up with a system similar to that of Belgium. There, it is compulsory to participate in the separate waste collection system. All waste must be into bags (yellow, blue, green, purple or white) depending on the product they have to recycle. Also, these special bags must be purchased at supermarkets. They are deposited in the street, in containers, every week or twice a week. From the economic point of view, it may be a fair system, because it penalizes people who generate more waste.

If what we want in Spain is a system who works, why do not propose measures to give a ‘bonus to recyclers’. I mean, it could be carried some kind of control over the amount of waste recycled by every person and give them discounts. Such discounts would be proportional to their recycling. Would this be so ridiculous?.

1.- "CROWDFUNDING" AS A WAY OF FINANCING

(Escrito en English)

In these times, when it is increasingly difficult to finance, there is a new figure known as 'crowdfunding'. It could be explained as a way of 'patronage', so if we are carried away by appearences, maybe we would be wrong because the idea is not absolutely new.

Here, in Spain, a pioneer in 'crowdfunding' was a famous rock band called Extremoduro. To record its first album, they asked their fans and some other friends for a contribution of 1000 pesetas (nowadays, 1 euro is equivalent to 166,386 pesetas). In return, when the group got all the money they needed to record the album and finish their project, they gave each of those people one album with the names of all the backers on its back cover. It was aproximately in 1989. Roberto Iniesta, the lead singer, said that when they finally could record the album and begin delivering them to their backers, there were many people that did not remember they had made such a contribution. 'I just gave you the money so that you did not disturb me never again', one of the backers said.

Today, especially in recent years, due to lack of funding, many projects of musicians, writers,... even charity proyects are financed in this way. They use an Internet platform and expose their projects trying to get public attention and support. In the U.S., the reference platform is www.kickstarter.com. In Spain, there are platforms like www.lanzanos.com or www.verkami.com. The idea is that a person or group of peolpe that need financing expose their project on this platform, explaining what they want to do and how much money they need to do it. It begins a period for its backers to make their contributions in exchange for 'rewards' via the Internet. The platform would take a fee as payment for services provided and the 'creator' would be the owner of its work.

To explain what I mean with 'rewards', take an example. Imagine a band that wants to lanch an album. The band, would share its project on the platform and could set these 'rewards': 5 Euros would give you the right to download the digital album; with a contribution of 10 EUROS, you would receive the disk by post and you could download the digital album; a contribution af 15 EUROS would give you the right to download the digital album, you would receive the disk by post and a T-shirt too. And, so on, up to a maximun contribution would enable you to even enjoy the group in a private and exclusive concert. Also, if the project do not get the money within the period it will not be effective.

Globally, 'Pebble Project' is maybe the most striking. This is a watch compatible with Android and Apple technology. It is a product that meets all the requirements for success: innovative, many different uses,... At first, its creators had set a goal to raise 100,000 USD and the result was an unprecedented success. Its final collection was more than 10 million USD. It is expected that the first 85,000 units of the product will be sent to their owners soon, so the project is not completely done, but it seems that success is assured.

So, we might ask: Where is the trick?. Well, go to the reference website www.kickstarter.com and read. I think that the most surprising is the platform wash its hands of meeting the commitment of the project, i.e., it is the backer who has to ensure that the project is reliable. The platform only makes recommendations and suggestions to avoid becoming victims of a possible scam or fraud (by consultating websites, searching information on the Internet, …) but always atressing that they are intermediaries. On the other hand, www.kickstarter.com, compels creators to sign a commitment for covering their backers, providing a tool in case they need a claim through the courts but, probably, without real guarantees that this can be really helpful.

However, it seems that in recent months they have been working to improve these problems, asking for more information to the creators about their projects. Therefore, I think it is a double-edged sword because if it is used correctly, you have a powerful financial instrument but, perhaps, it is so new on the Internet that it is still needs some modifications. For example, has anybody stopped to think how easy could be plagiarize any idea of a project that has not been done? Or what about all these projects that, at first,  did not reach success but as time went by were hits?. Is this really a “natural selection”  of successful projects?. Will stakeholders involved in probing the market to meet consumer preferences?.

Above and beyond that, nowadays, I think that the funding is welcome, regardless of all this, and 'crowdfunding' may be the economic salvation of many projects that, otherwise, could not be performed.