In boom times, economic things are growing. There is positive feedback: The more that is invested, the bigger the returns. In a recession the positive feedback is replaced by diminishing returns—something comes back from the investment, but not as much and not as soon. Recession means the really good times are over for what has been booming. The positive feedback magic moves to a different fast-growing sector—one that has to be discovered. That’s what a recession is about.
During a recession, people actively and intensively search for the next economic or technological boom sector.
When a recession is mild and ends quickly, it is because that search is soon successful and the next popular thing is easy to exploit quickly.
If it’s deep and long, like the Japanese recession of the 1990s or the Great Depression of the 1930s, the search proves difficult.
And something else is happening during a recession as well. The hopes and dreams of the community are changing. If the recession is a long one, they change dramatically.
Without positive feedback, you can’t have a boom.
In 1800s America, railroad building was a boom industry, at the heart of many boom cycles. Its labor and capital intensiveness were what made it a heavy industry (not the weight of the equipment involved). That it cost so much time and money was actually a discouraging factor in boom-making. But in that era those negatives were more than compensated for by the positive feedback: Railroads made many kinds of manufacturing, wholesaling, and retailing much easier and cheaper. The net result was that when a railroad came to town, business grew a lot and into surprising areas.
In the 1900s, the automobile replaced the railroad as the center of positive feedback in transportation, and the auto industry replaced the railroad industry as America’s chronic center of boom.
By the end of the century the positive feedback sector was computers, in particular personal computers. In the late 1990s, businesspeople figured that computer growth was going to be supplanted by high-bandwidth data communications growth. That was the short-lived telecom boom—short-lived only because it was ten years ahead of its time.
America came out of the 2001 telecom-bust recession quickly because housing was strong and didn’t let up even when the busting telecoms were tanking the rest of the economy.
I still remember what a mystery that was to me. At the time, I could never come up with a good answer as to what US population demographic was creating the high demand for housing. It seemed to be coming out of thin air.
It turned out I was right about it being a mysterious boom. There wasn’t a boom in housing, it was demand for mortgages that was booming, powered by government good intentions plus a new style of finance. The growing popularity of structured investments with big investors such as pension funds supplied positive feedback.
In 2006 this structured finance boom ran out of steam and the mortgage industry became just another part of the business scene, no longer a spectacular growth leader but just another tool, like stocks, to enable some other sector’s boom growth. But because the housing market was affected in an unnatural way for so long, for the next ten to twenty years we shouldn’t expect any interesting growth from it. And because housing affected personal savings so deeply, the search for the next boom, the boom after the housing market, will be unusually long and hard.
The current recession, like all others, is a search for what the next boom sector will be. In this case the search is slowed and complicated by savings problems distracting people, which hampers enthusiasm for experimenting and investing.
As of now, predicting booms before they happen is about as scientific as picking winners at the horse races, on the same kind of solid footing as creating a startup enterprise.
Nevertheless, informed bettors in either field outperform random selection, so let’s look at some identifiable factors.
First, early positive feedback, stimulating a business or an industry, helps its growth and market share and can create a boom. (Whereas too much positive feedback too late in the market cycle just gives you a bubble.)
Second, a new twist—a new market, a new finance method, or a new technology—permits new services and gets new kinds of money. Or a declining sector leaves a hole to be filled. For instance, the increased regulatory burden of the Sarbane-Oxley law, designed to protect Americans from the Enron-style excesses of the telecom bust, reduced the popularity of stocks and indirectly helped increase the popularity of structured investments.
So, looking for what’s growing with positive feedback potential and some novel element, let’s examine some apparent possibilities for a 2010s boom:
Bottom line: Economic life is still full of surprises. Your guess is as good as mine, and may be better. But be on the lookout for positive feedback and how, as suggested in the next section, the country’s dream may be changing.
On 29 December 1989, Japan’s Nikkei stock index hit a peak of 38,395. The next year the stock market crashed and Japan’s economy along with it.
The boom and bust cycle was not new to Japan, but after the 1990 bust, there was no quick recovery. There wasn’t even a slow recovery! Twenty years later in January 2010, the Nikkei stock index still hadn’t recovered, sitting at around 10,700, down more than 70% from its 1989 high. In the couple of years since it’s fallen further, into the 8,000s, with the March 2011 earthquake and tsunami being particularly unkind to it. Yet worse, real estate values have crashed even more deeply.
Nevertheless, this crash didn’t become the basis for a time of unrest and violence in Japan. It was not like the 1930s’ Great Depression in America, Europe, and Japan. The era starting in 1990, which is being called Japan’s Lost Decades, has been endured quietly.
Why? What’s really going on here?
And more to the point for most of my readers and me: Is the 2007/8 crash turning into America’s Lost Decade(s)? There is good reason to think it might!
This mystery highlights the social element of recessions, that recessions are a time of dream changing. When the previously profitable boom industries have run out of steam, when investing in them provides diminishing rather than increasing returns, then it’s time for the community to find the next set of boom industries to invest in. By my definition a boom industry has positive feedback, so the more invested in it, the more becomes available to invest—in it and elsewhere, related or not.
But more dreams than those of businesspeople change in a recession. The dreams that individuals and communities aspire to also change.
In the Lost Decades, Japan searched for its next boom industry set and didn’t find it.
I think this is because the Japanese also searched for new aspirations, which they did find. The hard-driving, conformist, the-job-is-everything attitude of the immediate post-World War II generations have been replaced by new generations’ different ways of finding personal satisfaction and self-worth. The girly men phenomenon previously mentioned is one example. Another is that Japan is getting “grayer”, so caring for older people is moving up in social awareness.
Fortunately for societal stability and well-being, these quieter and gentler aspirations do not require fast, sustained economic growth.
So perhaps Japan might be better said to be in its Found Decades, with a different satisfying lifestyle, a different set of fulfilled dreams.
A couple of years ago, as I read the 2010 American news and what media and politicians talked about, I became concerned.
I saw a lot of talk about
What I didn’t see was much talk about how we were going to get growing again!
I didn’t hear anyone talking about what we needed to invest in to get booming again—a lot about investing to rescue ourselves, but not about investing to boom.
The good news is that what I’m reading in 2012 indicates that growth sensitivity is increasing once again.
Getting back to the Japanese situation, part of the reason behind the change in their national dream is demographics. The average Japanese age has increased faster than any other nation’s, and older people don’t dream about the same things as younger ones.
Part of that graying is because Japan discourages immigration. Even ethnic Koreans whose families have lived on the islands for generations are still non-Japanese. In contrast, immigrants are keeping America young, and they may be the salvation of the traditional ambitious American dream that, more than native-born Americans, they aspire to.
Immigration is helping. Poor education is not. Immigrants being disenfranchised by fairness issues is not. The experience of America’s Midwest for the past five decades is a stark reminder that growth and prosperity are far from inevitable, even in the USA.
Prostitution may be mankind’s oldest profession, but commerce surely started only days later, and has had just as conflicted a status in human communities. On the one hand people love the benefits of trading, on the other they envy the wealth acquisition of successful traders and deeply fear being the butt of sharp trading practices or outright fraud. Jesus’ casting out the moneylenders can be seen as a populist response to a small segment of the community profiting too much.
In the 21st century, questions of how much a person should make, how they should make their money, how they should spend it, and how much the community should share in their spending decisions (which these days means how much government should be involved) are still white-hot issues within every community on earth.
On topics that have been around for thousands of generations, the brain builds up strong Instinctive thinking. But Instinctive thinking likes to support a handful of right answers, while commerce has always succeeded in many and varied ways.
Commerce started as barter. In the Neolithic Village environment, contact with strangers was rare so the Us-vs-Them thinking was strong. It’s more OK to cheap-shot strangers than your family and neighbors. So at first it would have been whole groups bartering with each other, to ensure win-win situations. Later, barter was carried out when smaller bands came together in annual or seasonal tribal moots to trade goods, daughters, recipes, and hunting stories.
In the Agricultural Age, not only did the bartering process remain caveat emptor (let the buyer beware) but people who lived as merchants had to be on their toes. Commerce was a risky enough undertaking that it usually involved a lot of well-armed security: Caravans hired guards, trading ships carried marines or were convoyed, trading places were fortified.
That meant those few who indulged in a lot of inter-community trading were exceptional in their thinking. They had to navigate an alien environment often and well, so they tended to be free thinkers. They wouldn’t gain a lot from being conformists. Because new ideas could bring new opportunities, they listened to them more readily from day one, and their world outlook saw shades of gray where others saw black and white.
For much of commerce’s history, merchants have therefore been considered a little to a lot outside of the mainstream community. When times were good this difference was tolerated, but when times got scary, merchants would be among the outsiders who could be witch-hunt targets—but with a difference: The muscle they hired to protect their goods in day-to-day operations could also protect their persons, a status the average “witch” didn’t enjoy. No question who got sacrificed first to appease the angry gods!
But not being first didn’t mean not being on the list. And even in calmer times, merchants could be the butt of laws and restrictions.
The question of who should get what is older than homo sapiens. Most kinds of animals have dominance disputes about goods and resources, and even plants compete in subtle ways.
In Neolithic Village environments, such competition was small-scale. In a semi-nomadic lifestyle, the total goody count was pretty much limited to what could be eaten from day-to-day and carried from one camp or village site to the next when the good times had run out at a particular location. As a result property was a minor part of the lifestyle and communal sharing arrangements worked well. Human instinctive thinking is well designed to work with that environment.
But Agriculture Age lifestyle was a huge game changer in this area. If people are living their whole lives in one or just a handful of places, the goody count can rise astronomically, and who gets what becomes a much bigger issue. We’re talking permanent farms and cities now, something quite different from semi-nomadic villages. Mankind’s thinking did begin to adapt to this, but even today that adaptation is far from complete.
The strong instinct that Neolithic Village thinking supports is fairness. When people make their choices based on what is fair, or on “the preferential option for the poor [that] is one of the basic principles of the Catholic social teaching as articulated in the 20th century”, they’re using thinking well-adapted to that environment, in which the concept of communal sharing helped the village survive better. Sometimes this thinking works well in the Industrial/Information Age environment. Not always.
Work well or not, it’s a powerful concept. So that prosperous people with many choices available “let their hearts be their guide” and make fairness a big factor.
However, commerce is not about being fair, it’s about winning in an exchange. Yes, the other guy can win, too—and should, if you’re going to go more trading rounds in the future! Nevertheless, fairness and commerce repeatedly butt heads.
Often, fairness thinking boils down to prescriptive, conformity thinking: “There is one right way to handle this situation and we all should handle it that way. That’s being fair!” This too grates against shades-of-gray commercial thinking. A merchant learns that what looks like the same situation over again may require quite different handling than the last time.
All of the above have been the givens of commerce for hundreds of generations, constant since the dawn of history. However, living on earth is full of surprises, and the Industrial/Information Age has pulled a brand new rabbit out of that hat, a previously alien concept usually called “growing the pie” so that each slice becomes bigger!
Neolithic Village mankind lived in a world of limited resources. The harsh limits were rapidly reached: All available food was gathered; winter inevitably came; mysterious calamities like plague, drought, and flood struck; less mysteriously, neighbors struck, from vengeance or greed.
During thousands of generations, human thinking came to expect limits. Very, very rarely your tribe might discover an untouched valley beyond what had looked like an impassable crack in the mountain wall, or figure out how to make edible a vegetable that you’d previously determined to be poisonous. But even if such things happened as often as once in a lifetime—which they didn’t—those were discoveries, not growing the resource pie.
Agriculture changed this only a tiny bit. With hard work you could clear a field and farm it, but you still could make only one new field on a particular plot of land. The “pie” still had harsh boundaries.
In the late Agricultural Age, as sailing technology improved and long-range merchant ships became practical, some humans indeed planned for, even expected, discoveries. Sometimes that even uncovered something as totally unexpected and game-changing as the Cerro de Potosí in the Andes, the mountain that’s as close to pure silver as is geologically possible.
But to actually grow the resource pie, to plan that more resources would be available in a year or even ten from now and to have it reliably happen, that was an alien concept. Maybe by some saint’s miracle, not in real-world reality.
The revolution came from Industrial Age technology. As early as the mid-1700s, the hope for a bigger and better pie was expressed (not in those words of course) by Jean-Jacques Rousseau, the Marquis de Condorcet, and William Godwin—and in the next generation, memorably scoffed at by Thomas Malthus.
Those deep thinkers were discussing possibilities. But through the 1800s more and more pieces became actuality, railroads and mechanized textiles prominent among them. Then in the 1920s, mass production emerged, effectively developed first in the US and then exploited around the world. Its icon was Henry Ford and his Model T automobile.
The writers and thinkers of the first half of the 20th century indeed marveled at mass production as a miracle, one that magically increased the size of the pie, and talked a lot about what the change would mean to human living. (And as a good example of the adaptability of human thinking, pretty much since the second half of that century we’ve adopted this alien concept and taken the erstwhile miracle completely for granted.)
But Instinct thinking is not based on a mere half-dozen generations’ actual experience, so it hasn’t accepted the alien concept; it’s still convinced we need to expect harsh limits. That’s what’s put the emotional oomph into 20th and 21st century resource conservation and ecology movements, from Zero Population Growth and Peak Oil through the more hysterical current reactions to global warming: “We must beware! In spite of how good things look now, things will run out!”
How does the clash of such Instinctive thinking against actual new possibilities affect commerce?
Those engaged in commerce often cry out for a laissez-faire environment, in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with the governmental role merely to protect property rights against theft and aggression and to adjudicate the more intractable disputes.
No community has ever granted that golden dream to its merchants. The Curse of Being Important and the fears generated by Instinctive thinking always combine to produce lots of government involvement in how commerce is conducted.
New styles of enterprise thrive where new styles of thinking are tolerated. When you pull up roots from your home community and travel to a place where you expect to learn new ways of doing things, you’ve already taken a giant step towards tolerating new thinking styles.
Mix in the ability of new Industrial Age technologies to grow the pie and you’ve got one basis for America and other “immigrant nations” becoming the “developed nations” of the 1900s. Those communities had a steady stream of incomers not merely willing to tolerate new ideas but to adopt them and take risks to exploit them. And those communities weren’t filled with Instinct-thinking prescriptivists … not, I say, filled up. The prescriptivists were there, but not in overwhelming numbers. So while Instinctual fears were vigorously expressed, they could never be as vigorously acted upon as in the “old country”.
Against the anti-commercial Instinct that flowered in the 1800s and 1900s, as many recognized that entrepreneurial-based growth wasn’t fair, immigration was an essential bulwark.
Anti-change movements have come and gone periodically as each particular change inevitably succeeded. (In fact the previously mentioned 19th-century English Luddites, who violently opposed mechanized looms replacing human weavers, died out so completely that they left their name available to reuse for every similar movement since!) But being pro-fairness has proved an enduring rather than a merely recurring concept like change resistance. The perennial socialist, communist, and unionist movements have at their heart fairness in distribution of goods.
And average community thinking has been caught in the middle between fairness and progress.
This issue seesaws communities and the governments that run them without so far ever finding a happy balance.
Because merchants have always dealt a lot with money (well, ever since the concept was invented), it’s not surprising that finance was spawned from commerce and the two have always stayed closely tied.
The essence of business financing is: “Trust me ... but be very careful when you do.” (It’s other name, “credit”, is Latin for ‘he believes’.) Finance is about giving resources to another person on the promise that even more resources will come back in the future.
One of the things the Agricultural Age and later lifestyles have done is to dramatically expand the ways this trusting can be done. In Neolithic bartering there were only goods to hand over and, if an exchange could not be immediately made, there were only oaths or hostages to extract. Things immediately got more complicated when writing was invented in the Agricultural Age, and steadily even more thereafter, until in the Information Age we’ve begun paying for goods and services by using our mobile phones to modify records held in a storage center that may not be on the same continent. Every recent decade has brought new ways to cooperate—off-shore manufacturing, condominiums, just-in-time inventories, on-line shopping, etc.—and with those have come new ways to do finance.
The attraction of finance is the potential to get more of something in the future; the risk of finance is the potential for failure or fraud to reduce your future return to little or nothing. That risk causes fear while it’s unrealized and shame when and if it is, both very powerful Instincts. When regulation succeeds, it reduces the likelihood of failure and of fraud, and thus the fear. Sadly, because finance changes so constantly and rapidly, it’s difficult for regulations to keep up. As in investing itself, a lot of participant confidence is necessary to support finance’s regulatory framework; it is far from a certain thing.
Commerce and finance have been around a long time, but they are outliers to the average human experience. As a result they often run counter to our Instinctive thinking. In particular, they often run up against the concepts of prescriptive conformity and fairness that served well in the Neolithic Village environment, and they bring up deep fears of being cheated that Us-vs-Them thinking sustains.
Similarly, the concept of a constantly growing resource pie that the Industrial Age brought brand-new to human existence is still an alien concept to our Instincts.
So it’s not strange that we have a hard time figuring out how to make commerce and finance work smoothly. Nevertheless, if we are to improve our existence on Earth, we must teach ourselves to devote a lot of hard analytic thinking to this area.
One change to societal dreams that has come with the Great Recession of the late 2000s has been increased concern in the US about social justice. This is a wonderful and noble concern, but carries a lot of the Curse of Unintended Consequences with it. The series of observations below is about places where concerns for social justice are creating blind spots.
Upton Sinclair made harsh working conditions in the meatpacking industry famous with The Jungle in 1906, but he was far from the first to dramatize and criticize those conditions. The public’s outrage at discovering people routinely worked in such conditions wasn’t new either.
In the 2010s this pattern continues. One outrage incarnation, a 2012 discovery, involves the workers making iPads and iPhones at Foxconn factories in China. And as with Sinclair, who described a worker falling in a vat and being left there for rendering into lard, some of the claims have turned out be inventions and exaggerations.
The usual response, enacting new labor laws to protect workers from such conditions, is a chronic Blunder made in post-Agricultural Age communities. It’s a Blunder because it disenfranchises the employer-worker relationship by adding into it the government regulator, the union overseer, the media reporter, the labor activist, and more—a classic version of The Curse of Being Important.
The first problem with this protective point of view is that the workers who are engaging in these terrible-sounding jobs are making a choice. These jobs are not slave labor, not prison labor. These workers are knowingly trading their time, risk, and discomfort for monetary rewards and other perks, such as better housing and living conditions than they were experiencing previously, perhaps starving on a farm. (Agricultural environments rarely attract the attention that factory environments do, even when they’re a lot more difficult, dangerous, and dirty.)
The second problem is that workers are getting crowded out of the decision making process on their own jobs. This is disenfranchising. Ironically, that really does make the workers pawns in the system.
Such well-intentioned legislation adds expense without benefit in various ways:
But the strongest argument against outside intervention is the fact that few labor laws actually bring about what they aim at, a better workplace with happier employees.
The moral: We as a community should recognize that ongoing employer-worker relationships can handle themselves quite nicely. They can be built on mutual trust because there’s an important direct exchange going on: Money for work done.
Pissing and moaning about one’s work seems to be a natural condition of life. But, like the weather, it should be something that everyone talks about and no one interferes with ... except the people directly involved: The worker and the employer. That relationship doesn’t need a lot of patronizing help from well-intentioned outsiders. If all involved are held responsible for their own choices, working conditions will adapt quickly to what everyone can agree on, and not only employers and workers but also concerned outsiders will be happier with the choices.
If we recognize this, life will get a lot simpler and more satisfying for everyone.
However, this desirable simplicity can be disturbed, and historically among the major disturbers of the employer-employee relation are assets. When it takes a lot of financial investment to create a job, then the employer-employee relation becomes more complex. This happens most clearly in heavy industries. For example, limited numbers of steel mills and railroads implies limited numbers of steelworking and railroading jobs, and that those jobs can’t move from one place to another easily.
In heavy industry, employers and investors get locked into their choices. In such an environment, having third parties getting involved in social justice makes more sense.
Growth in heavy industry dominated the industrializing of much of the 19th and 20th centuries. But times have changed. We are now in the Information Age, whose centers of growth are medium- to low-asset industries, including, since the 1970s, electronics and computers.
Our governing systems need to recognize this significant change in asset involvement and get back to the simpler labor relations of the Agricultural Age.
The currently iconic example of the labor relationship failing due to evil management is 29 of 31 miners dying in a 2010 explosion of coal dust and methane gas at the Upper Big Branch mine, a 1,000-foot deep West Virginia coal mine then run by Massey Energy. (A year after the disaster it was bought out.) In addition to being lethal, the explosion blew up seven miles of mine, so it was physically big and expensive in equipment. On a more familiar scale for city dwellers, that would be like an explosion running through a subway tunnel from New York’s World Trade Center to the far edge of Central Park, or along 49 of Salt Lake City’s long blocks.
At the time it happened, Massey management maintained that the cause was an unexpected surge in methane gas—in other words, an act of God. The subsequent investigation found otherwise. It ruled that this accident was the product of a whole lot of mistakes. There had been 515 “flagrant” violations reported in the Upper Big Branch in 2009, among thousands of violations reported in Massey Energy mines in the region in the years prior to this accident.
This incident certainly has a lot of tick marks on the check list of Ways to Be an Evil Corporate Manager.
It’s an impressive list.
So if evil’s involved here, what’s wrong with using the good/evil prism? In this case it would seem that my argument at the end of this book’s Introduction, the classic problem of all such assessments—that evil is detectable only after the fact, and thus explains nothing—fails when evil is also clear before the fact.
However, it is precisely because evil was so clear that it cannot have been controlling how people acted in this case! If you’d asked anyone involved whether they were against evil, they’d have said either that they were or that you were crazy to ask. So if everyone could see the evil, why didn’t it motivate anyone to do something effective? Something to correct these multiple unsafe conditions before the accident happened?
Because something else had more power: Disenfranchisement! As is quite common, it had immense power over people’s actions.
Let’s look at this disaster through the enfranchisement/disenfranchisement prism.
While the subsequent investigation predictably faulted Massey, it was equally harsh on the Mine Safety and Health Administration (MSHA) for not taking adequate action on the previously reported “flagrant” violations, showing that this mining community had, for decades, had a lot of enfranchisement issues. Here are some other examples of how strong Us-vs-Them thinking still is in the West Virginia region, and especially in the mines involved.
Deep disenfranchisement made taking cheap shots endemic in this environment. Lying is a quick and easy way of taking cheap shots, and the investigation uncovered lots of that on all sides. The media picked up on management lies, but thousands of serial safety violations over many years indicates other parties were lying as well. Here’s an example of a hypothetical but likely cheap-shot scenario that wouldn’t make headlines.
Manager Al hears or personally sees that something has become unsafe in the mine and tells Miner Bill, “Fix that problem.”
For some reason Bill doesn’t do it. He either has better (in his mind) things to do, or he doesn’t like Al and wants to see him get in trouble. But when Al asks if it’s fixed, Bill says, “Yup, I took care of it.” It’s a bald-faced lie. It is also a cheap shot because Bill knows that Al won’t check up on his work any time soon, so he’s not expecting any bad consequences.
A day or a week later Inspector Chuck does see the violation, writes it up, and hands the citation to Shaft Manager Deke, who rags on Al for the violation.
Deke has lost some respect for Al, who now has egg on his face and thinks badly of Bill. When Bill starts boasting about this episode and the story gets around to Inspector Chuck, Chuck’s going to wonder why he’s bothering to try to make things better for that asshole Bill, the company he works for, or the whole damned industry.
In such an environment, disenfranchisement grows and thrives, and Us-vs-Them thinking overrides safety thinking. In this deeply disenfranchised culture, both lying and skeptical disbelief will become endemic in all the players.
So if in this case the MSHA—the representative, such as it was, of society’s impulse toward social justice—was in fact part of the problem, how else could this dysfunctional system have been changed?
If the goal is to have fewer accidents, less damage, and less worker abuse, then the solution is to build enfranchisement. As with finding terrorists and reducing crime, the people closest to the problems can be most effective at discovering and fixing them. This would mean empowering workers to be the first line of defense against hazard and abuse. If both workers and managers recognize that workers have a strong say in safety and working conditions, lots of problems will be solved rapidly and routinely.
So how could enfranchisement be built? Here are some possibilities.
The people of Appalachia have a different morality concerning what are acceptable risks, rewards, and fears than outsiders do. An example of this comes from the 2012 Democratic primary in West Virginia.
A.J. Wade, a lifelong Democrat and one of three elected commissioners who run Hardy County in West Virginia, fiddles with his bolo tie as he tries to explain the results of his party’s presidential primary, back in May. “People here”, he says, “would have voted for Mickey Mouse if he’d been on the ballot.” The fictional rodent was not running, however, so they ended up supporting a much less appealing candidate: Keith Judd, a convict serving a 17-year sentence for extortion in a Texan jail. Mr Judd won 58% of the vote in Hardy County to Barack Obama’s 42%.
Mr Judd’s victory was not a freak result: Democrats in a further nine counties in West Virginia judged a resident of the Federal Correctional Institution in Texarkana a better standard-bearer for their party than the current occupant of the White House. Mr Obama did win the state overall, but not exactly resoundingly: Mr Judd took 41% of the vote, enough to secure at least one delegate to the party’s national convention in September if any had registered on his behalf (none did).
This distinctive thinking means that even more than usual, imposing outsiders’ versions of social justice will be disenfranchising. For their projects to be effective, outsiders must first understand the culture and then be above-average clever in their people skills to persuade the locals into adopting any new system.
Part of this is recognizing that exile is a routine part of this culture. The locals who don’t like the system vote with their feet, which is usually fairly easy to do in this country. There are a whole lot of ex-Appalachians scattered around America, people who didn’t like the mountain culture. (“Hillbilly culture”, for those who want a more disparaging term.) Conversely, most adults living in Appalachia generally like the conditions they’re living in. Specifically, they’ve accepted strong Us-vs-Them thinking as a given, even a virtue, not a problem.
In order to reduce the disenfranchisement in the mining culture that lets an Upper Big Branch–style disaster happen, the community must change its thinking. This means focusing on education; children must be taught differently. Education must emphasize that there’s a big world out there to be dealt with and lots of different points of view to be lived with. Lifestyles outside the community must be experienced. Historically in the US, this has involved time in the military, at boarding schools or colleges, on field trips, and in vacations to exotic places. This familiarity with other cultures is one of the important values of the immigrant experience that so many Americans are familiar with.
A comparison to education in Utah, another mountainous inland region of the US, is illuminating. Many Utahns are Mormons. The Church of Jesus Christ of Latter Day Saints encourages its members, especially boys, to spend a couple of years immediately after high school living in a foreign country, speaking a foreign language, as missionaries. The surprise benefit is that, compared to West Virginians, Utahns are quite worldly; their Us-vs-Them thinking is diminished in intensity while the scope of Us is broadened for them.
Changing business practices in the region can also help. Currently, most West Virginia businesses either are very small mom-and-pop affairs, favoring the Us side of the Instinct, or are big businesses that coordinate closely with local governments. Massey’s role in this region is much like that of the paternal overseer in Agricultural Age cultures. This business structure is stable in the region because of the acceptance of taking cheap shots at outsiders. The workers perceive the managers as outsiders and therefore fair game.
Conversely, a company’s calling an industrial accident an act of God is often a successful defense in local courts, because the judges and even the prosecutors look upon the locals as Them.
The more that the people of the region are willing to give up on taking cheap shots at outsiders, the more trust can be built into the operation of large scale organizations such as Massey, and the larger small businesses can grow before they are criticized by locals as somehow selling out.
Above is my basic argument. Against it, let’s look at some specific objections that seem reasonable on the surface, mostly made by George Trosper, my text editor and an insightful reader of this section’s earlier drafts. (Editor’s Note: Just because I’ve helped Roger rebut me here doesn’t mean I necessarily consider myself refuted. –GT)
You’re assuming that left to themselves, employers will act like angels of light. Absent legislation, working conditions in the real world will quickly adapt not to what everyone can agree on, but to what’s most advantageous to the employer—and hang what the employees want!
Employers do not have to be forced to be like angels of light by external groups if their employees feel empowered to call bullshit on their choices. And likewise, if employees care, they will actively offer managers better choices in how to get things done. This is the magic of enfranchisement. Both sides feel like they are being paid attention to and both sides feel that their actions make a difference.
An example of this, one that surprised early time-and-motion researchers, is called the Hawthorne effect. In a widespread interpretation, still supported and challenged today, employee output didn’t seem to depend so much on what in the work environment was changed or even in what direction so much as simply that changes were being made and the results being studied. Whether increased attention was actually making employees do more work or whether that was supplemented or even overwhelmed by financial incentives, managerial oversight, or other factors, I interpret the results as an example of increased enfranchisement equaling increased output.
One key to making enfranchisement magic happen in a job situation is the ability to walk away from a bad situation, and walk into a good one. This applies as strongly to workers as it does to customers. If entry and exit from a job are both easy, low-barrier actions, then if an employer starts taking cheap shots on the employee, the worker soon leaves for a better position. Over the long run there is not just balance between worker and management goals, there is steady and dramatic improvement.
A real world example of this kind of enfranchisement is employment conditions in information age industries where demand for workers with specific skills is high. The workers are enfranchised and their working conditions show a lot of variety that suits what they want. They are catered to, which is a symptom of enfranchisement.
But, Roger, in virtually every other real world industry, there is no such enfranchisement, here or overseas. And it would require literal magic to ever create it. When the only available choices are a bad job, begging, or prostitution (and no, not everybody can leave an area just because they don’t like the local job market), employment choice is not truly voluntary.
This is where assets get mixed into the soup. As mentioned above, when an industry’s capital requirement is heavy, the employer-employee relation is not as simple and it is harder to walk away from one job into a similar one at a different company. In such cases imposition of social justice can make sense!
But keep in mind that the working world has changed; medium and light industries, such as call centers, are now a much bigger piece of the employment pie. In such industries the employer-employee relation becomes much more like the company-customer relation.
So isn’t coal mining a heavy industry that requires such regulation?
Coal mining is an old industry that has many flavors throughout time and around the world. It can be as simple as father and son taking pickax and shovel to a cliff, or much more elaborate. The Upper Big Branch version was quite a lot more elaborate, so, yes, it’s heavy industry.
But coal mining, even the heavy industry form, is an environment with a lot more variety than a railroad, steel, or auto plant will have. This variety is a compelling reason to make sure that the regulation framework recognizes that both worker and management enfranchisement is the heart of worker safety. This means that a light hand, rather than prescription, should be at the heart of the framework.
I’m reminded of one humorous variant on the now famous photo of Obama and staff watching Bin Laden get “offed”, in which Obama has a game controller in his hands. This symbolizes the difference I’m talking about: Do off-site regulators have the final say, or people at the scene?
If Massey Energy’s attitude—that any delay or expense in the pursuit of safety is theft from the employer—were legal, then that attitude would be even more usual than it in fact is. Certainly few middle managers have ever thought, “The boss’ll kill me if this costs us a fine!” Because, for all but the smallest operators, fines for evil-doing are just a cost of doing business, like retaining lobbyists (to make sure that maximum fines stay small enough to be affordable) and lawyers (to keep them difficult to impose in the first place).
Anyway, even when a corporate employer would prefer honor and virtue, by law it has a fiduciary duty to put maximizing investor return above all other goals.
When I first saw the claim that “Corporations are required by law to put maximizing investor return above all other goals,” I equated it with “Spending too much on safety is illegal because it’s taking profit away from the investors”, and I was sure both were just somebody’s silly stories about how ridiculous Big Bad Massey Management’s excuses were after the accident. In times of stress—and accidents are stressful times!—people do think differently. That’s the disheartening heart of witch hunting and other groupthink occurrences.
For instance, during the discouraging Week Four of Eight in my Army Basic Training, a statement floated among us recruits, many of us draftees: “You mustn’t injure yourself. If you do, you’ll get court-martialed for damaging government property.” In the end we emerged with only a handful of injuries, no court-martials, and this good story (among others).
But unlike that stress-born story, or those of stockbrokers leaping from Wall Street skyscrapers in 1929, or the myth that White Star Lines had declared their Titanic unsinkable, corporate fiduciary duty turns out to be depressingly real. I can see now why LLCs (Limited Liability Companies, which are not corporations) have become so popular in recent times.
The question of what rights investors have in an enterprise dates back to the beginning of investing. It has never been easy to answer. Citing law explains only a small part of the relation.
Saying that law supports profits over safety is not true; fiduciary duty requires only that safety not be emphasized to the point that it unreasonably impacts profits. After all, a reasonable level of safety is essential for maximum profits.
But the much bigger issue not being addressed here is the uncertainty of doing business. The business environment is not deterministic, not one in which every manager knows the full consequences of every choice made, although managers and investors certainly wish that it were—and so do workers and regulators for that matter, because that would eliminate accidents. In the real world of uncertainty, managers are empowered to take risks, which means sometimes there are failures, and no profits made from a particular choice. It’s not illegal for Disney to make a movie that’s a flop. (But trying to game the system, à la the play and movie The Producers, is.)
Beyond that, no manager likes accidents. They are deeply damaging surprises. I’m sure that the Massey managers who routinely risked their employees’ health and safety did so in the expectation that things would always go on as before, with no more serious repercussions than yet more meaningless citations. They were as unpleasantly surprised as everyone else when things went dramatically sour.
If Massey managers were in fact surprised, they shouldn’t have been. As you acknowledge above, they had “multiple warnings … before the incident of an accident waiting to happen”!
After the death of two Massey miners in 2006, there had been a finding of “reckless disregard for safety” that “warranted the highest fine MSHA has levied for a fatal coal mining accident,” totaling $1.5 million. There had been 3 fatalities in a dozen years at the Upper Big Branch itself. Those repercussions were significantly more severe than yet more meaningless citations and should, I believe, have either triggered a change in corporate culture (clearly they didn’t) or else left an expectation that the same kind of thing was bound to happen again.
Massey had an injury record far enough above industry average—this in an industry whose average injury record is deplorable by any rational yardstick and sickening to us interfering prescriptivists—that a few of its executives had pled criminally guilty in 2009 to avoid worse results, and it was under threat of another criminal indictment. All this seems to me like adequate warning that it was only a matter of time before the law of averages found a point on Massey’s risk-heavy bell-curve that was quite dramatically sour.
Please understand, those of us condemning Massey and its ilk don’t advocate offering only riskless jobs. We advocate non-disenfranchising provisions for reducing those jobs’ risks to reasonable levels. (Well, at least I do!) Rational people can probably agree that letting miner fatalities average 1% a year is too high (as well as being economically prohibitive) and that reaching no fatalities ever is unattainable, but we won’t all agree exactly where in-between the line should be drawn, or what measures are appropriate. However, not only do I not believe that Massey managers were even close to the right side of the optimum line, I don’t see how they themselves could have believed it. Evil was as evil did.
You correctly note that I’ve included this in my impressive list of evil. But I return to the odd part being that this hazardous environment went on for years and years. Managers, workers, and inspectors all treated this condition as … expected? part of the territory?
The citations and the lawsuit were apparently treated the way most of us treat parking and traffic tickets with an occasional DUI tossed in. They weren’t shocking. The workers didn’t say, “You found what?!? No way I’m going back in there, too dangerous!” Likewise neither did the inspectors. They did their social justice duty, they wrote up these violations, but they didn’t have community support in changing how the mines operated based on their findings. They didn’t flat-out shut the mines down for these flagrant violations, whether because of management pressure or because the workers would have been very unhappy about losing their jobs. (And this is the Land of Matewan.)
That all sides wanted the mines operating more than they wanted improved safety points once again to the people inside having different assumptions about acceptable procedures and risk-taking than those outside. Coal mining has not evaporated in Appalachia since the Big Branch disaster, or even significantly changed. It’s still enthusiastically supported.
It seems clear to me that no one ever expected the laws of probability to be enforced against them.
Despite employers insisting that fair labor legislation will kill their business, when it’s adopted and enforced across their industry, in the end many welcome it, because it allows them to do what would put them at a competitive disadvantage if others were not required to follow suit. Examples: Employers’ comp; minimum wage; health and safety regs, including breaks, vacations, sick leave, and sometimes protective equipment; regulation of child labor; and antidiscrimination in hiring and pay, most recently the Americans with Disabilities Act (ADA). Do you deny that mechanism? And would you forgo all such fairness regulation?
This sounds attractive, but it is disenfranchising to the ambitious and those who want to experiment with new ways of doing things. When there are places where such fairness requirements do not apply, the brightest and best will migrate there to start the next big thing. Insistence on fairness is the heart of the Midwest Disease that I’ve mentioned has made places such as Detroit and Cleveland tumble from being among the best cities in the nation into struggling obscurity.
That said, there is one area where fairness is vital. Responsibly managing “commons” areas such as fishing grounds and potentially polluted air is a valid part of a community’s government’s responsibility. The ADA falls within that commons concept; none of your other examples do. The American immigrant experience demonstrates that discrimination can be sorted out by competition among employers, and the rest can also be sorted out as to which policies have good cost/benefit ratios and can keep up with changes as they happen.
So you think employee exploitation, like the dark-to-dark 6½-day week of the 19th century, would be a good thing today?
It would not be a good thing for everyone, or all the time. But there are times even today when it’s good. 21st-century entertainers, software developers, college students, and farmers, among others, engage in these long hours on occasion, and should not be prevented from doing so. The point of an enfranchised employer-employee relation is that flex time can go both ways—long or short—and the choice is not made by third-party rules, but mutually by those who care the most, the worker and the manager. When they are both enfranchised, they’ll be on the same side.
And consider that, curiously, even in the case of forced labor—surely the most extreme case of bad employer-employee relations!—enfranchisement can be important. In The Bridge on the River Kwai from 1957 and the French novel that inspired it, British captives in a WWII Japanese POW camp fight to keep their enfranchisement and when they succeed, life gets better for both them and their captors.
What about employers who break their promises, make intolerable requests of employees once they’re hired, or outright scam them—like setting up employment costs such that they “owe their soul to the company store” and can never buy free?
What I’m proposing are enfranchised conditions, remember? With low barriers to job exit and entry! In the enfranchised environment, the same thing happens as when a customer feels the store is not serving them well. The employee leaves, and they probably tell their friends and neighbors about their problem.
This next observation was inspired by a 9,000-comment “blogathon” on Linked-In that I started. My insight came from thinking about a mystery brought up several times on the blog: Why do CEOs of big corporations get paid so much?
The simple answer I favor is: Supply and demand. The boards and investors of these big corporations are willing to pay top dollar because it’s hard to find someone who can do the job. There are few people who fit the qualifications and many big corporations looking for CEO’s, so the bidding goes into the stratosphere. This view does not seem to be popular, but I am not the only one to have offered it.
However, this answer is far from consensus on that blogathon. Others on the thread saw the simple answer as uncontrolled corporate greed—“The bosses can do this so they do do this. The boards, investors, and workers are all wusses compared to the CEOs.” Some more specifically blamed corporations’ boards, their executives, and their major investors as being allies against the little guy in the 99%–1% war (as it’s now popularly called), citing interlocking directorates, old school ties, and general corporate alliances.
This disagreement on something so basic is part of the mystery. It smacks of being part of a thinking blind spot. Figuring out why this difference of opinion exists was part of what produced the following insight.
I asked myself, “Why is this a job so few people are qualified for?”
I realized that being CEO is a difficult job because it suffers greatly from The Curse of Being Important. There are a whole lot of people who care about what the CEO does, and those people are both quite vocal and quite influential in the corporation’s course—people such as investors, regulators, politicians, activists for various causes, media people and these days bloggers—these are the high profile ones. There are also numerous low-profile players such as consultants, board members, lobbyists, other managers, and union leaders. This means the job is filled with a whole lot of people-grief, which both makes it difficult and narrows the qualified candidate field.
One of the major contributors to that people-grief are demands for social justice—fairness—in how the corporation runs its affairs. These demands come in many forms. The shareholders meeting comes only once a year. But in between, media and other opinion makers constantly pass and publicize judgment on management choices regarding social justice issues. If a CEO plans layoffs, he can expect a stream of local politicians to line up on his doorstep. If she plans a factory expansion, she can expect a stream of environmentalists, and if it’s overseas, she can expect social activists and unionists to join the parade.
Social justice demands are different from business operations demands because while profits are quantifiable, there is no easy way to measure success in solving social justice issues. They’re works of art that are all about emotional response in the hearts of the beholders. Some elements are measurable, such as acres of wetlands saved, some are guessable, such as predicted suicides prevented, but the root emotion driving these causes is not. For example, who could have done a market survey or conducted a focus group that would have predicted a particular incident, the 2012 shooting of Trayvon Martin by George Zimmerman, becoming a national firestorm of controversy that has gone on for months at this writing and looks set to go on for more months? This unpredictability about responses to social justice activities is emotion in action.
These demands for artistry in CEO performance skews the job qualifications. Being a people person and a good persuader move up to top importance and displace technical expertise in the company’s operations. The engineer comes in second to the politician.
The somewhat surprising result of this is that these grief-tolerant, people-oriented, persuasive CEOs are also very good at persuading regulators and real politicians, and it pays off handsomely for them to do so.
What they persuade the regulators and politicians to do is to raise barriers to entry into their business operational areas. They work on making it harder for other companies and individuals to compete on their turf. They often justify this by arguing the high barriers keep incompetents out and thus help the community. The clincher argument is, “And with these high barriers to entry in place, the corporation can do lots and lots of social justice. We can support unions, health care, charity, green ... whatever.”
Sounds nice, strokes emotions well, and the only visible flaw is it takes a superstar CEO to keep the parade moving forward smoothly, so this person gets paid like a rock star. That’s a blemish, but it only picks up traction in times such as we are currently experiencing.
The alternative is for those concerned with social justice to be less concerned with fairness in income distribution and rights, and more concerned with fairness in the business and worker playing field. The social justice emotion must be taught to advocate that in every style of business the barriers to entry should be low and the playing field be simple, level, and transparent.
Then the whole business process gets simpler and more to the point. Running a business becomes more about spending time and attention understanding customers and operations and less about understanding patronizing rules, regulators, and politicians.
How does more and better competition solve the social justice problems? How does this improve wealth distribution?
One of the first good consequences will be that when it’s easier to get into a particular kind of business, there’ll be more business entities pursuing that trade or service. Then the role of the business CEO changes from mostly navigating rules and regulators to running the business more efficiently and pleasing customers more effectively. By broadening who is qualified to be a CEO, this will crash the demand for “superstar CEOs”, which will crash the compensation paid. Again, this will happen because the social justice emotion will no longer be propping up the barriers to entry for competitive players. The social justice advocates will recognize this as something to avoid.
This is the first way that changing what is considered important to bring about social justice will help bring more social justice.
The second way is that workers will have more choices. That classic worker fear, “The boss will replace me if I object to his orders”, can be ameliorated by the comfort that “There are many fish in the sea. I won’t have a hard time finding a different company to work for.” The boss’s stranglehold is broken because there are a lot of bosses to choose from, all of them constantly on the lookout for talent. Keep in mind, for this kind of security-in-choices to happen, the barriers both to moving into and out of a job have to be low. Ironically, the current intricate waltzes favor boss control.
Changing worker-boss relations is the second way that changing what is considered important to bring about social justice will help bring more social justice.
The social justice downside of these changes—the scary part for prescriptivists, those who love things nice and settled—is that business becomes even more dynamic and that having a job will be even less of a lifetime affair than it is now. (Curiously, love for social justice is often closely coupled with prescriptivism; people who favor greater income equality often also feel that job status quo, aka “job security”, is also a good thing. American unions of the 2010s have adapted well to supporting this emotion; prescriptivism seems to be one of the great attractions of a union environment.)
Oddly enough, the social justice upside is the same as the downside. Businesses will rise and thrive and fall by the wayside even faster than they do now¸ but the latter will be rapidly replaced by successful businesses, usually as they peak and before they begin to fall.
A present-day example is the fast churning in high technology companies. If you regularly go to a high technology trade show such as CES, you meet the same industry people year after year, but the companies they’re working for change constantly. The industry is good to these people, but it’s an exciting roller coaster ride, a boom and bust environment. Growth will be big in the boom side, and the searching for the next big thing will be a scary time when the boom runs out.
I’m recommending that the kind of dynamic environment experienced by high tech be spread to many more kinds of American employment. I’m suggesting that fields such as education and health care would benefit by becoming not only more productive but also more fun to work in.
Such an environment would promote social justice, especially more income equality, by breaking the unholy alliance between well-intentioned fairness seekers, prescriptive union bosses and government regulators, and the “rock star” CEOs I’ve described—highly skilled at persuasion and other people skills, and amazingly tolerant of people-grief.
As usual with blind spots, this change for the better will be impossible until those seeking social justice pay more attention to what their actions actually promote. By directly advocating income equality and workers’ rights, they support rock star CEOs, monopolistic business practices, and status quo. What social justice seekers should instead be striving for is a simple playing field with low barriers to entry, so that rock star CEOs are not in high demand.