Correcting Inequality

 It is eleven years now since I implemented my decision to retire at fifty. At the time there were two major potential doubts, neither of which I fully thought through.

 

The first was that I would be bored out of my mind, miss the smart company and intellectual challenge of work, and somehow suffer pain from a bruised ego. Well, as it transpired, I need not have worried about that. I have found plenty to do and enjoyed exploring new pathways without the constraints of an employment contract and salary as primary considerations. I have discovered that people without fancy degrees can be invigorating company as well. And my ego feels just fine, thank you very much.

 

The second doubt concerned money. Would I run out? Would I have to constrain the lifestyle of my family beyond comfortable limits or even face the indignity of having to seek out paid work again when my peers are starting to enjoy retirement? Well, that one worked out well enough too, at least so far. Contrary to my expectation, I have not become poorer but richer, without putting much effort into it. Just by putting my capital assets to work a little bit I have created an income to more or less cover expenditure.

 

Thinking about this, it is really a scandal. I suppose I did subject myself to much arduous travel and some corporate indignities in building up my capital, so a bit of income as it gently winds down might be considered a fair return. But it is not winding down. I am living a stress free life, without much attempt to economise and even less effort at hustling, and my capital is not winding down at all. Perhaps this has been an especially lucky decade for my experiment, with no inflation and a long stock market boom, but I sense the exercise would not have led to much hardship in earlier decades either.

 

My capital grew primarily as a result of pay from my many years at Shell. I have shared before how I benefited from the revolution following the Great Wrong Turning around 1980. In the late 1980’s I regularly found 20% pay rises and stock option grants thrust into my arms, just as Thatcher’s government was reducing the tax burden for higher earners. Then I went abroad, and that continuing effect was multiplied by wildly generous expatriate benefits.

 

I suppose I worked hard and made a few sacrifices and even learned to be an effective corporate politician and sound manager despite my geeky (marginally autistic?) personality. But I should not polish that ego too much. I got a good job at Shell because I went to Cambridge. My path to Cambridge was eased by my parents splashing out on expensive private schooling. My mum helped further by paying for the deposit on the apartment I bought as soon as I started out in London. I had more than enough of a following wind.

 

Much is written about inequality of income, and rightly so. I remember a lovely quote from the Thatcher days that it seemed amazing that the prevailing thinking was that the best way to incentivise those on high pay was to give them more, but the best way to incentivise everybody else was to pay them less. That more or less sums up what happened, starting in the USA and spreading everywhere else.

 

The Economist and others like to point out the inequality of income is not actually getting worse. They show charts that include the effect of government transfers and taxes, and indeed the trend has flattened, especially if you start your time series after 2000 rather than in 1980. It feels a weak argument that something unjust has not become more unjust. As humanity develops, the trend line should be to reduce inequality of income.

 

But focus on inequality of income, laudable as it is, misses the wider point. Imagine two people with the same income, one with significant capital and the other none or even some debt. The first will buy a house and see its value expand, the second will always rent. The first will live in an area with enough supermarkets, little crime and good schools. The first will have no trouble finding side hustles, taking loans from banks and taking modest risks. The second has no ability to make such long-term choices; making rent is always the primary focus, and a mishap such as a car accident or medical event can be a catastrophe, while our first person can use savings or call in favours from friends to get past such moments.

 

The income disparity figures are unjust, but the bigger issue is disparity in wealth. And wealth begets wealth. Even if incomes were equalised, the wealthy would get richer and the poor poorer, only not as quickly. The key equation of Thomas Piketty claims that the return on capital will over time exceed the economic growth rate.

 

This has been my lucky surprise since retirement. I have lived the life of Riley and got richer, while many have struggled mightily and still accumulated no wealth at all. Yet some of my political peers and many of the public cannot see beyond the extensive current job openings and conclude that the poor must be lazy and undeserving.

 

I find this leads to a clear conclusion in public policy. To really address inequality, the focus must be on taxation of wealth and income from capital. It is true that slavery and Jim Crow and Redlining have locked out much of the population from any chance to accumulate wealth. Reparation in cash or subsidies or quotas will not fix this. The real issue is that the beneficiaries of those injustices acquired wealth, and that wealth continues to grow across generations. It applies to individuals, to communities and to whole nations, and it is unjust.

 

I am not a communist. I love markets and wealth creation and recognise that these good things have catalysed wonderful human development. Eliminating income inequality entirely would be disastrous, and building capital is a laudable aim. It just should not be so easy.

 

When I was growing up, taxes on income were too high. But I also recall that taxes on capital were higher still, and this good thing has reversed since the Great Wrong Turning. Even without resorting to trusts and offshore funds and obscure vehicles, capital is now taxed at the same or lower levels than income in many countries.

 

There are simple fixes available. Land and property should incur a larger share of the total tax burden than today. Capital should incur a tax a few percentage points higher than income, with lower thresholds. Capital should be periodically revalued to enable gains to be taxed more speedily. I can check the value of my shares every day, but do not need to pay tax on gains until I sell them. I would also favour a 3% wealth tax above a threshold. Politically tougher and harder to implement, there should be a global crackdown on avoidance vehicles.

 

But for me the most important change of all relates to inheritance. My parents gave me plenty of advantages during their lifetimes, starting with a stable home, an expensive education and valuable seed money. Surely that is enough advantage to be gained merely from the biological accident of birth? But one reason my capital has continued to grow has been via an estate legacy from my mother. Now what did I do to deserve that exactly? Perhaps the most invidious campaign by Republicans since 1980 has been to label inheritance tax as a tax on death. It is time for a serious campaign to reverse this.

 

I love The Economist to death, but they are curiously silent on these matters. Any mention of capital taxes comes with whining about how little they would raise and how hard they are to enforce, along with the trope about disincentives for creative enterprise. Until they and others change their tone on this, I won’t accept that they have really got the message about inequality.

 

Similarly, it is noteworthy that the biggest roadblocks to Biden’s laudable plan to develop human infrastructure in the US come on the funding side, especially when capital or wealth are involved. Should we be surprised when we observe the average wealth of a congressperson, or of the corporate lobbyists swirling around them? This is a tough pill to swallow, but any talk of true equality of opportunity is empty without it.        

Less Boss

 When I starting writing blogs, thirteen years ago now, I was a manager in a large corporation, and my most common topic was trying to help other employees to understand how their leaders were thinking and to give practical advice to succeed in a corporate environment.

 

Time and again I was drawn to the subject of The Boss. In my own experience, the effectiveness of my boss was the prime determinant of my own contentment at work. I took to giving presentations that demonstrated this point, and then advised people how to handle good and bad bosses, and to be better bosses themselves. If I were ever to write a business book, the title would be The Boss.

 

So it came as a pleasant surprise last week to read the Bartleby column in The Economist. I always enjoy Bartleby. In a clever innovation a couple of years ago, the magazine started it as a new column within its business section. Whereas all the other articles in the section wrote of strategy, acquisitions, profits and marketing, Bartleby wrote about people. The initial Bartleby was a grizzled corporate warrior called Philip Coggan who I imagined to be a bit like myself, curious but cynical: I enjoyed one of his books recently as well. He has now moved on, and I believe a series of guest Bartleby’s are currently writing. The material is still very strong.

 

The spin in this particular Bartleby article was about corporate delayering, a major trend of the last twenty years or so and one that I experienced myself at Shell. Many corporations started with a mindset that was rather military, with very firm fixed hierarchies and little delegation. Spans of control were small and clarity and expectation treasured. A modern buzzword, accountability, was assured in this type of organisation.

 

But the weaknesses of a hierarchical organization became apparent. It is slow, because any decision has to travel up and down a line. It is also, by its very nature, full of silos, so cross-functional teamwork is difficult to achieve.

 

As an aside, I always found it funny when I used to carry out staff surveys. Often the two most plaintive cries were that the organisation required stronger accountability but fewer silos. Nobody seemed to fathom that these two goals are more or less directly in contradiction. If you improve one, you invariably damage the other.

 

Anyway, businesses around the millennium swallowed the new logic of delayering, and, as tends to happen, took a good thing to a ridiculous extreme. In common with others, I often found myself with multiple bosses and an unmanageable number of direct reports, often spread across many countries. I developed a new metric to define how impossible a job was; multiply the number of bosses by the number of subordinates. My own personal best was in the thirties, but I know someone who achieved three figures.

 

Bartleby went down a similar logical path and indeed reached a very neat mathematical conclusion. A direct consequence of delayering for all employees is Less Boss.

 

Probably our first reaction to a world with Less Boss is to cheer. After all, what do bosses generally do beyond getting in our way and micromanaging us? Less Boss must imply more freedom, and freedom must be good, surely?

 

Predictably enough, things turned out very differently. Bartleby pointed out another corollary: having fewer bosses means that most bosses have less experience of the function when asked to manage senior staff. That is one reason why typically they were not very good at it.

 

Oh Bartleby, I can think of many more. Indeed I could even write a book about it! Start with the fact that leading a team is often a result of seniority and of success in technical fields. Many of these people appreciate the recognition, and the extra money, but have little appetite for being a line manager – indeed they resent the time lost from doing the technical things they love.

 

The wrong people are recruited for the wrong reasons and then they are given no help. Training in line management is non-existent, and good role models are few and far between. Line management is a subtle art, requiring patience and a variety of approaches to different situations and with different subordinates. Few can progress beyond a standard approach that enables survival but achieves little else.

 

Then delayering comes along and makes all of these problems a lot worse. The required time even for minimal line management was never fully appreciated. I learned this in reverse when my final job at Shell had no subordinates at all. I could not believe how much time this liberated, so much so that I became bored and even lost confidence because I could not accept that I was doing an adequate job without daily pressure.

 

Processes designed for an era of hierarchy were not modified when the structure changed, so line managers became swamped with requirements to remain involved in things subordinates could easily handle. The whole legal and compliance side only becomes tougher and takes a lot of time. A significant fraction of employees seem to be high maintenance types these days, and everybody needs more help and support navigating careers in a less structured environment. Then there is much more turnover than before, especially external turnover, and that places further strains on managers.

 

So we all end up receiving Less Boss and Bad or Unqualified or Uninterested Boss just at the time we need More and Better Boss. At Shell, I was first unlucky, suffering a breakdown largely because I imploded under the strain, but then became lucky as I rebuilt my career on a less ambitious trajectory. I decided to be a good boss first and foremost, and fortuitously ended up in a role with little pressure to do anything else but lots of potential to develop others. In the sea of line management blind mediocrity, being the one-eyed man was within my capability and my reputation flourished and good people flocked to me.

 

Bartleby’s simple mathematical proof of Less Boss allows me to see some of things we got right in that era, and also point to a more general way forward. Perhaps most important, I delegated, or at least shared, a lot of team building. The team helped to set standards and even led recruitment, so we always had momentum and peer pressure. Everybody knew I would be supportive when opportunities came to move on. I actively encouraged people to deal directly with the boss of my boss and with my peers.

 

I am not claiming miraculous foresight here. These moves started as survival strategies and experiments and I was lucky. But I can see now how they are good examples of how to escape Bartleby’s trap of Less Boss. Increasing company-wide delegated authorities would also help. So would a more analytical approach to where delayering can work and where it is doomed, but in terms of jobs and of people.

 

Thank you Bartleby, that business book I will probably never write has acquired another neat analytical lens, and perhaps even a catchy title.    

Supply Chains before our very Eyes

 When I first came to New York, a period coinciding with being time rich for the first time in my life, I drifted into a pleasant morning routine. On days when I needed to shop for groceries I would arrive soon after the store opened, to marvel at how short the lines were and how quickly I could complete my chore. Even now I pity the poor souls obliged to shop at these establishments at weekends, when the line can snake half way around the store.

 

There was a bit of a contradiction in having completed the chore quickly and efficiently, because in my new life I had no particular need to have done that, since the rest of a lazy day loomed ahead. So I would reward myself by visiting Panera bread for a relaxed café latte and a bagel. Over time, I continued my habit of rapid early shopping, but usually dispensed with Panera, mainly because I linked my consumption there with my expanding waistline. First the bagel had to go, and then I resolved to drink but one coffee per day, and, once our home espresso machine became as good as Panera’s, I reverted to drinking it at home.

 

There are two Paneras near me, one situated above Costco and the other close to Trader Joe’s. I became used to observing my surroundings. I concluded that both branches were well managed, with happy and efficient staff. From my years of experience working with petrol stations, I knew the signs to look for, and both Paneras scored high marks. They each had their distinctive morning clientele, and they were well set up to serve them, knowing the products to have in stock and the number of staff to have on hand to avoid long wait times.

 

This changed suddenly with the onset of the pandemic. I recall visiting a different Panera on Long Island early on, and wondering if nuclear Armageddon had arrived such was the atmosphere in the deserted café. Panera is exactly the sort of establishment that people cut completely from their routine, never being necessary and being rather heavy in human contact. The cafés stayed open, to their credit, but must have lost a lot of money for franchisees and the host brand.

 

Last week I found myself in Panera once again. My new habit has been to shop during the special senior early opening hours that both Costco and Trader Joe’s started, now with the added benefit that avoiding crowds might save me from a deadly disease. But, reasonably enough, as things are returning to normal, both chains are gradually eliminating this perk for seniors. I can only imagine that in 2020 the local budgets were so completely shot to pieces that some extra costs seemed to make little difference, but now as 2021 progresses budgetary pressures make sense once again.

 

So I was caught out, arriving at Costco soon after nine to find the place closed and finding I had an hour to fill. I did not have my newspaper with me, but, even so, a nostalgic visit to Panera beckoned invitingly.

 

But what a sad experience was awaiting me! The tables, closed off during most of the pandemic, lay open and inviting, but in the end I no need to regret leaving my newspaper at home because I never made it into the sanctuary of the table area. Instead, life became clogged up in the service area.

 

Queuing to order in Panera has become progressively more annoying over the years as the chain has sought to enter the digital age. Before there was a single line of people placing orders, so a good manager ensured enough staff and the wait was predictable. Then they introduced computer screens for some to place orders, which seemed to increase waiting times for traditional folk like me. But then they introduced an app so people could order remotely and, worse, those orders seemed to take priority over we luddites. So now we wait longer to order and have to wait even longer for our order to be prepared.

 

I could accept that before the pandemic, but not last week. I reached the front of the ordering line quickly enough, but could already see computer screen listing six or eight orders as under preparation. I ordered my latte and found a quiet part of the collection area, expecting a long wait. But clearly the servers were unable to process orders as quickly as they were arriving, no doubt many from the dreaded app, and the list of orders under preparation grew longer and longer. I did finally reach the top of the list, but by then I counted sixteen items beneath mine.

 

Through the pandemic I have found that most people find it relatively easy to remember to keep apart from each other. However, I have noticed two exceptions. When people are drunk or angry all concepts of social distancing are forgotten. I am not pointing fingers here – I am as guilty as anybody else.

 

The waiting area in Panera proved an instructive example. As the number of people waiting for their order increased, it became harder to stay apart. But we would have managed, except for the fact that many of the people were getting angry at the long wait. They pushed to the front, regardless of who else might be there, and started remonstrating with the poor servers, serving only to confuse and delay things further. Once I finally had my latte in hand, I departed the store as quickly as possible and drunk it after joining the growing line downstairs waiting for Costco to open.

 

Those minutes in line allowed me to think about what I had just experienced, and I found it a microcosm of the difficulties facing the world economy just now. We hear on the news about supply chain issues bedevilling many sectors, but sometimes it is not easy to bring these down to an understandable level.

 

The key concept is predictability. Twenty years ago I was presented a computer system that was to be linked to all the larger Shell shops in the world and could be used to manage inventory and staffing. By using the past as a guide for strong confidence intervals for the future, the system would drive out costs. I am delighted we did not buy it at the time because the technology was not mature enough, but now this is how most retail businesses function, including Panera.

 

By the pandemic threw it all into chaos. The algorithm kept guessing how many people like me would show up at which hours on Wednesday mornings and what sort of products they would buy, but suddenly the guesses became so poor as to be useless. Inventory piled up before recovering too slowly once customers started returning. Staffing models led to surpluses then shortages.

 

I expect my two franchisees will have lost a lot of money, unless Panera bailed them out. Probably they surrendered their agreements and Panera found it hard to recruit replacements, perhaps falling back on existing franchisees taking on extra outlets and appointing managers. These people did not have the skills, training or motivation, just at the moment when smart overriding of the algorithms became vital. Everything fell apart. I witnessed the result during my sad visit.

 

Even when the need for extra staff will have been correctly analysed, fewer people wanted to work in a customer-facing environment doing hours that conflicted with childcare needs. Maybe some no longer needed extra hustles while federal money was swelling their bank accounts, and others had left New York completely to save rent by staying upstate with their parents.

 

So the result was plain to witness, even in a relatively simple business like a branch of Panera. Now multiply that by hundreds or thousands or even millions, add in complexities like shipping and international duties (not to mention Brexit, you poor Brits), and, rather than being bemused at how things are collapsing, instead we should marvel that anything is functioning at all.

 

Old-fashioned sorts will hark back to days before predictive algorithms. I find it more comforting to be impressed by what those algorithms can achieve nowadays in normal times, and continuing to hope that those normal times might resume. Heck, then I might even reinstate my luxurious morning routines.