Lessons From History

Niall Ferguson’s book, “The Great Degeneration,” was enlightening. However, the last chapter seemed to be the most poignant, as it is with most books. He made many good points, but the one that stood out to me was the one dealing with government debt.

In the section “Against Technoptimism” Ferguson begins with the example of the British state in the eighteenth century. “Revolution and war are not new threats. In the eighteenth century the disruptive ideology that grew out of the Enlightenment became the basis for two major challenges to the Anglophone Empire that then bestrode the globe.” In other words, England was fighting wars with the colonies and revolutionary France, which resulted in the accumulation of huge amounts of debt.

The British government borrowed so much money to pay for its wars that its debt level was 250% of its GDP. However, through deleveraging processes the British government was able to reduce its debt burden by 225% of GDP resulting in a manageable debt load of 25%. Some would call this  “the most successful in recorded history.” There were difficult times. “This beautiful deleveraging was not without its ugly episodes, notably in the mid-1820’s and late 1840’s, when austerity policies caused social unrest (and failed to alleviate a disastrous famine in Ireland.”

The next question Ferguson asks is, “Can the United States emulate this feat? He states that he doubts it, and gives several reasons why, but one seems to stand out. Vincent Reinhart and Ken Rogoff researched the affects of long-term debt on advanced countries. The question they wanted to answer is what happens with public debt exceeds 90% of GDP? Their research showed that these “overhangs” were “associated with lower growth, over protracted periods of time.” In other words, economic growth ran about 1.2% and did not change for an average of 23 years. Excessive debt takes away from the ability of an economy to grow because it becomes a paradigm. This paradigm involves a belief that deficits are acceptable. We live beyond our means.

What historical events helped the Brits to eliminate debt? A technological breakthrough occurred. The railroad emerged as a new opportunity which became lucrative for England. I think this is similar to the industrial advantages the United States had after World War II allowing us to become the world’s bank. This type of event will be less likely to happen in the United States, thus leaving us to learn how to live within our means. Ferguson states, “My pessimism about the likelihood of a technological deus ex machina is supported by a simple historical observation. The achievements of the last twenty-five years were not especially impressive compared with what we did in the preceding twenty-five years.”

I am not too sure that I agree with him on this one. Economic growth is a result of some combination of capital deepening and technological progress. With the advent of the railroad, which was a capital deepening event, as well as technological progress, it is clear that England was able to grow out of its debt problem. However, I believe that in our modern times most of the economic growth in the United States will come from technological progress. This progress will not be new gadgets, although we have our share. Mobile technology has and will continue to revolutionize the world. The new progress will be a result of new ideas fueled by entrepreneurial passion.

Is this anything new? No! But our culture needs to rediscover the value of living simply and within our means. Large levels of public debt are bad for our future, and they are driving us to what is called a stationary state. “Public debt – stated and implicit – has become a way for the older generation to live at the expense of the young and unborn.” Add to that dysfunctional levels of government regulation and we see a stagnant economic system that is teetering on the edge of a ruinous precipice.

I have to end this blog with a quote from Ferguson. “Lawyers, who can be revolutionaries in a dynamic society, become parasites in a stationary one. And civil society withers into a mere no man’s land between corporate interests and big government. Taken together, these are the things I refer to as the Great degeneration.” Hmm, I think he has something here.

And that is my thought for the day, with a lot of help from Niall Ferguson!

Monarchs Versus Managers

Saturday I had the privilege to watch seven students present their Master’s thesis. All seven of them did a wonderful job. Each of the projects were unique, meaningful, and comprehensive, but one related closely to what I am writing about today.  The student I am thinking of wrote about fraternal organizations. She asked a poignant question about whether they will continue to exist in the near future? Her theoretical framework involved organizational lifecycles. The theorists she explored during her research included Richard Daft and Ichak Adizes; both have explored the evolution of organizations and the various crisis points associated with the life cycle.

What got me thinking about this is Michael Dell’s struggle with Carl Ichan. “Michael Dell, the ailing computer-maker’s founder and biggest shareholder, has now been forced twice to postpone a vote on his proposal to buy out he firm and take it off the stockmarket, for fear that the deal’s critics, led by Carl Ichan, a vetern shareholder activist, may have enough support to scupper the plan.”

The event has a similar flavor as the removal of Steven Jobs from Apple leadership in 1984. However, history has proven how destructive that particular decision was for Apple. It took the reinstatement of Jobs at the helm of Apple to make it the powerhouse it is today. That may not be the case for Michael Dell.

According to both Daft and Adizes, organizations (just like product) have a lifecycle. Daft describes the process as moving through the entrepreneurial stage, to the collectivity stage, through the formalization stage, and ultimately the Elaboration stage. Daft argues that each of these stages have a crisis point that requires action. Having studied his theory I think he is correct.

Adizes, who I am reading now, looks at this a little differently. He calls the stages, courtship (with the possibility of an affair); infancy (with infant mortality a very real possibility); Go-Go (including a founder or family trap); Adolescence (divorce); Prime; Stable; Aristocracy; Early Bureaucracy; Bureaucracy; and lastly death. Adizes also argues that problems are critical to this development. I think this is the same thing as what Daft calls crisis points. Adizes recognizes that the role of the leader during this cycle is not to prevent problems, but accelerate the ability of the organization to deal with the problems and solve them.

Whether we call events during the life cycle problems or crises, the point is organizations change. If the organization is going to thrive it must learn how to grow and be adaptable. According to Noam Wasserman of Harvard Business School, “entrepreneurs who relinquished the most control, either by vacating the boss’s chair or loosening their influence over the board, tended to maximize the value of their own equity stakes. Kings who kept a tight grip on their firms did worse. The less regal, the richer.” Wasserman studied 457 private tech firms to come to this conclusion. I tend to think that Job’s story nullifies this hypothesis.

Regardless, the fact is that organizations evolve and must learn to change with changing intra and extra-events. Eventually there is a need for good managing techniques for embryonic organizations. But eventually a managerial culture can lead an organization into a stifling culture of bureaucracy. Thus the need to reinvent the entrepreneurial fervor that once existed.

If the founder does not have the skills to lead the organization through these changes, then he or she will need to abdicate, allowing a professional manager to do what they do best. Lead the organization to higher levels of efficiency and effectiveness. So the question of whether a Monarch or a Manager can only be answered with “It Depends.”

And that is my thought for the day!

 

 

 

 

 

Is The Pope Catholic?

I don’t know how many jokes include the punch-line, Is the Pope Catholic? However, Pope Francis is not a punch-line, he is a Pope that is attempting to reform the Catholic Church and maybe the “Catholic” church at large. This morning’s paper had a headline – “Pope to youth: Shake up the Church.” If history is any indicator of whether the youth will listen or not; I think it is safe to assume that the youth will shake up the Church.

Pope Francis told the youth, as he made his trek through the slums of Rio, to “make a mess in their dioceses by going out into the streets to spread the faith.” I have to admit this Pope seems to be different than those in the Catholic Church’s recent history. “He has broken long-held Vatican rules on everything from where he lays his head at night to how saints are made. He has cast of his security detail to get close to his flock, and his first international foray as Pope has shown the faithful appreciate his gesture.” This seems really exciting.

Although I am not Catholic, I must say I thought about the Pope as I was reading my Bible this morning. The passage I read was from Matthew Chapter 5:

Blessed are the poor in spirit,

For theirs is the kingdom of heaven.

Blessed are those who mourn,

For they shall be comforted.

Blessed are the meek,

For they shall inherit the earth.

Blessed are those who hunger and thirst for righteousness,

For they shall be filled.

Blessed are the merciful,

For they shall obtain mercy.

Blessed are the pure in heart,

For they shall see God.

Blessed are those who are persecuted for righteous sake,

For theirs is the kingdom of heaven.

Pope Francis seems to recognize the importance of the beatitudes, or the attitude we should have, to be.

Jesus in the Sermon on the Mount gives us a strategy of living that is completely upside down to what everyone is telling us we should do. We are told to be aggressive, confident, and have a good time. We are told that “nobody can yell you what to do!” However, Pope Francis is living out the beatitudes for us. He is calling the Church to be what Jesus has told us to be. We are to be, “not of this world.”

Where does this play out in business? First, as a believer in business I think how we do the process of making money should include ethical and honest activity. There is no option here. Second, if I am a manager then how I manage my people will need to be inline with the model Jesus lays out for us, Servant Leadership.

When I was a manager I tried to treat my employees with respect and provide opportunities to do a good job. I served them as much as I could, and tried to be consistent and fair. I think that was how I lived out the beatitudes in my professional life.

So Pope Francis, keep up the good work. And to the youth of the Church, make a difference in the world by following Jesus Christ and doing what he has called us to do. And I am sure you will do it in your own way.

And that is my thought for the day!

 

de Tocqueville And Democracy In America

During my morning literary exercise I stumbled upon a lengthy quote that I think is pertinent to our modern society. Alexis de Tocqeville visited the United States in 1830, and subsequently wrote a treatise describing what he saw. Democracy in America is a literary classic that describes life in our early history. However, the quote I read this morning builds upon my blog entry of yesterday. When we allow our associational life to perish, thus negating a method for creating social capital, something must replace it. That something is the state, which is what de Tocqueville warns us about.

I see an innumerable crowd of like and equal men who revolve on themselves without repose, procuring the small and vulgar pleasures with which they will fill their souls. Each of them, withdrawn and apart, is like a stranger to the destiny of others: his children and his particular friends form the whole human species for him; as for dwelling with his fellow citizens, he is beside them, but he does not see them; he touches them and he does not feel them; he exists only in himself and for himself alone. . .

Above these an immense tutelary power is elevated, which alone takes charge of assuring their enjoyments and watching over their fate. It is absolute, detailed, regular, far-seeing, and mild. It would resemble paternal power if, like that, it had for its object to prepare men for manhood; but on the contrary, it seeks only to keep them fixed irrevocably in childhood. . .

Thus after taking each individual by turns in its powerful hands and kneading him as it likes, the sovereign extends its arms over society as a whole; it covers its surface with a network of small, complimentary, painstaking, uniform rules through which the most original minds and the most vigorous souls cannot clear a way to surpass the crowd; it does not break wills, but it softens them, bends them, and directs them; it rarely forces one to act, but it constantly opposes itself to ones acting; it does not destroy; it prevents things from being born; it does not tyrannize, it hinders, compromises, enervates, extinguishes, dazes, and finally reduces each nation to being nothing more than a herd of timid and industrious animals of which the government is the shepherd.

Last night during my class on leadership we discussed why civil involvement has eroded. We focused on technology, Facebook in particular. But I think I agree with Ferguson, who summarizes the above quote, “ Tocqueville was surely right. Not technology, but the state – with its seductive promise of security from cradle to grave – was the real enemy of civil society.”

And that has become my thought for the day!

Trayvon, Shelbe Steele, The Civil-Rights Movement, Democracy, And Social Capital

Not that our society has ever been perfect at developing social capital, but I think we need to reflect on where we are going. I started thinking about this yesterday after reading the editorial “The Decline of the Civil-Rights Establishment.” Shelbe Steele, author of the book “White Guilt,” argues that black leaders “weren’t outraged by the injustice of the Zimmerman verdict, but by the disregard of their own authority.” Steele states in his article, “When you have grown used to American institutions being so intimidated by the prospect of black wrath that they invent mushy ideas like diversity and inclusiveness simply to escape the wrath, then the crisp reading of the law that the Zimmerman jury displayed comes as a shock.” In this article Steele is not complimentary to Jesse Jackson and Al Sharpton. He states, “Why did the civil-rights leadership use its greatly depleted moral authority to support Trayvon Martin?” He answers his question with this comment, “The civil-rights leadership rallied to Trayvon’s cause (and not to the cause of those hundreds of balck kids slain in America’s inner cities this very year) to keep alive a certain cultural truth that is the sole source of the leadership’s dwindling power.” He states that this leadership can tolerate black on black violence, but they cannot tolerate the loss of a racist America. Steele’s implication is that the old civil rights movement needs to maintain racism to keep its power and position in society.

I do not feel that I have the right to say if Steele is right or not, but I can say that our nation is changing. Some of the changes are good, but some I think we need to be concerned with.

Niall Ferguson discusses what he calls the “Great Degeneration,” by describing the downfall of Western social systems. In his book he discusses Democracy, Capitalism, the Rule of Law, and lastly Social Capital. The last topic is where I want to focus.

At one point in time our nation was a nation of joiners. We joined community groups to make a difference. We rallied around causes, and we joined organizations that were attempting to make a difference in society, and we gave. Today those organizations have dwindling:

  • Attendance at public meetings, such as town halls and school affairs, down 35%
  • Service organizations – down 42%
  • Service on a social committee – down 39%
  • Average membership rate for thirty-two national chapter based associations – down almost 50%
  • Member ship rates for bowling leagues – down 73% (from the book Bowling Alone by Robert Putnam)

We still give money, Billions of dollars go to various charities, but our physical participation is diminishing.

Theda Skocpol, in a 2003 study entitled “Diminished Democracy,” argued that organizations like the Elks, the Moose, the Rotarians, and the Lions – “which did so much to bring together Americans of different income groups and classes – are in decline in the United States.” Charles Murray, in his book Coming Apart, argues “that the breakdown of both religious and secular associational life in working-class communities is one of the key drivers of social immobility and widening inequality in the United States today.” Both of these individuals are attempting to demonstrate the changing involvement of people in social causes.

As I have been writing I have to stop and think where am I going with this?

My discussion has taken me from Trayvon Martin, to the civil-rights movement, to the Lions club. What is my point? It is easy to give an afternoon to walk in a protest, but it is completely different to commit to a life long goal. We are becoming a nation that is dependent upon government to make things right, instead of getting involved in our communities and making a difference. I think this is problematic.

Maybe Steele is wrong, maybe Sharpton and Jackson are thinking about our changing society and are fearful of relying on government to keep things in check? I don’t know. But one thing I do know the more we move away from public dialog and civic participation, allowing politicians to make law that supposedly creates a civil society, the more freedom we give up.

A vibrant Democracy is one that the people are engaged and involved. Alexis de Tocheville, in his book Democracy in America, described the America he observed in the early 1800’s. He describes a group of people “who have taken advantage of association and where they have applied that powerful mode of action to a greater diversity of objects.” He continued, “The inhabitant of the United States learns from birth that he must rely on himself to struggle against the evils and obstacles of life; he has only defiant and restive regard for social authority and he appeals to its authority only when he cannot do without it.” This social authority is our political leaders.

By relying on big government to create laws, rather than collectively creating social capital, we are abdicating the “collective power of individuals,” and giving it to dysfunctional politicians.

This should concern us all!

And that is my thought for the day!

Detroit, The IRS And Distrusting Government

I like studying management and leadership. I have read about the topic since 1988, and I have done the job, as a leader, Pastor of a small church, and a manager, for fourteen years at Boeing. I was reflecting on this during my morning reading due to articles  in WSJ discussing the Detroit fiasco, IRS scandal, and the collapsing confidence in our government. I had two concluding thoughts; one the recognizes the importance of honest leadership, and the second involves paying attention. Two simple ideas that will help ensure of well-managed organization.

Take Detroit for example. Detroit is the largest municipality to declare bankruptcy. Instead of using proper controls of revenues and expenses, Detroit promised large pensions to its employees thinking they would always have enough revenue to pay for it. Detroit did not think its automobile industry would shrink, but it did. In fact, one of GM’s previous leaders once said that anyone who thinks that GM’s market share would be less than 38% is smoking opium. This managerial hubris was unhealthy and noncompetitive. GM’s market share is now 18%.

The IRS scandal demonstrates how destructive nontransparent, dishonest management can be. The scandal was supposed to be centered in Cincinnati, now it appears that the problem has been traced to the IRS chief counsel. Elizabeth Hofacre, “in charge of processing Tea-Party applications in Cincinnati, told investigators that her work was overseen and directed by a lawyer in the IRS named Carter Hull.” Hull is the IRS chief counsel appointed by the President. The lack of honest and transparent managerial practice demonstrates the affect unethical leadership within an organization.

The poor performance of leadership in this nation leads a collapsing confidence in our nations managers. I don’t believe it is just in government leadership, but which means 64% of American people think the President is doing a poor job. However, the Congress has an approval rating of 10%. 90% of the American people think congress is doing a poor job.

So, in light of these events what can management do to turn things around? Congress, Detroit, and organizational leaders need to create ethical, honest and transparent systems to guide their organizations. Trust must be reestablished, and it will take more than just words. Second, in the case of our politicians, the deficit must be managed. In the case of Detroit, a 58 minute Police response time is atrocious. Leaders must manage resources more efficiently and effectively. However, they must recognize that it will take all employees will need to be involved with the solution.

Can this be accomplished? I am an optimist, and believe it can happen.

And that is my thought for the day!

Co-Opted Charities And The Surging Global Middle-Class

There were two very interesting editorials in this morning’s paper. Both dealt with the economic needs of human beings. Alan Murray begins his editorial by describing three great surges of middle class growth. The first occurred during the 19th century. Bolstered by the Industrial Revolution the middle class grew. The second surge occurred after WWII. The European economic system had been devastated by the war, therefore the middle class in the United States benefited from the post war economic growth. After describing two historical events Murray then described the current surge as the biggest and broadest. This new surge is occurring in Asia, Latin America, and Africa. “Some predict that within two decades, a majority of the world’s population will have middle class means and desires.”

Notice that this new surge is in non-developed venues. The Pew Research Center demonstrates the reality of this economic shift. The center asked 40,000 people in 39 different countries the question – will your children be better off than their parents? The majority of respondents in advanced economies said no. 33% of Americans believe their children will be better off, while 17% of Brits do, 15% in Japan, and 9% in France.

However, in China 82% of people feel their children will be better off, while 79% in Brazil, and majorities in Chile, Malaysia, Venezuela, Indonesia, the Philippines, Nigeria, Ghana, and Kenya all feel the same way. This is exciting, but who will these emerging countries look to as a model of growth, the United States or China? “Another interesting question is to whom or to what these middle-class populations will look for role models.” Most are still looking at the United States, but they are also looking at China more favorably.

The world is changing, and the economic resources of the world are shifting. With the world flattening out, as Friedman has told us, it seems economic opportunities are more easily obtained by other countries. I agree with Murray’s closing comments, “What all this means is that the new global middle-class will transform societies, economies, and political institutions in hard ways to predict. Unlike the middle-class surges of the past this one will “not necessarily be rooted in Western values.”

I am not one to throw in the towel, but I think we need to recognize the gauntlet needs to be taken up. Instead of giving up it means that if we are to maintain our standard of living we must work a little harder. The same amenities that we once enjoyed may not come as easily as they have in the past. However, if we develop a tendency to rely on big government to maintain our current standard of living we are mistaken.

I for one am very concerned that big government has co-opted our Charities. Instead of relying on the giving of people our large charities are relying on government funds. James Piereson discusses the relationship of charities and government in his editorial in the WSJ. “For much of U.S. history, nonprofits have operated as a check on government by providing private avenues to serve public interests.” Now the federal government has co-opted these agencies to act as contractors. This is not necessarily a bad thing, but I am concerned with the breadth and depth of government tentacles.

Giving U.S.A reports “the government now supplies one-third of all funds raised by not-for-profit organizations.” Large research universities, hospitals, and health centers receive millions of dollars of the U.S. government. Religious organizations, such as Catholic Charities, USA and World Vision also receive millions. Piereson raises an important point “in view of heir dependence upon government funds, no one can seriously maintain that these groups are independent.”

I think there are two issues that need dialogue. First, is this cozy relationship between nonprofits and the government good? Second, would a Social Business model be more effective at meeting social need? On one hand if the nonprofits did not receive the large government handouts, where would they get the money needed for meeting social need? I think that is a huge issue. On the other hand, the nonprofits that do receive the government dollars are not independent, and can be told by the government what to do, which can be problematic, especially for groups like World Vision.

This brings me to my second point. Would a Social Business model be more effective at meeting social need? Social Business is a model that creates a business for meeting social need while making a profit. By running the business effectively and efficiently, using business principles, the organization not only meets the need while making a profit, it then takes the profit and gives it back to the community. Muhammad Yunus believes that the Social Business model should replace current nonprofit practices.

I don’t know if I agree with Yunus, but I do think that we should be concerned with the relationship of the government and nonprofit organizations. If our standard of living is detracting, and our children will be worse off than the current generation, then these organizations will be even more important than they are now.

The middle-class is growing in other countries, which means scarce global resources will be spread more evenly across the world. People in the United States that may have been socially mobile in the past may not be in the future, so we have our work cut out for us. We need to work harder to maintain, and we need to create more efficient ways to meet the rising social need of a diminishing society.

And that is my thought for the day!