Louis Proyect: The Unrepentant Marxist

March 5, 2018

Millionaire leftist Bard professors removed from Alexis Tsipras’s cabinet

Filed under: Academia,bard college,economics,Greece — louisproyect @ 5:03 pm

Dimitris Papadimitriou

Rania Antonopoulos

Husband and wife Dimitris Papadimitriou and Rania Antonopoulos are big-time post-Keynesian economists at Bard College who just resigned from Alexis Tsipras’s cabinet. It seems that Antonopoulos was receiving a 1000 euro per month housing subsidy for her rental apartment in the swanky Kolonaki neighborhood in Athens even though the couple were multimillionaires. Apparently this did not sit well with ordinary working people suffering through a terrible austerity.

The right-wing press in Greece dug up the dirt on the couple and used it to scandalize Syriza since it is perceived as not serving the bourgeoisie adequately. Think of Fox News going after Obama and you’ll get what has been taking place. Neos Kosmos, a newspaper based in Melbourne, Australian with no discernible ties to the right-wing as far as I can tell, supplied the economic data on the two economists:

According to their tax records, the couple declare an annual income of more than half a million dollars, while their assets and property portfolios are valued in the millions. The Greek media report that the couple owns a luxury villa of 300 sq.m. plus 180 sq.m. supplementary space, 80 sq.m. swimming pool on the island of Syros; a 110-square-meter apartment in New York; a 31.6 sqm apartment in Glyfada, Athens; assets in stocks and bank deposits worth of more than 3,000,000 euros.

The last time I saw such opulence married to “socialist” pretensions was back in 2007 when Jared Kushner’s newspaper—the NY Observer—reported that Trotskyist chieftain Jack Barnes had just sold his West Village condo for a cool $1.87 million.

Interestingly enough, despite her wealth, Antonopoulos went out of her way to file for the housing subsidy as she indicated in a statement to the press:

According to Law 4366/2015 which entitles non-parliamentary members of the government to receive a residence subsidy, since they do not own a home in Athens, I have requested and received a significant amount as a rent subsidy. This provision of the legislator has been enjoyed since 1994 by all non-Athens deputies without any other income conditions.

Many months after its institutionalization I was informed that as a non-parliamentary member of the government I am entitled to a subsidy, and indeed by my colleagues. So I filed an application and since then I have received a total of 23,000 euros for two years.

What a little piggy. She and her husband have a joint income of $520,000 per year and still she applies for a housing subsidy as if she were a single mom working at Walmarts with 3 kids to support. Even after she got caught with her grubby fingers in the till, she  refused at first to resign as the Greek Reporter indicated on February 26th.

Dimitris Papadimitriou and Rania Antonopoulos came to Greece with ambitious plans to rescue the country from the hole that German bankers had dug. He ran the Jerome Levy Institute at Bard, a think-tank devoted to post-Keynesian wisdom, and was a Hyman Minsky scholar. Minsky is a big favorite with “progressive” economists, especially after the 2007 mortgage-backed securities meltdown. He writes all about the instability that plagues the capitalist system through chronic boom and bust cycles.

For Minskyian theory to work, it has to focus almost exclusively on the financial sector, which of course economists like Paul Krugman tended to do. Ooh, those dirty, rotten banks. However, it misses out on the real problem facing American capitalism, namely the declining rate of profit that is a function of the system’s need to replace people with machinery—and hence reduce the amount of surplus value that can be wrung from their muscles. Anwar Shaikh, who happened to have been on the staff of Jerome Levy Institute at one point, just came out with a massive study of this process. Papadimitriou’s dissertation at the New School was about the measurement of the rate of surplus value in Greece. I guess studying it helped him to extract it later on in life.

Needless to say, bourgeois economists, like the inner cadre at Jerome Levy Institute, step gingerly around the question of capitalism itself since they are far too wedded to the system on a material basis and understand as well that Keynesianism still has plenty of purchase in elite circles. Who wants to hear from an annoying Marxist, especially when his or her ideas clash with owning mansions, yachts, and million-dollar paintings. In other words, like all of the people serving on the Bard College Board of Trustees.

Bard College and its president-for-life Leon Botstein embody a culture in which people like Dimitris Papadimitriou and Rania Antonopoulos can flourish. Back in 1995, I came into contact with a union organizer from Local 100 of the Restaurant Workers Union named Brook Bitterman who was trying to apply pressure on Jerome Levy to come to terms with the workers Bitterman represented at Smith and Wollensky, one of Levy’s businesses. I gave Bitterman a copy of the Bard College alumni directory that he used for a direct mail campaign to get the mostly pinko graduates to demand justice for the workers as enunciated in a letter the union sent to Dimitris Papadimitriou:

Dear Dr. Papadimitriou

We are writing to express our concern about what we perceive to be a striking contradiction between the goals and work of the Jerome Levy Institute of Economics and the private business affairs of its founder and chief supporter, Leon Levy, who also serves as a Trustee of Bard College.

Over the past several years, the Jerome Levy Institute – Bard College’s first post-graduate institution – has become a respected outlet for academics and policy analysts concerned with growing income inequality and crisis-prone financial markets. As a union of low wage, mostly immigrant and minority restaurant workers, Local 100 is very familiar with the growing inequality in the American labor market. Many of our members and their families have also seen firsthand how financial market developments, such as the leveraged buyout frenzy of the 1980s, can have a profoundly negative impact on the quality of their lives.

Continue reading

Not long after this campaign began, I received a letter from the president of the Board of Governors of the Bard Alumni Association taking great umbrage at Local 100’s campaign. It stated: “Many of our trustees, overseers, advisory board members, donors, alumni/ae, faculty, administrators, parents of students and students, have business relationships — some of which may be deemed by you or others as ‘controversial’ — unrelated to their relationship with the College. It would hardly be appropriate for us to inject ourselves into those relationships. Such is the case with the alleged relationship between Leon Levy and Smith & Wollensky.”

Yeah, who the hell would want a Bard College alumnus like me poking around in the private affairs of Leon Levy or Rania Antonopoulos? Maybe that’s the reason I’ve been removed from the Bard College alumni database and no longer receive communications from the school, either in the mail or electronically.

January 2, 2016

Greece as Rashomon

Filed under: Greece,imperialism/globalization — louisproyect @ 6:37 pm

Like Akira Kurosawa’s “Rashomon”, the story of Syriza is also one about a rape told from different, self-serving and contradictory perspectives. For both the sectarian “Leninists” and the anarchists, Tsipras’s failure was ultimately a failure to smash the state and proceed rapidly toward the construction of communism. For post-Keynesians like Jamie Galbraith and Mark Weisbrot, there was a strong identification with Syriza’s general program and approach. When Tsipras finally signed an accord with the bankers that was even more austere than the demands put upon Greece in the beginnings of the negotiations, his supporters blamed the bankers rather then Tsipras for essentially taking the nation hostage. As for the capitalist ideologues at the Financial Times or the Wall Street Journal, you get more or less the inverse interpretation of the ultraleft. Where they would have seen a plus, the neoliberals instead saw a minus: Greece was a tragedy caused by Tsipras’s anticapitalist hubris.

Since the last version of what happened is so patently absurd, there is no point commenting on it. It is the clash between the first two that interests me especially since they both strike me as undertheorized. Probably the best presentation of the Marxist analysis can be found on Michael Roberts’s blog in an article titled “Greece: Keynes or Marx?” that was written before the infamous deal that amounted to a new round of debt and austerity. Referring to an interview that Sebastian Budgen conducted with Costas Lapavitsas, he finds fault with Lapavitsas’s confession that he remains committed to Keynesianism despite being a sharp critic of Alex Tsipras: “Let me come clean on this. Keynes and Keynesianism, unfortunately, remain the most powerful tools we’ve got, even as Marxists, for dealing with issues of policy in the here and now.”

Roberts concludes his article thusly: “The issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change.” I want to return to this question of implementing “socialist measures” later on but for now would dwell at length on a matter that came up in Roberts’s article that has preoccupied me for some time, namely whether repudiating the debt owed to Western banks would have broken the back of austerity, a view shared by Marxists and post-Keynesians alike.

In a way, the question of the Greek debt reminded me of the problems faced by an old friend who was forced to run up tens of thousands of dollars in credit card debt because illness prevented him from going back to work after he retired. Social security did not leave him enough to pay the rent and medical bills for Parkinson’s treatments, a disease that actually kept him unemployable. His strategy was to go to bankruptcy court and appeal to have the debts written off. This might have offered temporary relief but in the long run he would have run into another financial crunch. It would seem to me that Greece has the same sorts of problems with a chronically backward economy amounting to its Parkinson’s.

As an example of how debt relief can become a kind of panacea for the left, there is Eric Toussaint’s article in CounterPunch titled “Greece: an Alternative”. He writes that a “popular government” would do the following:

Suspend debt payment, organize an audit and radically reduce the debt and its repayment by an act of repudiation (which will necessarily be unilateral), adopt discriminatory measures to protect the people’s savings invested in debt.

This measure and others recommended in a laundry list of radical reforms would be the first stage in establishing 21st century socialism in Greece, one that was inspired by Venezuela’s demonstration that “it is entirely possible to resist the capitalist offensive.” Since his words come from a 2012 speech, we can certainly fault Toussaint for being a flawed seer but more egregiously for being unable to theorize Venezuela properly. It was not socialism that was being built but something owing more to John Kenneth Galbraith as Hugo Chavez would have been the first to admit.

As many of you know, Syriza’s economists were very interested in the Argentine solution to austerity that was facilitated by a kind of debt repudiation in 2001. This matter is taken up in Roberts’s article, where he quotes Lapavitsas on the supposed success of Argentine debt restructuring and peso devaluation: “I hasten to add that in the case of Argentina (though by no means would I suggest that Argentina is a shining beacon for the Left), it is much-maligned and much-misunderstood. What was obtained in that country after default and exit was vastly better than what held before and vastly better than what would have happened had the country continued along the same path, for working people.”

Roberts challenges this assumption:

The breathing space created for Argentina by breaking the dollar peg [an Argexit, in effect] does not seem to have restored the Argentine economy to stable growth. After a few years of a commodity-export led boom, the Argentine economy is back in crisis, despite Keynesian policies adopted by the government. There has been a 6% fall in per capita GDP since 2011.

There’s a lot more to be said about what happened in Argentina in 2001 especially if it is going to be used as a model for a Grexit and debt repudiation. Long before I began writing about Greece, I tried to analyze Argentina’s long-standing economic ills that like my old friend’s Parkinson’s is of a rather chronic nature going back to the British colonization of the 19th century.

To start with, it is important to note that although Argentina defaulted on bond payments in 2002, it eventually agreed upon a debt restructuring that was acceptable to the IMF and major banks in the USA and Europe. Despite a hefty “haircut”, most investors saw them as an opportunity to make a handsome profit especially since interest rates had plummeted to historic laws in “safer” bond markets.

In fact Wall Street banks made a killing in the bond restructuring deals. Goldman Sachs made millions of dollars in fees, as did other blue chip firms. Even if the working class suffered from the devaluation that went along with the 2001 Argexit, the bourgeoisie could toast itself with champagne over the profits that could be enjoyed.

Furthermore, at the very time the terms of the restructuring had been nailed down, Argentina’s economy began to improve dramatically. In September 2005, the nation enjoyed its 37th consecutive month of positive growth. What accounts for this? Notwithstanding the devaluation of the peso in 2001, agricultural exports remained pricey and a rising demand for soybeans and other essential crops lifted the economy. With a government committed to financial austerity, the balance sheets continued to tend more to the black.

Within four years, Argentina appeared to be on top of the world again as the FT reported on July 18, 2005:

The Argentine government this week made a triumphant return to the dollar-denominated debt market, only three and a half years after staging the largest default in world history and less than two months after restarting payments on its private debt.

In the first issue in foreign currency since the default at the end of 2001, investors, led by foreign investment banks, oversubscribed the $500m offer by more than three times. The government set a cut-off point of 7.99 per cent interest on the 2012 bonds, barely more than the price being paid by neighbours Brazil and Uruguay – neither of which have Argentina’s recent history of missed payments.

Argentina has managed to attract so much foreign interest that the treasury expects to make a similar issue in coming months.

All this was taking place when Nestor Kirchner was president. While nobody could possibly confuse this veteran Peronist as an advocate of 21st century socialism, he certainly was seen as part of Latin America’s Pink Tide, so much so that Mark Weisbrot could regard him as having “made an enormous contribution in helping to move Argentina and the region in a progressive direction” shortly after his death.

Like Venezuela, Argentina is no longer considered to be on the front lines of anti-imperialism. Falling commodity prices have made both nations vulnerable to external pressure from lending institutions.

But even if the consequences of debt repudiation were short-lived, why wouldn’t Greece consider similar measures if for no other reason that like my old friend going to bankruptcy court, it would at least spell some relief even if not permanent. Perhaps such a solution might seem worthwhile as long as you ignore the immediate consequences following the devaluation of the peso in 2001. In a 2002 article in the New Left Review titled “Racking Argentina”, David Rock described the calamity that befell the country:

Of Argentina’s population of 37 million, 52 per cent—some 19 million people—now fell below the official poverty line, while 20 per cent, 7.5 million, could no longer afford sufficient food. There were reports of children starving in the impoverished rural province of Tucumán. Unemployment soared to 23 per cent of the workforce, with a further 22 per cent ‘under-employed’—in part-time jobs and seeking further work. Public services disintegrated: hospitals could no longer treat the sick; schools closed, or gave up any attempt to teach. State pensions and public-sector workers’ salaries went unpaid. The construction industry came to a halt. Faced with declining revenues, the federal government had started to issue ‘Lecop’ bonds in lieu of wages. The provinces followed suit, led by Buenos Aires with its patacones, and by early 2002 there were some 4 billion pesos’ worth of local bonds in circulation.

Advocates of a Grexit refer to the short-term suffering that might accompany the devaluation that would attend adoption of a new currency but can they project a recovery based on an uptick in commodity exports? One Greek is skeptical. In a May 16, 2012 blog post titled “Weisbrot and Krugman are Wrong: Greece cannot pull off an Argentina”, Yanis Varoufakis wrote:

While it is quite true that Argentina’s export performance in 2001 was by no means better than Greece’s today, it is crucial to note that Argentina’s export potential in 2001 was vastly superior to that of Greece’s in 2012. By export potential I mean the degree of underutilisation of productive resources whose employment can, potentially, produce goods and services for which there is effective demand. In 2001, Argentina’s farms were woefully underproducing primary commodities that were, at that time, seeing their demand skyrocket. In sharp contrast, idle productive resources in Greece cannot produce much for which there is increasing demand.

Take for instance shipping and tourism, mentioned by Paul Krugman as two potential sources of Greek export growth: Both are in speedy decline! Additionally, whereas in the case of Argentina, its next door neighbour (Brazil) was entering a period of rapid growth, Greece’s neighbours are showing no such signs of vitality. Indeed, our traditional trading partners are also buffeted by recession (pushing down the demand for Greek tourism) while non-EU countries (such as Russia) cannot, and will not, make up the difference to any appreciable degree.

These are the hard facts that all leftists have to deal with, no matter what version of “Rashomon” they put forward. If Argentina was not a suitable model for Greece, could Cuba or the Soviet Union be to one’s liking? For the anarchists and Alex Callnicos, these would be just as unsuitable since nothing could come close to their communist ideal their imagination summoned up. Most Marxists are more inclined to accept the dialectical realities that Marx described in the Critique of the Gotha Program: “What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges.”

If we are ready to accept a communist society stamped with such birthmarks, does that mean that a communist Greece would have met our expectations? For those of us who had a chance to see Nicaragua in the mid-1980s, we would have gladly accepted a new Greece, warts and all.

Unfortunately, there were a couple of obstacles in our way, starting most importantly with the consciousness of the Greek masses. No matter how desirous readers of the Marxist press were for the abolition of capitalism in Greece, there were worrisome signs that the average Greek was not up to our lofty standards. Leaving aside the polling results on leaving the Eurozone, there were indications that parties standing for communism were simply not that popular no matter how many general strikes or mass demonstrations had taken place on the streets of Athens. As a barometer of revolutionary fervor, votes for Antarsya and the KKE were minimal at best. This leads one to consider the possibility that our anger might be better directed at the taxi driver or barber shop owner who was foolish enough to vote for Tsipras than Tsipras himself.

If by some miracle, the KKE had been voted into office, what would be the outlook for a communist society plus warts (and under such a grotesquely Stalinist sect, they would be plentiful.)

This leads me to an article by William I. Robinson that appeared in Truthout today. I first came across Robinson’s writings in the late 1980s when he was reporting from Nicaragua with his writing partner Kent Norworthy in the Guardian newsweekly in the USA, a newspaper that is sorely missed. Robinson now teaches sociology, global studies and Latin American studies at the University of California at Santa Barbara and is a specialist on globalization. His “Global Capitalism and the Crisis of Humanity” is a good starting place for those trying to theorize the struggle against capitalism in a world in which capital has taken wings to fly around the world in a ceaseless quest for profits. Unlike the period that began in Marx’s age and came to a conclusion in the post-Bretton Woods period, today’s bourgeoisie could care less about the “health” of its body politic. If American bridges and railways are falling apart, why should it matter to a hedge fund manager? His only obligation is to his investors and himself.

Robinson’s article is a critique of Thomas Piketty, who is one of those thinkers that is for social justice while rejecting Marx, a problematic stance to say the least. He makes an essential point about the conditions we face today:

Transnationally oriented elites and capitalists captured governments around the world and used states to undertake sweeping restructuring and integration into a new globalized production and financial system. The “neoliberal counterrevolution” opened up vast new opportunities for accumulation. Free trade agreements and financial liberalization lifted state restrictions on cross-border trade and capital flows. Privatization turned over everything from public industries, to educational and health systems, mail service, highways and ports to transnational corporations and provided an investment bonanza to the transnational capitalist class as it concentrated wealth as never before. Labor market reform led to the erosion of regulated labor markets. As workers became “flexible,” they joined the ranks of a new global “precariat” of proletarians who labor under part-time, temporary, informalized, non-unionized, contract and other forms of precarious work.

For those of us trying to build revolutionary parties, it is essential to keep in mind the social and economic realities we face. In the 1970s the American Trotskyist movement made a fatal decision to base its strategies on the supposition that a repeat of the 1930s was in the offing. When reality interfered with that strategy, the party rejected reality and continued on its futile path until it lost 90 percent of its membership.

As opposed to the SWP leadership and virtually all the other sects, Lenin was a master of getting to the heart of underlying socio-economic dynamics. In the early 1900s leading up to the “What is to be Done” conference, he tried to explain that “Economism” was a reflection of the more primitive, handicrafts phase of Russian capitalism when shops were smaller and more isolated. He noticed the great concentration of large factories in major cosmopolitan centers and concluded that a more professional and more generalized approach was needed in line with the changed circumstances.

Economism belonged to Russia’s past; orthodox Marxism was the way forward. He saw modern social democracy as corresponding to the highly complex and specialized nature of modern mass production. He saw socialist parties as the working-class equivalent of large-scale industrial plants. A centrally-managed, large-scale division of labor was needed to move the struggle forward, just as it was necessary to construct steam locomotives. Lenin was no enemy of capitalist technology and mechanization. Rather he sought to appropriate its positive features whenever necessary.

Isn’t it about time that Marxists began to explore the organizational forms and strategies that correspond to the world that William Robinson describes? If large-scale industrial plants (Fordism, in other words) are the forms appropriate to the party that Lenin built, should we not be thinking of post-Fordist methods of struggle that use the Internet in the same way that Lenin used Iskra? These are points I have been making for the past twenty years or so and please excuse me in advance for making them as long as I have breath to make them.

August 24, 2015

A brief response to Joe Firestone on IT/Grexit

Filed under: computers,Greece — louisproyect @ 5:44 pm

On August 18 I wrote an article in response to Joe Firestone, the author of an EBook titled “Austerity, Greece’s Debt Crisis and the Theft of Democracy” that had a chapter on the IT problems of a Grexit, which addressed earlier articles I had written.

Yesterday someone brought my attention to a follow-up on his blog (http://neweconomicperspectives.org/2015/08/on-the-it-problem-of-grexit-a-reply.html) that once again tries to strike a balance between Australian economist Billy Mitchell’s blithe assurance that the IT problems are minimal and my own insistence that it will be at least a three year effort to modify the systems. This will be a brief response to Firestone’s latest.

Firestone maintains that he is only for studying and evaluating some approaches. He also favors a phased implementation, something that is put forward concisely in a comment he made under his article:

  1. The mainframe application is undoubtedly very complex so there is a good possibility that Louis is right and the mainframe conversion to Drachma processing cannot be accomplished in the short time necessary for Grexit
  2. So, if we want to support a Grexit that may be necessary in the short term, then we must find a way to get around the need to convert the mainframe application in the short-term
  3. The two possibilities I suggest in my book deserve discussion as possible ways to avoid immediate conversion of the mainframe application and to have to deal with the complexities of the interaction between humans and the mainframe inherent in the operation of the application in the real world

This assumes that you can hold off converting “the mainframe application” for the future but that’s not the way that banking systems are put together as if they were Lego toys made up of discrete modules that can be assembled in phases.

Think of it this way. When you open a checking account, you sit at the desk of some bank officer who begins entering your information into a computer, starting with name, address, social security number, etc. He or she then issues you a temporary ATM card that can be used immediately for deposits and withdrawals.

In the ensuing months, customers might take out a credit card from the bank and afterwards a mortgage and/or an auto loan. And each month they expect a statement that will have an accurate record of their transactions, both debits and credits. I am sure everybody is accustomed to this unless they are used to keeping cash under a mattress.

The implicit assumption (bordering on explicit) in both Mitchell and Firestone’s presentation of the problem is that such a “phase” is essential to moving to a drachma. I can certainly understand why someone might think in those terms because that is generally how we relate to a bank—as a customer. I should add that the applications that handle such relationships are generally referred to as belonging to the “front office”.

Unfortunately, most “back office” operations must be converted on the very day that you implement a new front office based on a drachma since they are designed to support the managers and clerks who are invisible to the customer but critical to bank operations.

For example, the accounting department of a bank is fed data aggregated on a daily basis from various sources in order to populate a General Ledger, which is the source of profit and loss statements and other essential reports for treasurers, auditors and the like. Your deposits and withdrawals are lumped together with those of other customers and end up in buckets identified by a unique General Ledger Account Number, one of which might reflect Mortgages. Needless to say, knowing how much is owed to the bank in this category is essential to a bank based on the 2008 financial crisis.

So if the accounting software is still denominated in euros, what are you supposed to do? Use these for a couple of years until the next phase kicks in?

This does not begin to address the problem of being able to rely on accounting systems once they are converted to handle the drachma. Banks have historical data that is used to generate reports that reflect financial trends. Since 2003, data has been captured as euro-denominated. If you want to study how the mortgage business has been faring over a ten-year period, you need to write conversion software to update computer files going back to the day Greece switched from the drachma to the euro. You also need to make sure that all back-office applications are checked for hard-coded tests for a euro amount, as I have pointed out a number of times.

I know that most of my readers and those who have seen my posts on Naked Capitalism care little about the financial analysis conducted by bank officers in order to make business decisions but as long as Greece remains capitalist, that is the name of the game. This is not a problem limited to banks. It applies as well to insurance companies, brokerage houses, manufacturers, and any other large-scale capitalist enterprise.

Now it is entirely possible that at some point Greece might elect the candidates of the new Popular Unity party that is a leftwing split from Syriza and that is committed to a Grexit, at least if you take them at their word. They may consider the conversion to a drachma to be cost-justified even if it entails the wrenching IT modifications needed to make it work. While I am obviously sympathetic to resisting austerity, I cannot help but wonder if the answer lies solely in the type of currency used. I plan to write a series of articles about Greece that deals with the economic problems in general and hope that by that time the IT questions will no longer need to be discussed since in the final analysis they are secondary to the political ones.

August 18, 2015

Once more on IT and a return to the drachma

Filed under: computers,Greece — louisproyect @ 5:25 pm

Recently I learned that an EBook on Amazon.com titled “Austerity, Greece’s Debt Crisis and the Theft of Democracy” included a chapter titled “The Information Technology Problem” that discussed my articles on Naked Capitalism and those of Australian economist Billy Mitchell who has an unrealistic take on the amount of work required to modify Greek computer systems to handle a return to the drachma.

Joseph Firestone, the author of the EBook, has a PhD in Political Science from Michigan State, over 150 articles to his name, and an extensive background in IT but mostly at the management level. Right now he is the Chief Knowledge Officer of a company called Executive Information Systems, a title that most likely has something to do with Knowledge Management, his area of expertise. This is apparently a field that has emerged since 1991 but one that somehow managed to elude Columbia University where I worked from that year until my retirement in 2012. There will be something about it later in this article by another expert in the field.

Firestone tries to reconcile Mitchell’s views and my own, probably something that irritated the economist emeritus much more than it does me given his irascible reaction to my first article on Naked Capitalism. His tone reminded me of the one I take on issues such as when the Russian Revolution went off the rails but let’s leave that aside and move on to the substantive IT issues.

From Firestone I learned that Mitchell had a short follow-up article that somehow escaped my attention. Using the authority of a friend who appears to be as high-powered as Firestone, a man who “owns a significant private firm in Europe which is at the forefront of delivering innovative card payment services to banks and corporations throughout the Eurozone”, Mitchell sought once again to buttress his “its not rocket science” understanding of the IT issues.

The friend confided to him that since “the Euro was integrated ‘on-top’ of the existing legacy IT payment systems”, ‘switching’ the Drachma back on would not be such a major task.” He added:

the Grexit should be accomplished by stealth. He would leave everything in place as it is for now. Then establish, in secret, a public bank (like the German KfW), procure the banking software out-of-the-box, sign a contract with a major card-scheme to use its network for transactions and hook the bank up with the official Bank of Greece, the nation’s central bank.

I wonder if this plagiarized or at least conveyed the madcap spirit of Varoufakis’s “Plan B”. If they ever made a movie about such a scheme, I’d cast Steve Carell in the leading role (only because Peter Sellers is dead.)

In terms of the Euro being integrated on top of the legacy systems, I have no way of assessing this. As someone who has taken part in at least a dozen feasibility studies over the years, I have learned that it is best to be cautious. Apparently the higher up you are in the IT food chain, the easier it is to throw caution to the wind.

In the late 90s I advised IT management at Columbia to avoid purchasing a Facilities Management System from American Management Systems (AMS). This was an outfit that Robert McNamara’s aides in the Pentagon founded in 1970. That should have been a warning from the outset to steer clear. Within six months after the system was implemented at the cost of millions of dollars, the users decided it did not meet their needs and dumped it. Just a few years later AMS went under, no doubt partly a result of Mississippi terminating an $11.2 million contract to modernize the state’s tax system. It would go on to sue the company for $985 million. Wikipedia states: “a jury awarded the state $474.5 million in actual and punitive damages in August 2000, causing a drop in stock price from 44 3/8 to 14. The company subsequently settled the suit for $185 million.” You can bet that if Greece ever needed consulting help to get them back into the drachma, there would be latter-day versions of AMS knocking at its doors.

Furthermore, with all due respect to Mitchell and his friend who “delivers innovative card payment services to banks and corporations throughout the Eurozone”, there is more to IT in Greece than banking and credit card processing. Greece has hospitals, universities, wholesale and retail companies selling furniture, yogurt, olive oil, tourist accommodations, and Zeus knows what else. Many of these companies do not have in-house staffs. Getting them up and running on a drachma will not be a piece of cake—trust me on that.

For Firestone to bridge the gap between Mitchell and myself, he invokes his own particular areas of expertise that supposedly get us closer to “it’s not rocket science”. Naturally this require some critical commentary.

In a section titled “Web-oriented Architecture Approach to a Drachma-based Transaction System”, he advises “web-enabling a legacy system”, something that might take a “few days, if that long”. Well, gosh, why hadn’t he brought that to Varoufakis’s attention? That would have saved him from the trouble of lining up his pal at Columbia University to program a stealth-based “Plan B”. Firestone even offers up the names of some products that could be off-the-shelf solutions such as the one marketed by the slyly named Kapow Software. While this software no doubt works as advertised in terms of integrating different systems under a web-based front end, it has little to do with the complexities of batch processing—the meat and potatoes of all banking applications for which there is no user interface. Kapow might be of some use to a bank officer evaluating a loan application from a nervous customer sitting opposite him or her, but it is totally irrelevant to a stream of programs run at 3am in the morning that pump out customer statements. A customer statement like the kind that you receive from your friendly banker at the end of the month with a listing of your debits and credits followed by an account total. It is exactly programs such as these that will require onerous and time-consuming attention—nothing that Kapow can address.

Finally, returning to Firestone’s Knowledge Management, he starts off by wisely acknowledging that “people avoided mainframe applications wherever they could, because the chances of failure were so high”. He includes himself in that group. That being said, he regards the Kapow approach as an interim solution and concludes that a “better solution” would be to develop a new system written for the mainframe from scratch “using modern programming tools and techniques”—no doubt drawn from the Knowledge Management toolbox.

All I can say is that ever since the mid 1970s, I have heard about one new technique or another that would finally make developing large-scale systems more averse to failure. They were put forward either as management, systems analysis, database or programming technologies in trade journals such as Datamation or Computerworld:

programmerless programming: Languages such as MarkIV would allow an end user to build a system by using to specify parameters that satisfied business requirements. In fact I automated Salomon Brothers in London (SBIL) when I reported to Michael Bloomberg in 1977. Trust me, Michael couldn’t have done anything in MarkIV if his life depended on it.

goto less programming: The less said the better. I stopped using the “go to” in 1978 or so but deadlines were still missed because the user kept changing his or her mind—the real explanation for most software delays.

structured design methodologies: I worked for a consulting company that employed SDM for a phone company project that would evaluate whether a customer would be charged for a phone call that they claimed that they didn’t make. When the consulting company demanded new funding because the project was delayed, negotiations broke down and we were escorted out of the building by security guards. SDM did not address user indecision, the cause of cost overruns.

relational databases: This was a huge breakthrough supposedly because it organized data into rows and columns just like a spreadsheet that could be accessed through SQL and best when it was based on normalized data structures, which meant avoiding redundancies through a data analysis of the firm. I can only say that I have worked with VSAM flat files, IBM’s IMS hierarchical database, Cullinet’s IDMS network database before finally becoming a Sybase support person on my project team at Columbia University. All of them work just fine even though Sybase (and Oracle) are best suited for client-server or web-based applications. But in the final analysis, it is the problem of nailing down user requirements that will always bite you in the ass. Given the economic chaos in Greece, this will be a thousand times worse than the normal chaotic situation.

–Object orientation: I spent about five years developing Java programs in the STRUTS framework for Columbia University’s financial system. Anybody who sells OO as some kind of silver bullet should get one in the head.

Since I have never gone near Knowledge Management, I won’t say a word about it although I would be remiss if I did not refer you to this:

Wall Street Journal, Jun 24, 2015
Whatever Happened to Knowledge Management?
By Thomas H. Davenport

I would never claim to have invented knowledge management, but I confess to an intimate involvement with it. I co-authored (with my friend Larry Prusak) one of the best selling books on the topic (in case you are into the classics, it was Working Knowledge: How Organizations Manage What They Know) and am supposedly the second-most cited researcher in the field (after the Japanese scholar Ikujiro Nonaka).

So I should know whereof I speak when I say that knowledge management isn’t dead, but it’s gasping for breath. First, the ongoing evidence of a pulse: academics still write about it, and some organizations (most notably APQC—a nonprofit research organization of which I am a board member and respect a lot) sells out its knowledge management conference every year. Professional services firms are still quite active and successful with the idea.

But there is plenty of evidence that it’s gasping as well. Google Trends suggests that “knowledge management” is a term rarely searched for anymore. Bain’s Management Tools and Trends survey doesn’t list it in the top 25 tools for the 2015 or 2013 surveys; it was included before that. More subjectively, although I am supposedly an expert on the topic, hardly anybody ever asks me to speak or consult about it.

What happened to this idea for improving organizations? I’m pretty sure that knowledge itself hasn’t become less important to companies and societies, so why did many organizations give up on managing it? Is there any chance it will return? And what does its near-demise tell us about the attributes of successful business ideas?

Although it’s impossible to know for sure why something rises or declines in popularity, here are some of my ideas for why knowledge management (KM) has faded:

  • It was too hard to change behavior. Some employees weren’t that interested in acquiring knowledge, others weren’t interested in sharing what they knew. Knowledge is tied up in politics and ego and culture. There were methods to improve its flow within organizations, but most didn’t bother to adopt them. Perhaps for this reason, the Bain survey (for example, the one from 2005) suggests that corporate satisfaction with KM was relatively low compared to some other management concepts.
  • Everything devolved to technology. KM is a complex idea, but most organizations just wanted to put in a system to manage knowledge, and that wasn’t enough to make knowledge flow and be applied.
  • The technology that organizations wanted to employ was Microsoft’s SharePoint. There were several generations of KM technology—remember Lotus Notes, for example?—but over time the dominant system became SharePoint. It’s not a bad technology by any means, but Microsoft didn’t market it very effectively and didn’t market KM at all.
  • It was too time-consuming to search for and digest stored knowledge. Even in organizations where a lot of knowledge was contributed to KM systems—consulting firms like Deloitte and Accenture come to mind—there was often too much knowledge to sort through. Many people didn’t have the patience or time to find everything they needed. Ironically, the greater the amount of knowledge, the more difficult it was to find and use.
  • Google also helped kill KM. When people saw how easy it was to search external knowledge, they were no longer interested in the more difficult process for searching out internal knowledge.
  • KM never incorporated knowledge derived from data and analytics. I tried to get my knowledge management friends to incorporate analytical insights into their worlds, but most had an antipathy to that topic. It seems that in this world you either like text or you like numbers, and few people like both. I shifted into focusing on analytics and Big Data, but few of the KM crowd joined me.

Any chance that this idea will come back? I don’t think so. The focus of knowledge-oriented projects has shifted to incorporating it into automated decision systems. The hot technology for managing knowledge is now IBM Corp.IBM -0.28%’s Watson—very different from the traditional KM model. Big Data and analytics are also much more a focus than KM within organizations. These concepts may be declining a bit in popularity too, but companies are still very focused on making them work.

If you believe in knowledge management—and you should—perhaps in your organization you can avoid the pitfalls I have listed and allow the idea to thrive. And if you favor a different idea and want it to survive over the long term, don’t hitch a complicated set of behaviors to technology alone. Don’t embrace a vendor for your concept that doesn’t care much about your idea. And if another notion that’s related to yours comes along and gains popularity, don’t shun it, embrace it.

Thomas H. Davenport is a Distinguished Professor at Babson College, a Research Fellow at the Center for Digital Business, Director of Research at the International Institute for Analytics, and a Senior Advisor to Deloitte Analytics.

July 28, 2015

Continuing the conversation about IT and the Grexit

Filed under: computers,Greece — louisproyect @ 3:32 pm

Apparently my brief reference to Australian economics professor emeritus Bill Mitchell’s failure to mention the IT aspects of Grexit in a Naked Capitalism article touched a nerve. In a 3500 word article that appeared on his blog on Friday, July 24th he minimized the challenges and appealed to his own authority as an IT professional to drive his case home. He also took up some points in my article that weren’t really directed at him, particularly my brief remarks around the question of a Grexit not being sufficient to bring an end to austerity.

I did not have Dr. Mitchell in mind when I made that point. Furthermore, I don’t think that there is that much difference between us on the economic questions but as I will now point out we are still far apart on the IT implications of a Grexit that I will now explain.

To start with, he groups me with the sensationalistic media reports on Y2K that warned about Armageddon as if I or any other seasoned professional really worried about such an outcome. He also alludes to the opportunistic sales pitches from consulting companies anxious to get their foot in the door to help firms large and small avoid a Y2K catastrophe but at a steep price. If you were part of the permanent staff in any large organization like Columbia University, you had a very clear idea about how to do a Y2K conversion without tears.

Furthermore, I am quite sure that given sufficient time, funding and personnel, the conversion to the drachma is feasible. But the purpose of my article was not to argue that it was impossible. It was only to alert a lay audience what kind of challenge it represented. For those who have not managed large-scale project implementations, it was easy to imagine that such a conversion could take place in something like a few months. But I am convinced that it would probably take no less than three years based on my 44 year experience managing, designing, programming and testing mission-critical applications in a variety of banks, brokerage houses, and insurance companies. That was about what it took to go from national currencies to the euro and I would expect that it would take about the same amount of time to reverse engineer the process.

Perhaps nothing captures Dr. Mitchell’s unfamiliarity with the IT challenges facing a euro-to-drachma conversion than what he has to say about Y2K:

As the Naked Capitalism author notes it was really about software that had used two numbers to designate the year (MMDDYY) instead of four (MMDDYYYY). Several straightforward computer changes were made to resolve the possible problems depending on the situation (date expansion, date re-partitioning in overfull databases, windowing patches etc). Very trivial.

I did a double-take when I read this. Very trivial? Well, it is very trivial to expand the year from two digits to four digits but that was never the challenge. In fact Dr. Mitchell completely ignored what I wrote, namely that the task of finding the code was like looking for a needle in haystack. At Columbia University we divided up thousands of programs and assigned programmers to search through thousands of lines within each program to track down a six-digit date and convert it to eight digits. It took 10 seconds to modify each date when it was found but it took the better part of a year to find them all. To repeat, a search for any field of data that had “date” in its name was straightforward but what if a programmer labeled it “dt” or even “d”? Furthermore, what if a piece of data identified as “admission_date” is moved into a temporary field called “admission_temp”? You have to track the movement of data within the entire program to be sure that you had all bases covered. This was a laborious task that took us the better part of a year. It also took another year for IT to test all of the modified programs to make sure that the integrity of the data was preserved.

Greece would run into the same challenges in a euro to drachma conversion but likely would not have the kind of infrastructure that a well-endowed Ivy university was able to rely on. Given the economic desperation and chaotic conditions that Greek firms large and small operate within, it is a serious mistake to use one’s influence to persuade policy-makers to leap without looking first.

Continuing in his best case scenario vein, Dr. Mitchell dismisses the possibility that hard-coded values in a program constitute a major hurdle:

The issue is simple. Rules for determining eligibility for a service (mortgage etc) might have thresholds hard-coded into the computer system. So if your bank balance is above 1000 you qualify for a loan. Good programming clearly creates variable definitions (say, $threshold = 1000) in easy to find and edit part of the system and then uses symbolic references ($threshold) throughout the rest of the system so that when the threshold might require alteration there is one data entry required which feed the old system.

Yes, we are all for “good programming” but my experience over the years is that there is enough space between “good programming” and the actual code in legacy systems to steer an ocean liner through. In the ideal world, a hard-coded value is never used. For example, as Dr. Mitchell points out, it is good practice to define an external variable such as $threshold but in practice Cobol programmers (the language of choice in most financial applications) tend to take shortcuts because they are always under the gun to meet a deadline. So instead of defining an external variable that can be modified in a single location, they will test for ’10000’ or whatever. Since the software in Greek banks is likely to be decades old, I doubt that the “good programming” practices hailed in computer science classes find much reflection within them. In fact, Mitchell expresses a surprising degree of naiveté when he writes:

So if there is a lot of ‘hard-coding’ in the Greek financial and business systems it would require some work. The reference the Naked Capitalism article uses was written in 1999 and relevant to rather dated practices and the big challenge of converting all the currencies into the euro and all the different national business systems into an integrated set of systems that could cope with the common currency.

I would suspect the assessment that there is a lot of ‘hard-coding’ now would be amiss. Business systems have become much more sophisticated and homogenised in the 16 years since that article was written.

But the point is that when Greece went from the drachma to the euro in 2002, it was practically preordained that the modifications would be made to existing software that might have been written in the 1980s or earlier. Why would Greek banks have written an entirely new Direct Demand Accounting system in that period? Yes, business systems have become more sophisticated since the year 2000 but you can be assured that those that serve the mission-critical needs of Greek banks are decades old.

I should add that although I worked on mainframes for 23 years, the last 21 were spent at Columbia in leading edge technologies of the sort that he describes as “sophisticated” and “homogenized”. When I was hired by Columbia University in 1991, it was to make recommendations about exactly such technologies in my capacity as Development Technology Coordinator. Later on, once such technologies were adopted, I had over 15 years experience designing and programming financial applications in Java using the Struts framework. Additionally, I supported that application’s Sybase backend using Perl and other Unix-based tools. Finally, part of my retirement contract involved being available on a contingency basis for technical support as the need arose. Even now I stay in touch with my colleagues to give them my take on future IT directions.

Dr. Mitchell also seems to have missed the point I was making about historical data:

These include the historical presentation of records, for example, bank statements. These problems were already encountered and solved in the transition to the euro. There is no reason to suspect that any new issues have arisen. The Bank of Greece knows how to do this and could easily issue a procedural manual to the commercial banks and other financial institutions.

But my point was that ad hoc software would have to be developed to modify historical data. For example, just to repeat myself, if the United States elected a Marxist president and adopted a new currency called the Rosa that was pegged 10 Rosas to the dollar, you would have to develop software that went through the databases to multiply all occurrences of each cash-based data store by 10. (Let’s hope we’ll see that someday.)

Finally, if I understand Mitchell correctly, he seems to be saying that you could dust off the pre-euro conversion software from 1999 or so and use it to replace current-day systems. That would be fine if there had been no modifications made in the past 16 years to incorporate new business rules. But as we know financial applications are highly dynamic since the industry is always sensitive to opportunities that can always boost corporate profits to the disadvantage of the poor customer. Who knows? Maybe when the entire world converts to the Rosa, or even when money is no longer necessary, we will not have to face such problems but in the meantime reality must govern all major policy decisions, including ones that revolve around information technology—the nervous system of any modern economy.

July 22, 2015

Once again on the IT challenges in converting to the drachma

Filed under: computers,Greece — louisproyect @ 6:48 pm

On July 14th I wrote an article titled “Convert to the drachma–piece of cake. Right…” that was a first take on the difficulties in implementing a Grexit from an IT standpoint. Since then I have tracked down a number of high-level strategic planning documents written in the late 90s that give me a much better handle on what those difficulties amount to. Except for the folks at Naked Capitalism who reposted my original article, there are very few people on the left who have any inkling of the problem. One of them is Robert Urie who alluded to it in a recent CounterPunch article:

A central difference between Argentina and Greece is that ‘all’ that Argentina had to do was to break the peg (fixed currency exchange ratio) with the USD while implementation of the Euro was a massive technological undertaking that replaced the Greek technology and institutions that supported the drachma. In the event of a forced Greek exit recovery of these technologies and institutions would take time that the Greeks don’t have. Breakdown of the supply-chain— the integrated economic relations that together facilitate economic production, causes a cascade effect where once lost, has to be rebuilt from the ground up.

Instead what I have mainly heard is that it is much more of a piece of cake than my article would suggest. For example, Canadian leftist Ken Hanley, who wrote an article titled “The German Grexit plan may have been the lesser of two evils”, commented: “The creditors were able to develop a Grexit plan. Schaeuble even presented a Grexit plan as an alternative to deal and many think that his whole plan was to force a Grexit.” He also referred me to an article by an Australian economist that assured his readers “A Greek exit is not rocket science”. Well, it might not be rocket science but computer science is certainly relevant notwithstanding the economist’s failure to refer to IT once in his article.

The same shortcoming exists in an article that has been embraced by many on the left as a recipe for overcoming austerity. Titled “Greece: Alternatives and Exiting the Eurozone” and written by Eric Toussaint, who works with the Committee to Abolish Third World Debt, it makes very useful recommendations but once again neglects to mention anything about IT.

Now my point in referring to these difficulties was never to support staying in the Eurozone. It was primarily intended to alert the left about the dangers of thinking in terms of short-term solutions. Furthermore, my own position is that Greece’s difficulties have more to do with the underlying economy rather than what currency it uses. Some Marxists, who have been sharply critical of Tsipras, appear to understand what this means. For example, In Defense of Marxism, warned:

Some people have argued that if Greece is pushed out of the Euro this could eventually provide a solution to its economic problems. That is naïve in the extreme, not to say irresponsible. The question would still remain: what kind of an economy, run by whom and on the interests of whom?

Let us assume that the new currency is called the drachma. What will happen to it? It will fall like a stone because nobody will want to hold it. That will cause prices to rise steeply, even hyper-inflation, as in Germany in 1923. People’s savings will be wiped out. There will be a deep slump and even more unemployment.

Moreover, if Greece is forced out of the Euro, it will also find itself out of the European Union. The European bourgeois will not want to see its markets invaded by Greek goods made cheaper by the inevitable fall of the drachma (or whatever other currency is chosen). It will be necessary to take very drastic measures in order to avoid an economic catastrophe. Half measures will be useless. One cannot cure cancer with an aspirin.

I also thought that the Belgian Trotskyists of the LCR-SAP had good advice:

  1. Leaving the Euro is not a sufficient condition to break with austerity (as the case of Britain proves) but, in the Greek case, for the countries of the periphery and those which are not in the heart of the euro zone, it is clearly a requirement.
  2. The need to break with the euro does not imply making leaving the euro the central axis of an alternative programme. Even in Greece, where the question arises in a burning and immediate way, the axis of the alternative programme must be the rejection of any austerity and the implementation of social, ecological, anticapitalist and democratic policies, which directly improve the fate of workers, young people, women, the victims of racism, and the peasants.
  3. To make leaving the euro the axis of the alternative would be to run up unnecessarily against the very generally-held idea that the currency is only “neutral” technical means of allowing trade, whereas it is in fact also the crystallization of a social relationship. To make leaving the euro (or the EU) the axis of the battle would be also to play the game of the hard-line and far right, by spreading the illusion that a harmonious socio-economic-ecological development would be possible within the national framework. This illusion harms internationalist solidarity. However, this is crucial not only for the fight in Greece, but also because the integration of the economies on the continent requires a European anticapitalist perspective to satisfy social needs and to answer the urgent ecological needs.

Before moving on to the technical aspects of a Grexit, I should say a few words about my background. Even though my regular readers know that I worked in IT for 44 years, it might be useful to mention something about my experience.

To start with, before I began working at Columbia University in 1991, most of my work experience was in financial applications. I worked for five different banks: FNB of Boston, Texas Commerce Bank, Irving Trust, United Missouri Bank (where I programmed ATM’s) and Chase Manhattan. I also worked for investment banks: Salomon Brothers and Goldman-Sachs. Finally, in the 21 years I was at Columbia University, most of the time was spent working on the financial system used for purchases, general ledger and the like. Back in 1998, part of my workload over a two year period was to evaluate legacy software to identify changes needed to accommodate the arrival of 2000, a technical challenge that was dwarfed by Eurozone conversion that I will now explain.

The following documents were key to the observations I will be making:

  1. Daniel O’Leary, “The Impact of the Euro on Information Systems”, Journal of Information Systems Vol. 13, No. 2, Fall 1999. (https://msbfile03.usc.edu/digitalmeasures/doleary/intellcont/Impact%20of%20Euro-1.pdf). I referred to this in my original article.
  2. Pieter Dekker, “Preparing Information Systems for the Euro”, a sixty page white paper prepared for the European Commission on the Eurozone in September 1997. (http://ec.europa.eu/internal_market/accounting/docs/markt-1997-7038/7038_en.pdf)
  3. Patrick O’Beirne, “Managing Risk in Euro Currency Conversion”, Cutter IT Journal, 1998 (http://www.sysmod.com/eurorisk.pdf). This is basically a shorter version of the Dekker article above with a useful bibliography referring to other material in this vein.
  4. Rainer Gimnich, “Analysis and Conversion Tools for Euro Currency Migration”, Workshop on Software Reengineering, May 1999. (http://www.uni-koblenz.de/~ist/RWS99/beitraege/Gimnich.pdf)

To start with, it would be useful to understand what took place in a Y2K migration. In many programs written in the 60s and 70s, when the year 2000 seemed like a long way off, dates were formatted as MMDDYY. This meant if you were trying to establish whether a bond would mature in five years, you’d subtract something like 07/22/67 from 07/22/72 but when 2000 arrived, how could you determine whether 07/22/04 meant 1904 or 2004? The answer was to wade through millions of lines of code and expand MMDDYY to MMDDYYYY.

In a computer program, every field of data is uniquely named. This means searching in a COBOL program for something like “date_today” is pretty simple. But what if a programmer called it dt_today instead? Of course, you might figure out that “dt” means date but some lazy programmer might have written it as “tdy”.

You will have the same problem, of course, with a euro to drachma conversion. Searching for the Greek equivalent of “amount” or “amt” becomes a drain on any IT staff.

A conversion from a local currency to the euro was a whole order of magnitude more difficult when it comes to converting currency amounts, even when they are identified. For nations such as Spain that did not have a decimal based currency like the euro, the rounding became a challenge. Since this did not apply to the drachma, a simple replacement might be in order and that would be the end of it.

However, the big problem was testing for a hard-coded amount parameter as I tried to explain on Naked Capitalism underneath the crossposting of my original article:

For example, there might be tests to see if a customer has sufficient funds to be qualified for a mortgage. A program might conceivably mark it as eligible if there were 10,000 euros in the account. Switching to a drachma might make everybody eligible–not that there’s anything wrong with that obviously–but you can see that this is not a simple matter. Just being able to handle a drachma instead of a euro does not mean that software is meeting expectations. You have to do a BUSINESS analysis, which is the first stage in any systems implementation.

As it turned out, the Gimnich article listed above makes an identical point:

In many cases, amounts are hard-coded in the application programs. For instance, statements of the kind IF amt_1 < 1000 THEN … appear quite often. Here, the threshold value is simply used as a constant in the program: no symbolic constant, no variable declaration, no external amount table read.

Assuming that Greece’s programmers could convert programs to handle the drachma rather than a euro, this would mean that you could start withdrawing a new currency from an ATM on day one. And at the end of the month, you’ll get a bank statement with amounts designated in the new currency with the proper currency symbol, etc. But that’s just the tip of the iceberg. Any bank maintains a history of transactions for all customers that are used for determining loan eligibility, etc. Your account might have the proper data from the day when the drachma conversion took place going forward but what about the ten years or so of prior transaction history which were denominated in euros? A suite of programs would have to be written to manage the conversion of historical data. This is not a minor task since identifying which files contain such data requires plowing through an enormous IT inventory. Since documentation is always given short shrift in the corporate world, expect major technological hiccups or even heart attacks.

The tasks described above are properly administered in an IT department, which is centrally controlled but that’s not the end of it. Ever since the advent of personal computers, there are huge amounts of mission-critical data that are not maintained by the IT staff. The finance department of any modern corporation is overflowing with PC-based spreadsheets that are used for budgeting, etc. All of these spreadsheets will have to be evaluated for their criticality and converted to the drachma if need be. Once again, a major task.

In August 2001, Computerworld, a trade magazine I read for many years before retiring, described the risks facing small and medium sized businesses that had not gotten up to speed on the euro conversion:

Pollard said the unpreparedness of vendors and suppliers won’t create a catastrophe in the European marketplace, but it will cause supply chain slowdowns and force some small and medium-size businesses to revert to using paper invoices, bound ledgers and filing cabinets.

But Noel Hepworth, head of the euro conversion project at the European Federation of Accountants (FEE), an industry trade group in London, said companies that aren’t ready will quickly be forced out of business by large manufacturers that will refuse to deal with them.

Think about what this would mean for Greece as its businesses tried to do the same thing in reverse. This nation has a huge proportion of smaller firms. It will be exactly those that will be forced out of business if they can’t make the cut. If adopting the drachma will lead to a sharp devaluation as all experts predict, those businesses will be rotten ripe for buying up by foreign investors looking to make a killing.

Now in the long run, it might not matter that all these problems lie in store. It is probably the case that leaving the Eurozone is a necessary first step to escaping the clutches of the German bankers, the IMF and all other predatory institutions. But the left does not look good by minimizing the technical challenges. Most of all, it is worth remembering what Lenin wrote in “State and Revolution”, which is just applicable to a state embarking on an anti-austerity program based on neo-Keynesian principles as it was to the infant USSR:

We are not utopians, we do not “dream” of dispensing at once with all administration, with all subordination. These anarchist dreams, based upon incomprehension of the tasks of the proletarian dictatorship, are totally alien to Marxism, and, as a matter of fact, serve only to postpone the socialist revolution until people are different. No, we want the socialist revolution with people as they are now, with people who cannot dispense with subordination, control, and “foremen and accountants”.

I would only add programmers to the people Lenin identified above.

July 15, 2015

Greece: the scissors trap

Filed under: Greece — louisproyect @ 6:11 pm

(This was posted on FB by Jeff Richards. It overlaps with my article on the drachma conversion issues.)

Greece: The scissors trap.

The story of why Greek Prime Minister Alexis Tsipras changed his mind in the July 2015 negotiations with the European Union will, I am sure, be revealed by memoirs and investigative reporting in the future. At present any political assessment must be provisional. I am not one of those on the radical left (and the radical right in the case of Nigel Farage) who are now letting off a lot of steam with cries of ‘treachery’ or ‘betrayal’ etc. etc. etc.

Former Finance minister in the Syriza government Yanis Varoufakis, in a wide ranging interview with Phillip Adams on the radio programme Late Night Live alluded to one of the reasons why Tsipras recommitted himself to negotiations with the EU. Grexit would have required a new currency, a new Drachma. The task of creating a new currency is a very big organisational undertaking. Adams reminded the listener the vast logistical operation that was required to implement a new currency in Iraq following the invasion of that country by the Bush and Blair administrations.

Varoufakis said in the interview that the new Syriza government did have plans to opt for a new currency and they had assigned a special committee to look into the matter. That committee consisted of five members, whereas Varoufakis said that they would need to have a minimum of 500 personnel to take the process of a new currency to the next level. The reason why the finance ministry (which Varoufakis was leading at the time) did not take it to this next stage was the fear that setting up such a government department would harm the negotiations with the EU ministers. So the Greek government was caught in a trap, on the one hand trying to negotiate with intransigent ministers and hoping to exploit internal divisions within the EU -between Germany and France- and on the other hand not trying to do anything that might harm the negotiations with the EU (like being seen to be creating a new currency).

Greece exiting the European Currency Union (which is not the same as the European Union) is not an impossibly difficult task. It is however, a major logistical operation that would require the full mobilisation of the resources of the state, and the backing of the citizenry to implement. Syriza have alway indicated that it was their intention to try to negotiate and remain in the Euro with improved conditions. Plan B would have been to create a new currency. Syriza were simply unprepared for plan B, and were left with no option but to swallow the poison and hope they will survive without the country descending into a nazi revival. In many ways, it is an understandable why Syriza were caught unprepared. The relative newness in government, the enormity of the problems they were faced with, the urgent need to focus on meeting the needs of those left destitute by the policies of previous right wing governments. Most speculatively, I wondered if the lack of party cadres with limited experience in managing governments and state bureaucracies also played a role in the ‘turnaround’ by Tsipras.

July 14, 2015

Greece and the Underdevelopment of Europe

Filed under: Greece — louisproyect @ 9:32 pm

Greece has been relegated to the ranks of Somalia, Honduras, Democratic Republic of Congo and Zimbabwe by becoming the first European country to default on an IMF loan. The €1.6bn missed payment is also the largest ever by an IMF member. Popular rhetoric has blamed the situation on inherent Greek profligacy, displayed by their early pension schemes and special interests. This narrative carries the echo of the lazy conflations between the nature of places and its peoples that underpinned the earliest European imperial adventures.Columbus’ travel diaries reveal how he drew on a theory of place offered by Albertus Magnus and Pierre d’Ailly to equate the differing temperature and climates of the ‘new’ and ‘old’ worlds with differing levels of humanity to be granted to the European and non-European. For Columbus, the natives of the new world were inherently childlike due to their plentiful surroundings; hence they could not be treated as equals. Likewise, we now hear talk of the lazy, petulant and irresponsible nature of the Greek people, whose sunny climate explains their inability to adopt the protestant work ethic of the industrious Prussians.The reality is, according to the OECD, that the average Greek worker has worked 48% more hours than the average German worker; the source of the crisis is a failing of the international financial system. Ever since the IMF “assisted” Greece in 2010, the Greek economy has been in depression. 25% of its GDP has been lost under structural adjustment programs labelled “austerity packages.” 90% of Greece’s IMF debt went directly to repay other European institutions.

via Greece and the Underdevelopment of Europe.

Convert to the drachma–piece of cake. Right…

Filed under: Greece — louisproyect @ 5:40 pm

One of the things that’s been nagging away at the back of my mind in this ongoing discussion about leaving the Eurozone is what that means in terms of following through. I think that the average person on the left who considers this to be a sine qua non for Greece moving forward has no idea of what’s involved. It is not just printing new currency and delivering it to the banks. It is also a mammoth undertaking from the IT standpoint. Think in terms of what it would take to reverse engineer something like this:

NY Times, March 9 1998
A Year Before the Millennium Bug, There’s the Euro Problem

LONDON, March 8— Amid the rush to reprogram the world’s computers so that they will function after Jan. 1, 2000, a little-known computer problem looms as large with a deadline that is even earlier.

On Jan. 1, 1999, the European Monetary Union will introduce the euro, a new currency that could have serious consequences for the computer systems of financial institutions and just about any company that deals in foreign currencies and exchange rates.

Compared with the much-publicized year 2000 problem, which can set computer clocks back to 1900 instead of recognizing 2000, the euro poses a greater number of technological problems.

Exchange-rate and tax software will need to be upgraded, financial statements redesigned, automated teller machines revamped and historical data converted — and that is just scratching the surface.

”The magnitude of the problem the euro poses is unbelievable,” said Nick Jones, research director of the Gartner Group Europe, part of the Gartner Group Inc., a technology advisory and research firm. ”In terms of cost to fix, it is comparable with the year 2000.”

The Gartner Group estimates that it will cost European corporations, many of which have operations worldwide, $150 billion to $400 billion to upgrade their systems. Add to that the expenses in fixing the millennium bug, and that cost almost doubles. Mr. Jones said the cost of fixing each line of code is estimated at $1.10, with billions of lines of code having to be changed.

As someone who worked in IT for 44 years and on some very large scale projects such as developing a completely new system from top to bottom for Goldman-Sachs, this is a huge project that would require banks and any other large-scale corporations in Greece to manage. And that does not get into the problems that the civil service would have to deal with. Pension systems, the tax system, et al would have to be reprogrammed.

I now realize that when people were demanding that Syriza conduct a two-tier operation, one that sought an end to austerity within the Eurozone, and another on a parallel track that would switch over to the drachma, they had no idea what this would entail. Frankly, I don’t think that Greece is capable of converting to the drachma today even if the government voted for it. Billions of dollars would be required to do such a conversion and the cash-starved government agencies would even have less money for such a project than private corporations.

I have heard what seems like dozens of leftists complaining about Alexis Tsipras’s failure to deliver a contingency plan. These are people who almost certainly have never sat in cubicle and programmed a financial system in COBOL as I did for twenty years before I moved over to UNIX based systems at Columbia University.

My good friend Liza Featherstone complained on Facebook this morning: “Seriously every dude is a Greece expert now. How’d you all get so smart so fast?” Boy, was she ever right.

* * * *

Journal of Information Systems, Vol. 13, No. 2, Fall 1999
pp. 105–116

The Impact of the Euro on Information Systems
Daniel E. O’Leary, University of Southern California

Accounting Information System Requirements Brought About by the Euro The introduction of the euro will have a wide range of changes in requirements for accounting information systems (e.g., Dekker [1997] and others).

1. Legacy systems will require multiple updates. Unlike present day relational database systems, many legacy systems redundantly store data items (e.g., currency figures). In these systems, all instances of each redundantly stored currency data item will need to be updated to the same euro figure.

2. Systems must do triangulation. All those systems using processes related to currency exchanges, will have to be updated to reflect changes in the way conversion is done, using triangulation, rather than traditional inversion conversion.

3. Multiple currencies. Since both euro and local currencies can be used during the transition period, systems will need to allow recording and display of both home currency and the euro for each transaction. Inventories of both currencies will need to be kept as long as both are used. The existence of multiple currencies potentially exposes a company to the risk that payments are made in the wrong amounts of a currency. For example, as in Table 3, a bill for 302,706 euros incorrectly might be paid as 4,211,213 euros if clerks use the wrong currency amount.

4. Minor payment differences. Systems will need to be changed to accommodate minor differences in payments. Since customers can pay their bills in either euros or the home country currency, triangulation rounding can create a situation where there are differences in the equivalent between what is billed and what is paid when different currencies are involved. Few systems have been built to accommodate differences in payments and what is billed. Further, few systems currently accommodate billing in one currency and payment in another (Software Echo 1997). In addition, such differences will carry forward to the general ledger, which will also have to accommodate minor differences.

5. Restatement of financial reports. Firms must restate previous financial statements in euros, which raises other questions including the following: Who determines whether historical numbers will need to be restated? How much of the historical data will be restated? Will firms have the restated historical numbers attested to?

6. Inconsistent use of decimals. In some monetary systems, e.g., Belgium and Italy, decimal places are not used. As a result, systems designed for these currencies will need to be updated to accommodate the euro’s decimal places.

7. Number of decimal places. Not only is the existence of decimal places an issue, but also the number of decimal places is an issue. In order to assure that rounding is done at the appropriate level, six decimal places are required to accommodate the euro.

8. Input validation will need to accommodate multiple currencies. Input validation will need to change to accommodate the existence of a new currency and multiple currencies. Reconciliation tests will need to allow for and accommodate differences due to rounding.

9. Internal documents. Typically, most of a firm’s documents, input, and output will need to be changed to accommodate the multiple currencies.

10. Reporting capabilities. Reporting capabilities will need to be examined closely. For example, reports are often based on currency values exceeding some “threshold” amount. In some cases firms will need to change the bases of those thresholds to accommodate the euro. In addition, reports will often need to have the ability to display two or three currencies simultaneously.

11. Currency fonts will need updating. Finally, currency fonts will need to be updated to include the new symbol for the euro. Apparently, Microsoft has announced that it will accommodate the euro symbol in its 32 bit applications, but not in legacy applications, such as Windows 3.1 (http://www.microsoft.com/windows/euro.asp).

full: https://msbfile03.usc.edu/digitalmeasures/doleary/intellcont/Impact%20of%20Euro-1.pdf


July 5, 2015

Greece by the numbers

Filed under: Greece — louisproyect @ 6:19 pm

I am sure my readers have been following the referendum but just to make sure, “Oxi” means “no” to the German pig bankers and their regime thugs:


Turning to another matter involving Greece and the numbers, there’s a book review in today’s NY Times of “The Full Catastrophe” by WSJ reporter James Evangelos about the Greek crisis. It was reviewed by Joshua Hammer, a one-time Newsweek bureau chief. You can probably figure out that the book and the reviewer were on the same page ideologically.

While Hammer refrains from the open hostility toward the Greek government that you’d expect from a Times contributor, there was one passage that struck my eye:

To understand what led Greece to such a predicament, Angelos visits Zakynthos, off the western coast of the Peloponnese, mockingly anointed the “Island of the Blind” after nearly 2 percent of the population — nine times the estimated rate for most European countries — was found to be receiving benefit payments for sightlessness. Angelos discovers a scheme to defraud the ministry of health that extends from the single public hospital’s sole ophthalmologist to the former prefect who signed off on the payments, one of many such social-welfare scams that cost the Greek government billions of euros.

On the island of Hydra, Angelos tells of an undercover raid on a portside taverna that drew national attention to a common Greek pastime, tax evasion, and the halfhearted and inequitable attempts of the government in the post-bailout era to crack down on cheats. “The pervasiveness of the habit, and the government’s enduring unwillingness to do anything about it, was more than any other factor the cause of Greece’s financial troubles,” Angelos observes, citing one European Commission study in which uncollected consumption taxes were estimated at 10 billion euros a year. Another study, by two American academics, estimated that self-employed workers failed to report about 28 billion euros in taxable income in 2009.

Well, of course there was and is tax evasion in Greece but why single out a study that claimed “self-employed workers” failed to report about 28 billion euros? Who are these waiters and waitresses that are largely responsible for the nation’s plight? When you read the relevant passage in Evangelos’s book, you can spot his bias immediately: “People in Germany, the Netherlands, Finland—eurozone countries that had, with great reservation, participated in Greece’s bailouts—read the stories about the swimming pools, or others about an apparently high per capita number of Porsche Cayennes in Greece…were perturbed.”

Evangelos did not really clarify what kind of  “self-employed workers” he was talking about and Hammer was all to happy to take him at his word that “workers” were bleeding the country dry. However, I invite you to read an article about the study that appeared on the website Keep Talking Greece that will put things into perspective. It states:

The chief offenders are professionals in medicine, engineering, education, accounting, financial services and law. Among the self-employed documented in the report are accountants, dentists, lawyers, doctors, personal tutors and independent financial advisers.

Odd that the professional classes can be described as “workers” unless you want to prejudice WSJ or NY Times readers against them. In fact, it is completely understandable why lawyers, doctors and accountants would want to avoid paying taxes. They are not part of the labor force but small proprietors who have the same class outlook as the rulers of society.

In terms of the authors of the paper, who clearly were anxious to represent all Greeks as tax cheats even if their words don’t exactly support Hammer’s description of them as “self-employed workers”, it is worth mentioning their affiliation. Adair Morse and Margarita Tsoutsoura are from the University of Chicago. The minute I saw U. of Chicago, alarm bells went off. It seems that Morse is a fellow at the Friedman-Becker Institute. I am sure you know that Friedman is none other than Milton Friedman, while Becker is Gary Becker, an economist who once described Friedman as “the greatest living teacher I have ever had”. Right. There’s not much information on Margarita Tsoutsoura that would shed light on her ideological leanings but I suspect that she found Morse’s views congenial.

The third author is Nikolaos Artavanis from Virginia Polytechnic Institute. a contributor to http://greekeconomistsforreform.com/, a group blog that urged a “yes” vote on today’s referendum. Enough said?

Now I am sure that the numbers the authors dredged up were fairly accurate but we can be sure that they would understand the political impact. The report was used mainly as a cudgel against the Greek nation to make the poor pay for the thievery of the bourgeoisie and the petty bourgeoisie. Here is just another example of how it served a political agenda:

How Greek tax evasion helped sink the global economy
By Brad Plumer July 9, 2012

The euro crisis first started roaring in late 2009, when auditors inside the newly elected Greek government discovered that the country had a much—much—bigger deficit than anyone realized. That, in turn, inflamed fears that Greece couldn’t wiggle its way out of its debt trap so long as it was tethered to the euro. It also exposed structural problems within Europe’s currency union. Worries soon spread to Ireland, Portugal, and eventually Italy and Spain. Now the entire global economy is on edge.

Nice place. Wonder what sort of property taxes they pay? (Petros Giannakouris / AP)

But why did Greece have such a massive budget deficit in the first place? One factor (among many) was rampant tax evasion, which had starved the Greek government of funds. As it turns out, this was a very big deal indeed. The Wall Street Journal’s Justin Lahart points to a new paper (pdf) by three economists who estimate that the size of Greek tax evasion accounted for roughly half the country’s budget shortfall in 2008 and one-third in 2009.

How is it even possible to estimate taxes that aren’t ever paid? The economists, Nikolaos Artavanis, Adair Morse and Margarita Tsoutsoura, cleverly exploit a discrepancy. Few people in Greece want to report their real income to the government, since that would mean paying more taxes. But Greek banks have very solid estimates for how much income people are actually raking in — the banks need this info to make loans or to issue mortgages.


The phrase “”Lies, damned lies, and statistics” was first used by Mark Twain who attributed it to Benjamin Disraeli even though it is likely he never said it. Probably history will record that if Twain had lived as our contemporary thanks to some youth elixir, he would have used it as an epithet for mainstream reporting on the Greek economy.

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