Hurricane Over

We can be very thankful that Hurricane Isaac did not do more damage, and New Orleans itself is relatively unscathed. For a while it looked like there was significant tail risk.

Hopefully the rest of hurricane season will be similarly less of a menace.

 

Damned with faint praise

Peggy Noonan about Romney's Convention speech in the WSJ:

He had to achieve adequacy. He did.

 

Romney: A Manager, not a Leader

 

 

I'm uneasy about Romney, as the last post shows. And the more I think about it, it's because of the kind of business person he is. He is firmly on one side of the well-known distinction in business between a manager and a leader.

Romney is a manager. That means he thinks in terms of doing things right, rather than focusing on what is the right thing to do. He is all about efficient operations, rather than staking out new ground. He is about making sure rules are followed, not rethinking a product or getting people to follow him.

I've talked about this in general terms before on this blog (see the link for a famous Harvard Business Review article on the issue).

The trouble is the Presidency is much more about leadership than about management. It is much more about setting the strategy and knowing what to do, and how to adapt to change, rather than making sure inventories are optimized or procedures are standardized.

A President cannot simply be a good administrator, because he has very little administrative power.

I've talked a lot about US politics professionally over the years, and tried to explain DC to many foreign investors. They automatically assume that the President is the most powerful person in the world, so can get his way. And from a foreign perspective, he can certainly park a Nimitz-class aircraft carrier off their shores any time he likes.

But the truth is also that the President has very little direct power to order people around on the things that matter, especially domestically. Perhaps the best-known study of the modern Presidency is Richard Neustadt's classic Presidential Power, the Politics of Leadership. Neustadt says the main power the President has is the power to persuade.


Unlike a British Prime Minister, a US President can't just decide the government budget and order his party to vote it through parliament. Congress takes a President's budget as just a mildly interesting wish-list of suggestions, which it then generally ignores.

Even when his party controls both Houses, a President can't rely on Congress to do what he wants. For example, House Republicans threw out George W's bid to privatize social security, and Senate Republicans recoiled from his Harriet Miers nomination.

It takes time for Europeans or Japanese investors to understand that the President has to charm and ingratiate Senators from Kentucky, or Ways & Means members from suburban L.A to get anything done. The Supreme Court can take its time deciding whether to throw out his biggest legislative programs, as Obamacare shows. State and Local Governments can sue and block and delay, and federal agencies squawk and squabble like Romney's five young sons on a long car trip.

So a President actually has very little control as a manager. There are plenty of powerful independent people with their own political bases which can fight him to a standstill. Checks and balances are meaningful.

Instead, if he (or she) is going to be effective, it has to be as a leader. He needs to motivate and inspire and cajole and set the direction.

America needs leadership to adapt to change. It needs an update to its creaky business model, so to speak, not more efficient management of the supply chain or prettier Presidential budgets. It needs to compete and improve its game, not concentrate on the cost of office supplies.

But Romney wants to stress his business administration skills.

 

 

Romney: Inspired by Paper-Clips

I was left cold by Romney's speech last night. I found the speech a focus-group-driven attempt to tick boxes for various demographics. It was bland, politics-as-usual, and timid.

We learned much more about his personal inclinations. Some of that was frankly impressive, especially the stories of helping others as a pastor. He is an accomplished man, with a lovely family.

But he just does not seem to have any ideas, or desire to do specific things. He is an administrator, not a leader. Any politician in the last sixty years could - and mostly did - promise to create jobs. That is not new.

He claimed he would run the economy better because of his business experience. (I guess we can just be glad he didn't break out PowerPoint slides.) But we heard a lot back in 2000 about how George W. was the first President with an MBA, too. It didn't work out so well.

 

There is too much emphasis on vague business talk, and too little about where he wants to take the country. He wants the keys to the car, but just wants to leave it in the garage while he tinkers with the engine.

He tried to talk more about his own life story. But his primary problem is not woodenness or reticence. It is a sense of purpose. It's the vision thing.

You can't simply extol "business" as a vague catch-all term of praise, and think that is enough of a sense of direction.

America has a well-justified fascination with the entrepreneur who starts with nothing except an idea in an empty garage, and builds something great. It is the contemporary version of the pioneer who heads off to the frontier and builds a cabin with his own hands. Building something new on the frontier strikes all the right chords. It's a dream with deep roots. That's what the signs in the hall "We Built It" are trying to evoke.

But the reason to respect business is not the Fortune-500 courtier or bureaucrat, administering the routine budgeting and HR policies. It isn't the massive corporation or bank with a smooth lobbying operation in DC. It isn't the rentier and coupon-clipper or the smarter tax lawyer. That's not the essence of America. There were plenty of courtiers and big organization people at the court of George III.

Instead, it is the streak of innovation and daring and flexibility that we should praise. It is the sailing off to an unknown shore, like the Pilgrims. It is the cabin in the wilderness. It is the lure of the open road and the distant peaks.

But what did we see last night? What did Bain Capital contribute to America? Staples, we heard. A slightly cheaper place to buy paper clips. Mitt was very focused on the price of paper clips.

Paper Clips.

Sigh.

I find it hard to imagine voting Democrat. To me, they're tainted by their hard left wing. And Obama certainly does not have an inspiring record as a "community organizer." But I really don't find this paper-clip driven Romney approach very ... inspiring.


I am deeply skeptical about his private equity experience. Private equity is mostly not about frontiers or new visions or markets. (Not even venture capital does that these days). It is the paper-clip driven side of business.

I've seen one episode of private equity investment up close, and I found them to be accountancy-driven, out-of-touch failures, with little understanding of actual business growth or strategy. (They lost a lot of money, too). They could ride a credit bubble, yes, and make a lot of money over time because of attractive tax treatment of carried interest. But bank covenants were more important than hard thinking about the product or customers. Financial engineering substituted for understanding the market. It wasn't business skill or daring or understanding customers, or a desire to innovate. All they had to do was leverage up and collect checks.

Private equity is often largely an ability to negotiate financing from foolish banks at attractive terms. It is more like crony capitalism than genuine wealth creation or innovation. There's not much difference between many private equity honchos and Chinese Communist Party apparatchiks who make a lot of money out of borrowing money at preferential terms from the tame state bank, and milking dividends while the going is good. With enough loose credit, anyone can look like a business genius - for a while. That isn't a skill which is going to put America back to work.

What America needs is not really better administration - although it wouldn't hurt. It isn't simply a negative vision of cutting back government.

It is a sense of the renewal of the promise of America. And America is more than just dreaming of a cheaper paper-clip. It isn't more efficiency we need. It's a sense of purpose.

 

Don't think, Look!

I often think that what matters is how we see things. Perception matters. Here's an article about how the later Wittgenstein understood these matters. Roy Monk (who wrote a magnificent biography Ludwig Wittgenstein: The Duty of Genius of the philosopher) puts it like this:

To grasp these important things, we need not to reason verbally, but rather to look more attentively at what lies before us. “Don’t think, look!” Wittgenstein urges in Philosophical Investigations. Philosophical confusion, he maintained, had its roots not in the relatively superficial thinking expressed by words but in that deeper territory studied by Freud, the pictorial thinking that lies in our unconscious and is expressed only involuntarily in, for example, our dreams, our doodles and in our “Freudian slips”. “A picture held us captive,” Wittgenstein says in the Investigations, and it is, he thinks, his job as a philosopher not to argue for or against the truth of this or that proposition but rather to delve deeper and substitute one picture for another. In other words, he conceived it as his task to make us, or at least to enable us, to see things differently.

It's not simply a question of images, though.

Thus, at the heart of Wittgenstein’s philosophy is what he calls “the understanding which consists in ‘seeing connections’ ”. Here “seeing” is meant not metaphorically, but literally. That is why, towards the end of the book, he devotes so much space to a discussion of the phenomenon of seeing ambiguous figures such as the duck-rabbit. When we “change the aspect” under which we look at the picture, seeing it now as a duck, now as a rabbit, what changes? Not the picture, for that stays the same. What changes is not any object but rather the way we look at it; we see it differently, just as we see a face differently when we look at it, first as an expression of happiness and then as an expression of pride.

It is still sometimes hard to reconcile the earlier and later Wittgenstein, although people argue for continuity. Martin Seligman, the positive psychologist, says he later realized Wittgenstein's minute analysis of "puzzles" made him the Darth Vader of philosophy. We have both poison and antidote. I might have to re-read Monk's book again.



 

The Untouchable Economy

...or, subtitle, "Why Americans Are Turning Against 'Stuff'" by Michael Mandel in the Atlantic.

Millennials are shifting from tangibles (cars and homes) to intangibles (education and access to data), but they are not alone. In today's data-driven economy, the business sector is moving along the same tangible-to-intangible path as the Millennials, perhaps at an even faster pace. Business spending on nonresidential structures, other than mining-related, is roughly 30% below the 2007 pre-recession highs, while investment in software is up almost 20% over the same period.

It ought to have much greater implications for how we think about the economy. An intangible economy works differently. Our time-honored intuitions about property rights and exchange and marginal cost don't work reliably.

Limitless power in the cloud

Here's a fascinating NYT story about Amazon Web Services, the division of the giant which rents out vast amounts of computing power in the cloud.

Within a few years, Amazon.com’s creative destruction of both traditional book publishing and retailing may be footnotes to the company’s larger and more secretive goal: giving anyone on the planet access to an almost unimaginable amount of computing power.

It means startups can function with far fewer people. That has employment consequences of course, especially if new small businesses are the traditional major source of new jobs. .

And it speeds up the pace of disruptive innovation. Take one new company , Cue:

“I have 10 engineers, but without A.W.S. I guarantee I’d need 60,” said Daniel Gross, Cue’s 20-year-old co-founder. “It just gets cheaper, and cheaper, and cheaper.” He figures Cue spends something under $100,000 a month with Amazon but would spend “probably $2 million to do it ourselves, without the speed and flexibility.”

We've already seen signs this is impacting the economy in a report from the Kauffmann Foundation.

(h/t G!)