Burning platforms

In 2011 the CEO of Nokia, Stephen Elop sent a memo to staff comparing the business to a burning platform from which it was essential to jump in order to change course. He was referring to the disruption of Nokia’s revenues and profitability by Apple and Android smartphones, and he was right. Rebecca Henderson’s Reimagining Capitalism in a World on Fire is essentially arguing that most of the world’s businesses are on burning platforms, if only they knew it. Either the disruption of climate change consequences, or of social insurrection due to inequality – or, as it turns out, the effect of a global pandemic, though the book predates this – will destroy capitalism. Unless businesses across the board change their ways.

I got the book as it was one of the FT Business Book award shortlist titles I hadn’t yet read (I don’t fancy the ones on Netflix or Instagram, but have read & enjoyed all of Deaths of Despair, If/Then and The World Without Work). Henderson clearly has vast experience of engaging with businesses of different kinds, and much of the book is about the success stories – those that have re-engineered themselves to become oriented toward purpose rather than profit. The examples include Unilever and Aetna, described in some detail, as well as old chestnuts like the worker-owned John Lewis and Mondragon, and a range of smaller companies, and industry initiatives like the move to purchase sustainable palm oil.

The book has a good term for what’s needed to make the kinds of changes described in these examples: architectural disruption. As Henderson acknowledges, many more businesses are still oriented toward short term profit and share price rather than long-term social purpose – even though the purpose-driven businesses ultimately do far better in conventional terms. She identifies some key barriers, among them the necessary big internal re-organisation and culture change. Becoming a purpose-driven and high productivity business requires a high level of trust within the firm, and many managers are unwilling and able to embark on this programme.

There are external barriers too: the short-termism of some investors, the difficulties of getting co-operation among businesses, and the political and regulatory context. So reforms to corporate governance and finance (including proper risk-measurement and accounting), and to the political climate of ideas will be needed in addition. List all that’s needed and it can seem daunting. But we’re all on a burning platform. My guess is that several forces will converge to bring about change – millenial employees demanding better, political upheaval given the state of the world, and un-ignorable consequences of the damage to nature. Whether the change will happen fast enough is another matter.




Deaths of despair

Many people will be familiar with Anne Case’s and Angus Deaton’s work on deaths of despair – the increase in death rates in the United States due to suicide, (legal and illegal) drug overdose and alcoholism, and the fact that life expectancy in the US has now declined for three years in a row. The research is brought together in compelling form in their new book, called Deaths of Despair and the Future of Capitalism.

The scale of this slow disaster is staggering. “In 2017158,000 Americans died from what we call deaths of despair… That is the equivalent of three full 737 MAXs falling out of the sky every day with no survivors.” “Opioids prescribed by physicians accounted for fully a third of all opioid deaths in 2017 and a quarter of the 70,237 drug overdose deaths that year. This overall number is greater than the peak annual number of deaths from HIV, from guns or from automobile crashes. It is greater than the total number of Americans who died in Vietnam. The cumulative total from 2000 to 2017 is greater than the total number of Americans who died in the two world wars.”

Much of the book is concerned with descriptive analysis of the patterns within these totals. The short answer is: white, working age people with no college degree. While on many indicators things are worse for African-Americans, the trends have been improving for them. Education stands out strikingly as a key differentiator. While the adverse trend is most noticeable from around 2000, for Americans with high school education only things have been getting worse, in terms of despair, in every cohort for decades.

The figures here are for the US, and some of the causes are US specific. Its racial legacy from slavery is unique. Its appalling “health care” system stands out as a major culprit – the costs, the perverse incentives it creates, the lack of coverage. But not only healthcare. The pharma industry is portrayed as a rent-extracting machine. The authors criticise the FDA for approving opioids for general prescription, particularly OxyContin: “The FDA was essentially putting a government stamp of approval on legalized heroin.”

However, it may be that the US and its particular form of weaponized capitalism is only an extreme and early version of something happening elsewhere. The education divide – whose causes and consequences I think we still need to understand in the round – is manifest throughout the western economies. The skill-biased technical change, the “assortative mating”, the concentration of good jobs in big cities, are all occurring throughout the west. Life expectancy gains in the UK have halted and reversed for some groups, and the recent Marmot Review highlights serious inequalities and challenges. Interestingly, the trends seem to be more adverse in English-speaking countries in general. But not unique.

When you consider the harm a number of other industries are doing to us, their customers – highly processed and sugary foods and drinks, finance, tech, as well as pharma and alcohol – it’s perhaps surprising there hasn’t been even more of a backlash against modern capitalism. The final section of the book runs through the broad economic trends behind the adverse outcomes for the once-robust white working class, and lists what could be done. Each item on this list is a major challenge, not least politically – reform US healthcare, anyone? But it extends also to improving corporate governance, anti-trust enforcement, higher minimum wages, improving educational outcomes. The system is broken and every bit of it needs fixing. This is a sobering – and essential –  book.



Goliaths and populists

Matt Stoller’s Goliath: The 100 year war between monopoly and democracy ended up being a different book from the one I’d expected: I thought it was going to be about (lack of) competition in digital markets but in fact it’s a broader economic/political economy history of 20th century America in terms of the ebb and flow of the power of big business. Anti-trust policy is just one part of the story.

It’s an interesting story, one of the steady accumulation of economic and political power in a few hands, interrupted periodically by a decisive political, often populist, reset in favour of the small farmer or business (occasionally even the consumer). It’s also a story told from an anti-big business perspective, based on an analysis of the corruption of political power by accumulated money; which is fine, but it does make it a binary tale of heroes and villains. This includes one hero I hadn’t heard of before, Representative Wright Patman, a long-serving congressman on the side of the little people over the decades.

And some surprising villains. Chief among them is J.K. Galbraith, for his love of technocracy and big enterprises – after all it’s easier to direct an economy of big firms than little ones, and he was responsible for implementing price controls during the war. Galbraith wrote: There must be some element of monopoly in an industry if it is to be progressive.” He saw small firms and farmers as inherently conservative. Other public intellectuals such as Richard Hofstadter shared the perspective of small business being reactionary and inefficient, so the liberals become the corporatists – in contrast to the 1920s and 30s when those on the left (to be anachronistic about it) were standing up for the small guy. Thus, “Politics was no longer an avenue for structuring society but rather a means of ratifying what technologically driven organizations already saw as an optimal arrangement,” Stoller writes of the revival of corporatism in the 60s and 70s.

There are unsurprising villains too, of course, from Carnegie, Morgan and Mellon to Citibank’s Walter Wriston reviving the power of the financial sector by successfully unravelling the financial regulation that had been constraining the big banks since the Depression. Indeed, my big takeaway from the book was the need to constrain big finance, far more than big tech or big anything else.

One of the interesting things about the long-run perspective is the way it makes clear the pendulum in policy, from populist anti-big business to pro-big business phases in either oligarchic or corporatist modes. As a history of the US economy through this lens, Goliath is very stimulating. It is very US-centric, however – and this focus carries over into today’s debate about anti-trust or indeed other areas of economic policy. America matters, particularly in digital markets for obvious reasons, but it is also highly distinctive.

Trying to think through the extent to which the small guy/big business pendulum carries over to the UK or elsewhere in Europe, I concluded that it does to a degree. We had conglomeration in the 60s and 70s too. But in recent times European anti-trust practice has differed greatly from the US – I’m open to correction as this is a question of institutional history but I don’t think European competition authorities ever went the full Chicago School. (Just as inequality has increased everywhere but only the US is truly back to the Gilded Age.)

All this is by way of saying Goliath is well worth a read, bearing in mind its firmly – proudly – slanted perspective. It has all kinds of detail I didn’t know. I found its contrarian view about Galbraith, aligning him with Peter Drucker for example, absolutely fascinating & am still mulling over the relationship between technocracy and scale.



Not all automation is equal

Democratic Capitalism at the Crossroads: Technological change and the future of politics by Carles Boix is a good complement to the widely reviewed The Technology Trap by Carl Frey. It takes a political science perspective on the same deep trends in technology, and even uses the same geographic shorthand for the succession of technological/economic paradigms: Manchester, Detroit and Silicon Valley.

Coming from a different perspective, Boix provides new-to-me insights, and particularly about similarities between the sucessive technological revolutions. For example, in an 1835 book, The Philosophy of Manufactures, Andrew Ure described the factory as “a vast automaton composed of various mechanical and intellectual organs, acting in uninterrupted concert for the production of a common object, all of them being subordinate to a self-regulated moving force.” Echoes of cybernetic visions – see for example Eden Medina’s fantastically interesting Cybernetic Revolutionaries on Project CyberSyn. Or a 1934 book, The Mechanization of Industry by Harry Jerome, which estimated that almost half the labour productivity gains in the first 30 years of the 20th century resulted from “the mechanization of the handling systems”. Echoes of the role of logistics now, for example set out in the McKinsey’s study into US productivity in the late 1990s – Walmart and wholesaling.

After the historical section, Boix goes on to the implications for politics today, and particularly the increased vote for extremist parties – the highest since the 1930s. Writing this on the day “Boris”Johnson is expected to become the UK’s prime minister, with Donald Trump beginning extra-judicial deportations from the US, and strongmen on the march in other countries, it is hard to be optimistic. However, Boix, like Frey, implicity raises one question without addressing it: what made the production paradigm of the mid-20th century. which also led to massive automation, able to deliver widely shared gains, and why is the direction of the earlier and later technological revolutions so different? I haven’t seen a persuasive answer.



Trains and other illth

I thoroughly enjoyed reading Ruskinland: How John Ruskin Shapes Our World by Andrew Hill over the weekend. As the subtitle indicates, it isn’t a biography but rather an exploration of the influence Ruskin has had in a number of domains, from helping establish the National Trust as steward of the countryside – and encouraging the formation of the Sierra Club in the US – to shaping views about art, to influencing views about capitalism and the dignity of labour on the left of the political spectrum.

I’ve never read a biography of Ruskin, and he doesn’t emerge from this book as an obviously likeable character. In fact, pretty weird. The book I have read (bought at Brantwood, Ruskin’s home in the Lake District) is his famous anti-capitalism, anti-industrialism tract, Unto This Last. Ruskinland sent me back to it, and it still seems completely unconvincing and hyperbolic, for all that no sentient being would deny the horrors of the Industrial Revolution, or even modern capitalism.

Count me in on the need to ensure environmental sustainability, decent pay and working conditions, well-crafted homes etc. But it’s vacuous not to recognise the trade-offs involved in machine-enabled growth. Machines, mass production, raised standards of living, increasingly freed women from domestic drudgery. Trains – which Ruskin hated despite using them a lot – enabled people to escape the social constraints of village life and find urban anonimity. Unto This Last seems to me unadulterated romantic conservatism. Sustainability is easier for the rich. As Hill agrees, Ruskin was also an illiberal ultra-Tory. And adds: “Like today’s Twitterati and online opinionistas, he often adopted an extreme stance for effect.” Counterproductively so, in may case.

So Ruskinland hasn’t changed my views, but it’s a great read & the issues it raises are absolutely pertinent today as we survey the ‘illth’ (that handy Ruskinian neologism) being created by modern capitalism.