In his interview on 60 Minutes, Ben Bernanke gingerly offered the analogy that if your neighbour lit his house of fire by smoking in bed you might be disinclined to help put it out because he had it coming. But if your own house is made of wood you can’t afford to be passive. It isn’t going to be pleasant or easy but we have to put the fire out before it spreads…
As for the fire that has already devastated US finance and much of the global economy, and put taxpayers on the hook for hundreds of billions of dollars, Bernanke said, “It’s still burning.”
It’s a dangerous analogy that leads to some unpleasant thoughts if taken too far… So allow me…
The fire is too big and hot to be put out. It’s going to have to finish burning all the incendiary material… Don’t worry, the important things aren’t going to burn. In fact, they’re going to be liberated and enriched in the mid-to-long range future. This is why I’m hopeful.
The crisis is about the difficulty managing the size and complexity of organizations that compose our society. We have the technical knowledge to operate them but we lack the wisdom to actually manage them, and the organizations themselves are set up in such a way as to all-but disable anyone inside them from developing that wisdom. Read your Drucker on the “society of organizations” [doc]:
The society of organizations is unprecedented in human history. It is unprecedented in its performance capacity both because each of its constituent organizations is a highly specialized tool designed for one specific task and because each bases itself on the organization and deployment of knowledge. It is unprecedented in its structure. But it is also unprecedented in its tensions and problems. Not all of these are serious. In fact, some of them we already know how to resolve — issues of social responsibility, for example. But there are other areas where we do not know the right answer and where we may not even be asking the right questions yet.
There is, for instance, the tension between the community’s need for continuity and stability and the organization’s need to be an innovator and destabilizer. There is the split between “literati” and “managers.” Both are needed: the former to produce knowledge, the latter to apply knowledge and make it productive. But the former focus on words and ideas, the latter on people, work, and performance. There is the threat to the very basis of the society of organizations – the knowledge base — that arises from ever greater specialization, from the shift from knowledge to knowledges. But the greatest and most difficult challenge is that presented by society’s new pluralism.
Whichever way you look at it — whether you want to blame huge corporate bonuses, high-risk borrowing, ineffectual regulation, greed, stupidity, whatever — it comes down to technical knowledge and tools progressing faster than people can become wise enough to wield it appropriately. Too few people could or would understand (or even ask) how their decisions related to the big picture. The systemic effects that appear so obvious to us now were completely obscured by the demands of specialized efficiency and achievement.
And today there are still more systemic effects being obscured by the same technical attitude — the faith of people in business for incentives and efficiency over craftsmanship and quality. We’ve lost the ability to intuit and judge. Business has become a cult of machine-oriented models and metrics. Mindfulness has left the building.
Drucker advocated metrics — but as a necessary support for judgement, not as a sufficient replacement. He may have said “if you can’t measure it, you can’t manage it,” but he didn’t mean “if you can’t measure it, it doesn’t exist.”
And that latter slogan seems to be the mindset a lot of people have — and the pervasive attitude in a lot of organizations — that’s responsible for our blindness: if factor-x doesn’t show up in the reports (or worse, if the reporting process can be manipulated to not show factor-x) then factor-x needn’t be any concern. In the mad rush to expand over the past two decades we hastily built our organizations out of wood. Fire was supposed to be non-existent: it was the factor-x they eliminated from the reporting process. But this Great Fire was inevitable — and if not fire, then an even longer and more miserable process of rot and decay.
Another top business intellectual, McGill’s Henry Mintzberg makes a sympathetic case in today’s Globe and Mail (much of it looks pretty familiar to anyone who has read his work on MBA education; in fact, in places, the column almost seems like an advertisement for his previous work, but whatever — don’t let that detract from the basic argument):
In this, we have America’s problem in a nutshell: the utter absence of collective introspection, whether it be the current crisis, the relationship between the Vietnam and Iraq debacles, even what might have contributed to 9/11, as well as the way it has been compensating and educating its corporate “leaders.” The country seems incapable of learning from its own mistakes.
Put differently, the U.S. appears to be in social gridlock. Thanks to vested interests and their powerful lobbyists, as well as an economic, individualistic dogma that has been embraced so thoughtlessly, it is business as usual in America. And beyond: Our planet is becoming as sick as many of these corporations, yet we are being implored to get back to consumption. Fix the problem now; continue to forget about the future. Except this time, we may be consuming ourselves.
No country in the world has been more admired for its capacity to change, to learn with the times. This remains true of technological change; but, on the social front, America seems incapable of changing.
That’s why the best thing that can happen is for the fire to burn off as much of the derelict old core structures as possible — preferably hot enough to not leave a lot of rubble, but not so hot as to damage the integrity of the concrete, brick, and steel structures that have already risen in their midst. When the cheap structures are gone the strongest ones will stand out as guides.
As after Chicago’s Great Fire (and conflagrations in just about every other city) this is an opportunity to rebuild with more robust materials and even greater technologies. The architects and builders drawn to Chicago – like European cities devastated in WWII, e.g. Rotterdam – in the post-fire era (I’m trying not to invoke too many socialist-tinged words, like “planning”) developed the first skyscrapers.
Which raises the question (while I’m already getting too carried away with metaphors) are banks analogous to the wooden stockyards of Chicago in the 19th century? Will banking be looked upon in 100 years the same way people look upon husbandry, herding, and butchery now? What kind of enterprises in the future will be analogous to the banks and insurance companies and other large corporations that came to be associated with the tall, firm-footed buildings rising around the turn of the previous century?
But enough with these loose analogies. Here’s the rest of Bernanke’s interview — the open-collar, human interest segment (… btw, in which he compares the economy to a sandcastle being washed away by waves):
via Mark Thoma
