Red Plenty - Wow!

Just finished Red Plenty by Francis Spufford.  This book focuses on the Soviet dreams from 1940 to 1970.  Leaders span Stalin, Krushchev and Brezhnev.  Why did I read this book?  It addresses the economy of the Soviet Union and is an insightful read into Russian history during this period.  I like economics and history so it fits.  Not a lot of finance insight but this was to be expected.

The large picture nugget that was given to me from this book is the insight that Marx did not intend for the the Revolution to occur in a backwards society - as Russia was at the time of their revolution.  Marx referred to a revolution in a developed industrial society similar to England, Germany or the United States.  The workers would simply take over the machine and out the intellectuals that were stealing labor (this makes Atlas Shrugs such an interesting read).  The result is Russia took on a very complex problem.  How to build a socialist society from an agrarian economy to an industrial economy.  As the book reads through you see this was a significant oversight by the initial instigators.

To further complicate the ability to transition, Stalin removed the liberal arts (and related instructors to the gulags) from the universities creating vocational engineering and science programs at the universities to focus on developing industry.  A brain drain ensued pushing the theoretical modeling abilities back a generation. 

Linear programming was introduce to centralized planning giving the hope that supply an demand could be attacked through computer programming iterations.  True supply and demand is not as simple as algebraic applications and requires calculus to determine optimization.  While the Soviets were trying to pin down supply and demand through algebra, the West allowed for natural optimization through open markets.  Red Plenty tracks how the system used paper folders to determine the demand and available supply of over 300 commodities required to run the economy - to the extent there was one man in a room wheeling between folders updating each for a change in resource requirements.

The book then goes into the black market and how it operated.  An example was given of a factory that could not meet its demands and determined if they had an upgraded piece of equipment they could meet the demand.  There was not a possibility of ordering a new piece of equipment since they already had one that was an older version.  They decided to run a bulldozer through the plant as an accident causing an emergency need for the new piece of equipment - vs. just letting the authorities know that modeled demand was not deliverable with the older version of the equipment.  Meanwhile, the black market operators stole key pieces that put together the machinery that was needed to fill demand from another factory trying to increase its production.  Etc, etc.

So what's the take away from all of this.  Human nature doesn't change regardless of political or economic structure.  The key is how does information become transparent as soon as possible allowing markets to react efficiently.  A free market allows for the quickest exchange of information between rational investors.  As people, we are not necessarily better than others - we are just in a market that allows for a more transparent exchange of information.

We have had our share of failures in the West.  While Stalin was murdering millions and causing millions more to suffer in severe poverty, the United States was in a great depression with millions suffering severe poverty.  We have recently seen Wall Street deal makers and trusted investment managers hiding information from regulatory oversight.  The result is millions at the age of retirement seeing their wealth reduced or wiped out.  Transparency of information is critical to the success of any organization - large or small.

Let's ask ourselves about our own organizations.  Do we allow information to flow freely?  Is accountability transparent?  Can executives really see what is going on in their organizations?  Challenge yourself.  We are only as good as what we know.  While we smirk when we think of the planned economy, we may be sitting on our own little fantasy.

A Farewell to Arms

Just finished Hemingway's first book -  "A Farewell to Arms".  Hemingway taps into his experience as an ambulance driver to create a story of one on the Italian front.  "The Lieutenant" gets hit by a trench mortar and sent to a hospital in the rear wear he meets his girl (Catherine).  She is a nurse that takes care of him.  They fall in love but he has to go back to the front.  Shortly after arriving the Italian army is forced to retreat.  During the retreat the Lieutenant gets cut off from the main retreat and is behind enemy lines.  Eventually he is able to find his way back to the main body of the retreat but finds out the Italians are shooting all of the officers.  The Lieutenant jumps into the river to escape being shot in the head - Farewell to Arms.

The Lieutenant finds his girl (who is with child) back in Milan.  He knows he will be reported so he and Catherine row a boat across a great lake to Switzerland where they are politely arrested but allowed to live freely in the country.  They spend a winter in romantic wonder awaiting the birth of their child.  The story ends with the child being stillborn and Catherine losing her life shortly after the birth - a different Farewell to Arms.

The books is a great read.  It gives you a unique insight into the war during that time and is a great romance - guy romance. 

My next book is a Hemingway suggestion - "Out of Africa".  I will tell you of the hills outside of Mombasa.