New Guinea Commerce

Governance, growth and next generation leadership in the Indo-Pacific

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Building wealth and financial freedom in your twenties

Part of the New Guinea Commerce Winners Don’t Cheat Series.

By Sean Jacobs and Jordan Shopov

For young people today the idea of building wealth can be daunting. Never in history have we been so well off but, at the same time, so overwhelmed by financial advice. A dizzying suite of credit cards, savings funds and mortgage offers mix with technical terms like ‘derivatives’ and ‘negative gearing’ to present a confusing picture of the world of finance.

Ideas like saving and ‘thinking long-term’ in your twenties can be difficult. And, without putting your money to use, a decade can pass with little to show other than a pile of debt. But the path to wealth and financial freedom is made much simpler by considering just three basic steps.

Step one is to avoid debt. The investment legend Warren Buffett says that the biggest suggestion he has for young people is to ‘avoid credit cards.’ It’s simply impossible, he says, to get ahead by paying 16-18 percent interest. To avoid debt some people cut their cards up, others use debit cards (so they actually have the cash first) or just enlist self-control in exchange for impulsive buying and poor decisions.

Step two is to spend less than you earn and invest your savings. Spending less than you earn doesn’t always mean tightening your belt but sorting out what’s central to your life and what isn’t. An education, for example, is probably something you want to spend money on versus a holiday in the Bahamas. And when you take time to examine what you spend money on, versus what you actually need, it’s amazing how much income can be spared.

In terms of investing your savings it’s not optimal to just place cash in a savings account – your money needs to go up in value not just when you work but even when you sleep, eat and relax. Pouring money into a savings account can also be outpaced by inflation.

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Circumstances and race are no excuse

Part of the New Guinea Commerce Winners Don’t Cheat Series.

By Sean Jacobs

What’s interesting from reading about success is the sheer number of people who have risen from nothing. The universal stories of people lifting themselves from humble circumstances, in all sectors, at different times and of all different skin colours, is so common that it’s almost banal.

Yet young people, particularly minorities, are continually sold a picture of despair. A few years ago I attended Indigenous Australian cultural awareness training that presented a circular diagram called ‘the poverty wheel.’ This unbreakable and frustrating loop, garnished by references to historical and cultural considerations, laid out the setbacks that young black Australians face. ‘Why bother?’ it seemed to ask – the cycle simply couldn’t be broken.

I wondered what Booker T Washington or Frederick Douglass – Americans who had risen from slavery to statesmen – would think of the poverty wheel. Or George Washington Carver, the great American inventor, also born a slave. I wondered what America’s first female black astronaut, Mae Jemison, would think of it. Or Colin Powell, going from sweeping floors in a bottling factory to a four star general and US Secretary of State.

Ironically, just after the cultural ‘training’ session, I went straight to the library and read the biography of Australia’s Neville Bonner. Here was an Indigenous Australian – born under a tree in the early 1900s, enduring countless rounds of real discrimination and hardship – who reviled self-pity and resentment to become Australia’s first black federal parliamentarian.

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From Honiara to Houston: the harmful trend of government dependence

Excessive government reliance is universally corrosive

At a recent dinner in Honiara, capital of the Solomon Islands, a friend commented on the unprecedented and increasing level of government dependence in the idyllic South Pacific nation of half a million. National elections, taking place at the time, were about how much the Solomon Islands could do for you rather than what you could do for the Solomon Islands (to muddle John F. Kennedy’s famous words).

This trend is not just confined to ‘the Happy Islands’ – it’s clearly a discussion taking place among rich and poor at dinner tables around the world. Annual budgets in neighbouring Australia, for example, stir pockets of outrage that the ‘government should do more’ or ‘is not doing enough’ in areas it wishes to ease spending taxpayer money.

Political leaders now spend considerable time preparing citizens for a ‘killer budget’ – as if preparing for major surgery or going to war. In the United States the government routinely plays the role of ‘Santa Claus’, in the words of one commentator, by showering ‘the public with something for nothing in every department – free health care, free retirement security, free protection from hazardous consumer products and workplace accidents.’

Certainly, from crumbling roads to lousy policing, state performance leaves much to be desired in the developing world. But, regardless of where we are, excessive government dependence is a growing and ultimately harmful trend.

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Leaders are readers

Part of the New Guinea Commerce Winners Don’t Cheat Series.

By Sean Jacobs

‘Not all readers are leaders,’ said American President Harry Truman, ‘but all leaders are readers.’

Truman, who never went to college, is a great example of a self-taught consequential leader. Able to read Thucydides and Cicero in the original Latin, Truman was apparently so up-to-speed that he once even corrected a Chief Justice of the United States.

Painted as a buffoon by the so-called intellectuals of his day, Truman’s supposedly poor decisions – to fight in Korea and pursue a strategy of containment against the Soviet Union – have since been vindicated by history. Because Truman could look further back, some say, he could see further forward. But he could only ‘look further back’ because he was a great reader.

The point of Truman’s story is to show not just the value of reading but how central reading is to leadership, especially at the highest and most critical levels. George W. Bush famously competed in reading battles against his top adviser Karl Rove, where the President read well over 50 books a year – from writers like Albert Camus and Abraham Lincoln to topics like the Soviet Union to the Spanish Civil War.

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Finding your passion

Part of the New Guinea Commerce Winners Don’t Cheat Series.

By Sean Jacobs

‘Well we sucked,’ says the musician Dave Grohl. ‘But we loved what we did so we kept playing. But we always found ways to improve… we kept sucking but eventually with improvement we became Nirvana.’

Grohl’s simple approach highlights the value of sapping some enjoyment from what you do and how important this is to propel to new heights. I use the term ‘some enjoyment’ because finding your passion is not always an easy or complete endeavour.

Many of my young friends, for example, studied law with ambitions of prowling around the courtroom but ended up ‘hating it’. Others started with hands on professions but found that, with experience, they’re more cut out for the corner office. Many successful people also say that they ‘still don’t know what they want to do’ even after rising to the top of their professions.

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Blood, toil, tears and sweat

Part of the New Guinea Commerce Winners Don’t Cheat Series.

By Sean Jacobs

‘I have nothing to offer but blood, toil, tears, and sweat,’ Winston Churchill famously declared in 1940. He had just been elected Prime Minister of Britain and was speaking of fighting Nazi Germany. But his words remain useful in recognising the sheer grind that is a prerequisite for any success.

Today our sport stars tend to capture the more lively examples of all-out effort. Tiger Woods, for example, spends five hours a day just hitting golf balls on top of an already maniacal training regime. The swimmer Mark Spitz – the Michael Phelps of his day – apparently swam enough laps of the pool to swim the distance of the equator. Daley Thompson, the Decathlon legend, famously quipped that he trained on Christmas Days because he ‘knew his opponent wasn’t.’ It should be remembered that training for these folks isn’t just a stroll in the park but consists of relentless and carefully calibrated effort.

‘Coming early and staying late’, as the saying goes, requires an element of persistence beyond simply turning up – the effort must be sustained over time. Andres Ericsson, perhaps the world’s foremost expert on performance excellence, says that elite status is built only after years of toil – twenty years, in fact, of what he calls ‘devoted effort.’ This applies not just to athletes but experts in any field – scientists, doctors, fighter pilots, writers and so forth.

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Winners Don’t Cheat

‘National progress,’ wrote Samuel Smiles, ‘is the sum of individual industry, energy, and uprightness, as national decay is of individual idleness, selfishness and vice.’

In 2015 New Guinea Commerce is launching the Winners Don’t Cheat series.

This will be a series of essays, aimed at people in their twenties, covering self-help ideas such as working hard, orienting toward your passion, knowing how to face adversity, being a decent person and living with purpose.

The first piece will be published shortly.

Colonialism and the District Administrator

Reflecting on a colonial past is hard but must be done sensibly

In a 2005 speech at Oxford University former Indian Prime Minister Manmohan Singh gave a quiet but significant nod to some of the positives of India’s colonial legacy. When discussing British Imperial rule can conjure images of all-out subjugation, or is darkly evoked in movies like Avatar, reflecting on colonialism’s positive attributes can be a tricky and awkward task.

From ‘courts, clerks and contracts’ to the benefits of the English language, Singh’s thoughtful reflections cast light not only on Britain’s rule of India but other far-away places touched and governed by British institutions, laws and customs.

Among the islands of the South Pacific the British applied a similar governance template to its commitments in the sub-continent and parts of Africa. The steady decline of the French, Spanish and Portuguese Empires, and the Allied ascendance after World War Two meant that, from the impenetrable highlands of Papua New Guinea to the remote archipelagos of the Solomon Islands, the British Empire (and by de facto Australia) had responsibilities to the local inhabitants in these isolated parts of the world.

Unfortunately many believe that the British actively underdeveloped these areas or spent their days preoccupied only with class, rank and ceremony.

Perhaps the prime counter-example of this, however, is the role of the District Administrator. Deployed by the British Colonial Service the ‘DA’ was responsible for ‘peace, order and good government’ often among thousands of people and across as many square miles.

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The Rule of Law and Social Cohesion

Why different rules for different people doesn’t work: reflections on the rule of law in America, Australia and the United Kingdom.

When explaining western prosperity the ‘rule of law’ is generally bundled together with other unique attributes of western civilisation and usually implies one concept – property rights. Historian Niall Ferguson, for example, has put forward six “killer apps” of western civilisation “that set the west apart from the rest”: competition; the scientific revolution; modern medicine; the consumer society; the work ethic; and property rights.[1] Amid these important attributes it is worth reflecting on the contribution of private property rights.

During an interview in 2002, the late Milton Friedman rhetorically asked: “What does it mean to privatize if you do not have security of property, if you can’t use your property as you want to?”[2] Indeed, it is difficult to envisage the United States without its early and firm responses to questions like these. From champion nineteenth century industrialists like John D. Rockefeller through to the property seeking individual, one could only prosper if they were guaranteed a firm degree of legal protection for what they owned.

This concept of protection for one’s property had its roots in Britain where, by the seventeenth century, private property had come to be viewed as “the holiest of holies”.[3] Such thirst transposed firmly onto Colonial America, illustrated by the hugely popular land grants that were used to establish settlements, mission and farms. Important to recall is that land was not viewed as simply open space – it was vigorously pursued as a productive asset.

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Why Is Debt Bad?

Debt causes and exacerbates recessions

Sean Jacobs, Hip Hop Republican, 12 November 2014

Rarely are the harmful effects of debt explained or unpacked at length. Greed is often the main explanation for the 2008 Global Financial Crisis alongside Wall Street malpractice and complaints of ‘the top one percent.’

These are certainly much easier targets for blame than household debt, which appears to have a subtle but much more potent effect in causing and exacerbating recessions. This is the message of a new book called House of Debt: How They (And You) Caused the Great Recession by American economists Atif Mian and Amir Sufi.

While technical in parts their argument is simple enough for non-economists. In the lead up to 2008, they explain, U.S. household debt ballooned to unprecedented levels. Between 2000 and 2007, for example, the total amount of household debt doubled to $14 trillion while the household debt-to-income ratio jumped from 1.2 to 2.1.

Why is this so economically lethal? Simply because high debt households crawl into a shell when the economy contracts.

But this is only part of the story. Americans, like many in other countries, have a great deal of their wealth tied up in the value of their homes. Naturally, if house prices dip, households – especially those with high debt – recoil even more.

While this is common sense the figures are staggering. The decline in home values, for example, led to a $275 to $385 billion decline in U.S. retail spending. ‘Yes, the poor were poor to begin with,’ Mian and Sufi explain, ‘but they lost everything because debt concentrated overall house-price declines directly on their net worth. This is a fundamental feature of debt: it imposes enormous losses on exactly the households that have the least.’

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