The Meritocracy Dilemma

It’s not confusing to most folks, but it bothers me a lot. The conventional wisdom is that we’ve got the best of all worlds–freedom to innovate and be a winner, in a free-market orgy of talent and capital and consumers. The only problem with the dance is that it’s so hard to find anybody that’s actually made it work for them. Even those who seem to have it made will–with little prompting–spill out a tangled web of possessions and obligations and stresses that are suffocating them. And for most of the few who have made it without an ulcer or a coronary, there’s been a lot of history that they don’t want their kids at boarding school to know much about.

Managerial Capitalism – the Rule of Meritocracy

Free-market capitalism is neither aristocracy or democracy. Its special “ocracy” is meritocracy – those who are most able rise to the top of the pecking orders of multi-national corporations and their management teams, not determined by any static biases of family, ethnicity, national origin or even gender. But the lack of those perceptible biases doesn’t mean there’s a lack of bias. The bias is for a special blend of intelligence and energy called merit. Most of the significant wealth is managed by corporations which need a steady supply of hungry young tigers with big brains and bigger egos to attack markets and destroy competition and launch killer products to conquer market segments. It sounds as brutal as feudalism. The expendable foot soldiers of these campaigns are people from the same social classes as those who rise to the top. The difference may be in their genes–their hearts don’t seem to be in the unending fight–and at some level they know they’re expendable as soon as a wave of re-engineering or acquisition dictates. There’s been a steady increase in the level of commitment, intelligence, energy, ambition and ruthlessness required to rise to the top of any corporation, so the few who make it are reaping greater rewards compared to the people who fight in the trenches. And that’s why they’re in the game.

Money, not nobility, is the only way to differentiate oneself from the run-of-the-mill. The stock market wealth engine has reduced the process to a formula: Own stock or options in a company; build the company (perhaps from scratch); buy another company or be bought out; own stock and be perceived as instrumental in building the new organization; buy another company or be bought out… That process builds the winner’s web of wealth. Stock is never given out of generosity, so folks who don’t negotiate hard have a more constrained web of wealth. If they are downsized, they are separated from their web of wealth, perhaps before they have any significant bit of other people’s productivity.

Meritocracy’s profound, counter-genetic shift

Historically, those chieftains who were woven into a web of wealth maintained a web of support for the many whose productivity they laid claim to. In our time, technology means that more productivity does not mean more workers. The genetically based contract – that the powerful protect the weak in exchange for their productivity – has broken down. It would never occur to a king or noble (or silver-backed gorilla) to estrange a loyal and hard working serf simply because there were harder-working serfs. This all changed with the pervasive application of the Net Present Value calculation.

With no alternative in sight and general agreement that capitalism won the battle of the isms, no one seems to see any alternative but to keep carrying a heavier load each year, like the farmer carrying a calf around each day until he falls under an unsupportable load of bull.

Perhaps this is not the final system. Perhaps there’s life after meritocracy, especially when one observes that the products and services produced by the meritocrats are not always satisfactory. Just because these hard-charging companies are defeating each other in the market doesn’t mean they’re winning customers’ hearts and minds. There’s something about large organizations which squanders most of the participants’ time and energy in producing motion rather than progress. Too often, they seem as competitive with customers as they are with competitors, designing byzantine structures to lock a customer into a complex dependency when all the customer wanted to do was surf the net or call home.

Some day we may discover that our suspicions were correct, that, during the years surrounding the beginning of the third millennium, only 10% of our efforts were producing value but we were going crazy with the cultural and economic myths surrounding that 10% of our effort. All it took was to change the work protocols slightly and people once again were able to turn most of that wasted 90% into a real life.

I believe that Xpertweb provides those protocols, but we shall see.


The Tyranny of Net Present Value

All capitalism is based on a single strategic algorithm: calculating the Net Present Value (NPV) of a series of expected cash flows by discounting each cash flow (cf) by a percentage (discountRate) over time:

NPV=cf1*(1-1*discountRate)+cf2*(1-2*discountRate)+…cfn*(1-n*discountRate)

Why would this dry formula be so important to every one of us?

The NPV calculation lies at the center of all resource allocation decisions

You may resent it, but all your economic possibilities are defined and constrained by this simple calculation buried in the computers of people you will never meet. It is what they are talking about when people say “Follow the money.”

The greatest civilization in the history of civilization has been reduced to this single formula. If in the beginning was the Word, then in the end there’s only the Net Present Value formula. With it, managers and financiers and governments and pension plans compare any set of cash flows to any other set. Then they sell the lower one and purchase the higher one. Even though it ignores the sweep and drama of the rise of civilization, it’s a democratic yardstick. It’s also the basis of meritocracy.

It is the process of “capitalizing” every cash flow, whether it’s an inflow (customer payments and collections, bond yields, corporate earnings) or an outflow (employee salaries and benefits, supplier payables, social security payments). Corporate managements have an uneven track record in growing their revenues but they are masters at reducing their expenses and making optimistic forward-looking statements. A company’s stock market valuation is some multiple of forecast earnings. To increase the value of the shareholders’ (i.e., management’s) stock holdings and options, the best strategy is to reduce expenses, which appears to instantly increase earnings. As available capital exploded in the 20th century, every discernible cash flow opportunity in the economy showed up on someone’s radar screen and was targeted for assimilation or annihilation, whe
ther it’s mom & pop retail sales in rural Arkansas (a Wal-Mart opportunity) or a 48 year-old engineer at Chevrolet (a GM expense).

The logic of meritocracy says that an engineer may be a star at 27 but a liability at 48. This is the basis of the pervasive, subconscious grievance against meritocracy, even when it’s not framed in those terms. The conventional wisdom of the age is that everyone needs to re-train themselves on a moment’s notice to become a software programmer or help line staffer or home health care specialist.

The question is, what is the obligation of an economy to consider and support the preferences of the majority of its participants? Naturally, the “moving hand” school of thought is that the market economy is driving all these choices, and complaining about it is unreasonable, as G.B. Shaw pointed out. Even if individuals can adapt as quickly as proposed and remain employable, they are repeatedly separated from their last company’s web of support and their only opportunity for a web of wealth–often, it’s obvious, by intention.

I have no answers for the meritocracy dilemma, but it’s obvious we have an economy that freezes out most of its participants. The resentment’s not boiling, but it’s building. That inequality has been embraced and extended by most decision makers in our government, and they seem to think it can go on forever without repercussions.

We shall see.
12:16:59 AM    

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