Coyote Blog

Was in Vegas last week for a conference at the Cosmopolitan. A couple of notes:

1.  IMO the best bar in Vegas is the bar in the sky lobby of the Mandarin Oriental Hotel.  Quiet, intimate, and with a drop-dead gorgeous view of the strip.  Honestly, the picture in the link understates how dramatic the view is.  Expensive drinks, of course, but the sliders they sell at the bar are excellent.
2. Vegas is preparing itself for the sorts of terrorist attacks where trucks drive through crowded streets and sidewalks (the posts in the shrink-wrapping are all new).  Seems like a reasonable precaution given the pedestrian numbers and their likely terrorist target ranking

   

3. First time I have ever had a business meeting in a room with strippers on the carpet.  Stay classy, Las Vegas.  One attendee said "I am glad my HR director is not attending, she would probably call an alert and order an evacuation."

   
   

4. Hey - a cigarette machine re-purposed to vend little bits of art.

   
   
   

I was at a function the other day when I was challenged to take a position on the stupid 'black lives matter vs. all lives matter' false dichotomy.    I was fortunate to be in a group that actually let me answer with more nuance.  Here is essentially what I said:

1. There is a real problem with police accountability and police violence in this country, one I have been writing about since long before the BLM movement was even created.
2. The harm of these police accountability issues falls disproportionately, but not solely, on blacks and other minority ethnic groups
3. For any number of reasons, fixing racism is not the immediate answer.  Most obviously, because racism is super-hard to eradicate and has persisted (though improved, IMO) despite a lot of attention over many decades.   It is hard to point to any time and place in human history when some folks have not been seduced by in-group-out-group thinking.  The other reason is that the primary issue is accountability, not racism.  We give police special powers to use force that the rest of us do not have, but impose less accountability on them for the use of force than the rest of us face.  No matter how good most police officers are, this accountability problem is going to allow bad eggs to repeatedly abuse their power.
4. There are real, identifiable steps that can actually increase police accountability and transparency and reduce the types of police violence incidents BLM was formed to oppose.  Early on, BLM actually identified a pretty good list.
5. BLM did a fabulous job of raising awareness and putting these issues near the center of political discussion.
6. Having done so, BLM now has gone completely off the rails.  It appears to be entirely focused on virtue-signalling and disruption and support of progressive issues completely tangential to its initial focus.  It has no coherent action plan.  Colin Kapernick torpedoed his own football career to bring attention to BLM, but once he did so and had microphones thrust in his face from every direction, neither he nor any of his supporters had anything specific to advocate for, other than outrage and telegraphing their victim status.
7. Progress can be made on these issues, but what it will take is a hard city by city slog to change the rules that govern police discipline and transparency.   As I wrote before, BLM "could learn a lot from Conservative and libertarian groups like ALEC, that focus on creating model legislation and local success stories that can be copied in other places."
8. Republicans often oppose police accountability steps -- they don't just support the police, they fetishize them.  But the cities that most cry out for new accountability rules -- New York, Chicago, Detroit, Baltimore, St. Louis, Los Angeles -- are have Democratic super-majorities and governments whose officials almost to a one have come out publicly in support of BLM.  So why no progress?  One big barrier is the Democratic Party's unwavering support for public employee unions, and it is police unions that are the biggest barrier to implementing the steps BLM should be demanding.  This is another side of this issue discussed earlier in the week.

It is possible to buy all sorts of infused liquors nowadays, but I have never seen my personal favorite sold in stores -- red pepper infused Tequila.  We first had margaritas made from pepper-infused spicy tequila in Pacific Beach at a restaurant called JRDN and since then it has been a favorite of ours.  Not finding any in stores, we make our own, cutting up 5-6 small red dried chili peppers and leaving them in the tequila for 1-5 days -- the length depends on how spicy you want it and how fresh the dried peppers are.  The first time you do it, you need to try it frequently as the spiciness is unpredictable.  Also, you may want it spicier for drinks where it gets diluted (e.g. margaritas) vs. just drinking straight.

My current favorite every day, reasonably-priced tequila is Cazadores (the one with the stag on the label).  IMO, it is way better than some more famous, and more expensive, brands like Patron.  The gift bottle show above was Cazadores Extra Anejo infused for about 4 days.

If I really want to blow it out, my favorite sipping tequila (do not make a margarita out of this stuff unless you light cigars with hundred dollar bills) is Clase Azul Reposado.  Pero, es muy caro!  If you do light cigars with hundred dollar bills, you can try the Clase Azul Ultra, but I have never had more than a taste given that it goes for thousands of dollars a bottle -- sort of neck and neck with a 23-year old Pappy Van Winkle.

PS-  as with most things that are harmless and enjoyable involving alcohol, this is probably illegal somehow.  Please do not turn me in to the FDA or BATF.

For years I have argued that immigration controls in this country are effectively a form of occupational licensing.  While US immigration controls are a terrible policy IMO, Germany's approach seems even worse.  They welcome people into their country but don't let them work, and then wonder why newly immigrated refugees can't find jobs.

In 2015, Germany waited the longest of any country in Europe to restrict the flow of asylum seekers from the Middle East. Yet once they arrived, the asylees who immediately sought work in Europe’s largest economy were greeted by bureaucracy. The law initially forbade asylees from seeking work for 9 months after their arrival, but was reduced to 3 months in November 2014. Then, inexplicably, at the height of the inflows, the German governmentbanned working if the asylee was forced to stay a reception center, which could be up to 6 months.

After the initial waiting period, asylees did not receive unrestricted employment authorization. Instead, they would have to find a “concrete” job offer—i.e. a firm must promise to hire them if the permit is granted—then apply for authorization. Even then, companies can only hire them during the first 15 months if the jobs are offered first to EU residents, and the federal labor department agrees that no one was willing to take. They also set asylee wages, which can price out low-skilled workers.

The hoops don’t end there. Asylees still have to get the approval of the immigration office at the municipal level. Under the law, it would take four years before they could compete equally with EU citizens.

On top of all these refugee-specific regulations, skilled workers are then tasked with proving that they can work in certain occupations. In order to obtain an occupational license, documentary proof of training—proof that’s often buried under bombed-out homes in Syria—is required. Some states in Germany allow asylees to demonstrate their skills in order to receive licensing, but others do not. “I am a dentist and could work, but what am I supposed to do? I am not allowed to work here!” one asylee told DW News.

Low-skilled immigrants haven’t avoided being targeted either. Germany introduced its first ever minimum wage in 2015—which disproportionately hits lower skilled migrants—and a study by the German government in August 2016 found that it had already cost 60,000 jobs.

One of the mistakes people make in economic analysis, IMO, is that they sometimes miss non-monetary benefits.  A great example is how labor law and the minimum wage is structured -- there are many benefits of a having job to a young, unskilled, unemployed person.  That job may teach valuable industry-related skills and will almost certainly help teach some basic life skills (like how to show up on time every day and how to work with others in an organization toward shared goals).  For my kids when they were 15 or 16, these non-monetary benefits dominated, and I would have been happy if they worked for free in exchange for such skills.  That used to be the whole point of unpaid internships, until the government started essentially banning them.  Unfortunately, the government considers only money in computing the minimum wage, and ignores all these non-monetary benefits.

Mark Perry had what I think is another good example a while back, quoting from the Priceonomics blog:

If you want to dine at State Bird Provisions, you’ll have to get in line. The small restaurant, winner of the James Beard Award for Best New Restaurant (2013) and a Michelin Star, only accepts a few reservations that are snapped up as soon as they are released — at midnight, sixty days in advance. So nearly every day, people line up on Fillmore Street in San Francisco an hour or more before State Bird’s 5:30pm opening time to score a table.

It may seem silly to line up for State Bird Provisions in a city full of renowned restaurants and good food. But as anyone who has eaten brunch in the city knows, San Franciscans view long restaurant lines as social proof more than as a deterrent. Besides, State Bird offers determined diners a relative bargain. While its offerings are not cheap — even without indulging on wine, bills can reach $50 per person — State Bird’s prices are more modest than almost any other local Michelin Star restaurant.

This makes State Bird something of an economic mystery.If economists owned popular restaurants like State Bird, they would take one look at the long lines and raise prices.After all, the overwhelming demand is pretty clear. Or at the very least, given how reservations disappear like Coachella tickets, they would start charging for them. In fact, since restaurants do not do this, a number of startups in San Francisco and New York City have started to sell reservations to users, often by reserving tables and scalping them.

In contrast to the executives who run large restaurant chains, the restaurateurs behind celebrated restaurants and local favorites are often chefs first rather than professional managers. This raises the question: Are restaurants like State Bird Provisions, which seems to resist simple economic analysis, the exception or the norm? And if they are the norm, is that because it is somehow self-defeating to raise prices even at booming restaurants? Or are chef proprietors a unique breed in the business world, immune to supply and demand and content to leave money on the table?

I believe that many of these high-end chefs are not driven entirely by money.  Their personal reward system also depends a lot on prestige and recognition.  Making a good profit in a restaurant gets you no recognition in the the circles where chef's crave it.  Name the three most profitable restaurants in town -- you have no idea, do you?  What get's these chef's recognition is being the hot place to dine that is so in demand it is impossible to get a table.  So one makes the restaurant a little too small and keeps the prices a little too low and one trades a bit of money for something that is more valuable:  prestige.

One can see this same effect among, say, US Senators.  In our current corporate, crony state, US Senators can expect a huge spike in income once they leave Congress, getting paid by some large corporation lobbying firm.  The economically rational decision, then, if one were only interested in money, would be to serve just one term, then leave and make some bank.   But you never see that.  Senators stay and stay, even when it is an enormous hassle to do so.  They are essentially collecting and spending millions every election to keep their income low.  Why?  One big reason is prestige.

Going back to the restaurant example, let's consider a famous chef who pretty clearly does care about money:  Wolfgang Puck.  I have never seen this written, but here is what I observe to be Puck's approach.  He creates a small restaurant and lavishes it with a lot of his personal attention.  These restaurants do not have much seating and become the hot places to dine, leading to long lines and difficult reservations.  The difficulty of getting a table generates an elite buzz around the restaurant.  After some time, Puck will buy a huge new location nearby with many times more seating.  He formula-izes his recipes so he no longer has to be involved, and then shifts the operation onto auto-pilot in the new large location.  Perhaps he even franchises it.  The new location cranks out a bunch of money, while he moves on to create a new elite concept.  He also leverages the original buzz in his personal brand, which is applied to all kinds of other items.  In a sense, he is banking prestige in the early venture and then monetizing it later.

Presidents get into helicopters at the drop of a hat to tour disaster areas if such a trip can get them 2 minutes of empathy-demonstration on the nightly news broadcast.  Their presence is generally a hindrance to progress as first-responders have to drop everything to plan for the visit.

For once, in St. Louis, a Presidential visit might actually do some good and Obama sits in Martha's Vineyard.  I never thought of him this way, but for much of the African-American community, Obama represents a unique, special, almost mythical figure in whom a lot of hopes and dreams were invested.   An Obama visit urging peace combined with a promise from him that a fair and complete investigation would be undertaken would, IMO, bring the rioting to a halt.   If I were he I would go out there as the true friend of the African-American community that many perceive him to be and say, "the national has heard you and shares your frustration.  Change can happen.  But further violence in the streets is only going to undermine your position and give the advocates of militarized policing further, ah, ammunition.   It is reasonable for a President to defer to local and state authorities -- in fact it would be disastrous for the President to make a habit of sticking his nose in local criminal cases -- but he may be the only person with the credibility with local residents to make this end.

Since I last posted on this, there have been two new pieces of information.  One, Michael Brown apparently committed petty theft a few minutes before he was picked up, though the officers that picked him up did not know this.  And two, an autopsy reports that the unarmed Brown was shot at least 6 times.  It is hard to imagine any story that adequately explains shooting an unarmed man** who was not known to have committed a crime 6 freaking times.  And since the police have still not released any narrative of what happened from their point of view (they are still working with Michael Bay's screenwriters to see if they can come up with something), all we can do is imagine.

**Update 8/18:  I am willing to believe I am being unfair here.  I am simply exhausted by the lack of accountability and the pass we give to officers involved in shootings.  However, just because many such shootings are unjustified and subject to cover-ups does not by any means they all are.  The question from all of this is how do we start holding the police accountable without having to have riots.

Sorry, I don't have a source for this.

Making common cause with people with whom one disagrees about many other issues is a natural state of affairs for most libertarians.  Since we are such a minority, we can only make progress seeking out allies on the Left and Right on particular issues.  It was so natural to me that I was caught short when I ran Equal Marriage Arizona to find that many other people have no desire to do this.  They will not make common cause with you on an issue with which they agree with you 100% if they disagree with you on an array of unrelated issues.  I have now come to the conclusion that the latter attitude is more common than the former.  The problem with politics is, IMO, not the lack of compromise, but this lack of ability to make common cause across political lines on narrow issues.  Thus, for example, Elizabeth Warren is unable to make common cause with Republicans on the Ex-Im Bank, despite the fact it hits on two of her hot buttons (corporate subsidies and crony insider benefits for Wall Street bankers).

The journal Nature has finally caught up to the fact that ocean cycles may influence global surface temperature trends.  Climate alarmists refused to acknowledge this when temperatures were rising and the cycles were in their warm phase, but now are grasping at these cycles for an explanation of the 15+ year hiatus in warming as a way to avoid abandoning high climate sensitivity assumptions  (ie the sensitivity of global temperatures to CO2 concentrations, which IMO are exaggerated by implausible assumptions of positive feedback).

Here is the chart from Nature:

I cannot find my first use of this chart, but here is a version I was using over 5 years ago.  I know I was using it long before that

It will be interesting to see if they find a way to blame cycles for cooling in the last 10-15 years but not for the warming in the 80's and 90's.

Next step -- alarmists have the same epiphany about the sun, and blame non-warming on a low solar cycle without simultaneously giving previous high solar cycles any credit for warming.  For Nature's benefit, here is another chart they might use (from the same 2008 blog post).  The number 50 below is selected arbitrarily, but does a good job of highlighting solar activity in the second half of the 20th century vs. the first half.

I have been playing around with this DVD, which is a collection of high resolution situation maps from the European theater of war after D-Day in WWII.  The maps are really interesting, though the interface is awful.  Like something from the AOL era.  I would play with this much more but it is just too kludgy.

This is probably my favorite map (click to enlarge)

Of course, on the very next day, the last great German attack on the Western Front came right out of that empty red circle.

In the software, one can zoom very deep into these maps, deeper than these images allow.  So it's a shame that the interface is so bad.

PS - The Bulge is deservedly a part of American military mythology but we should remember that in many ways it was a small battle compared to any number in the East.  This is one of those facts that always perplexes this libertarian, because there is no way the Western Democracies could have ever defeated Germany IMO.  Only Stalin's willingness to soak up astounding losses really defeated Germany.  German army casualties on the Eastern Front were nearly three times their combined casualties in Africa, Italy, France, and Benelux.

The flip side of this is that no one else other than the US could have defeated the Japanese, though again the Soviets would have given them real troubles in Manchuria.  That war was more about projecting power across great distances than pure numbers.  We did bravely soak up absurd casualties in short bursts.  But again, the Russians were soaking up Bettio-level casualties every few hours, and sustained it day in and day out for years.

Almost exactly seven years ago (amazing how long I have been blogging) I wrote an extended piece about how hard it is to change corporate DNA.  I was writing about GM but also used Wal-Mart as an example.  Part of this piece read:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

Megan McArdle makes some very similar points as I about Wal-Mart and how hard it is to change corporate DNA.  I recommend you read the whole thing.

Especially when the government is doing all it can to damp the forces of evolution and extinction.  Via Mickey Kaus

Dysfunctional–or at any rate, not-functional-enough–corporate cultures are hard to change. That would include both the culture of the Old GM and that of many of its suppliers. Obama should have been more skeptical about “New GM’s” ability to turn itself around with its same old workforce and same old union

I warned of something similar long before GM was rescued by Bush and Obama:

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM’s DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM’s of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM’s DNA has a less than one multiplier, then releasing GM’s assets from GM’s control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe’s productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe’s most productive human and physical assets into organizations with DNA multipliers less than one.

As can be expected, the media really did a poor job of covering the GM IPO, consistently underestimating the total public cost of the bailout (e.g. no one is mentioning the $45 billion in tax-loss carryforwards GM was allowed to keep, against all precedent).

But the real cost of the handling of the GM bankruptcy is in 1) the terrible precedents it set in hammering secured creditors to the benefit of favored political allies of the Administration and 2) the loss of the opportunity to get billions of dollars in production assets out of the hands of the people who have be sub-optimizing them.

It was this latter issue I have focused the most on, particularly in this post where I argued for letting GM die.  I said in part:

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA.  ...

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one"¦ for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one.

I value many of the same things - open space, wilderness, wildlife - that environmental activists value.  The difference is that I do not wish to achieve my goals by force.  For years I have donated money to various environmental funds that focus on using private funds to buy land for preservation (the Nature Conservancy being the most famous of these, though it has had some problems of late).  I particularly eschewed donating to groups who used most of their funds for lobbying.  These groups are using their funds to try to buy government coercion to back whatever goals they are seeking, often including taking more money from me by force and limiting my rights to manage my own property as I see fit.  I hate that.

Which is why I am very disappointed in the recent actions of Bill Gates.  To date, Gates has dumped billions of his own money into trying to improve public schools.  I personally think that to be useless**, that the management and incentives of government monopoly schools are broken and no amount of money can fix them.  However, it was his money and God bless him for trying.

However, it appears Gates is tired of the slow progress, and is taking the great second-rater escape clause, using his money now not to fund improvement programs but to lobby the government to spend more of my money:

Eli Broad and Bill Gates, two of the most important philanthropists in
American public education, have pumped more than $2 billion into
improving schools. But now, dissatisfied with the pace of change, they
are joining forces for a $60 million foray into politics in an effort
to vault education high onto the agenda of the 2008 presidential race.

** I have written several times about the dynamics of organizations and management, but it is my belief that there comes a time when certain managements and cultures are beyond saving, and the only solution is for the market to let them fail and have their assets and people be taken in by more dynamic organizations.  I wrote about this in the most depth in the context of GM, in a post on corporate DNA and value creation:

A corporation has physical plant (like factories) and workers of
various skill levels who have productive potential.  These physical and
human assets are overlaid with what we generally shortcut as
"management" but which includes not just the actual humans currently
managing the company but the organization approach, the culture, the
management processes, its systems, the traditions, its contracts, its
unions, the intellectual property, etc. etc.  In fact, by calling all
this summed together "management", we falsely create the impression
that it can easily be changed out, by firing the overpaid bums and
getting new smarter guys.  This is not the case - Just ask Ross Perot.
You could fire the top 20 guys at GM and replace them all with the
consensus all-brilliant team and I still am not sure they could fix
it. 

All these management factors, from the managers themselves to
process to history to culture could better be called the corporate
DNA.  And DNA is very hard to change.  Walmart may be freaking
brilliant at what they do, but demand that they change tomorrow to an
upscale retailer marketing fashion products to teenage girls, and I
don't think they would ever get there.  Its just too much change in the
DNA.  Yeah, you could hire some ex Merry-go-round executives, but you
still have a culture aimed at big box low prices, a logistics system
and infrastructure aimed at doing same, absolutely no history or
knowledge of fashion, etc. etc.  I would bet you any amount of money I
could get to the GAP or the Limited faster starting from scratch than starting from
Walmart.  For example, many folks (like me) greatly prefer Target over
Walmart because Target is a slightly nicer, more relaxing place to
shop.  And even this small difference may ultimately confound Walmart.
Even this very incremental need to add some aesthetics to their
experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA
has a multiplier greater than one, meaning that it increases the value
of the people and physical assets in the corporation.  When I was at a
company called Emerson Electric (an industrial conglomerate, not the
consumer electronics guys) they were famous in the business world for
having a corporate DNA that added value to certain types of industrial
companies through cost reduction and intelligent investment.  Emerson's
management, though, was always aware of the limits of their DNA, and
paid careful attention to where their DNA would have a multiplier
effect and where it would not.  Every company that has ever grown
rapidly has had a DNA that provided a multiplier greater than one...
for a while.

But things change.  Sometimes that change is slow, like a creeping
climate change, or sometimes it is rapid, like the dinosaur-killing
comet.  DNA that was robust no longer matches what the market needs, or
some other entity with better DNA comes along and out-competes you.
When this happens, when a corporation becomes senescent, when its DNA
is out of date, then its multiplier slips below one.  The corporation
is killing the value of its assets.  Smart people are made stupid by a
bad organization and systems and culture.  In the case of GM, hordes of
brilliant engineers teamed with highly-skilled production workers and
modern robotic manufacturing plants are turning out cars no one wants,
at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the
right managers and a crisis mentality, to evolve DNA over a period of
20-30 years.  One could argue that GE did this, avoiding becoming an
old-industry dinosaur.  GM has had a 30 year window (dating from the
mid-seventies oil price rise and influx of imported cars) to make a
change, and it has not been enough.  GM's DNA was programmed to make
big, ugly (IMO) cars, and that is what it has continued to do.  If its
leaders were not able or willing to change its DNA over the last 30
years, no one, no matter how brilliant, is going to do it in the next
2-3.

I had a conversation the other day with a person I can best describe as a well-meaning technocrat.  Though I am not sure he would put it this baldly, he tends to support a government by smart people imposing superior solutions on the sub-optimizing masses.  He was lamenting that allowing a company like GM to die is dumb, and that a little bit of intelligent management would save all those GM jobs and assets.  Though we did not discuss specifics, I presume in his model the government would have some role in this new intelligent design (I guess like it had in Amtrak?)

There are lots of sophisticated academic models for the corporation.  I have even studied a few.  Here is my simple one:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it. 

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

So what if GM dies?  Letting the GM's of the world die is one of the best possible things we can do for our economy and the wealth of our nation.  Assuming GM's DNA has a less than one multiplier, then releasing GM's assets from GM's control actually increases value.  Talented engineers, after some admittedly painful personal dislocation, find jobs designing things people want and value.  Their output has more value, which in the long run helps everyone, including themselves.

The alternative to not letting GM die is, well, Europe (and Japan).  A LOT of Europe's productive assets are locked up in a few very large corporations with close ties to the state which are not allowed to fail, which are subsidized, protected from competition, etc.  In conjunction with European laws that limit labor mobility, protecting corporate dinosaurs has locked all of Europe's most productive human and physical assets into organizations with DNA multipliers less than one. 

I don't know if GM will fail (but a lot of other people have opinions) but if it does, I am confident that the end result will be positive for America.

* Those who accuse me of being more influenced by Neal Stephenson's Snow Crash than Harvard Business School may be correct.
** Gratuitous reference aimed at forty-somethings who used to hang out at the mall.  In my town, Merry-go-round was the place teenage girls went if they wanted to dress like, uh, teenage girls.  I am pretty sure the store went bust a while back.