Tuesday, February 19, 2013

There is something wrong with this picture

Dear Colleagues

I drafted this post almost exactly 2 years ago ... but the theme of my observation back then is much the same today. It highlights a management issue that I remember from my days as a corporate manager ... talk is easy, but getting the results, not so easy, and a manager's job is to make sure that there are results. For this the best management tool is good accounting and reporting.
I have just stumbled on the following article originally from Reuters.
The text of the article is set out below for convenience.

I have posted a comment as follow under the title "There is something wrong with this picture!":
The article describes a huge disbursement of money ... about $10 billion a year for six years, and yet there is really nothing anywhere that talks about how much money has been spent and with what results over the past decade.

There is great happiness in much of the international malaria research and control industry because disbursements are an order of magnitude bigger now than they were a decade ago ... but metrics about the performance of this expenditure is glaringly absent.

With billions of dollars flowing, it is pathetic how little performance feedback there is ... a totally irresponsible situation, but the norm throughout the global official relief and development assistance (ORDA) industry.

I am a former corporate cost accountant and CFO who has done a fair amount of consulting in the ORDA arena. The scale of the lost and wasted funds is outrageous.

Peter Burgess

U.S. effort to fight malaria focuses on women
2010-04-22 22:22:01 GMT (Reuters)

* $63 billion plan to include drugs and mosquito nets
* Greatly expands 2005 initiative with $10 billion a year
By Maggie Fox, Health and Science Editor

WASHINGTON, April 22 (Reuters) - The U.S. government announced a $63 billion, six-year plan on Thursday to accelerate efforts to fight malaria, mostly in Africa and focusing on women and children.

The aim is to reach 450 million people, or about 70 percent of the highest-risk populations in sub-Saharan Africa. The plan is to use insecticide-treated nets, indoor insecticide spraying, preventive treatment of pregnant women, and treatment of infected people with artemisinin-based drug cocktails.

The work through the Global Health Initiative will keep trying to integrate with each country's preferred approach to fighting malaria, which infects 247 million people globally and kills nearly one million a year, mostly children.

"The United States will invest $63 billion over six years to help partner countries improve health outcomes, with a particular focus on improving the health of women, newborns and children," reads the report, issued by the U.S. Agency for International Development.
The full report is available at www.pmi.gov/resources/reports/usg_strategy2009-2014.pdf.
A major goal is to affect most of Africa by cutting malaria rates in half among the 450 million people targeted, the report says. It also aims to limit the spread of malaria parasites that resist treatment in Southeast Asia and the Americas.

The program will distribute nets and help spray against mosquitoes that carry malaria parasites. But it will also try to build public health capacity and also seek to integrate anti-malaria efforts with work to combat AIDS, tuberculosis and so-called neglected tropical diseases.
Without prompt treatment, malaria can cause severe illness, coma and death. There is no vaccine but prophylactic drugs can help prevent infection. So can efforts to eradicate mosquitoes.
In 2005, the U.S. government released a five-year, $1.2 billion malaria initiative targeting 15 African countries.

The latest plan released expands on this, rolling out anti-malaria efforts in the Democratic Republic of Congo and Nigeria as well as up to seven additional countries.

"The selection of the seven additional countries will be based on population, malaria burden, health infrastructure, and availability of other donor funding," the report reads.

In March, the Roll Back Malaria Partnership said funding to combat malaria must be more than tripled to be effective.

The group, backed by the World Health Organization, said total annual funding was about $2 billion at the end of 2009, but $6 billion a year was needed.

In the worst-hit countries, malaria takes up 90 percent of public health spending.

Resistance to chloroquine and sulfadoxine-pyrimethamine, the cheapest malaria drugs, is common. Artemisinin combination therapy drugs made by firms like Novartis and Sanofi-Aventis can cost up to $11 over the counter.

Do capital markets allocate resources efficiently?

Dear Colleagues

Do capital markets allocate resources efficiently? YES ... but!

I learned academic economics 50 years ago ... and learned that markets were an efficient way to allocate resources.

But as I recall, I was also taught that a condition to having a functioning market was for the information being used by the market actors had to be good.

Listening to newsfeeds like Bloomberg News it is very easy to understand why the allocation of resources has been so bad. While corporate profits look healthy (in the first quarter of 2010) the economic health of society has a whole (in the USA) is a mess. This is not at all surprising. The only measures that are talked about are those that relate to corporate profit, stockmarket prices and GDP growth ... and various subsidiary metrics that help to move these measures.

There is no dialog about the horrible state of almost all metrics about the commons, whether it is the state of the land, the sea or the air, all of which have been treated abysmally as dumping grounds for the effluent of a "profitable" affluent society. There is no dialog about the lack of investment in (US) infrastructure, or even its maintenance! There is nothing about the consumption of scarce resources ... they have no "cost" in conventional profit accounting!

There is no dialog about the level of unemployment ... except in the context of unemployment being a drag on possible consumer spending growth ... nothing about the value impact of the family and the community where an unemployed worker lives. There is no dialog about the tremendous value in having the population well education and trained. There is no dialog about the value of having a healthy population. All of these matters are seen as a drag on profit ... but without having any metric of the value of these things, which in the bigger context are way more important than corporate profit in determining quality of life and happiness.

For the last fifty years markets have allocated resources to making profits ... and in this the markets have been very effective.

Over the same time period, organizations like the World Bank have allocated resources to "projects" that have been "designed" to achieve social goals like progress out of poverty ... and it is fair to say that the moneys disbursed by the World Bank have really done very little to achieve these goal. Something is wrong? Something is missing? Where there has been success, it appears that most of the success has come from something else ... like, for instance, profit seeking capital flows, that "spilled over" into social progress!

What this suggests is that the market mechanism flowing into the private sector is way better process than a "designed" project flowing through the public sector with all the baggage of bureaucracy ... but it also suggests that the metrics being used to measure market performance need to be metrics that embrace the social dimension as well as the profit dimension. This is (of course) what Community Analytics (CA) is doing ... but only in a limited way, and not yet reaching the capital market as a whole.

While some decision makers in the capital markets will choose profit maximization no matter what, and ignore the value destruction element of the investment ... some part of the market will choose to have a portfolio that reflects not only profit performance but also value performance. With this there is hope that capital markets will then start to allocate resources efficiently, and the distortion of the market in favor of profit where there are metrics rather than value where there are no metrics, can end.

Change the way the game is scored, and you change the way the game is played!

Peter Burgess