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In the long run all that matters is continued prosperity

by Aaron McCormack on August 2, 2011

From 1932! - click on image to enlarge

There is a very interesting set of statecraft theory postulating that all the wars of the 20th century were merely battles in a longer, greater war.  One that was a battle for the nature and roles of nation states and in particular between forms of government – fascism, capitalism, communism.  In this narrative, the “war to end all wars” was merely a skirmish on the way to greater horrors.  The Vietnam War had to be fought by the USA (even if it was going to be lost).  The lives lost in nuclear explosions in Japan were necessary casualties to stop a greater horror from unfolding.

When you try to step back from immediate events and come back to a view that looks over the course of two years, or five years, or even 20 years, more often than not you are still missing the bigger picture.  Most people are still missing the bigger picture in the current political debate in the USA.

For me the main challenge is that we continue to expend most of our efforts and brainpower and political capital on symptoms, and not root causes.  We treat the sniffles and the fevers, and don’t attack the virus.  We hope that the main malady will somehow run its course and that our symptoms will improve.

The history of societies and nation states and corporations is littered with those who thought that problems were temporary, and not structural.  Who could not change the fundamentals of their strategy and structure and execution because they could not get to grips with, or simply could not see, what the real problems were.

In business, this is often known as the Forbes Cover Curse when companies or their leaders reach a zenith and receive much acclaim immediately before a fall.

In more academic terms it is best expressed by Professor Donald Sull (late of HBS, now at London Business School) in his book “Why Good Companies go bad, and how great managers remake them“.

This book introduces the concept of “Active Inertia” where businesses are seen to work harder and struggle more but, like a car stuck in the mud, all that happens is that the wheels spin faster and the car sinks further in trouble.

The reason for this is that all institutions, whether they know it or not, create a success formula  – they build assets, relationships, processes, values and mental frames –  that underpin their success.

Over time, however, circumstances change around us.  But the success formula remains resolutely the same.  It begins to be less fit for purpose.  In fact it tends to harden under stress.
The mental frames become blind spots (“we are the best at what we do”).

The processes become routines and rituals (“that’s the way we always do things round here, and it’s always worked before”).

Relationships that used to be beneficial become shackles (“we can’t afford to annoy partner X or Y or Z so we can’t change things”)

Our assets and resources become millstones around our neck (“what do we do with that factory and those workers in Detroit?”)

Possibly worst of all, our values become dogmas.  (“we make computers, not PDAs”)

It is not a huge leap of imagination to apply this to a national setting.

When you do, you can probably see a change in strategic direction in the USA going back to, say, the Reagan era.  That is the time most people look to for the beginning of the modern era.  A full commitment to trickle-down.  The “financialization” of the economy.  Deregulation.  A real embrace of globalization.

But use the Don Sull Active Inertia concept to look back further.  You can start to ask very serious and fundamental questions about how and why the United States has become the most powerful country on earth.  You can examine what it has done with those advantages.  You can start to follow flows of wealth.  You can look at some of the fundamental change that is needed, not just in policy, but also in terms of how the American party political system works.  You start to question whether frames are actually blinders, and whether values are now dogmas.  Have our processes become routines and rituals?
Let’s examine two separate narrative examples – not ones that I know enough to believe in, and I certainly don’t know if there is evidence to support them.  (I hope these are the sorts of things that academics look at!)  But they give examples of how our “frames” influence the approach to fixing current problems.
One narrative example looks at some of the “frames” that surround American exceptionalism.  Why has the USA become the most powerful country to date in the history of the planet?   The traditional “frame” is that by unleashing creative people without the shackles of monarchies and oppressive governments, the USA pulled itself up by the bootstraps from nothing.  Values of hard work and independence and freedom have liberated people to be all that they can be.  The Irish and the Poles and Italians and the Chinese and the Germans and the Dutch were able to come together and reach their potential because of the American way – something that was not possible in their home nations.

If you subscribe to that “frame” then we just need more of the same liberating power of “freedom” to help us out of the current jam.  You will recognize this narrative in large parts of the debate today.

But what if the rise of America’s great power was simply fueled by stealing the continent (and all its resources) from the people who lived here, and using slave labor and serfdom to exploit that set of free resources?  What if the capital gains that ensued from effectively free labor and land have pump-primed the gains in prosperity until recently.  If America’s prosperity has been a long free-ride on stolen land and lives – one that is now running out – then fixing the current economic malaise is going to require more innovative thinking than a return to Jeffersonian times.
Of course the answer is likely “a mix of all of the above”.  The reason I pose these examples is to illustrate that as we try to solve TODAY’S challenges we are still heavily biased by the mental “frames” of what we believe made us successful in the past.  If we firmly believe in one narrative, we are more likely to prescribe more of the same, even if it is the wrong medicine.

Let’s take a more quirky example of another mental “frame” around prosperity and current socio-political constructs.  You will have heard a lot of noise since the beginning of the last recession about how “the middle-class is no better off today than it was when Ronald Regan came to power.”  Depending on the analysis, some say they are worse off.  A good example of a treatise on this would be on Professor Lane Kenworthy’s blog.

The problem with this frame is that it ignores one very important set of people – the hundreds of millions of poor and impoverished Indians and Chinese who are make up their own countries’ middle-classes.  It may be true to say that the US middle class have made no progress or gone backwards in the past thirty years.  But who are we to say that people in other countries don’t deserve a shot at a better life.  In fact, isn’t this flow of prosperity a result of America’s very own approach to globalization of trade?  American consumers buying goods and services from globalized companies have created this middle class. Whether they know it or not.
In business we try to employ empirical tools, especially market research, market share and financial trends, to create a foundation for strategic decision making.  Are my products better or worse than the competition? What is the optimal pricepoint for what we make? What will my rival’s new product do to my company’s profitability?

Even with the best data and the best business minds (and with less “onlookers” than in politics) many companies get this stuff wrong and get locked into active inertia.

Now that America has come to terms with cleaning up its balance sheet in the short-term, the country does need to look hard at what will generate prosperity for citizens for the long run.  It is not an easy task as the challenges of a nation are much more complex than those of even the largest commercial enterprise.
However it needs to be a job done well and with a lot of national self-reflection.  Otherwise you will see more “active inertia” – a frenetic national hand-wringing with now real improvement in peoples’ lives.

From → General, Politics, USA

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