From Phlebas to IKEA

The millennial survival and dominance of patrimonial firms.

amphora label vindolandaThe photo (source) shows a painted inscription on the neck of an olive oil amphora found at Vindolanda, a small Roman garrison town on Hadrian’s Wall. The most visible part reads Aemiliorum et / Cassiorum, referring to the shippers of the olive oil, the firm or firms of the Aemilii and Cassii.

The only business firms at the time were family ones. Shipping posh olive oil from Provence (1600 km by cart and barge) or Andalusia (ca 2500 km by ship) to an officers’ mess at the cold northern edge of the Roman Empire was a risky business, absent banks, insurance, or bills of exchange. [Update 4/12: I badly underestimated Roman trade finance; see comments.] To spread the risk, it made sense for the Aemilii and Cassii to join forces.

Family firms are popular with the writers of soap operas, in Brazil as much as the USA. (The best British example, the mordant Steptoe and Son about anachronistic rag-and-bone men with a horse-drawn cart, was satire with no pretence at economic realism.) The familiar emotional conflicts within a family are heightened and given wider repercussions by the less familiar but comprehensible context of lots of money. It’s only recently that soaps have ventured into the technically much more difficult environment of the modern bureaucratic corporation (Mad Men, The Office).

Art draws loosely on life, but doesn’t reflect it statistically. It’s said that Victorian novels frequently used both adultery and quicksands as exciting plot devices. From independent evidence, we know that adultery is very common and quicksands are very rare; but you would not learn this from the novels.

In this case the soaps get it more right than the economics textbooks. The vast majority of the world’s capitalist firms are family ones, even leaving out family farms. In the US, 80% of all firms are family-controlled; and “in about 65% of firms with 1993 revenues of over $5 million, at least 50% of the ownership was concentrated in a single family”. And not just small ones: “about 35% of the Fortune 500 firms are largely controlled by family interests”. (Gomez-Meija et al, pdf page 3, paywall; h/t Nadia Tronchoni in El Pais; thanks to Mike O’Hare for forwarding me the paper.)

My daughter Sarah works in one of the many family businesses in the Lille area. The grandest of these are the Mulliez dynasty: the 550 descendants and inlaws of a fertile 1920s patriarch between them control a retail empire guesstimated to be worth €30 bn. It includes 3,051 Auchan supermarkets and hypermarkets (now in Russia and China), hundreds of Leroy-Merlin DIY superstores, and half of the Decathlon sportsgear shops.

You would suppose that family control makes a difference. You would be right. The CW is that family controlled businesses are risk-averse. The paper by Gomez et al has shown that this is only half true. Continue reading “From Phlebas to IKEA”

Killer phones

A distracting mobile phone call contributes to killing 79 in a rail crash in Spain.

Ten days ago Spain suffered its worst rail crash  since 1944, in Santiago de Compostella. 79 passengers died.

The crash took place on a new 90 km section of track between Santiago and Ourense. This is built for high-speed operation at 220 km/hr, but currently limited to 200 km/hr by signalling limitations. However, the accident was on a sharpish curve before the station, with a limit of only 80 km/hr. There is a single signal for deceleration.

Just before the accident, the driver took a mobile phone call from the ticket collector, requesting an additional stop before Corunna (and well beyond Santiago) to let off a family of passengers. There was no urgency for the call. [Update from comments:> the handset may well have been a rail=specific 2-way radio, not an ordinary mobile, but it makes no difference to my argument.]

The magistrate investigating legal liability for the accident – there is of course another technical investigation under way – has blamed the driver for going too fast against signals and the route plan. He has not given weight to the phone call; it’s unnecessary to fix the driver’s responsibility, and perhaps he wanted to avoid the impression of blaming the unfortunate but surely innocent ticket collector and the family he was trying to help.

However, common sense suggests the phone call was significant. The driver was experienced and not fatigued – he only took over at Ourense, and knew the track well. The weather was clear. There does not seem to have been any equipment failure (as opposed to design flaws). The phone call is the standout differentiating factor. There’s a mass of evidence that phone calls are distracting to car and truck drivers and responsible for a good many vehicle accidents and deaths.

The USA lags well behind international practice in legislating against the use of mobile phones at the wheel. 66 countries, covering the great majority of the world’s population, have bans. Only seven US states are reported by Wikipedia as having general bans (California, Connecticut, Delaware, DC, Hawaii, Illinois, New Jersey). Several others have footling partial bans on learner drivers, at night, near schools and so on.

Contrary to intuition and folk wisdom, hands-free phones make little difference. It’s the speech that’s distracting, not the use of one hand.

Just turn it off.

PS on signalling
For high-speed rail buffs only. The track section is designed and equipped for the latest ERMTS in-cab signalling which among many other goodies brakes the train automatically if speed limits are exceeded. That’s the system in use on the true high-speed AVE trainsets on the lines going out from Madrid to Barcelona and Seville. But the line doesn’t run all the way to Galicia, and the section to Ourense is still under construction. The short high-speed track to Ourense is a vanity regionally-driven anticipation, using Iberian gauge. The ALVIA trainsets like the one that crashed are expensive electric/diesel hybrids with dual-gauge bogies (not SFIK implicated). The manufacturers of the trainsets and the signalling between them have not been able to get the complex ERMTS software to work properly. (Source: El Pais.) For now the ALVIAs have to use the older and less capable ASFA system – which does not include automatic braking. It’s rated up to 200 km/hr, but in hindsight this looks a mistake, along with the single trackside signal to announce the drastic speed reduction.

Chocolate blasphemies

In 2007 the Italo-Canadian artist Cosimo Cavallaro secured free publicity with the condemnation by idiot American Catholic reactionaries of his harmless chocolate Jesus.

Here in Spain, you can have an entire chocolate Nativity scene, as a normal expression of commercially-tinged religious sentimentality. In fact a whole 1,450 kilo sugar Nativity Granada, in a chocolate factory in the small Andalusian town of Rute. (The other industry is anis.)
Chocolate crib general

The Nativity is rather nicely put into the Court of the Lions in the Alhambra.

Continue reading “Chocolate blasphemies”

The pain in Spain again

Spanish labour costs are painfully converging with German ones.

The fragment of the US blogosphere that pays any attention to Europe is still full of gloom about the prospects for the Eurozone. See for instance Kevin Drum. But here’s a ray of light from the very experienced insider Gavyn Davies, blogging in the FT:

The good news is that Spain has in fact improved its competitiveness markedly in recent years, as a result of the reductions in labour costs which have accompanied the recession and structural reforms in the labour market:

The chart actually understates the improvement. Continue reading “The pain in Spain again”

Mein Solardach

A proposal for large solar panel leasing scheme in Spain funded by puritanical Germans.

Was it Matthew asking for ideas to get Europe’s economy moving?

It was a great insight of Keynes that spending doesn’t have to be useful to be effective in a slump (though he also said that useful was preferable). Helicopter drops of cash, banknotes buried in coal mines, and cheques mailed out randomly would work just fine, but clash with the Protestant ethic. Few Germans believe Keynes’ argument, and no German central bankers, so you really have to come up with Useful and Virtuous ideas.

At the risk of sounding like a one-subject crank, here’s mine. A part of my roof as it could be by Christmas:

What I suggest is a very large solar panel leasing scheme, funded or underwritten by the creditworthy members of the EU, meaning Germany. Taking a number out of a hat, 5 GW at €2.5 per installed watt would cost €12.5bn up front. That’s 2 million houses at 2.5 kw each, or €6,250; or 50,000 industrial roofs at 100kw, or any linear combination. Continue reading “Mein Solardach”

Breaking news: marijuana and sugar-beet scandal in Tarragona!

A Catalonian village plans a co-op marijuana farm,

Reuters, 7 March:

A small town in northeastern Spain believes it has found a novel way to pay of its debt: cultivating cannabis.

Tucked in the hills of one of Spain’s most picturesque regions, the Catalonian village of Rasquera has agreed to rent out land to grow marijuana, an enterprise the local authorities say will allow them to pay off their 1.3 million euro debt in two years.

Local authorities are keeping the location of the site top secret while Spain’s attorney general investigates the legality of the project. The Catalan regional government has also asked the village for further information about the plan.

The scheme is the brainchild of a 5,000-strong Barcelona marijuana users’ associatiom, ABCDA. More on their site here and here in Spanish. ABCDA would run its farm as a nonprofit cooperative.

The new PP government in Madrid is bound hand and foot by Brussels and Berlin to a destructive austerity economic policy and is anxious to score culture-war points with its base as a distraction. So prospects for ABCDA’s bright idea don’t look good in the short run, in spite of the endorsement of the principle by eminent American scholars and divines.

However, ABCDA have made a very clever strategic move by buying the support of a debt-burdened Catalan municipality for an apparently solid and workable project. What is the national government’s plan B for Rasquera’s public finances (see Berlin supra)? Why shouldn’t Catalonia have the right to run a prudent, regulated experiment on drugs policy? What concrete harm would the project do? There are no good BAU answers to these questions.

The possible scandal IMHO is that ABCDA plan to rotate marijuana “ecologically” with grain and beet (remolacha). It’s not clear whether this would be red salad beetroot, cattle food or – my worry – sugar beet. The last would be (a) adding to the over-production of a dangerous addictive drug; (b) exploiting an appalling protectionist Common Agricultural Policy boondoggle that destroys the livelihoods of poor Caribbean sugar-cane growers. (I know that US sugar protectionism is just as bad, only smaller).

The RBC demands answers, or at least a sweetener.

It’s all about Me

A striking but unrepresentative example of waste and vanity in Spanish public spending.

Courtesy of El Pais, a photo of an uncompleted 30-ton statue of Carlos Fabra, former PP boss of Castellón province:

This €300,000 monument stands in front of Fabra’s pet project, the Castellón international airport. The €124m facility may never open – to flights that is, you can tour the empty halls if you want. Castellón (pop. 180k) is about 50 miles north of the unsaturated airport of the regional capital Valencia, to which it is connected by two motorways and a main rail line. You will not be surprised to learn that Sr. Fabra is now helping police with their inquiries into corruption.

The statue could stand as an icon of the German view of Spain and the Mediterranean generally: waste! vanity! boondoggles! uncontrolled spending! laziness! The allegations are a bit inconsistent: it takes a lot of leadership and effort, as P.J. O’Rourke observed about Washington, to waste money on the scale of Castellón airport and the Osprey plane.

Overt monuments to Me by serving politicians like Fabra are in fact very rare in democracies. Self-preservation shifts the monumental urge to retirement, or a plaque on the metro or whatever. Even most monarchs and dictators are fairly modest. The spectacular Bronze Horseman monument to Peter the Great in St. Petersburg wasn’t put up by Peter himself, not exactly a wilting flower, but by Catherine. Fabra’s statue suggests that he isn’t quite right in the head.

The dud airport model is more common. Lleida in Catalonia and nearby Huesca in Aragon both have shiny new ones. The latter has no scheduled services, the former only nine. Both small cities are connected by a high-speed rail line to the hub airport at Barcelona.

On a smaller scale, my home town of Vélez-Málaga (pop. 50,000) is about to close the underused new tram built by the previous mayor, connecting the old town inland to its coastal satellite Torre del Mar.

Two observations which won’t be noticed against the tide of stereotyping. Over the last decade, Spain’s central government has been running a very conservative fiscal policy, with a a primary surplus until the property boom imploded and banks had to be rescued on a massive scale. (In retrospect, the central bank should have seized and bankrupted them like the FDIC, paid off the retail depositors, and let the German wholesale lenders go begging to Mrs. Merkel. They’d be facing the same lectures now, but without the imposed austerity.) National investment spending has been pretty sensible: motorways, research, high-speed rail lines – justified by the poor quality of the legacy network -, and perhaps we should count subsidies to investments by renewable energy operators. The waste has been by regional and local government. Most of the bust banks were regional Caixas, with ties to regional politicians. The Valencia region was within days of a default a week ago and had to be bailed out by the central government.

There is some structural flaw in the post-Franco decentralisation, necessary as it was after a quarter-century of his dead hand. My guess: the regions get a big share of income tax automatically, so political accountability to regional taxpayers is weak. The autonomy is not balanced either by any national equivalent of the brutal audits of the French Cour des Comptes, which proudly traces its history back to 1303, when the Chambre des comptes de Paris was created as a deliberately scary instrument of centralising royal power. (Not that royal finance was a safe job: at least six royal treasurers were hanged, and Fouquet died in prison.) Similarly the Spanish regions have allowed mayors far too much leeway over development, though this is changing at least in Andalusia.

Incidentally, it’s nothing to do with socialism: most of the regions, including Valencia, are PP fiefs. The mayor responsible for my local tram fiasco was PSOE, as is the decent regional government in Seville. The spectacularly bent former leadership of Marbella was PP, like well-run Málaga. The mess has very little to do with ideology.

It’s a pity that public-sector bankruptcy is so rare. The assets of private-sector enterprises mostly make money: but only because the many mistakes are quickly written down, and the assets recycled at a better valuation, by the great institution of bankruptcy, turbocharged by limited liability. The taxpayers of Vélez-Málaga (including me) are stuck for ever with the debt on the tram, so it will always appear to make a loss. With 600,000 tickets a year (half the estimated ridership), I reckon it should meet its direct operating costs, the strictly economic test for an unsaleable public asset. The only reason to close it is the dumb contract the city signed with the operator, guaranteeing it a minimum revenue and assuming all the economic risk.

Question for discussion: would more frequent bankruptcy by local government be worth it, weighing higher interest costs against the benefit of truth in accounts?

Which dark continent again?

High-speed trains for Tangier, not Milwaukee.

Via Atrios and Steve Benen, an unsurprising report :

Talgo Inc. will shut down its Milwaukee train manufacturing operations in 2012, leaving only a maintenance base, because plans for a high-speed rail line between Milwaukee and Madison have been abandoned, the company announced Friday.
The Spanish-owned company acted after the federal government withdrew nearly all of the $810 million in stimulus funding for the rail project, which Governor-elect Scott Walker [R] had vowed to kill. Talgo had hoped to land contracts to build two trains for that line.

Meanwhile from Africa, an update :

France has finalised a 400-million-euro deal to supply Morocco with high-speed TGV trains. The French group Alstom is to provide the north African country with 14 high speed train sets that will enter service in December 2015 on the Tangiers-Casablanca route.

Why do Republicans hate trains, like Mrs Thatcher? I don´t mean just ¨think uneconomic¨. Subsidies for shopping malls are fine to Governor Christie of New Jersey, just not for needed rail tunnels. It´s not only His Majesty King Mohammed VI Whom God Preserve and the Chinese Politburo – their kind of people – who are train fans. I can´t imagine the Romanovs, the Kaiser, Emperor Dom Pedro II of Brazil, Viceroy Dalhousie and the American robber barons of the Gilded Age without their private carriages. Ayn Rand´s heroine Dagny Taggart runs a railroad. Booze, women, music, and zooming past the contemptible houses of the peasantry: for a plutocrat, what´s not to like?

From December 19, you can catch a TGV from Paris to Figueres in Catalonia (zooming definitely, take your own booze, women and music – pas question). This is just right, if you are famous and lucky, for dining at El Bulli at nearby Roses before it closes.

Olives at the cutting edge

Olives grown in hedges.

Some things never change – or so we thought. Olive cultivation around the Mediterranean has been more or less unchanged for 5,000 years : you take a cutting, stick it in the ground, and wait five years. No water or fertilizer are required, just insect pests to fight off. You prune every year, and harvest by hitting the branches with sticks. Repeat, for century after century.

Credit: Flickr user Abariltur

Other trees quite like these near the mouth of the Ebro are claimed to be contemporary with Virgil, who wrote about olives in the Georgics, praising their tolerance of poor soil:

First your stubborn lands
And churlish hill-sides, where are thorny fields
Of meagre marl and gravel, these delight
In long-lived olive-groves to Pallas dear.

Sic transit. In our drive north this summer, we went looking for posh olive oil for presents, and found our upmarket grove in suitably “churlish hillsides” south of Llerida – here:

This hedge-like planting is common in fruit orchards, as it makes pruning, spraying and harvesting much easier. Dwarfing stock has long been available for many fruit; the vigorous cherry succumbed in 1965.  Olives will grow as grafts (dixit Virgil) but usually are not, and he warns against letting the obvious stock, wild olives, into your grove (obscurely, for the fire risk). These are very vigorous trees, as here at El Rocio near Seville:

Grafting on to such stock defeats the object. So as in Virgil’s time olives are grown on their own roots from cuttings. The story is not a new stock but new varieties. Professor Giuseppe Fontanazza at the Olive Research Centre in Perugia (which for all I know may be a dystopian hotbed of vicious academic intrigue, soulless higher-ed managerialism, and layabout/overpoliticised/careerist students, but I prefer to believe in the bucolic Umbrian idyll) has bred a new dwarf variety, FS I17. Spanish colleagues have followed suit, selecting dwarf cultivars of Arbequina and Arbosana.
The owner of this grove, Hacienda Iber, is a high-end niche producer aiming at international competitions. Sadly but understandably, they closed the doubtless picturesque former onsite mill, and truck the crop to a state-of-the-art facility somewhere else, doubtless all stainless steel Swedish machinery. At this level, growers have to be control freaks  – some Aussie winegrowers harvest at night. Hedge cultivation gives you precisely that: control. The advantages hold for all producers on any scale, so I’m afraid the “timeless” Mediterranean landscape will now change.

I do not think Virgil would have protested; he valued the sheer skill of good husbandry too much. The Cordoba House nonsense will blow over in a week, leaving a nasty taste. Fontanazza’s work will last for centuries. It deserves Virgil’s praise and ours. For the Italian countryside he celebrated was and is man-made. There is negligible wilderness in Europe outside high mountains and the forests of eastern Poland. The aim cannot be to leave Nature alone, it’s too late for that, but to work with her to produce utility and beauty together. Everything in the Mediterranean landscape is a tool, and nothing is just a tool.