David's Blog

Democracy, Capitalism and Donald Trump: An Ecological Perspective Part I: Midnight Reckoning

Back in November 2016 I wrote a blog in the immediate aftermath of Donald Trump’s election. As a Canadian I thought the Americans had had an awful choice to make but was just as surprised as many others were, when the man I wanted to lose beat the woman I wanted to lose.

An ecological lens suggests that it’s helpful to look at abstract systems like democracy and capitalism as dynamic ecological processes, rather than as static structures. That is, both capitalism and democracy are configurations of complex adaptive social, economic and political systems that have their own internal dynamics, analogous to those of complex adaptive ecologies, like forests and estuaries.

From this perspective successful social enterprises, both political and commercial are conceived in passion, born in communities of trust, grow through the application of reason and mature in power. Here they tend to get stuck in systemic traps, structures and routines that conserve their habits and protect their success but render them inward-looking and insensitive to the small-scale changes that presage trouble.  In economic organizations the result is decline and possibly disruption by smaller, faster enterprises wielding new technology. In political bodies the result is gridlock which, if it persists, can lead to political disruption and insurrection.

In their two perceptive books, The Broken Branch (2009) and It’s Even Worse Than It Looks (2011), political scientists, Thomas Mann and Norman Orenstein gave us a broad overview of how the gridlock emerged in the American Congress. Most importantly, they outlined the changes that led to the polarization of its members and the emergence of a quasi-parliamentary system, built upon opposition, in a constitutional republic where the separation of powers demands negotiation and compromise to get anything done.

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Jonathan Sacks (1948-2020): Jewish Wisdom and Our Binocular Minds

The Binocular Mind


“And twofold always… May God us keep 

From single vision and Newton’s sleep!”

(William Blake, Double Vision)

Rabbi Lord Jonathan Sacks

I read with great sadness of Rabbi Lord Sacks’ sudden, untimely passing on November 7. His writings have been a source of inspiration and really helpful ideas to me. I discovered them only a few years ago, while continuing to work on my ecological perspective on management. Sacks’ thoughts on the moral and social ecologies that underpin the ability of human beings to cooperate and work together have been especially useful. They apply at the organizational level but have been even more helpful in extending the ecological framework “up” a few systems levels from there to that of society and the state – the level that Sacks was most interested in.

Sack’s writing reaffirmed for me the dual nature of human beings in society and the benefit of a binocular mind, like that suggested by an ecological/evolutionary perspective. (The New Ecology of Leadership (2012).

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Milton Friedman’s Philosophy: Invaluable at First but Deadly Afterward

Milton Friedman (1912-2006)

2020 marks the 50th  anniversary of Chicago economist Milton Friedman’s famous (or infamous, depending on your point-of-view) claim that the only social purpose of business is to increase profits. This doctrine proved immensely popular among corporate managers but has been increasingly challenged as being harmful to society. McGill management professor, Henry Mintzberg was an early critic and has been a consistent advocate of a broader approach to social purpose.

Victorian political commentator Walter Bagehot (1826-1877) once wrote “The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.” That describes Milton Friedman’s work – very helpful in the beginning but a hindrance subsequently.

I graduated from Chicago’s MBA program in 1972, imbued with the idea that management was all about the allocation of resources, as assessed by the Capital Asset Pricing Model (CAPM). I had majored in finance, studying with Gene Fama his newly-developed Efficient Market Hypothesis that was shaking up the world of finance. I was ready to change the world of management….

I soon found that practicing managers weren’t using theory to tell them what to do – they were using it to rationalize what they already wanted to do. Back then it was clear to young managers like me that the great post-war boom in economic activity was slackening and that the large corporations had accumulated a great deal of fat and were guided by a fuzzy sense of purpose that supported a relaxed ‘country-club’ approach by managers. We young Turks wanted to change that and make corporations more efficient. Fama and Friedman’s perspectives and theories proved invaluable in cutting through tired old stories with a powerful counter-narrative. The era of conglomerates, leveraged buyouts and private equity was launched on this new logic.

At first this new approach seemed very successful. Conglomerates thrived and their founders like “Tex” Thornton of Litton Industries, Hal Geneen of ITT and Jim Slater of Slater Walker (in the UK) became business folk heroes. The exploits of LBO firms like Kohlberg Kravis and Roberts (KKR), fueled by junk bonds, were celebrated in the press and their billionaire principals regarded as geniuses. But it didn’t last: monolithic concepts taken to their (il)logical conclusions never do. One has to take time, change and people into account: nothing lasts unless it is incessantly renewed.

It seems that enterprises (and both democracy and capitalism can be thought of as giant enterprises) are conceived in passion, born in communities of trust, grow through the application of reason and mature in power.  The young become old and success is followed by excess. Gradually control of the corporation was taken over by elites, who used concepts like Friedman’s to rationalize their actions. Ideas once used to challenge outdated attitudes were now used to justify the new, emergent status quo. In recent times in Anglo-American business the result has been the steady liquidation of productive enterprises, the creation of oligopolies and the emergence of a bloated financial sector. Value extraction has replaced value creation.

Deadly indeed, but we know the enemy and it’s not Milton Friedman: it’s us.

 

Austrian Economics and the Ecological Perspective

A few months ago I had the pleasure of meeting Hunter Hastings online. Hunter is an economist by training, a member of the Mises Institute and a follower of the Austrian School of economics. We got to chatting and he saw my presentation When the Science is Uncertain Turn to the Humanities, which I delivered for the I4J Leadership Group. As a result he asked me to do a podcast for the Mises institute

The podcast has now been published as Business School Fallacies: Acting Your Way To Better Thinking.

Thanks Hunter – it’s been a pleasure working with you!

A Fierce Old Story: Fighting a Plague with Common Decency

Too little, too late

Only a local doctor and his colleague recognized the pattern – a plague was beginning to sweep through the population. They tried to alert the authorities, but the government was reluctant to sound the alarm. Some action was taken, but the language was optimistic and politicians downplayed the seriousness of the problem. It took a jump in the death toll before serious measures were taken: the town was sealed, and a plague officially declared. The pestilence went on to ravage the city, as usual affecting the poor the most.

From allegory to analogy

You may recognize this story outline from Albert Camus’ The Plague (1947). Anyone who has read his newly popular allegorical novel would know what to expect during a pandemic.   At the onset of the current coronavirus pandemic, when there was little data, experts conducted what can be thought of as an analogical inquiry, using the liberal arts.

They consulted historians who had studied the flu pandemic of 1918 and other plagues from the past. They looked for comparable coronaviruses, like SARS and MERS. They began to compare experiences in different countries with similar circumstances. They searched for metaphors and analogies, even fiction like The Plague for ideas that might be relevant.

Action before data

Like so many entrepreneurs, it seems clear that those countries whose leaders took early decisions to quarantine their societies, based on wise judgement, had much better experiences. They were willing to commit to action, rather than wait for the inevitable delay for data and calculation. Only once data was available could they claim to be ‘guided by science’ and ‘evidence-based’. But because of the exponential growth of the virus, a few days delay could make a huge difference.

What really matters

“There are only two or three human stories,” wrote Willa Cather, “and they go on repeating themselves as fiercely as if they had never happened before.” We are living through just such a story right now.

The universe may be made of matter, but we humans live in a world of value and significance, of ‘what matters’. Science deals with fact, narrative deals with truth. As screenwriter, Robert McKee explains, “What happens is fact, not truth. Truth is what we think about what happens.”

Leadership requires empathy and decency

This is the power of analogical inquiry. The liberal arts help us learn from the experiences of others, to feel what they felt and to think what they thought. We call the quality ‘empathy’, the essence of what it means to be alive and the critical ingredient of effective leadership – a preoccupation with “what matters”.

This is Camus’ message: the “plague”, ill-fortune and injustice in its many forms, comes and goes but never completely disappears. It is the underlying human condition, to which our response must always be one of caring – ‘common decency’ “There is no question of heroism in all this,” says Dr. Rieux, Camus’ narrator, “It’s a matter of common decency. That’s an idea that makes people smile, but the only means of fighting a plague is – common decency.”

Drucker Forum 2020