The Grumpy Ones

Thanks to the by-lines in the sister magazine 1843 (which I am coming to like more and more), I now know The Economist’s current Schumpeter columnist as Adrian Wooldridge. In 1843, he writes a humorous end piece, chronicling various misfortunes. In this, and each week in Schumpeter, he gives us a strong glimpse into his peculiar personality. He could only be British, with a combination of self-deprecation, humour and cynicism, all traits that I share and admire.

A classic Wooldridge piece was his Schumpeter column of a couple of weeks ago, Against Happiness. I am sure he suggested the delightful title himself. In the article, he derides companies who seem to rate happiness as a goal or metric as much as they do profit, and especially tries to defend his personal right to be grumpy. I get accused of being grumpy every so often too, especially when annoyed by our cats, and I confess to something of a fondness for the state. A hero of mine used to be Victor Meldrew from the TV show One Foot in the Grave, an aging man who is permanently grumpy.

Wooldridge always hits the mark, and loves to destroy fashionable theories. But on this occasion I find his article a little lazy and scattergun, almost a grumpy tirade.

First, he takes on retailers who try to employ staff with engaging personalities. Now, what could be wrong with that? Customer interaction is at the heart of retailing, and we all feel better and buy more when it goes well. Only yesterday, I sat in Central Park in the sun and had (English Breakfast) tea at a delightful café with chatty, attentive staff. I tipped well (not a regular habit) and will visit again. Most visits to the DMV convey opposite experiences. And just see how you feel after buying coffee at a Dutch café.

Wooldridge has lived in the US for some time, and I suspect part of his problem is with the “have a nice day” culture here. I was also cynical at first, but I’ve come to believe that the sentiment is usually authentic – most people here are optimists and really do want me to have a nice day, irrespective of whether a prospective tip is part of the equation. I love it, though I know I could never emulate it.

Retailers have every right to focus on staff engagement, and to recruit accordingly. Mystery shoppers are fair game. So long as staff are not bullied or humiliated or asked to behave inappropriately, it is reasonable to demand courtesy and even pleasantness. Smart companies also give staff leeway as to how they implement good service.

Wooldridge than turns to other companies and a growing industry of happiness consultants and happiness KPI’s. Gimmicky or not, why should Google not have a “Jolly Good Fellow” on its books if it wants to and if it believes competitive advantage will result? Why shouldn’t smart consultants try to make a bit of money by advocating models, courses, KPI’s and all the rest of it? As Wooldridge acknowledges, staff engagement truly is a strong predictor of performance. Many other important indicators are hard to measure (innovation?), but that doesn’t mean we should not try. Further, surely we should laud countries like Bhutan (and, fleetingly, the UK) for identifying that having happy citizens might be a more laudable goal than things like GDP?

Why Wooldridge is on stronger ground is in his forensically cynical challenges of current practices to achieve happiness in firms. Google’s Jolly Good Fellow is seemingly pursuing other career opportunities just now. A lot of the models so far are pretty shallow.

But a root cause for this could be that seeking staff happiness is an afterthought or an activity of a single division. Firms only made progress on things like safety or diversity once they became expected priorities of everyone, and staff contentment may be the same. I can Wooldridge being one of those cynics trying to park the topic in HR. He partly gets it when he says that wishy-washy goals will be less effective than concrete steps, such as reducing annoyances like e-mails or meetings.

OK, so e-mails and meetings annoy him. But what about everyone else – what annoys them? If leaders care, they have a strange way of showing it. Many companies run annual staff engagement surveys. But these have become tick box exercises, designed more to salve the leaders’ consciences than to effect lasting change. Most surveys nowadays contain a question: “Has anything happened as a result of last year’s survey”? The typical results don’t throw leaders into a good light – nor indeed the surveys themselves.

I am associated with a company called Synthetron, which has found a better way. Synthetron sessions are online, anonymous, real-time dialogues of invited groups, moderated via a script. Participants are given time to think, air real concerns, build from each others’ ideas, and even to seek solutions. The dialogues are invariably revealing and point to practical ways forward, often local to business units.

Yes, these discussions complain of leadership gimmicks, and also moan about e-mails and meetings. But usually they unearth deeper root causes, such as inconsistent or disrespectful behaviour by leaders, incompetent or lazy line management, and poor communication and recognition.

Correcting such failings requires concerted efforts, and Jolly Good Fellows will not help much. But we find that if leadership teams really care deeply about the motivation of their staff, they find ways to improve engagement, and better performance follows.

Wooldridge reveals his real gripe at the end of his article, when he states that the cult of happiness is an unacceptable invasion of individual liberty. Wow. Perhaps he has received some feedback about his own grumpy attitude.

I used to receive such feedback at work (and still receive it at home), and I too resented it. But when I was able to step back, I came to see such feedback as justified and valuable, for many reasons.

During my career, I learned that I could really influence a group at a meeting or workshop. A combination of experience, intelligence, networking, courage and oratory could have people hanging on my every word. I guess the same factors in the end led to my success as an internal blogger. I loved this power, it really fed my ego, but eventually I abused it.

I would prioritise being right and winning the debate against the interests of the group. I would make being grumpy an art form. I would take pleasure in destroying arguments. In the end this became a limiting factor in my career, because I could not resist humiliating my boss and even their boss. Of course, this added to the legend of street credibility, but revenge was wrought – and quite rightly.

Being an effective corporate citizen is part of our job description, just like having a winning smile and an engaging manner is a fair expectation of customer facing staff. I forgot this, preferring grumpiness and power and cynicism over what my organisation needed from me, despites all my excuses about intellectual rigour and contributing to diversity. A degree of positivity is as much part of leadership as intelligence and empathy.

I learned this in the end, my career have been stalled in the meantime. I wouldn’t presume to suggest that the brilliant and inspiring Mr. Wooldridge has the same lesson to learn. But, if an organisation pays our wages, it most emphatically is not an invasion of liberty to demand less grumpiness.

Now, I’ll get back to grumpily kicking the cats.                     

1980 and the disastrous change of direction

I have a hypothesis is that we can divide global economic history since 1945 into two roughly equal halves, the period before 1980 and the period following 1980. Further, I claim that the change of direction undertaken around 1980 has been a disaster.

The period since 1945 has seen unparalleled progress for our world, despite what the US election candidates say. Life expectancy has increased, child mortality reduced, education improved, wars reduced, and material wellbeing increased for almost all, with prosperity spread more widely around the globe. It has been an extraordinary and unprecedented period of development, albeit with its resultant challenges such as global warming.

I think much of this progress has largely independent of prevailing economic wisdom. The driving forces have been technological. Medicine, communications and information technology have advanced so quickly that the world has become rapidly smaller, faster and smarter.

This spread of beneficial technology has driven other great trends. Human longevity is a direct consequence, and globalisation is as well. Urbanisation is a natural development from technology and education. Female emancipation and the great respectful social liberal trends come directly from education, which has reduced war, crime and intolerance.

Many liberal economists claim that these positive trends are accelerated by their policies. They have a point. Regimes paying little or no regard to markets tend to fail. Under communism, Russia lagged badly, and China only started moving forwards once strict communism was abandoned. Authoritarian regimes in Arabic countries have led to slower development, despite mineral wealth and some education. But I think the purists take their arguments too far. The Western democracies entered the period with a large lead. China and other states have not fallen further behind. And, while the modern titans such as Google cluster in the ultra-market-led US, that can be attributed to the size of the market and the beneficial starting position. Besides, why are they all in high-tax California rather than low-tax Texas? And how have the socially democratic Nordics done so well?

So, in assessing the relative success of economic orthodoxy since 1945, we need to see the context of this wonderful development everywhere. We also have to be careful not to pay too much heed to singular events. The collapse of communism was one of these, the oil shocks of the 1970’s another, and the emergence of China a third. So every trend line over 70 years is likely to be overlaid with cycles and the impact from unusual events. But 70 years is long enough to look for trends, and for turning points. That is what I have tried to do.

My hypothesis crystallised from an article in Time a couple of months ago plotting the US national debt since 1945. It was striking to me, in that the trend was of slow growth in debt up to 980 then exploding debt growth from then on.

So I’ve looked at other measures to see if I can see something similar, and indeed I can. The US poverty percentage fell from 13% in 1966 to 9,6% in 1978, but then grew again to 14% by 2010. Labour’s share in national income in the US was almost constant around 50% until 1980, but has fallen to 42,5% since. Global GDP growth was typically about 5% until 1970, but 3% since (the 70’s had the oil crises to explain the earlier turning point). Global GINI drifted upwards (less equal) until 1980 at about one percentage point per decade, but at two percentage points since. US GINI changed from almost flat to growing at two and a half percentage points around 1980. The ratio of CEO to typical worker salaries doubled in the 30 years from 1950, but multiplied six fold in the 30 years since.

These are just examples, and each one will have many causes. But everywhere I looked I saw the same thing, an inflection point around 1980 with a worse trend thereafter.

Of course I am biased, but I put most of this down to a rewriting of economic orthodoxy, or more correctly a rewriting of the political portrayal of economic orthodoxy, just after the time I first studied economics. I remember at the time that the theories, dominated by Keynes, were being challenged by new ideas. The first of these was monetarism, something I never really bought into.

We can characterise economics and economic policy from 1945-1980 by the idea of benign government intervention towards development and citizen welfare, including redistribution. Hence there was active demand management via fiscal and monetary policy, and investments in infrastructure, services and welfare, paid for by strongly progressive taxation.

The upsides of this era remain obvious, with simple examples including the interstate network in the US and the NHS in the UK. But demand management proved insufficient to handle some crises. Further, the emphasis on workers’ rights led to strong trade unions, who overplayed their hand, leading to strikes, inflation, and support for uncompetitive industries.

From about 1980, politicians found economists with theories to challenge this paradigm, and the neo-liberal era began. The key stakeholder moved from citizens to a nebulous group called investors, and government spending was to be minimised by any means possible in the name of markets and national competitiveness. To ensure incentives, taxation became markedly less progressive and welfare less generous.

We can see the results. I would argue that the philosophy has failed even by its own declared standards, since growth has slowed rather than grown. While inflation has been tamed, now we have pervasive deflation in its stead, with no remedy forthcoming from the neoliberals. Inequality has ballooned, starter homes have become unaffordable to any without parental support, competition within most industries has atrophied, new jobs are rare indeed and labour mobility has also collapsed, despite all these so-called incentives. Infrastructure and services have been left to wither. Even the finance sector, the main beneficiary of the policies, has proven unstable and is chronically underfunded, requiring assumptions for investment returns that are not sound. We now have the ludicrous situation that demand cannot be revived because the only people left with any disposable income are so rich that they can’t think of anything to spend on!

Meanwhile, the neoliberal agenda has been sold to the general public via a series of misleading arguments. The crisis of the 1970’s and the collapse of communism were used to claim that markets were infallible. The odious concept of trickle down was used to try to justify the greed of those padding their (reduced tax) salaries. Layabouts and migrants were pinpointed as welfare parasites. And wasteful projects were used to decry all government expense, while tax is portrayed as an unjustified affront to liberty and our effort.

To be fair, the shrinking world changed some things. National competitiveness became more important once trade and capital flows became less constrained – generally a good thing. Some rebalancing towards investors would have been necessary in any case, but not the total bowing down to the god of finance that we have seen.

We can speculate as to the motivation of the economists and politicians who led the change. Perhaps some were well meaning. It was true that unions were strangling development and needed to be constrained. But it is also tempting to accuse the greed of the elites, especially the financial elites, for being behind the change. 1945-1979 was rare in history in seeing earned wealth rising faster than inherited or residual wealth. The wealthy have certainly had their revenge.

Now even the Economist has noticed how broken the prevailing orthodoxy is, and has started advocating for Keynesian fiscal stimulus, especially via investment, for aggressively promoting competition, and also for protecting losers more generously. I don’t yet much appetite for progressive taxation, though they have quietly advocated land taxes as well as carbon ones. Perhaps one day they will come around to a Tobin tax.

The cause is urgent. The neo-liberal era has failed, and a new era is needed. Bernie Sanders has some answers, so does Thomas Piketty, but the various solutions have not yet coalesced. They must soon, for the people have worked out that they have been sold a bill of goods, and are clamouring for change. If that change does not come from a new economic paradigm, it may come from an older, harsher one, built on Trumpian hate and protectionism. Not much would be worse than neo-liberalism, but that certainly would be.

The Pitfalls of Productivity

Metrics, KPI’s and incentives can be dangerous things. Just ask the CEO and senior leaders of Wells Fargo, who were proud of an incentive scheme rewarding staff for opening new accounts until it landed them in court and in front of a baying senate. Staff had responded to the scheme by opening false accounts en masse, in many cases robbing real customers of their money.

I saw many such pitfalls during my time in business, though none as openly fraudulent as this one. Management rightly tried to use simple, targetable metrics to steer their businesses, a practice that only became more widespread once scorecards and dashboards came into vogue. Sometimes the real target was the leader’s own bonus package, but more often than not I witnessed a genuine attempt to improve a complex business.

But the attempt backfired almost as often as it succeeded. A common example is the trade off between volume and margin. Sales people love volume targets and respond well to incentives on volume, but the risk is that they chase down prices in their zeal or target customers of low value. In the short term, margin incentives can make more sense, but not if they result in collusion with competitors or in pulling back from profitable, if marginal, clients. Further, margin is usually more complicated to measure and influence, and sales people value simplicity.

The most dangerous indicators are usually ratios, KPI’s measures as X per Y. A margin target is usually a ratio, something like dollars per litre. An acid test of a good ratio is that it is always beneficial to both increase the numerator and to decrease the denominator. In the case of a margin KPI, it will almost always be good to grow the dollars, but often not good to reduce the litres. Further, reducing the litres is the easiest way to shift the indicator in the short term. So such a margin target runs a severe risk of a department follow a “golden litre”, that is shrinking the business down just to the most profitable clients, a sure recipe for a business death spiral.

Shell and others tried to get around the volume/margin dilemma by targeting a concept called contribution. This was sound, and generally successful, but it lacked simplicity and often left sales people confused.

In call centers, a common incentive KPI is time per call. True, dealing with complaints and enquiries quickly is a good general idea, but not at the expense of being thorough. In some cases, employees have been known to put the phone down on customers where the call showed signs of dragging on.

In Shell retail, another example of a ratio metric was called efficiency index, defined as sales volume per station compared with the market average. This had the same downside, namely that while growing volume is certainly good, reducing station numbers can be easier and unhelpful to the business. What if those stations still made a good contribution, and had low capital and costs to serve, low risks and low effort intensity? That was usually the case with dealer owned stations. I preferred a metric of company owned efficiency index, once again with the downside of loss of simplicity. I guess the moral is that business can be complex.

And if business is complex, so is macroeconomics. Central banks and governments face the same pitfalls in trying to find and influence levers to improve performance. And most politicians make the CEO of Wells Fargo seem honest. Maggie Thatcher relentlessly tinkered with definitions to try to obscure the scale of unemployment her policies caused. The Kirchner’s in Argentina gutted their statistics. We can trust very little data coming out of China, and the investors know it, but fear shouting out for the same reasons they pretended all was well with sub-prime mortgages eight years ago – their own golden eggs depend on the deception.

Even honest Economists have difficulties, one notable one being that times change. Forty years ago policy was all about avoiding devaluation, then it became a helpful tool, only we didn’t see how helpful until the Euro zone discarded it. Much of the current weaponry was designed to control inflation, but now we realise that we need more of it not less.

There is a faction trying to redefine GDP, or at least to replace the current definition of GDP in many key indicators. Partly this is because GDP itself has become slightly out-dated, because it doesn’t really reflect things that have low manufacturing component or are almost free like internet access or Airbnb bookings.

One thing we can still do is to choose to use GDP total or GDP per capita. Businesses like GDP total, because that drives activity and demand for them. But for wellbeing of citizens, GDP per capita matters more. Japanese GDP is declining, but mainly because the population is shrinking. That carries challenges, but one of those is not immediate poverty, since GDP per capita is still rising.

An indicator that seems to have survived the test of time is productivity, defined as some measure output per a chosen unit of input, usually labour hour.

 I first studied Economics in the 1970’s, and at the time UK labour productivity was suffering compared with that of Germany and others. Pundits had easy explanations. British workers were lazy, and usually on strike. British managers lacked drive. Germany benefited from having lost the war, because it meant its infrastructure could be replaced.

Even back then, it was possible to see the problem with the indicator. Higher productivity was generally good, but which of these explanations was most likely to be right, or was it a combination or something else? And what exactly could policymakers do to improve things? In practice, the politicians chose their own causes and remedies – so for example the right demonised trade unions.

Since then bigger problems with the indicator have emerged. It seems difficult to predict and sometimes moves in surprising ways. But worse than that, it suffers from the classic problem with ratios – increasing the numerator is good, but reducing the denominator is not unless there is full employment, which there rarely is nowadays. Indeed, much government policy is designed to create jobs, irrespective of any output generated.

So we have an indicator that has lost its lustre. The numerator seems poorly measured, due to the trend away from manufacturing. The denominator is not something governments want to reduce. And the metric is not intuitive or simple or even particularly actionable.

So why do we still measure it? I suppose there is some potential merit to trying to improve output per unit of input, if only the output could be measured and the input was somehow constrained. I’ve read many explanations for its trend, but not my own pet theory, which is that it measures the sort of portfolio of work an economy specialises in. Policy in the UK, and increasingly the US, drives more people into low wage service jobs. As this constitutes a greater share of the mix, productivity goes down. But so what?

Productivity fails so many tests of a good indicator. Perhaps the only reason it is still popular is to support a pet theory of a politician or partisan economist, such as enabling union bashing or lobbying for infrastructure investment. It is time to consign this indicator to the dustbin.           

9-11, Anthem Protests and Prodigal Sons

This past Sunday was the fifteenth anniversary of the attacks on New York’s twin towers, the Pentagon, and (failed) congress. This is always a poignant day in the US, and a chance to remember the victims and much more besides.

What has been great about how the 9/11 legacy has developed is that it has become a day of service. Volunteers everywhere choose that date to do something to help others. I’m not really sure how or even why that started – perhaps it came out of some linkage of first responders to service, or maybe simply a wish to do something on the day. But it has become a good tradition, and many Americans show themselves at their generous best each time to anniversary comes around.

The other side of it is less good, as the nation uses 9/11 to glorify the military and its global dominance and talks of enemies and revenge. This year the anniversary came on the first day of the NFL season, unfortunately, and the games were surrounded by patriotism dressed up in flags, military uniforms and implicit threats to imagined enemies. The NFL does some of this even on normal days, selling itself somehow as a militarily patriotic institution.

I sort of don’t mind this aggressive patriotism, it passes over my head, but I do get angry when in the same breath the commentators refer to teams as world champions and games as world finals. This is having it both ways – Americans can portray the NFL as a global game (somehow) and display it for a global audience, or as a domestic game with domestic symbolism, but not both at the same time.

The excuse for the world champion description is that Baseball’s playoff finals were originally sponsored by a newspaper called the World, who labeled it World Series. The name outlasted the sponsorship, and has lazily drifted to a completely different meaning and to other sports. At least in major league Baseball there is one Canadian team playing – the NFL cannot even boast that.

At any US sporting event, there is likely to be a national anthem sung, or another patriotic song such as God Bless America, often woefully. Crowds generally spontaneously stand and remove headgear, which I suppose is impressive. And I can’t complain too much, they still play God Save the Queen in some British theatres before performances.

So it is an interesting choice by Colin Kaepernick, a fading NFL player, to start a new type of protest by ostentatiously sitting or kneeling during the national anthem. His protest is against unequal treatment of people of colour, which he says debases what the anthem stands for. The protest has spread, though so far not out of control, with some other players copying him or raising a clenched fist instead.

The protest has caused confusion among pundits, which has potentially created the desired effect of highlighting the cause. Many find it unpatriotic and disrespectful of the military, especially on a day such as 9/11, but most respect the right to protest, sneakily suggesting that it is not a good choice of method, or that he would be better served to seek solutions rather than merely complain. But great social changes have not generally come about by politely complaining. It will be interesting to see how this develops, and it might yet play a role in the upcoming elections.

For me, the other noteworthy juxtaposition on this 9/11 was the fact that it came on a Sunday, one where the Christian Gospel included the parable of the Prodigal Son. On a day when more Americans than usual will have attended Church, this will have posed challenges and opportunities to preachers throughout the land.

The Prodigal Son is a great parable, and also one amenable to many different interpretations and messages. The basic meaning is clear, that God’s mercy is infinite, and it is never too late to repent. But beyond that things are less clear. Do are we really like the father in the story, or indeed the like the other characters featured in the Gospel, a widow finding a lost coin or a shepherd leaving his flock to search after a stray sheep? If so, is that only a good thing? What about the elder son, who resents the special treatment of his brother, having toiled without blemish himself? Why might the second son have behaved so badly? And with whom should we identify and learn, the father or either of the sons?

It is rich material. I regretted going to our own local Catholic Church and not to the Episcopal St. Bart’s in Manhattan, which organised a special 9/11 service and where the preachers are invariably courageous. Our priest did highlight the elder son, but claimed that most of us would not act as the protagonist did with sheep and coins and forgiveness of errant offspring. I am not so sure, I think most of us do focus on fixing a problem at the expense of protecting a strong point, because our nature makes us and because the pleasure of turning situations around is so great. Our priest linked the exceptional mercy of God to the pain of those still suffering after 9/11, concluding that there was always hope.

I expect at St. Bart’s they were braver, and I wonder about how many other preachers were too. The key character is the elder son. While I have many times behaved like the prodigal son and been painfully aware of it, and sometimes behaved like the father for good or bad reasons, I have nearly always behaved like the elder son, often unawares. I guess most of us are the same.

It is significant that it is the elder son that loyally does his duty but resents his lack of adequate recognition and the special treatment of his errant brother. In traditional societies, even today, the elder son is the privileged one. He inherits most of the land, gets the best schooling, has first choice of wife and is generally well looked after. I am an elder son. Our risk is that we somehow treat these privileges as expectations, or even start to feel that somehow we have earned them, and have to defend them. Then we can sit on our high horses and judge others. Instead we should be counting our blessings, seeking to serve and share, and looking to improve.

The elder son can be analogous to anyone born to advantage. That’s most of us, folks! It is anyone white, or male, or straight, or born to a stable family or a family of adequate means, or of a beneficial nationality, or living in a time of relative peace. How often do we count those blessings, seek to serve and share, and look to improve? How often do we instead become defensive and judgemental of others? Listening to the US election campaign, I’d say too often – Clinton supporters as well as Trumps, especially if we were not repelled by her recent condemnation of his supporters as deplorable. Our reactions to Colin Kaepernick might betray something similar. As Europeans, our treatment of the migrant crisis certainly does.

On 9/11, the bravest might take the analogy one step further. Of course it is a time to mourn the dead and laud the first responders, and perhaps it is a step too far to forgive the perpetrators. But, as a nation, the US reacted to 9/11 in the role of the elder son, defending unearned privileges and exacting brutal revenge towards innocent people. There has been precious little evidence of counting blessings, seeking to serve and share globally, or looking to improve.

9/11 offered a chance to take a growing perspective as well as a mourning one. In his way, Colin Kaepernick and his cohorts nudged us in that direction. The Gospel of the day, if we cared to reflect deeply enough, screamed at us to take the wider perspective. I can only hope that a few brave preachers took the chance to help their congregants to do so.