Friday, May 9. 2008
Europe Lacks a Risk Culture
Posted by Joerg Wolf in International Economics on Friday, May 9. 2008
London may be eclipsing Wall Street as the world financial capital, and the euro is trouncing the dollar, but Europe has yet to prove the equal of the United States in technological innovation.
Author and engineer Hervé Lebret thinks he knows why. "There is a risk culture that's missing. We don't have an environment to be more ambitious and risk-taking." His book, Start-Up: What We Can Learn from Silicon Valley, argues that Europeans need to recognize the value of risk -- and failure. "In the U.S. it's not that people like failure, but it's seen as a way to learn," he says. "In Europe, if you fail you aren't given a second chance to try again. So it's viewed very differently."
Sounds familar. See "Germany's Innovation Dilemma" on Atlantic Community.
guess the Anglo-Saxons are more gamblers in the soul the the euro-continentals that have a tradition to accumulate concrete properties
Exactly: it's startling to see how something as inevitable as risk (as it's an intrinsic part of life) is confused with [i]gambling[/i] - but even more horrific to see a gambling culture presented as something that somehow is "desirable".
It's bad enough when someone with a gambling addiction goes untreated for a long time, but when that person attempts to foment such pathological behavior, it's time for a forced committal order, if only to protect society.
However, I suppose that what Mr. Lebret [i]attempted[/i] to express is that Europeans are more risk-averse; something which I recognize. Given tremendously costly precedents such as set by Enron (and its consorts), or the subprime / securitization gambling swindle, I also think there's something to say for a cautious and prudent caretaker approach to social / collective assets, to assure they're in existence for a bit longer than the impaired attention span of a gambling addict might accommodate.
Parma was no different, it just didn't get as much airplay. I think what you might be missing here is that it's nearly impossible to find anyone who actually sees investing as gambling. They might take a risk with, say ar5 pct of their assets, and feel like jerks if it doesn't work out, but like tyat imaginary divide with the "Anglo-Saxon" it's only marginally true on reflections with reflect on other reflections. It's hard tofind many examples in fact.
As for risk-taking, I think the reason you see less of it among the middle income population on the continent because they don't have as much disposible income.
As such there is a little less optimism and savings go to banks and not brokerages.
no, Joe, I have been sharing flats with UK people, I can tell you that "gambling" is part of their brain cells : they were playing their monthly salaries (wages) with cards or monopoly, it's also there that you find the most money gamblings on anything
though it's also in these countries that a person is not judged on her/his education degrees, but on her/his pragmatism and results on the ground : I see that they are less protective on the nationality of the persons in the business fields. BUT they are more discriminative as far as being admitted in their private life, this is a raison why the comunautarism is more current there too
There's a difference between buying stock, and running down to William Hill.
only for you I suppose, the elite man that is born with a silver spoon
An elite man born with a silver spoon in his mouth? Gee, I never knew.
Is that how one has to imagine people you don't like? You don't even know me, but assume that I'm some sort of effete pig who never did an honest day's work in my life? To begin with, you're dead wrong, and I really wonder how that fits into the "you all work too much" slag.
naaah, you said you had "Cartier" in your ancestry ! didn't you ? I should have said a golden spoon
I said no such thing. I also you view of people who take risk as somewhat deliberate. It's the people who save a little something from their hard work that are the aggressive investors. The elite that you're imagining negatively usually pay people to do their homework for them.
Besides, do you know anyone who works for either a poor person or someone who isn't otherwise a risktaker?
yes you did here
otherwise I have seen a few persons that had nothing and take some risks, but they were also great workers, so wether it's chance, wether it's work
here is a link that explains the "risks taking"
[url=http://books.nap.edu/openbook.php?record_id=5138&page=241]risks taking[/url]
Look, I NEVER said anything about being well off or in an elite. I don't know quite where you got that fixation. As for an academic study of risk, I would suggest paying closer attention to the sort of risk the people you work for take, there really isn't anything anyone out there ever wrote that can help you with it.
It was when you explained me your noble ancestry :lol: somewhere Pat Paterson inserted an antic story about showing a white foot (or hand)
that link fell on my keyboard, I didn't had time to check it, but I was awaiting for your sagacious critic :lol:
I have rarely discussed anything I've ever done of interest, mainly becasue there hasn't been a great deal of it, it would be hard to explain and understand, and it's in poor taste.
I did mention my rather daring elders who fought in WW2. There was no mention of wealth, authority, elitist thinking or behaviour.
So in other words, you made it up, and you'll defend that opinion to the death. Is that what it means to be from the "culture of debate" that ther rest us are told to learn from?
when I'll get time I'll check
So in other words, you made it up, and you'll defend that opinion to the death. no, if I find the sequence proving your right
Is that what it means to be from the "culture of debate" that ther rest us are told to learn from? turlututu chapeau pointu, your the prime minister of BS
I would say, at least in Germany, that the legal system both for private individuals and corporations makes Europeans 'risk averse'. Loads of Germans are very entrepenurial in London, Cali or New York and quite successful as well. Put together bankruptcy law, BGB sections on the obligations, the time and initial capital outlay (indemnification) for creating a company, and the potential cost of civil litigation, starting a company on speculation in Germany is too risky.
The other major problem is the societal prejudice against private equity. This forces start-ups to use bank loans which sua sponte is not a terrible financing option, but the German legal system provides too many opportunities for meddling by non-lawyers; as contrasted with the Anglo-Saxon system where investors/minority shareholders outside of statutorily determined fxs (shareholder meetings, board of director elections blah blah) are powerless, bank employees, usually law school drop-outs with a first staatsexamen, can file a petition and make trouble at will.
Why this is, I have no idea. Perhaps a reflection on the major recession in Western Europe in the 1880s that was blamed on Jewish speculators in the Germanic world? And a voelkish embrace of the Landesbank system as the only legitimate lending agent/clearing house for the community?
I wonder why this has occured? Germany has had two great waves of entrepeneurialism, first in the period after the Napoleanic Wars (and particularly after 1848) and later in the 1950's and 60's) when the ranks of the Mittlestand swelled with many world-class companies being formed in that period.
It may be that Germans prefer steady jobs to entepreneural riches, or that the risks are too high given the high taxation and regulation. Or it may be that under the German system such a wave of startups anly make sense when people are really poor and desperate and the government is also poor and desperate. I think Ludwig Erhard's ruthless wave of deregulation and tax cuts had something to do with it, as the Reagan tax cuts seemed to help the wave get rolling in the US (although it didn't start it).
Another thing which may discourage entrepeneurialism in Germany is that high taxes cut the growth rates (and returns) from new businesses, therefore giving the technically sophisticated and well-capitalised firms in the Middlesand time to catch up to and obliberate their undercapitalised competition, time which is not given to their counterparts in the US due to low tax rates, high returns, and readily available capital, also less regulation.
One area where Germany excels is in "Green Technology", where it is far ahead of the US and the rest of Europe. This is creating a "cluster" of companies and expertise, which, in turn is attracting investment capital.
I only wish I had bought shares in Solar World AG several years ago.
If a shield to risk is constructed, the culture that adopts it lives by it, and can't live without it after a while.
David: I think the Solarworld paly is exhausted at the moment. In a while when the profit taking is really and truly over, it will be worth looking at, but the end of the play came with a relization that the capicity of the systems they sell have a plateau. It had little to do with cost of solar vis-a-vis non-solar generation, but that a property, facility, etc., could only bear so many panels.
It would have been a fabulous buy 12 months ago, and a sell in n0ovember 07. Since then it's looked cyclical. Think it could be a seasonal business because it's tied to DIY?
Solar World AG is still using photovoltaic panels, which are used by all the other solar companies except one. And those voltaic panels are proving to be highly toxic to dispose. And because solar World is using off the shelf technology then eventually lower cost producers will simply take its market share. Which as Joe pointed out is already happening. Plus unless you dumped all your Solar World stock last year the value of your investment would be the roughly the same and slightly down for a company that assembles the panels with technology provided by other companies or if you bought near the peak then your investment would be down 30%.
A much better investment would have been in First Solar (FSLR) which since its IPO of a year and a half, though volatile, is up 326% plus it developed and owns its own thin wafer technology for solar panels which are not hazardous to dispose unlike Solar World's. And like another American company, CDTI, it is selling its product to Germany as being more technologically advanced and cheaper to purchase.
I'm not really sure that the lack of risk is a particular German problem rather an inability to provide the necessary start up capital for these small companies to flourish. My understanding, and I would gladly be corrected if the situation has changed, is that the big German banks, investment banks or not, are loathe to loan to startups and that the tax structure makes private "angels" look for more profitable places to invest.
Who would have thought in the late 80's that Porsche would survive unless the family risked all. The fact that their first attempt to remake the company failed and that they survived on bread and water and the various 911s and then created the next line of high cost and even higher performance cars certainly indicates that Germans are not as risk averse as imagined. The irony is that in the late 80's the Porsche family was entertaining offers to sell to Wolkswagen and yet twenty years later Porsche is on the verge of owning 51% of Volkswagen.
Pat:
[i]My understanding, and I would gladly be corrected if the situation has changed, is that the big German banks, investment banks or not, are loathe to loan to startups and that the tax structure makes private "angels" look for more profitable places to invest.[/i]
That statement seems fair, and applies generally to Western European countries - not just Germany. However, there's also a compensating element in that governments at all levels (EU, national, regional, even local) provide all sorts of incentives (e.g. subsidies, loans, exemptions) to help develop research, development and innovation projects.
That's especially true when it's related to "green" technology.
On a side note: photovoltaic does eye green, but development of more large-scale and renewable energy sources is what's really hot. However, from development to actual implementation lies a major jump, and there's a lot of work still remaining ahead to prime the larger public for "out of the box" ways of working toward a sustainable economy. Which is more of a white collar thing, than truly technology or lab-related.
Finally, although for some reason Western Europe seems to pop up often as a reference of sorts, there is an awful lot that is done in the US - I was particularly charmed by one initiative, maybe also because it's strongly pushed from a (local) government: the astounding case of [url=http://www.nytimes.com/2008/05/07/us/07garbage.html]San Francisco's recycling efforts[/url] that sets the bar really high, and deserves (aside from kudos) more widespread attention, also from Western Europe (if only to get off that high "we own green" horse). It's an interesting case that illustrates it's not (necessary) risk driving the enterprise; in this case, it's driven mostly by lots of sound ambition and tons of determination to get to the desired point. In my view, a great example of American entrepreneurial drive, reminiscing of other important strides made in the past, such as the Apollo project - another government-propagated Great Enterprise. (Not saying or suggesting here that government [i]has[/i] to be involved - just that it [i]can[/i] be, and quite successfully so, in whichever most appropriate mix with private market players.)
They don't lend money easily, even to individuals for homes. They try to take no risk at all by lending 60% at most. In effect, they want you to have embedded in the equity the entire sum of what they'll lend you.
It doesn't bode well for basic business startups, since people come up with ideas or the commitment to start a business, and the best way to fund it if you don't have enough cash on hand, and can't borrow from the bank, is to tap the value of your home and use credit cards at first to cover short-term operating credit.
What's worse is the average rate businesses are taxed at is effectively 38,5%. That doesn't provide for much more encourge that one would need to start anything larger than a shop or a bierstube, or some kind of at home sales scheme.
It's what compels the smart one to try to do professional services on their own, but the ramp UP from there to become a business and employ people.
From my memory, this is overwhelmingly a problem in the private sector. The structure of R&D investment in much of Western Europe is such that both investment by the state and by big established companies are comparable to Japan, the USA and Finland, but investment by small and medium-sized enterprises lags far behind. The EU has been trying to remedy this through the Lisbon strategy and many countries and local administrations are trying to provide the infrastructure for innovative businesses. I don't know how far that has brought us by now. The problem may indeed be partially cultural risk aversion, partially financial risk aversion caused by an overly or wrongly institutionalised banking system and legal framework. I don't know if it's the big banks themselves we should be pointing at -- how much of the seed capital do they provide in the USA?
it's not a lack of creative projects, it's mainly that the banks don't allow "risky" enterprises to get a life, ever tried to get a credit if you haven't a guarantie behind your back ? might be families properties, a wealthy business parainage...
those who have also an adventure spirit, found a new "far-west" in Silicon Valley, in New-York banks, in London city banks, in Hong-kong banks, Singapure banks... now they are in China, many french guys are there, I expect many other EU guys too
This was a perceptive comment. In the US there was a financier and a bank which are scorned today, but who may created a class of financial products which allow risky ventures to be financed.
The financier was Michael Milken, the (now defunct) bank was Drexel Burnham Lambert, and the products were once known as 'junk bonds'. They were in fact sub-prime bonds which often carried higher interest rates or which could be converted into equity in the venture they helped finance, allowing the bondholder to share in the value created by a successful new business venture.
'Junk bonds' are regarded with scorn by many people, and innovative financial instruments carry a good deal of systemic risk as we are learning again from the current crisis on Wall Street, but there is is also a cost to enforcing absolute financial rectitude upon the entire society, the way the German financial system seems to do judging by the comments I've read on this thread.
That cost comes in the form of still-born entrepeneurial ventures, new and innovative ideas never pursued, and jobs not created in these new industries.
Germany has been a strong technical innovator for perhaps 150 years but as often as not these ideas have been developed and marketed as commercial products elsewhere. Some German ideas are developed by and marketed within German corporations, and there have been two periods of impressive German entrepeneurialism, one between 1848 and perhaps 1880 or 1890 and the other during the 1950's.
I think these two periods may share the same root cause - the growth and profitability of small firms during this period may have allowed new ventures to self-finance during these periods, and there was little or no competition for these firms from well-financed larger rivals during these periods. During the earlier period there existed an entrepenurial bank which helped many enterprises to get off the ground. Not sure of the name, was it the Siemens Bank? Someone help me here, please. I'm also not certain whether any similar bank operated during the 50's and 60's.
Screw the bank. That's what capital investors are for.
Don't like Solar World shares? Then look at Payom Solar AG, Pheonix Solar, Reineke & Pohl, S.A.G., Solarparc, SolarFabrik AG, Sunline, Tauris Solar AG. And that's just solar. There are plenty of other young German companies in wind energy, geothermal, fuel cells&hydrogen, recycling and other renewable energy technologies.
It is gratifying that Freiburg - a beautiful city where I lived for a time - has become the center for much green entrepreneurial activity.
All these companies are still tied to photovoltaic panels which are beginning ot decline in price. A couple of these companies, and their are plenty in the US doing the same thing, are merely middlemen between the makers of the panels and the retailers. Payom and Solarparc have less then ten employees each and have lost market share, have stagnant stock prices and most telling have not declared any dividends yet.
But because I checked, I did find another company, Sungri, that has a proprietary technology, HCPV, which produces electricity for the same price as plants burning fossil fuels. It's still a private company as they are trying to solve the battery problems before going public. At which time they, like First Solar, will have a huge cost and technical advantage over those companies still relying on photovoltaic.
And I'm positive that the two solar companies, both based in the US, with proprietary technology will be more than happy to sell those panels or the technology to some of the more laggard companies in the world.
You need to learn how to read German. SolarParc is recommending doubling its dividend at its general shareholders meeting next week in Bonn.
You must be fabulously wealthy with your vast knowledge of the markets. BTW, the best performing stocks in my portfolio have never declared dividends.
Absolutely correct, I used Solarparc's figures not from the DAX but from MSN. But I would still be hesistant in investing in any company that does most of its business within its own country and does not have a proprietary product. But unless a stock does indeed declare a dividend then it is speculative and can change its value rapidly. I will still wait for Sungri to go public.
Interesting video about Famous Failures
[url]http://ca.youtube.com/watch?v=dT4Fu-XDygw[/url]
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