Would You Really Follow a Manager into Battle?

We’re watching the death throes of Managerial Capitalism, and it ain’t pretty. MC, of course, is the era of managers who have usurped the traditional role of aristocrats and Puritans who at least acknowledged the importance of high principles. These managers have become the ruling elite of the so-called First World.

If you feel there’s an insatiable force sucking up your energy and your children’s future, it’s Managerial Capitalism. Corporate managers and their henchmen, the Wall Street “elite”, are the force to be reckoned with. Fortunately, they’re pretty paltry as humans go, and their days are more numbered than they appear. Why? Because they and the organizations they direct simply aren’t very good at their mission.

First of all, these are managers, not leaders. Leaders are people who know how to do what is done by the people they lead. Leaders expose themselves to the inconvenience of proceeding in front of the troops, Tom Hanks-style, rather than piloting a desk while others pilot less predictable craft.

<veteran’s_rant>The current manager-in-residence, George II, went through the motions of flying F-102s on training missions with the Texas Air National Guard during the Viet Nam unpleasantness, in a squadron noted for its population of the scions of the Texas elite. (He was admitted to pilot training ahead of a coupla hundred more qualified other rich kids, despite having flunked the entrance exam. As if that weren’t little enough, the record seems clear that he was too busy on a political campaign to show up for service when assigned to Alabama for his last year of duty. Can you imagine what Colin Powell, a real soldier, thinks of this guy?

My personal resentment may stem from the fact that I enlisted in the Air Force at the same New Haven office as George, about 3 years earlier. About a week before he enlisted, I was on the C-130 that evacuated the last Marines from Kham Duc Viet Nam (the one before us was shot down on takeoff, killing all 150 souls on board). A month after George started his USAF Adventure Camp, I got shot down at Katum, Viet Nam. The real world has real work to be done. Leaders do that work and teach others. Managers arrange the doing of real work.</veteran’s_rant>

The key to Managerial Capitalism is a shortage of capital, not its abundance. This view requires an inversion in how we think of economic eras.

Each age defines itself by its dominant scarcity. The age of agriculture arose when agriculture was less usual than hunting and gathering. The Industrial Age was notable when mass production was novel rather than routine. Industrialism’s handmaiden, Capitalism, became our defining modality when there wasn’t enough capital available to fund all the useful industrial possibilities.

Money is Free. Get Used To It.

But it’s the 21st century. The automobile, furniture, housing and appliance industries will put their goods into your hands for no money down and no payments for a while. (With housing, you’ll pay a little to rent the capital each month, but at 6%, the cost of capital is no more than the $500 monthly increase in the value of your $100,000 home.) Today, capital is, essentially, free, which makes it common, uninteresting and subservient to stronger economic realities. The next time you hear some old fart praising the virtues of capitalism, you’ll know you’re listening to someone who doesn’t get it that, when capital is free, Capitalism is passé.

John Robb wrote eloquently last week on the New Kleptocracy:

NYT.  Bush’s economic plan.  I think it is fairly ironic that the majority of the Republicans I know are people that make below $150k a year. They liked the Republicans because they opposed unrestrained growth in social transfer programs. Now, when it comes time to cut taxes to give back some of the money that had been arrogated by the government, the Republicans don’t even recognize that they exist. Bush is giving almost all of the tax cuts to people that make over $1m a year. I guess they think that the rank and file “working” Republicans are merely driven by social and defense issues and really don’t care about the pocket book. Poor schmucks.

Personally, I think we are speeding down a path towards a kleptocracy that is enhanced and accelerated by bad tax law and insufficient oversight. The mess we saw at Enron and Tyco were just the tip of the iceberg. It’s still going on everywhere. With Bush’s elimination of the inheritance tax, elimination of the tax on dividends, and other changes we are now going to see dynasties of kleptocrats. 

The thing everyone misses in this is that taxes on extreme wealth and inheritances keep the playing field of life relatively level. Also, regulation of economic behavior allows people that play by the rules to succeed. From everything I can see, we are in a place where a person who is intelligent, works hard, and follows the rules cannot under any circumstances make a significant sum of money on their own.

It’s interesting that John Robb is also a former Air Force C-130 pilot who put his ass on the line in Bosnia. Different war, same shit. (But note that Capt. Robb flew special Ops C-130s, taking guys with green faces into blacked-out fields on dark nights. Props to that boy!).

So here’s the irony: Every economic proposal we’re hearing is to increase capital! Like any age, we’re focused on the problem that we started with, not the one in front of us. Our economic problem is obvious: we don’t know how to inspire and deploy the energy and skill of our work force, so instead, we’re trying to put more money into the hands of the wealthy so they’ll invest it in enterprises which will be better equipped to do more of what already isn’t working.

If You Already Own it, You Don’t Have to Steal It

At the risk of being repetitive, I suggest again that society has always been based on the ownership of productive assets by those who are skilled in commandeering others’ productivity. That’s an obvious tautology and a simple truth—it has to do with your specialty. Most people are anxious for approval and believe that an honest day’s work will get them an honest day’s pay (actually, we don’t really believe it, but we want to believe it so badly that we ignore the contrary evidence).

There’s a much smaller group of people with a skill set that may be no more complex than being a Frito-Lay route man, who have as their aim the directing and accounting for others’ efforts. This managerial/capitalistic skill/entitlement nexus has the side benefit of enjoying substantial wealth based upon but only loosely related to the organization’s productivity.
Producing a widget does not pay as well as managing the production of widgets.

Owning the means of production was once the birthright of the aristocracy (or, as John Perry Barlow observed, the divine right of thugs), but th
e 1930’s invention of publicly accountable public corporations created the illusion of distributed ownership of the means of production. But how distributed was it?

Let’s pause to reflect on why corporations became, in theory, publicly accountable. When the 20’s started to roar, Wall Street was happy to take money from all those Joe Average rubes in the cheap seats, setting up a depression that cost the Republicans the White House and put a populist in the driver’s seat. That reaction created The New Deal, the SEC and a mechanism for transparent corporate governance. This was big news, and the transparency initiative held together, I submit, because the Great Depression and WWII drew people of all classes together into common effort, first for economic survival and then for physical and cultural survival.

But this period of transparency and protecting the public from corporate malfeasance lacked one vital ingredient—the public. The great unwashed retired from the game en masse, not to return until the 1990’s. Here’s a chart depicting the percent of US households owning mutual funds from 1980-1998. It’s presumably indicative of public ownership of all shares, perhaps even understated.

Despite a blip during the 1960’s Go-GoYears (great read—thanks, Tamara) the only investors were those pretty well equipped to play the game, not you or me or our parents/grandparents. Company ownership is a specialized game (as we were recently reminded) and usually it’s played by club members who are the aristocracy and like to keep it that way. Occasionally, the market news gets so good that the public assumes it’s a no-brainer (remember those eTrade ads?!) and begs to get in on the action. It would be unreasonable to expect securities brokers to resist the billions of dollars being waved in their faces. This is when the ownership starts to be shared with the common folk, who believe they deserve a place at the table.

When you already own the means of production, there’s nothing to steal and that’s historically been the case. The economic game only became a kleptocracy when the managerial aristocracy, having sold its right to own all productivity, decided to take it back again. Actually, it was never sold, simply rented out. When they take back what they can, it’s stealing, but to the managerial capitalists, it just seems like business as usual.

If we take nothing else away from this long-winded rant, it’s this:

Equity markets systematically move money from the less informed to the better informed.

The problem with Managerial Capitalism is not that it’s too pervasive and powerful (though it is), but that it is so poor at doing what it claims to do best—allocate people and resources skillfully and compellingly. This is the disconnect that should engage our passion, not the gnashing of teeth and rending of garments that we usually devolve into.

More Romantic Economics

Imagine for a moment that enterprises worked the way you’d like them to: They would employ skilled specialists who knew how to locate and train people to do what they are natively useful for, and they would coach those individuals (you and me) toward a bright future of usefulness and prosperity.

Get over yourself! That’s not what happens under Managerial Capitalism. People are managed because they have a job, and holding that job is their profession. Productivity is something else. Perhaps Xpertweb will be a good mechanism for unleashing our bottled-up productivity. In any event, we are on the cusp of an age when some non-managerial, Internet-based means will be available to mediate between people with a skill and people who need that skill.

One thing’s for sure: that mechanism will be no worse than Xpertweb.

1:11:46 AM