David Foster

The Wall Street Journal (5/17) carries a letter from the AARP criticizing private accounts. Extract: “To compensate for the less of Social Security revenue into private accounts, the federal government would have to borrow significant sums in order to pay promised benefits–$754 billion in the first 10 years, and $3.5 trillion in the following decade.”

AARP suggests as an alternative (1)raising the wage cap on SS taxes, and (2) “diversifying the Social Security Trust Fund investments to get a higher return.”

Huh?

To the extent that SS Trust Fund inflows are invested in corporate securities to get that “higher return”, they would not be available to fund other government shortfalls–thus, the government would have to issue additional debt to cover these shortfalls. Just as in the case of private accounts, the money going into the private accounts would have to be made up by other debt. Whether the money is invested by the government or by private account holders makes no difference on the amount of new Treasury debt that would have to be issued to offset it; the only thing that changes is the legal status of the account ownership.

Also: one variant of private accounts would require that the money be invested in Treasury securities. In this case, the money would still be available to fund other government shortfalls…just as if it were going into the Trust Fund.

The tradeoff with stock/bond investments is probably-higher returns in exchange for more issuance of government debt to cover the money no longer flowing in from SS payments. This applies whether the investments are made in the form of individual accounts or whether they are made thru a government pool.

We need more clarification of what the SS alternatives really mean, which requires good-faith attempts to elucidate complex financial matters. There’s been far too little of this and far too much political posturing, on both sides.

I picked up an old copy of Fortune (12/13/04) to read on the plane…among other interesting stuff, it had an article on the reintegration of Saturn–which was once run almost as a separate company–back into General Motors. I was particularly struck by this paragraph:

Another thing buyers will notice about the new models is that the plastic body panels are gone. Saturn used to promote the panels heavily because it had little else to sell, featuring them in commercials that showed them fending off dents from trash cans and bicycles. Some had argued that they were integral to Saturn’s brand identity, but there was no room for them in GM’s complex global product development system.

Now, I don’t know if the plastic body panels are a good idea or not. Such a decision would involve many factors: cost, maintainability, and consumer preference/branding issues, among others. Probably in the scheme of things, it doesn’t matter all that much one way or another. But there’s a broader issue here.

Sooner or later, there will be something that one of the product line groups wants to do that does matter a great deal in the scheme of things–and that will turn out to matter for the overall future of GM, not just for the brand. What if that proposal doesn’t fit “GM’s complex global product development system”?

Were GM a more decentralized company, then the loop between the product change proponent and the ultimate decision-maker would be a shorter one. An individual executive could make the decision on behalf of his business unit, and develop product/process/technology approaches that would later–if they succeeded-turn out to be beneficial to the entire company.

Yes, there are clearly cost benefits in the centralization of manufacturing and product design. And, yes, part of the problem with Saturn in the first place seems to have been that as an individual brand it didn’t have sufficient scale to carry its own infrastructure. And in times of stress, there seems to be a natural human instinct toward centralization.

But when dealing with change, centralization can impose some serious limitations on flexibility and agility…and in today’s world, those can be devastating.

Financial Times (4/12) has an interesting article on the use of language in German business. Apparently, many German executives feel that it is easier to talk about things like “growth and ambition” in English than in German. “Imagine I want to say to some people: ‘Let’s go for it, and let’s do it together,'” says the head of a Munich-based consulting firm. “I can say this in English, and people will listen, but if I say it in German it takes up too many words, and (the phrasing) is impossible.”

A machine-tool CEO also remarks that many German words and phrases have been debased by their use first by the Nazi regime and then by the East German Communist regime. As an example, he uses the word Freundschaft(friendship) which he says under the Communist regime had political implications.

As a result of such considerations, some German executives are holding business discussions in English even when all the participants are native German speakers.

Others say that this is all pretty much nonsense and that a good speaker can get his ideas across equally well in either language.

Is there anything to this theory about the differential effectiveness of the languages? I took 2 years of high school German and more in college, but don’t really feel educated enough in the language to have an opinion. Would love to hear from bilingual German/English speakers on this one.