The Myth of the Great Man in Business Strategy

James Kwak has a very good post up on J.C. Penney's choice of CEO. The key point is that the new CEO was the head of retail operations at Apple and J.C. Penney's sales have fallen based on his new strategy.

Kwak mentions two questions that most companies don't bother to ask when looking for an outside CEO:

There are two important questions they tend not to ask, however. First, was Apple successful because of Johnson, or was he just along for the ride? Yes, he was the main man behind the Apple Store (although, according to Walter Isaacson’s book, Steve Jobs was really the genius behind everything). But was the success of the Apple Store just a consequence of the success of the iPhone?

Second, even if Johnson was a major contributor to Apple’s success, how much of his abilities are transferable to and relevant to J.C. Penney? There’s a big difference between selling the most lusted-after products on the planet and selling commodities in second-rate malls. When someone has been successful in one context, how much information does that really give you about how he will perform in a new environment?

Based on these questions there are a couple of points I want to pick up.

Related to the first question companies rationally realize that picking the wrong strategy can be absolutely disastrous. A new CEO provides an opportunity for a new direction and new vision for the company.

The mistaken conclusion from this observation is twofold. First, the ability to pursue a strategy has much more to do with the long investment of the company in its personnel and internal organization than it does with the man at the top. This is the great man myth in action and is a major problem with American corporations which tend to be biased towards top management, leading to erosion of talent at the bottom and a need to promote people who have a strong comparative advantage in their current position but that need to be promoted to be retained due to wage differentials (someone being a spectacular salesman/programmer/administrator has nothing at all to do with whether they would be successful in a more senior position; different skill sets requiring different aptitudes; compressed pay scales at the bottom and exponentially increasing salaries above median income mean that specialization in front line positions is a career killer in most fields). We see this in frequent complaints about the inability of businesses to find skilled workers at lower levels (of course they're in short supply, we no longer invest in training them or with providing them with adequate wages) and with the disproportionate incomes going to top positions (this problem is present in non-profits as well, though there is the problem with non-teachable assets like social network connections for fundraising or for opening the door to large accounts).

What a Tragic Waste of Life

These stories always sound like something out of the dark ages to me. Are we really so barbaric as to condone this?

Fox News reports, with a more complete article at the St. Louis Post-Dispatch, that a 15 year old was killed in commission of a burglary by the homeowner. His 17 year old accomplice will be charged with murder because his accomplice was killed in commission of a burglary (what!?!?!).

The tragedy is that death and a murder charge are wildly disproportionate to a property crime. I was acquainted with several people that committed minor property crimes while I was a teenager. While I unsurprisingly fell out of touch with all these folks after high school, tools like Facebook have allowed me to assuage my curiosity about what happened later on. While none of these folks are going to be winning the Nobel Peace Prize, almost all of them have gone on to hold steady jobs and some have families. These two kids have both been robbed of this chance.

The real problem here is that I have never heard of a situation where a firearm actually seemed like the appropriate use of force. In these situations pepper spray, a taser, and a baseball bat or extendable night stick would have provided a more than sufficient deterrent. All a firearm adds is tragedy.

Probably linked to this, a second problem is a tendency in American culture to brand people permanently based on their actions. Instead of two dumb kids who would have otherwise gone on to hold (crappy) jobs and have families we tend to frame these individuals as criminals (there's probably a race element here as well, which I'll just note rather than go into more detail on). There's something sick about a culture that does this.

Ability or Social Institutions: Which Should be the Default Assumption?

The Economist has been publishing some very good posts on social mobility over the past week or so. One of them, however, Low mobility associated with inherited ability is no social tragedy, is problematic.

The author makes a claim about underlying mobility rates that I find plausible, though I have my doubts and it has at least hints of the Marxist notion of class which I've never completely agreed with:

If these estimates of social mobility were anywhere near correct as indicating true underlying rates of social mobility, then we would not find that the aristocrats of 1700 in Sweden are still overrepresented in all elite occupations of Sweden. Further, the more equal is income in a society, the less signal will income give of the true social status of families. In a society such as Sweden, where the difference in income between bus drivers and philosophy professors is modest, income tells us little about the social status of families. It is contaminated much more by random noise. Thus it will appear if we measure social status just by income that mobility is much greater in Sweden than in the USA, because in the USA income is a much better indicator of the true overall status of families.

 Then he makes a claim that I don't feel follows:

Many commentators automatically assume that low intergenerational mobility rates represent a social tragedy. I do not understand this reflexive wailing and beating of breasts in response to the finding of slow mobility rates. The fact that the social competence of children is highly predictable once we know the status of their parents, grandparents and great-grandparents is not a threat to the American Way of Life and the ideals of the open society.
The children of earlier elites will not succeed because they are born with a silver spoon in their mouth, and an automatic ticket to the Ivy League. They will succeed because they have inherited the talent, energy, drive, and resilience to overcome the many obstacles they will face in life. Life is still a struggle for all who hope to have economic and social success. It is just that we can predict who will be likely to possess the necessary characteristics from their ancestry.

There are several separate streams of evidence that make me sceptical of this claim. First of all, I've been reading both Sorkin's Too Big to Fail and The Romance of the Three Kingdoms. Something remarkable in each book is how many of the major players in each book place a high value on loyalty. While the characters in Romance at least have the excuse of Confucian morality as well as being only semi-historical the major players in Too Big To Fail lack these excuses, they're supposedly from a meritocratic society.

Missing the Point of Human Rights

Moral philosophy isn't exactly a strong point of mine, but I feel forced to react to what I see as a deeply wrong-headed post at the American Conservative. In it Paul Gottfried makes essentially two objections to the term human rights. The first is his annoyance with the idea that gay marriage is a human right. He then goes on to assert, " I’ve no idea how the Fourteenth Amendment can require the imposition of a marital practice that differs from how marriage was understood since the beginnings of human societies and up until a few years ago in this country."

There are a couple of problems with this. First, the Fourteenth Amendment doesn't have a whole hell of a lot to do with what current or past practices are, the notion of protected rights is that they exist independently of institutionalized practices and come prior to them. On a philosophical level ,it is irrelevant whether or not a practice has a long standing institutional history (in practice, of course, judges take institutional history into account, but this is irrelevant to the rationalization of a bill of rights distinct from public law).

Second,  there is no particular way that marriage was understood from the beginnings of human societies. There is a vast array of marital practices that have existed at various points in time in response to various social and material pressures. The form that marriage takes is simply a cultural adaptation to these circumstances. One need go no further than Wikipedia for a lengthy list of types of marriage (same-sex marriage is listed separately). This list probably isn't exhaustive (though I didn't read the Wikipedia article in depth, so can't be sure), since I didn't notice marriage like practices that existed among transvestites in southeast Asia, to name just one instance. This kind of appeal to authority greatly annoys me, it relies on a combination of ignorance and certitude that doesn't withstand a 30 second web search. Even within the Bible, we read frequently of non-traditional practices such as levirate marriage and incestuous marriage. Any notion of "traditional" marriage is completely arbitrary taking both an arbitrary beginning point and an arbitrary end point for an institution that has been in constant flux and change throughout history.

The Post Office and Government Inefficiency

Great post at Beat the Press about reporting on the US Post Office and how it has been crippled by Congressional interference. The key part is this:

Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.

It is things like this that have been causing my evolution from being sceptical of government in my younger days to increasingly being convinced that government is often, not only in some narrow cases, efficient. Why would the post office be hobbled this way unless our Congress critters feared it could out compete private industry? We frequently see the same sort of thing, but often made worse with the addition of private industry handouts, where government is hobbled from functioning properly to make way for private companies. In this case, at least, private industry does a pretty good job but just look at private industries like health care for where private industry is making a hash out of things.

I still hold to the idea that private markets are best as a first cut assumption, but it seems to me that exceptions make up a rather large minority of human activity. However, since we elect people that don't believe in government and set out to prove that government is inefficient, we often get inefficient government. Put people in power that believe in the ability of government to do good, and we are far more likely to get good government. The problems with the post office (or Amtrak*) don't arise from an inevitable feature of government management, they are rooted in the belief of the people responsible for them that government doesn't work and the consequences of their attempts to prove this true.

I don't really know what to do about this, since it is likely that a substantial number of people will be elected to Congress for the foreseeable future that hate government we're stuck with the bad management. But I can't help but be frustrated that we sacrifice our growth and prosperity for these beliefs (I should add that I recently moved and have been dealing with the utility companies; it's incredible the degree to which most government agencies have improved, licensing bureaus being the key exception, while gas and cable companies continue to be awful to work with).

*Amtrak's problems largely result from trying to treat them as profit making companies rather than public infrastructure. We don't complain about how inefficient trucking companies are because they don't pay the full costs of the roads they drive on and we treat roads generally as if they are free. However, rail transportation tends to have far less externalities than roads, as well as being more efficient at moving people along highly trafficked routes. But for some reason Amtrak is terrible, while the subsidies that public provision of roads supplies to auto manufacturers, trucking, and other logistics companies go unmentioned when Amtrak is being given a hard time.

Thinking About What Inequality Means for Free Trade

Not sure why, but I've been reflecting a bit about what rising inequality means for the case for free trade. I don't question the general* case that free trade results in net benefits, ceteris paribus.

However, the rise in inequality, and the decline of labor's bargaining power, is making me wonder whether ceteris paribus conditions hold in the real world. If we assume that growth results primarily from the cumulative efforts of the bulk of society, rather than from the capital expenditures of the wealthy few,** then it is possible that the concentration of wealth will undermine growth and prosperity. If free trade shifts economic power in favor of holders of capital (such as by threatening to move a factory), their enhanced bargaining power may serve to shift economic rewards towards them and away from labor, increasing capital's share of a shrinking pie (as inducements for hard labor and skill acquisition decline relative to the rewards for simply holding wealth, to name one plausible mechanism, this would also be consistent with rational behavior on the part of individual owners of labor and capital, though it is irrational in the aggregate). If this inefficient shift away from labor outweighs the gains from trade, it would be possible for free trade to result in net loss.

As a second problem, as the safety net and redistribution comes under attack, the possibility for uncompensated losses become greater. There are always winners and losers from trade, the standard argument being that the winners can compensate the losers. As economic power shifts, this compensation becomes less likely and the winners more likely to simply pocket the gains while letting the losers fend for themselves. This isn't a threat in countries that have developed egalitarian institutions (it's striking how the ideal of American equality and egalitarianism has declined since the 19th century), but as the makers and takers nonsense becomes a common refrain among certain groups it appears increasingly less likely that the low-skill groups which tend to bear most of the costs while receiving a small share of the benefits through market mechanisms alone will receive any compensation for their losses through redistribution (targeted trade compensation programs appear to me to be both inefficient and inadequate, targeting the groups as a whole would be both more efficient and more just)

None of this means that I am willing to come down on the side of protectionism, I continue to believe free trade is a net good; if not as strongly as I did before. But I am listening now, where I wasn't before. Given economic indicators over the past 30 years the case against free trade is the strongest it has ever been and is worth at least hearing out.

In What Instances Have State's Rights Protected Indivdiual Rights Against the Government

[Update: To clarify, where there is a strong reason for authority to be at the state level we tend to see this argued on the merits, without reference to state's rights. It is only where a policy has little to no merit, or where someone seems to believe a given issue isn't really a problem (like Medicaid or poverty relief) but feels the public is pressuring them to take a stance that we see devolution to the states proposed (as a non-solution, since devolution is really just buck passing unless tied to specific policies), that we really see state's rights or devolution advanced as a serious argument.  So we see alcohol (mentioned specifically because I think the state's rights argument has a great deal of merit with regard to the legal drinking age, which should be congruent with the habits and beliefs of the people immediately impacted rather than the beliefs and values of people thousands of miles away, but to my knowledge this argument is not seriously advanced), tobacco, and the speed limit regulated at the state level based on the merits, but we see state's rights used to defend slavery or Indian removal or advanced as a solution to poverty by people with an appalling record on poverty relief. I may be wrong about this one, but after reading the argument being used time and time again to strip people of life, liberty, and any chance of happiness I feel it is bizarre the argument is still advanced given its terrible history and would really like to know the other side of the ledger so I can understand why it is still used.]

I mean this as a serious question. After reading about the 19th century I see state's rights used time and time again to justify the oppression of weak individuals by stronger groups and individuals within society. The worst instances are slavery, later segregation, and Indian removal. We see the poor oppressed, often killed, maimed, stripped of their property, dignity, and even humanity. States rights were used to justify opposition to any action by the Federal government (in many cases with the collusion of Federal officials, with men such as President Jackson likely encouraging these actions by the states) to mitigate these wrongs.

Now, I'm aware of the principled defense of state's rights, arising both from the Constitution and from quasi-natural rights arguments such as their closeness to the people.* But, I have a deep distrust regarding our ability to discern natural rights or to derive just policies from principle. We must always be aware of our own weakness and seek to determine from the consequences whether or not our principles are correct or if we are deceiving ourselves.

Even where states have acted in advance of the Federal government to protect individuals against oppression by others or by organized groups, such as with gay rights, these arguments are made on their merits rather than by recourse to states rights. I can think of many instances where states rights were used to provide a principled veneer to otherwise indefensible evil and exploitation, I can't think of any where states rights were actually used to advance individual rights in the face of oppression (my lack of knowledge does not mean such cases do not exist).


Given that we have more than 200 years of history, what are the empirical results of this particular idea? I have noted many particularly awful instances in which states rights has been used by powerful individuals and groups to oppress those weaker then themselves. What is the empirical evidence on the other side? When have state's rights successfully defended individuals from oppression, rather than providing a seemingly principled defense of powerful individual's and group's oppression of others different from or weaker than themselves?