EU crisis what then?

Is EFSF the EU Ponzi scheme for non Euro Zone members?

2012-01-03T13:26:00.001-08:00

Is the Euro Zone in such a bad economical shape that the suggested Fiscal Union governed by the European Financial Stability Facility (EFSF) promoted by Germany and France the 9^th of December 2011 nothing else than a Ponzi Scheme to keep the Euro and the European economic running?

This is an allegation which I will try to explain.

First what is a Ponzi scheme; or what is the significance of a Ponzi scheme?

Basically a Ponzi scheme is a financial transaction to lure funds away from victims into the pocket of the schemer by offering the victims a very high return on investment. The interesting part for the schemer is to get a substantial amount of funds into the scheme to be able to pay the high return of investment until the schemer can with draw the most of the funds for him and close the scheme. The nature of the Ponzi scheme relay on the following:

A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors.
A Ponzi Scheme, the schemer acts as a “hub” for the victims, interacting with all of the victims directly
Ponzi Schemes can survive simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.

How can this fraud scheme be assembled with the EFSF?

EFSF mission is to authorize;

· Issue bonds or other debt instruments on the market to raise the funds needed to provide loans to countries in financially difficulties.

· Intervene in the debt primary market

· Intervene in the debt secondary markets

· Act on the basis of a precautionary program

· Finance recapitalizations of financial institutions through loans to governments including in non-program countries

The EFSF should assist member states that are in financial trouble but under appropriated conditionality. This is not an organization we will normally assemble, with a private Ponzi scheme like the one Mr. Madoff made in the US.

According to Mario Beljer a former governor of Argentina’s central bank and director of the Centre for Central Banking Studies at the Bank of England the resemble of the situation acting in EFSF and the Ponzi scheme, lies in how some of the original bondholders are being paid with the official loans that also finance the remaining primary deficits. When it turns out that countries like Greece, and next Portugal and Ireland cannot meet the austerity and structural conditions imposed on them, and therefore cannot return to the voluntary market, these loans will eventually be rolled over and enhanced by the Euro Zone members and their organization EFSF supported by IMF. As the financing of EFSF demands new members or more funds from the existing members who are still able to pay, two possibilities are in play:

· The existing Euro Zone members could ask for extra tax money to continue the bad dept members over expending.

· The existing members can choose to “invite” new members into the Euro Zone fiscal union and participate in funding the bad debt members.

The “public sector Ponzi scheme” shows when Germany and France invite the non Euro Zone members to participate in the Fiscal Union and herby support the EFSF with extra funds. Looking into the funding of EFSF there is no doubt that Germany and France want to diminish their part of the total funding of EFSF. The brilliance of a “public sector Ponzi scheme” is that it is far more flexible than a private one. As long as the “public” scheme continue to be financed with public money the peripheral countries debt could continue to grow without a limit. The public Ponzi scheme could just increase the taxes and herby get continues funding or invite other public members into the scheme. A private Ponzi scheme will collapse when you cannot find enough new investors willing to use their funds in the scheme so old investors can be paid. Even though in theory the public Ponzi scheme could continue in the infinite, the national governments have started to see a public opposition to financing this Ponzi scheme in its current form, which is quite obvious in Germany and France who are the creators of the fiscal union plan and EFSF new tasks. It is obvious that this Ponzi scheme will only be allowed to take place when the vast part of the European distressed debt is transferred from the private to the public sector. The looser of this Ponzi scheme will be the last holder/countries of the “asset” that takes the full loss. In the EFSF case it will be the taxpayer of the participating countries that foots the bill, rather than the original bondholders that made the wrong investment decisions.

What does this lead to?

When the invitation to the 10 non Euro Zone members has been issued from the leading Euro Zone members –Germany and France – they have to watch out for not being the last holder of the “bad asset” because they will take the full loss. Participating in the funding of EFSF will be writing a support check to the Euro Zone members saying “we will continue to support you weather you act in good faith or you just let go and continue to consume without the financial cover for your consumption”. In short this is a plan which could lead the 10 non Euro Zone members into the same bad shape as the Euro Zone countries are facing. The plan will not save the Euro, nor the bad shape of the indebted countries in Euro Zone. It will just prolong the pain and get everybody in EU in bad shape. The structural problems have to be solved before you continue to finance a bad debt.

Would the Fiscal-Union be a debt-serfdom or a resolve of the Euro-Zone debt crisis for the EU citizen?

2011-12-26T00:42:00.000-08:00

Obviously, there are several ways to look upon the EU debt crisis. Two of the major countries France and Germany want to solve the EU debt crisis with a Fiscal Union. Others believe that the EU debt crisis is due to the complex EU structure and the difference in cultural and economic responsibility among the EU members.

No doubt, the EU has a debt crisis, but this crisis is rooted in a lack of popular support, a lack of transparency and democracy and has a high degree of complexity. The complexity are not addressed, by the National governments, as they do not have the will or support from the population to focus on what needs to be done to get the EU to become more manageable and understandable. The whole EU Union has become too complex. The reigning countries in EU, is the hardcore fiscal solvers Germany and France. These countries want to solve the EU debt crisis with a fiscal solution.

A Fiscal Union, have been suggested by France and Germany, mainly to take the heat off these countries, as the controllers of the Euro Zone.

The governing of the Fiscal Union, will be taken care of by IMF and the European Financial Stability Facility (EFSF) this set-up has been created by France and Germany mainly to take the heat off these nations. Germany in particularly has been synonymous by controlling and deciding how the Euro Zone fiscal situation should be governed.

The EFSF is a company that was agreed by the countries that share the euro on May 9^th 2010 and incorporated in Luxembourg under Luxembourgish law on June 7th 2010.

The EFSF´s objective is to preserve financial stability of Europe’s monetary union (Euro Zone) by providing temporary financial assistance to euro area Member States if needed. In order to fulfil its mission: The EFSF are authorised to Issue bonds or other debt instruments on the market to raise the funds needed to provide loans to countries in financial difficulties.

· intervene in the debt primary market

· intervene in the debt secondary markets

· act on the basis of a precautionary programme

· finance recapitalisations of financial institutions through loans to governments including in non-programme countries

The EFSF is an organization invented for, financed and controlled by the 17 Euro Members. The remaining 10 EU members, are outside the control and “help” of EFSF. These 10 members, has been invited to participate in the new Fiscal Union on the EU summit December 9^th2011. The purpose to invite the 10 non Euro Zone members into the new Fiscal Union, has among other things been to contribute to the EFSF crisis fond. The 17 Euro members want to have, the 10 countries outside the euro zone to support and get a closer connection to the Euro.

The question is;

· What is the incentive to the 10 EU members outside the Euro Zone to participate in the fiscal union?

· What is the advantage of the 17 Euro members in getting the remaining 10 members to be closer to fiscal cooperation in the union?

Today the 10 EU members outside the Euro Zone have no financial responsibility towards the bad debt of Greece, Portugal and Ireland they are outside the Euro. The 10 EU members outside the Euro Zone have relatively economic growth, relatively good financial conditions even though they are closely, connected to the euro. What should the incentive for these countries be to pay an amount to the crisis fond of the EFSF and participate in the Fiscal Union?

The main argument from the Danish government has been not to loose influence in the EU union and therefore commit to pay 5.3 billion€ to the EFSF crisis fond.

Should that be an argument, that influence should be tied up to securing European member states who have not acted economical responsible?

Is it an economically healthy country's interest to increase the countries debt by bailing out other countries with less control of their fiscal budget?

There is a great risk, that Denmark paying the 5.3 billion€ to the EFSF crisis fond, will end up in a "Fiscal union" which could be seen as a code-phrase for a highly profitable debt-serfdom. Some will describe the Fiscal Union as an automatic sanctions “EFSF machine”, to force member countries to have a close control of their fiscal and tax policies, where EU bureaucracy flourishes and the people of the EU are imprisoned in a modern serfdom. This is harsh words, describing the initiative from France and Germany, never the less there seems to some through in the description.

The “musketeers oath” “One for all and all for one” which is the purpose of the EFSF crisis fond is good for the Euro Zone members but not in the best interest of the members outside the Euro Zone. The members outside the EU Zone will be guarantee for the Euro would not collapse without gaining any special advantages.

The only country who saw this and protested against the fiscal union was United Kingdom. They wanted special status for the London financial district, if they should participate in the fiscal union. On the fiscal Union founder side, was France and Germany who needed to have Britain onboard but on the other hand did not want to grant any members special conditions to participate. The European commission tried afterwards to “sell the fiscal union” to Denmark, promising that their EU reservations could continue even though they supported and paid to the fiscal union. The incentive, seem small for the members outside the Euro Zone – it seems that the problems these countries will gain is much bigger than they have today. On the other side, the Euro Zone countries have a lot on stake. These countries are gambling with the EU union at its present state. The Euro Zone members advantages of having the “outsiders” inside a fiscal union, seems bigger than the opposite situation. The Euro zone members, will be financially less burdened by getting 10 EU members outside the Euro Zone to support the euro and the cash-strapped countries in southern Europe will be a major victory for France and Germany.

Luckily, a number of opposition politicians from the "outsiders" have looked into the Fiscal Union and have stated clearly that we must not be in the euro when the foundation of a reasonable and mutually supportive cooperation is not present. The foundation is not in place when the southern European countries do not have a firm grip on their fiscal and tax budgets.

If a Fiscal Union will be an economical serfdom or a solving of the EU debt crisis for the European citizens is difficult to see on a short term, and even harder to measure on a long term. It is up to the 10 Euro Zone outsiders to decide weather it is worth to make the economical sacrifices for maybe solving the debt crisis in EU, or should they take the stand as United Kingdom, stay outside as long as they do not get some economic concessions from the founders of the Fiscal Union.

Will the small nations survive the new EU orders?

2011-12-19T07:55:00.000-08:00

EU is an Union of many different countries with both cultural and economical differences. The Backbone of the Union consists of the three major economies – Germany, France and Great Britain. There are other important economies as Italy and Spain but these nations have difficulties, which gives them a secondary status economical wise. The remaining 22 countries in the union have different strength and abilities to participate in the union of both cultural and economical reasons. There is the;

· The Euro Zone members,

· The members south of the alps

· The northern European members

· The members, who has a cultural and mutual bond to work together.

· The economical sound members

· The members in economical trouble

There is a member mixed, in the various “groups”. Each member can easily hold a position in more than three different groups. This makes the EU union very fragile, as the members are mixed and prefer not to, pull in the same direction. Denmark is one of the members who have a very mixed position in EU:

Denmark is NOT a Euro zone member
Denmark is NOT a southern alp country with these traditions of economic
Denmark is NOT one of the economical troubled countries
Denmark is belonging to the northern European members
Denmark is an economical sound country
Denmark has mutual and cultural existence with the other Nordic countries, UK and partly Germany
Denmark has worked closely together with the Euro countries, as the currency, is related to the Euro.

If we benchmark one of the other small member countries Greece, with Denmark it is easily to see the difference that appeare in EU. This make an EU difficult to be keept as a united Union.

Greece is NOT an economical sound country
Greece is in big financial problems, they are spending more than their BNP allows them.
Greece is a southern alps country with these economical and cultural traditions
Greece is a Euro Zone member
Greece has mutual cultural interests with countries such as Spain, Italy and Portugal
Greece has felt the dominants of the strong northern European countries.

It is not difficult to understand that the local populations in the northern part of Europe, who have difficulty to understand the Union itself, gets upset over one member who has such a mess in its fiscal budget. It is also obviously that the populations in the other European countries starts to ask the politicians, how are we doing and do we have to bail the economical troubled countries out on behalf of our own welfare. As a member country, you have to ask what have our contribution to the EU gone to and how much more do we have to pay to keep the union intact. As the structure of EU never have had a public appeal and over the years have gained even more power, that have materialised in more bureaucracy, the overall union project is in danger. The fiscal union project which Merkel and Sarkozy have started will properly on the short run keep the Euro Zone together and draw some of the smaller nations outside the Euro Zone to sign up on the project. The fiscal collaboration will continue until the more democratic part of the union members will have to take a national referendum on how to proceed with giving away national sovereignty to the union. The first to fall would be UK where the EU criticism, always have been big as they believe that Germany and France have too much influence. A growing number of left and right wing politicians have started to call out for that their countries should leave the union. Their argument is that the Union will eventually collapse. The idea of leaving the union seems not realistic, as the world is for collaboration in communities where the EU, is a good project. What has to be done is the union has to be more democratic and we have to have simplicity into the union, as what we have today will collapse, as the complexity of the existing union is fare to big.

Will promises of simplicity keep the smaller members inside the union?

There will be difficulties even here, some of the smaller union members has a difficult economic and will not be able to apply to the new EU order. The next problem will be that there are members who want to proceed into full union membership as the US model where there will not be the same room for individual demands and local differences. The only way to solve this and herby keep the members in the union will be a Europe in different speed mentioned in my earlier blogs. This will be the challenge in the next couple of years and members have to look into what they believe what is right for them.

Who will stay in the European Union when the new fiscal Euro union starts?

2011-12-14T00:38:00.000-08:00

Friday's EU summit (December 9^th 2011) has presented the 17 Euro countries with a fiscal union from Germany and France. The remaining 10 countries, who do not participate in the Euro monetary collaboration, will have to take a decision of how they will participate in the “new” EU union. The dilemma in this new attempt from Germany and France, is only based on, the fiscal problems in the union. The general structural problems and herby the complexity in the European collaboration has not been addressed.

During the financial EU summit, the 10 countries, which remain outside the Euro collaboration, have

(journalist Michael Rathje), 3 options when they decide on their future participation in the EU.

As a no Euro country, you can decide to stay outside the fiscal union and the Euro collaboration.
As a no Euro country, you can decide to participate in the fiscal union and give up the Euro reservation which countries as Denmark, UK and Sweden has.
As a no Euro country, you can decide to work a hybrid solution – participate in the fiscal union but stay outside the Euro collaboration.

As we can see from UK – David Cameron the prime minister have pleaded for option one. UK do not want to be in a structure where EU bureaucrats will get further power, and where sovereignty has to be taken away from local government as Germany and France have suggested in the “new” fiscal union for the 17 Euro countries.

The fiscal union has two main purposes, where the first purpose is not new for the entire EU, it has never been enforced, by any authority in the union. The second purpose, are new and look into the structure of the single member country but still only in the economical area.

To secure that the budget deficit wont exceed 3% of the BNP
To introduce a new economical demand the “structural budget deficit”[1] which must not exceed 0,5% of BNP in each member country.

[1] The structural budget deficit has to take into consideration the single member country cyclical conditions as high unemployment

The interesting part with the first demand only a very few countries have ever been able to maintain this demand and only for periods. The second demand gives real trouble as there have not been defined a single measurement to calculate the structural budget deficit. The interesting part is that this new fiscal union, has to be ratified, in March 2012 by the members who want to participate. It seems that the 17 euro countries don’t have any choice, the remaining 10 countries (Denmark, Bulgaria, Latvia, Lithuania, Poland, Romania, Sweden, Hungary, the Czech republic, and UK ) has to take a decision of weather participate or stay out of this new collaboration in EU. UK is the only country, which up front have refused to participate even though they could risk to loose economical and political influence and even be sanctioned by EU. An opinion pole in UK have shown that 57% of the UK population agrees with the prime ministers decision.

The remaining 9 non Euro members of EU has to look into if they have to have a national referendum on each of the subjects as it could take sovereignty away from the individual member state. Another question is it possible for each of any of the 27 EU countries to comply with the new rules in the fiscal union. The new fiscal union demands, really puts up more questions than it solves.

· Does the new fiscal union solve the EU problem?

· Will this new structure leave an Europe in two speeds?

· Will the 17 Euro countries, be able to keep an unification when the smaller members can not pass the demands and need further help from ECB or other members?

The European Union dispute about a fiscal collaboration opens up for another discussion, do we in Europe have a structure that can justify such a collaboration to save the Euro. The countries have not even looked into the differences in culture and financial responsibility for each member state. They have not looked into if the development of each member state complies to an average, and is there an average which can be followed by all states in the union. Another question is the majority of member states ready to further sovereignty submission to the EU bureaucracy. The complexity of the European Union as it is today don’t seem to have a public support in the union members populations. Inhabitants in EU do not understand the bureaucrats in Brussels nor the rules or regulations that they have to follow. If the EU should stay as a union, it needs to be much simpler and get an unification on broad topics which slowly could make a unified Europe. If we look at United States of America, the unification has taken more than 200 years and still there are mutual topics that make deep clefts in the population. The Europeans has to work on the various topics but it will take time and we need to have a Europe in different speed or ells it will break.

Could an EU collapse actually save the union? (An EU of different speeds)

2011-12-05T14:06:00.000-08:00

During 2^nd half of 2011 there has been a lot of discussion about how the EU could continue in its present form. The crisis in the southern part of Europe, with Greece closest to collapse, discussed on many blogs and forums and Social Media sites, is one side of the problem in EU. The main issue discussed has been the economic part of the crisis, which makes good sense for the countries affected by the failure of local economic policy. As a first step, these countries must look at themselves and their internal structures around financing of public consumption and consumption in general, so that they start to collect taxes from the entire population instead of only from parts of the population. The main issue in EU is not the economic crisis this is the ticker, the crisis is structural as the EU is not a homogeny collection of states, which are at the same level and working the same speed for democracy and economical stability.

If we take Tainter´s definition of when a structure collapse; According to Tainter complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. Could these societies just re-tool in less complex ways? Tainter answer is - When societies fail to respond to reduced circumstances through orderly downsizing, it is not because they do not want to, it is because they can’t. One reason they can’t is that the public opinion has turned against the complexity due to lack of understanding in the public. When this happens, the cultural difference in the member country and the Central EU has departed so much that it is inventible that a collapse will happen. This is the most appropriate response according to Tainter. EU will soon be in the situation where it has to work with new and simpler structures, structures working in different speeds. There has already been an understanding between France and Germany (old core member from 1957) - that there must be change (see CNN dec.5, 2011 – Europe goes back to the drawing board). They are aware that the EU is approaching a collapse, but their key to solving problems is to tighten to the requirements for financial accountability, instead of looking at the overall structure crisis. The French president took up the dialog during his party congress, where he noticed that our united Europe did not have the same progress and did not work at the same goals and speed.

If EU must continue to exist, it has to change its present form and it has to occur in a fast and firm way. The new rules, which Germany and France are starting, is only the beginning of an EU in different speeds. In my opinion, we need to divide EU in 3 levels:

Starting with the “core level” – this is countries who want to have the full package – which are in an economical position of participating in the Euro, who want to have an EU army who want to have the trade union to continue and who want the EU parliament to have more power. These countries will be the dominant parties of the union and should have more power than the rest as they pay more and work closer together. To mention countries in this division is: Germany, France, Holland, (Belgian – due to the fact that the EU parliament is situated in Brussels), Austria, Finland, Luxemburg.

The “first level” - this is countries participating in parts of the package. The characteristic of these countries is that they have the financial ability to participate in the full package, but have no country political support to participate in all parts of the full EU package. These countries have signed the treaty for a specific purpose, but as the union has developed, they have had national referendums for voting for new parts in the treaty whom the national population should vote for or against. It is up to the core members to decide when these members can take to the next level. To mention countries who would be in this division is: Denmark, Sweden, Great Britain, Italy( do not have the financial strength to participate in the core), Spain ( do not have the financial strength to participate in the core), Ireland ( do not have the financial strength to participate in the core) Portugal ( do not have the financial strength to participate in the core) Poland ( do not have the financial strength to participate in the core)

The “Second level” – this is countries participating as prospects. These countries are under development, both financial and democratic. They have to prove that they are able to stay in and develop in the union by showing both financial and democratic responsibility. It is up to the core members to decide if and when, these members can participate in the next level. To mention countries who would be in this division is: Greece, Bulgaria, Rumania, Hungary, Czech republic, Slovenia, Estonia, Lithuania, Slovak republic, Cypress, Poland, Malta, Estonia, Slovakia, Latvia, Lithuania.

This is not a static list and level it is dynamic. The dynamic depends on how solid the members are and how well they understand the democratically coherences as well as being able to show a stabile economic growth.

It is a fact that the two big members in the EU – France and Germany – know that change has to take place to prevent a total economic melt down. Merkel and Sarkozy want to start changes by building a;

· Fiscal Union

· EU regulators to challenge budget policies of member nations

· They have not secured a mechanism to ensure that all members are financial sound

The problem with Merkel and Sarkozy´s plan is that it only works, on the financial problems and keep the overall EU bureaucratic structure intact and with the existing complexity. The two state leaders symptoms treats but does not solve the real disease which is the complex structure in EU and the big cultural differences in how you work and pay for a public sector. In their proposals, they even suggest more interference from EU bureaucrats into the member fiscal budgets. What the member nations populations hate from EU, is the control of bureaucrats and what the national assemblies hate is the power taken to Brussels and away from the member nations.

If you want to be a member of a club, you have to decide what you are willing to offer to be a part of the “core” or you just want to be associated with the club and continue your own member plan. It is a matter of trust and believes and local legislations, of how much you can and will offer to stay in the “core”. Member nations have to take these choices in a near future, to continue their membership. Merkel and Sarkozy imply that they can continue with the 17 members who have the euro. These euro countries, is forced to have a common agreement of how a fiscal policy should be governed. We will have an EU of different speeds coming up.

Will the continuing complexity in Country structures eventually make a dramatically change in world and economic order?

2011-12-04T15:26:00.000-08:00

I have recently read a very interesting article of a Clay Shirky who refers to a Joseph Tainter and his book “The collapse of Complex Societies”. In the article Shirky claims that when structures get to complex and difficult to understand for their “inhabitants” and only a little “elite” understands how to navigate in the complex structure, they will eventually collapse and new and more adaptable structures will rise from their ashes. My thesis is; will this be the reason for the European Crisis and for big enterprises?

Tainter explains in his book that structures as the Roma Empire and the Soviet Union collapsed, even though these regimes had complex social structures and even advanced technology they could not survey. These regimes had developed a bureaucracy, which had a firm grip of the power structures and despite of that they collapsed. Tainter explains the collapses with the cultural sophistication of the societies. I will add two more dimensions into this explanation:

The lack of public support of these complex structures – “The people do not understand what it lead to”
The lack of proper communication and integrating of the people in the development of the structure

Do we have a similar story in the European Union?

One can say that we have a structural crisis in EU as well as an economical crisis. Compared to the Roman Empire and the Soviet Union, EU has sought to create a structure that can accommodate all countries that just showed a desire to participate. EU forgot to ensure that Europe has different speeds in the development of democracy and other structures as financial accountability. To counter this, the "European empire" has built a complex of officer structure, which helps to define the rules and guidelines in all key areas. This complexly structure is not based on each member's cultural and developmental stage. It is a structure designed for bureaucrats, by bureaucrats. The complexly structure is one of the reasons that countries like Greece, Portugal and Ireland has managed to participate in the Euro cooperation and with-out solid economic power has issued bonds for sale to the “hungry” European banks as they were told that it is solid gold. These countries has with their membership of EU developed a Society which when they entered was fare behind the other members and gained a similar society as the “old” members in a 20 year period. This has taken the “old members” more than 60 years to reach the same level of social and economic development. To move from a simple rural agricultural structure to a complex EU structure demands cultural and social changes for the new member states. This has been a problem for several of the member states south of the Alps. It is a fact a number of these countries like Greece, Spain and Portugal are in trouble. Some of these countries are, close to a collapse. The collapse of these countries threaten the solid countries north of the Alps, and herby threaten the entire European structure. According to Tainter complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. Could these societies just re-tool in less complex ways? Tainter answer is - When societies fail to respond to reduced circumstances through orderly downsizing, it is not because they do not want to, it is because they can’t. One reason they can’t is that the public opinion has turned against the complexity due to lack of understanding in the public. When this happens, the cultural difference in the member country and the Central EU has departed so much that it is inventible that a collapse will happen. This is the most appropriate response according to Tainter.

Is it possible to avoid collapses in complex structures?

Even though Tainter says that it is impossible to avoid a collapse when the structure is too complex, I believe that you can postpone the collapse by communicating the circumstances with your population as a country and as a company your employees. Social Media is a good example of how complex situations become down scaled and easy to access problems, solved outside the complex organizations/structure by peer-to-peer communications.

The complexity problem will create new and simpler structures that will bring value to societies and organizations who adapt them. A new world order and another economic system will appear when the old and complex system turns negative and looses value towards its population an organizations. The Warsaw pact community is a good example of that. These societies was plagued by an inability to react and even communicate their message to the population, their complexity and efficiency had reached a point where it becomes suddenly and dramatically simpler up to 1989 – which was the moment of collapse.

Could a collapse also happen in an enterprise?

Big companies or enterprises do have complex structures and the bigger they get the more complex and process oriented they get. This lead to the situation that nothing (no costumer contact no sale) can be done simple. The complexity increase with the size of the enterprise and the decrease of new ideas and employees happens. In the period of 1990 – 1994, small entrepreneurs (100 and less employees) generated approximately 8 million new jobs. At the same time, the complex enterprises (100 and more employees) destroyed more than 3 million jobs.

Take the case of selling a service to a costumer, how would the Entrepreneur react and how would the enterprise react?

The entrepreneur would look into the need of the costumer and make the service available for the costumer. The enterprise would start a process attaching an offering manager, to the case, to help it progress. Next step would be having the service price looked through by the company lawyer. A third step would be to tell the costumer that they needed 4 weeks to deliver the price and product. What happened; the complexity of the selling process has increased to a “monster of processes”. What will the enterprise do – virtually nothing until the costumer reacts and even then not being able to do anything, as they fail to respond to reduce circumstances through orderly downsizing, it is not because they don’t want to, it is because they can’t . The enterprise has build a process system where there is no way to make things a little bit simpler. The enterprise edifice becomes a huge, interlocking system not readily amenable to change. The scenario could end in two ways:

1. The costumer agree to wait for the enterprise to serve.

2. The costumer reject the order and starts buying from an organization with less complex structures. Neither scenarios; will in the long run suite the costumer and the enterprise will loose costumers. This will lead to a collapse for the enterprise. Could you as an enterprise avoid this collapse – you could postpone it by communicating your message to the costumers in a clear way. To avoid it, you have to change culture and actually have a collapse, simply to get a method to simplification.

The answer to the question; can an enterprise collapse the answer is YES.

What is the outcome would it create a new world order?

I do not believe in revolution or violent uprisings but when ecosystems change and inflexible institutions collapse there will be a possibility to create a new world order. When members of the old system disperse, abandoning old beliefs, experimenting with new things and making a living in a different way than members used to do, could lead to a new world order. There is a compensating advantage for the people leaving the old system: When the ecosystem stops rewarding complexity, people who turn to a simple structure will be the new success and will be the one who would know what happens in the future. A new and simple world order has to occur, to get countries and enterprises, on economic growth again. We have seen it before and we will see it again new ways of communicating has already created enormous potential to create new jobs and possibilities. We have to participate in that direction, to be able to solve the problems of tomorrow.