Strategy Op. Ed.

Eliot Spitzer ... and Bill Clinton

Your corner drugstore psychologist will happily remind us that Eliot Spitzer actually wanted to get caught. The cliché goes like this: “Spitzer prosecuted evil with ardour precisely because he yearned for it himself… And so he sought out in prostitutes both pleasure and punishment, and begged to be 'uncovered' and no longer be burdened with living his sordid, exciting, life-giving, career-marriage-family destroying fantasy all by himself.”

Your corner drugstore psychologist’s best friend will reply with equal earnestness. “I I doubt Mr. Spitzer knew fully the putrescence deep in his psychic pit. For good measure, the bastard trotted his loyal wife onto the podium to share in his public auto-de-fé. Did you see the photo of the two of them. "Christ-all-mighty!"

Now your average man-in-the-street-let’s-see-what-Fox-News-has-to-say-about-this-one has a slightly different view of the matter. For him, “Mr. Spitzer wuzza rich guy who cudnt get none without havun to pay for it."

This simple worldview has the virtue of punchy directness. Average men prefer real men like Bill Clinton. Mr. Clinton is happy to use his wife, or his religion, or plain bald-faced lying if need be, anything that works to “get me out of the jam and on the next ham”. (The phrase isn’t mine; I stole out of some imaginary Jay Leno “Jay-walking” segment. Does this mean we can steal inventions that we create for other personages in the name of our vicarious other selves?)

In my imaginary and imagined understanding of men’s understanding of other men, Mr. Clinton is the average guy’s ideal real guy: not much to look at, but plenty of street smarts and randy as all get out, pursuing his joys and desires on the margin of the politically and publically unacceptable but privately desired behaviours that confirm a man’s manhood.

Back in the real world, Mr. Spitzer sold himself as a public moralist, a crusader against financial crimes and sex trafficking. New Yorkers were eager to vote for him as we enjoy taking shots at Wall Street bigwigs and organized crime figures, who in the Fox News and Hollywood version of men and power always get played by the same actors with the same accents.

Now, of course, everyone who is anyone will tell you they always knew that Spitzer was a repressed prig spoiled rich kid snot nose and that they are not surprised by what happened. But in the meantime, the average guy just thinks he was a dumb schmuck and deserves to rot in hell. In the United States there are ways for men like Mr. Spitzer to pursue a fair share of their joys and desires, just ask Bill Clinton.

Or we can ask Mr. Spitzer … in a couple of years. For in America there is always a second act. After the usual therapy at an undisclosed location, after Mr. Spitzer “recovers” his self-esteem, he will write The Book about what happened, how he fell, how he recuperated, how he won (did not win) back his wife, about his wonderful new and honest and profound relationship with his daughters. And he will tell us how his heart aches for the young women victimized by prostitution, how he will work tirelessly against sexual trafficking, and he will once again expand his chest in pride at his admirable goodness, his strength of character, his ability to overcome obstacles He will be the new “comeback kid”.

Perhaps he will even pay a visit to that other comeback kid, now back in the White House roaming the halls his soul unzipped whispering "Where are you, Hillary? Where are you?"

Why PP loses today; Spain's real challenges

Politicians and an election campaign is the stuff Petrie dishes were invented for. Like diligent laboratory slogs, we heartless strategists zoom in on the colors of failure. Today, our subject is Spain's Partido Popular destined to lose handily today's Presidential election despite running against an ineffective Rodríguez Zapatero government.

Rodrígeuz Zapatero and the ruling PSOE was vulnerable for: 1) running a zigzag economic policy that now simply looks ridiculous as the economy tanks; 2) inventing an incoherent immigration policy that is coming part with rising unemployment; 3) demonstrating that it was thoroughly informed and confused in its failed negotiations with ETA, culminating in a terrorist attack just days before the elections; 4) nuzzling up to Chavez and Castro and getting dumped on by Merkel and Zarkozy; etc., etc. During four years, PSOE proposed and undid policy after policy, passed into law programs it could not fund, and in general demostrated a level of incompetenence that ought to send a ruling party into exile.

And yet, PP's candidate, Mariano Rajoy, was incapable of making inroads on a single issue. On the economy he had no real proposals despite growing inflation and unemployment. On the negotiations with ETA, PP whined and protested to the point that it seemed that they were undermining a government when the government was screwing up all on its own.

PP did an ever worse job with regional national demands. For decades, PP has presented a vision of Spain as a social club for Spanish speakers. This was always a bad strategy. Which leads to a good question: Why would PP pursue a losing strategy year after year?

A story might help to provide an answer. Three and a half years ago, not long after PP lost the last elections by making a mess of its response to the horrifying terrorist attack of March 11th, I taught a strategy class to members of Spain National and Madrid Autonomous Community Parliaments. It gave me a chance to challenge the strategy skills of politicians from PP, PSOE and Izquierda Unida.

During one class break, I suggested to several PP class participants that they propose an education bill offering parents the opportunity to send their kids to school in any of the four national languages anywhere in Spain. I told them to put on their strategists' hats and ask themselves, "How many parents will sign up their kids for the Madrid Ikastola?" I said, "Do what I say and you will look like the avatars of tolerance while you fight back against the nationalists." I said, "This is a no-brainer for you guys."

My idea was rejected out of hand. And so the idea sat dormant until this election season when PSOE, smelling an opportunity, came forward in Andalucia with their own language proposal. As befits PSOE, the plan was a mess, with the utopian goal of trilingual Andalusians conversing in Spanish, English and `pidgin Catalan without spending money to do it. PP, of course, rejected the idea as "insane".

But this seemed to open up saner minds, so that in the last minute of the campaign, the President of the Autonomous Community of Madrid, Esperanza Aguirre, figured this out and offered Catalan schooling in Madrid. Way too little, and way too late. PP had already secured its rightful place with the electorate as the anti-Basque and anti-Catalan party.

[I might add here that Aguirre was the only candidate PP could have fielded with a chance to defeat Rodríguez Zapatero.]

In large part, PP will lose this election due to its failed strategy for managing regional nationalism. PP should have realized that following the devolution of power to the local autonomous governments, the only real issue left is language. This was, of course, always the most emotionally charged issue. Culture, as we know, is rooted in language and religion.

Accordingly, PP loyalists do everything they can to defend the Spanish language. But it does so by fighting against the use of the minority languages and position themselves as the big ugly oppressor. This is as stupid as telling a teenage child to listen to Mom and Dad and not his friends. The right strategy, as we know now, was cooptation via offering the regional nationalists the opportunity to use their languages in the rest of Spain.

PP's strategic inability to reflect and change is evidenced in its other failures as well. On immigration, PP did almost as bad as it has on regional nationalism. Spain's immigration mess was an opportunity PP could not afford to flub, but as they had never come to terms with the failures of the Aznar government, they were stuck defending old failed policies. As a result, they came off as racists, when in fact their proposals were similar, or even less restrictive, than those proposed by many other European governments.

This is not to say that getting the strategy on immigration is easy. PP needed to demonstrate that they had learned from the mistakes made during their eight years in power. The had to make the case that as the first Spanish government to face immigration that had to go up the learning curve ... and it so doing that they had turned a dangerous corner on immigration only to have PSOE then drive the country off the cliff. Instead, once again, just as they had on Iraq and the terrorist attacks of March 11th, PP decided to stand its ground. This was bad strategy.

And so on the economy, on regional nationalism and on immigration, PP shot itself it the foot. But even after getting all this wrong, they might still have won the elections if they had been able to field a solid candidate.

However, Mr. Rajoy is a terrible candidate. He is an  awful public speaker. He mumbles and modulates his voice in a way that makes the trivial important and the important incomprehensible. Numbers seem beyond him; each time he inserts a statistic he stumbles around looking for an idea to which he can connect the number. On occasion, he projects passion and interest, but this is precisely when he most looses connection with his arguments. I have been told that in private Mr. Rajoy is intelligent and warm. Unfortunately, In public, he is clumsy, cloying and needy. If possible, he is an even worse candidate than John Kerry.

After such virulent criticism of Mr. Rajoy, I will be accused of being a Rodríguez Zapatero supporter. This is not true, though I am a social democrat. In this election, we are faced sadly with a choice between an incompetent party in power and an opposition party with outdated ideas, no discernable program, and a bad candidate.

Among Spaniards with an interest in politics, the read on the four years of the Rodríguez Zapatero government is that the best thing that happened was that mostly nothing happened. The standard line is the following: Lame schemes were proposed and then shot down by the Minister of Economy, Pedro Solbes, or when they were passed into law there was no money to fund them.

Unfortunately, benign confusion will no longer do. Rising unemployment and inflation will be accompanied by rising crime and social unrest. We face hard times. Hopefully, the Zapatero Rodríguez government will awaken from its dogmatic slumber and behave like a professional government and not just a bunch of weekend aviation enthusiasts proud of having gotten their model airplane off the ground. We have run into foul weather and need a steady hand.   

Frank Rijkaard, "Self-management", organizational ecology

Ever since I wrote the FC Barcelona case, "FC Barcelona: Changing the Rules of the Game" about the Laporta successful turnaround, I have been fascinated by the hailstorm that accompanies even the smallest shifts in the club's fortune.

This week Head Coach Frank Rijkaard is against the ropes. This is the same Rijkaard who won a Champions' League title and two Spanish league titles. But this year, with Real Madrid ahead of Barcelona in the League standings, Rijkaard has been accused of losing control of the locker room, in particular Ronaldinho, Barcelona's official "galáctico" mega-star.

The accusastions turned to crisis when Edmilson, another of the Barcelona's Brazilian player, a mature solid player but not a star, told a reporter that there were "black sheep" in the lockerroom, and questioned Rijkaard management. Rijkaard, it seems, treats his players as adults and prefers "self-management" to imposition. The result, according to Edmilson, is chaos.

Those who want Rijkaard's head say that his "management style" is not appropriate in a club where Ronaldinho is not playing well and may have personal problems (another of Edmilson's revelations); more importantly, though FC Barcelona is said to have the best team in the world, the Club seems to lack direction on the field at times and there are uncharacteristic defensive lapses. The critics want someone who will put some discipline back. They don't believe that Rijkaard is the man to do it.

Which brings us back to an old problem that we have discussed before, but which I want to give a slightly new take on. There is a wide-spread belief that each Head Coach comes with a simple straight-forward management style and coaching recipe. Accordingly, choosing the Head Coach is contingent on the players and the chemistry in a particular moment. This cross-sectional approach to leadership has lead to firing Head Coaches as soon as they lose a few games. No one seems to care why it is happening, whether the loses are triggered by a couple of injuries, a few bad games, a bit of bad luck, enemies and the press looking for blood and a story or, the unlikely case that the Head Coach is a lousy coach. Given the way coaches rotate from team to team, it hardly appears that qualification and skill are at issue; it seems to be all about contingent fit.

All this assumes that Rijkaard has the cognitive and behavioral flexibility of a hedgehog. The animal grunts and that's that. It is as if the self were a socially constituted fact as unchangeable as the rotation of the earth.

This week with my Doctor in Business Administration strategy seminar, we studied organizational ecology and institutional theory. Together, the two theories tell us that industries are born and die principally because of their inability to adapt to the environment; and individual firms are born to innovate and die because they develop routines and rigidities that are inevitably inadaptive. We can say pretty much the same for individuals, as well.

At the level of the individual, ecological determinism confuses personality traits with behavior. Personality traits are relatively fixed by a certain age, but behavior need not be. New information is taken and processed within the parameters defined by the individual's cognitive limitations, but how the information is later used is dependent on the interaction of that information with the repertoire of behaviors the individual has developed. An individual with a rich set of behaviors may be capable of a wide range of responses to a new situation and new information precise because he or she has identifiable, strong personality traits. The traits are not just a limitation, they also permit us to have a style, a way of doing things, that at least in some people has real breadth, depth, and flexibility. In other words, we are capable of change and of intentional behavior that may vary from previous behaviors.

Tragedy, Greek or Shakespearian or Bushian, is based on a deterministic response driven by a man's (or woman's) character. In the words of Heraclitus, "A man's character is his fate." But character may be large, varied and generous, full of possibilities, or it may be small, monotone and stingy. Greek and Shakespearian tragedy are cautionary tales, reminding us that small, monotone and stingy men and women dominate the species.

Such things are a question of character. Rijkaard prefers to manage players as young persons free to build their own character, and that given freedom to do so, most players will chose responsibility. It is a noble idea, but like all noble ideas it may not work in all situations. In the current circumstances, Rijkaard's preferred management style may not work. We shall see how large a behavioral repertoire Rijkaard has.

But, as always, all does not depend on Rijkaard nor the players. There are others, principally FC Barcelona President Joan Laporta, who can decide Rijkaard's fate even before we get to see what Rijkaard is capable of doing. As a strategist, my interest is in seeing Rijkaard play this out.

Movies, writers on strike, world labor markets

Variety, the daily entertainment journal, has as it lead story for today, "Will producers turn to U.K. writers?". With the Writers Guild of America on strike and t.v. production slogging to a close (this is the kind of infelicitious phrase Variety writers love), producers in Hollywood are about to remind us that Karl Marx was on to something when he said "workers of the world unite".

But hold on, before Hollywood goes hiring Brits there is a Writers Guild of Great Britain to think about. What does the WGGB have to say? Variety reports: "We are contacting the major U.K. broadcasters and producers, and the U.K. Film Council, asking them not to dump U.K. material into the U.S. market and not to dress up American projects to look as though they are British," said general secretary Bernie Corbett. "Strike-breaking would at best be a short-term payday but would have a devastating long-term effect on a writer's U.S. career."

Sounds easy enough. Respect the rules, and the writers will win the day. Well not so fast. Sony, Universal, etc. have production subsidiaries in England, and their productions are non-WGA, even though the projects may be written by British members of the U.S. WGA. This, and a dozen other loopholes in union contracts mean that projects can go ahead in London and other parts of the world.

We ought not to be surprised about messy rules. The World Trade Organization's "Doha Round" trade talks are entering into its 7th year of futility, mostly because buying and selling of intellectual property is not like trading soy beans. If we can't figure out patent protection for pharmaceuticals, what makes anyone think we can figure out movie and television production?

Does this mean that we are all going to be watching movies and television shows written by witty Brits?

'Fraid not, mate. While the WGA strike may turn out to be the opportunity some British fellow has been waiting for years, frankly I am not too worried for the WGA. Few of the Brit blokes have the slightest chance of even writing for the U.S. version of the British hit "Office". The calculus is not difficult. You can sell "Made in China" rag dolls, but topical t.v. comedy, like town politics, needs to be made locally, even if later on its sells globablly. "The Office", which shut down production this week in the U.S. will stay shut down unless the "scabs" the studios find over in London are some very talented American expatriates.

Thought we can expect to find a few more big budget movies produced via G.B. and other global film centers, the biggest employer of writers, television, can not go abroad. In Hollywood and New York, they are stuck with the American idiom. Our language was invented on the other side of the Atlantic, but the buck long ago washed onto the New England shores and made its road-movie journey out to L.A.

The drama on the Hollywood studio lots may go on for some time yet, providing fun and anecdotes -- stories of Teamsters, the famous out at 5 am on picket lines, and so on. And in the mayhem, Hollywood will lose several hundred million before the town's social structure is back in place.

But this little psycho-drama is nothing compared to what is coming from across two oceans to L.A.'s west. Within a decade, we can expect Bollywood to compete in the mega-project Blockbuster market. Bollywood may even start buying Hollywood stars. Just imagine. Tom Cruise gets dumped by Sumner Redstone, and instead of killing his resuscitated United Artists by making serious movies, he goes off to India to find enlightenment.

Why Corporate Boards Are Mostly Useless

Now that Merrill Lynch is in trouble, having written down $8bn plus and fired President E. Stanley O'Neal at a cost of $150 million more, questions are being asked about what the Board should have known and done.

The easy, and right, answer is: Not much. No one outside the daily operations of a complex firm actually knows what's going on unless he or she has spies on the inside. This, of course, would be great fun for the spies and the Board member, but a disaster for the company.

What's a mere Board member to do? In an era of imperial CEOs who get paid a king's ransom (never has this term been more apt), a Board member is closer to a court hanger-on than a Metternich or Rasputin.

Try to imagine as Merrill Lynch was having its great run one of its Board members starting a ruckus about risk, about sub-prime loans and the ethically questionable tactics used to sell such loans. This astute Board member would have had to go up against a CEO with piles and piles of data determined to show that he was right and the Board member simply a well-intentioned bumpkin. We can even imagine the CEO in a moment of false modesty offering to resign if the Board voted against him, taking his $150 million in exit fees with him.

I have, personally, watched two Boards self-destruct as they fought over the company's strategy and drove the CEO first nuts and, then, out of the company. In both cases, the Board successfully demonstrated that its greatest power is to destroy value and tear a company apart.

I have also seen Boards in which there is debate, though the conclusion is nearly always pre-ordaiined. When I was but 21 years old and personal assistant to a CEO, he taught me how a CEO sets up a Board meeting, gets his people "on board", and assures that his agenda is the company's agenda.

In sum, a CEO who has the Board behind him has no guarantee of success, but a CEO with a divided Board sabotaging him has no chance of success. When a Board appoints a CEO it ought to be because it trusts him: In the best of all possible worlds, the Board may advise and find that from time to time its advice is accepted. The Board can never lead. This every serious writer on management, starting with Chester Barnard, has known. I am afraid that in most companies the Board has two standard activities. Firstly, the "Independent" Board members run the compensation committee and help legitimate the outrageous salaries CEOs get. Secondly, the Board scrutinzes the firm's charitable foundation. Boards, it would seem, don't do very much.

And yet, Boards are indepensible. In a case like Merrill Lynch, the Board's responsibility is to fire the CEO when things go bad and hire a new one. That is it. Of course, then the Board members could take the next big step. If they truly believed in the role of Boards they would resign, shamed to have been part of such a humongous failure. Of course, the Board of Merrill Lynch did not resign, confirming to themselves and to the rest of the world that they had nothing to do with what happened and that the Merill Lynch Board, like most Boards, was mostly, most of the time, useless.

Plug for Alumni Association Annual Conference

Dear Readers,

I happy to say that a fair number of this blog's readers are Instituto de Empresa. With that in mind, I wanted to plug the IE''s Alumni Association Annual Conference "Managing a Changing Planet" It's a great program at the right time.

Hope to see you there.

Best,

David

Sarkozy's American Strategy: Why France and the U.S. Need Each Other

Once upon a time, France was the most-populous, most-envied nation in Europe; once upon a time my U.S. passport was in English and French. But alas, France never quite got to be Europe's most powerful nation. Napoleon almost got there, but his adventure bumped up against the Russians and that was it.

Like the Spanish and British, the French aspired to be Empire builders. Alas, as colonizers, they sold America for a bowl of porridge and got stuck making a mess of themselves and Africa (see Tavernier's magnificient "Coup de Torchon"); they did slightly better in French Indochina before ceremoniously dumping the whole thing on the remarkably foolish Americans who apparently had learned nothing from Korea.

Today, post-colonial France is a country that tries to play itself as friend to both Muslims and Jews, selling arms and doing what they can to make money in the oil business. (By the way, the Spanish are pretty good at the bait and switch game as well, though they try to focus on South America and sucking money out of South American socialists. The English and Germans do their part as well, all of whom, up to now, have depended on the United States to keep the business going and the Euro in the clouds.

France, Germany and Great Britain would all be happy to run the world, and I have no problem with any of the European democracies individually, or as a group, taking over from the U.S. as the world's superpower so long as that means we don't have to put up with a world run by the Chinese or the Russians. My reason is simple: in democracies the people still have some chance, however remote, of reigning in the stupidity of their leaders. And frankly, if I had to pick a European nation to be the boss, I would take the French, whose food, wine and movies we need to make the world a bearable place to live in. (I will spare you my possible objections to the British and the Germans; the Spaniards and the Italians are not in the running.)

However, as we know none of the European nations, individually, are in a position to run the world, and so we are left with two reasonable choices in sorting out power on planet Earth: 1) Accept the Americans as the Big Enchalada with the usual British, French and German support; or 2) Go back to a balance of power scheme. (Forget about an option 3, a UN utopia with no world superpowers, it ain't gonna happen.)

Option 1 we are all familiar with and understand the pluses and minuses. Option 2 means two or more countries or blocks of countries struggling for economic (and perhaps military) supremacy. Option 2 is a real possibility given how the Americans have screwed things up. Unfortunately Option 2 brings with it many uncertainties, most of them pretty bad as the Chinese arm themselves, the Japanese rearm, and the Iranians actively seeking to become the Muslim world leader.

And so, as the world power structure threatens to come undone, Western Europe finds itself in a bizarre tightrope walk between the EU crashing into pieces and consolidating its status as an economic power that depends on U.S. military power. There is, unfortunately, no real chance of putting together a European military and foreign policy, which means that the Europeans need the Americans.

Sarkozy, the immigrant pragmatist instinctively understands this and has decided to go all out for Option 1 with a reinvigorated role for France as America's interlocuter. Sarkozy, even in 2,000 Euro suits, even with 2 very French wives plus affairs, is still the pushy immigrant, a street fighter who sees things in black and white, and has decided to gamble on the Americans, not because he really believes that they will win, but because the alternative is so bad.

Sarkozy has stuck his neck out. He will need a post-Bush administration that understands that without contintental Europe, in particular France, the United States has no chance of engaging the world diplomatically and will have to rely on an over-extended military guided by an incompetent administration to fight against Chinese domination. Retired Lt. General Ricardo Sanchez's condemnation of the management of Iraq War is just the latest in a seemingly endless outpouring of regret over how we have debilitated ourselves in a terrible "nightmare". We need time to recover and Sarkozy wants to help us get it.

Sarkozy wants to bring France back to the world stage, but he needs a strong U.S. to do it. This is self-interest in its best guise. I am afraid, however, that the next American President won't appreciate what Sarkozy is offering to us and will do something stupid that will oblige Sarkozy to renounce his American strategy.

It is a shame that Sarkozy can not run for President of the United States. But even if he were a naturalized citizen, it would be unconstitutional. It is odd that the only two other politicians who have an idea of what needs doing are an Austrian weightlifter and a black guy with a Kenyan father and a name that wouldn't get him elected dog catcher.

My "I Blow My Nose on Ché Guevara" Story

In the late 1970's I wrote a short story, "El Gaucho", in which Ché Guevara appears as a character. He is a long-time friend and accomplice of the main character, who babbles in the romantic, overblown language of a Marxist revolutionary while he spends his time living off the rich and pining after his sister.

I sent the story to The New Yorker, where I got the top of the line rejection letter, signed by Charles McGrath, who wrote that they were quite impressed with the language and authenticity of the story (set in Argentina) but that my "intentions were not clear enough". I supposed that he meant that my narrative intentions were not defined, but it is also possible that it was not clear whether I was praising or condemning Guevara, nor whether I was praising or condemning incest.

As for the authenticity of the story, I had never been in Argentina, the South Buenos Aires that I described was an invention, so I was delighted that I had been able to convey something that I did not know. As for my vision of Ché Guevara, I was quite sure that I shared little with him, but the story was not about Ché Guevara at all ... or so I thought.

The story was meant to be an exploration of the language of revolution and its irreal romanticism that justifies just about anything in the name of revolution -- including incest. In the story, I did not spefically condemn this language nor incest, and an unsuspecting reader might have have assumed that I shared my main character's (and Mr. Guevara's) revolutionary zeal.

Nothing could be further from the facts. I was fascinated by the astonishingly creative abuse of language endemic to totalitarians. To listen to Castro (or Hugo Chávez) for 3, 4, 5, 6 hours is about as close to torture as you can get without being locked up in Guantánomo. My challenge in writing the story was to use that language in a way that explained the real passion that revolutionaries feel despite their horrific poetics.

Mr. McGrath at The New Yorker thought the story was a nice try. And as a young writer, I should have been happy to have a written rejection letter from The New Yorker that also included an invitation to send more.

I never sent more, and eventually published the story in "West Branch", a small literary magazine that is still going. I started a second Ché story when my daughter can home from school one day with a facial tissue that had Ché's famous photo stamped on it. It so happened that trading facial tissues with designs on them had become popular among the girls at school. Most of the tissues were manufactured by a German company, Paper Products Design, under the trademark "Sniff". I was baffled by daughter's decision to trade facial tissues, but respected by daughter's choice.

I was quite impressed as my daughter's collection grew. Every couple of days she would show me her new acquisitions and I would ask the customary polite parental questions. And then the Ché photo showed up on a red facial tissue and had to have it. I offered my daughter a Euro for it, which she gladly took thinking that I was out of my mind and that she would have given me the Ché facial tissue for 50 cents, 25 cents, maybe even for nothing -- a present for Daddy.

... That was a couple of years ago and I still have the Ché facial tissue. I use it in my Entertainment Industry class to talk about how pretty much anything can become a mass entertainment product. I finish up my little Ché class skit by holding up the Ché facial tissue and remarking that I am thinking about writing a short story starring Ché Guevara with the provocative title, "I Blow My Nose on Ché Guevara".

Legal Corruption

There was a 30-year period following World War II in the United States when we made an effort to put our values into practice. It was not just the Marshall Plan or "imposing" democracy in Japan. We did away with segregation laws; we provided housing and education for our veterans; we founded the Peace Corps, the Fulbright Program, the Food Stamp Program. For most Americans life improved, and despite being the most powerful nation in the world, we managed not to be hated. Of course, there were important failures, including McCarthyism and Vietnam and a Latin American foreign policy blind to dictatorship and corruption, but on balance the American Empire was the most gentle in the history of the world.

But since the election of Ronald Reagan, we have been headed in the wrong direction. Not a single American President, Democrat nor Republican, has had a program that would inspire a young person to do anything other than seek wealth. The result has been the institutionalization of legal corruption.

Of course, I realize that the alleged cause-effect relationship claim is almost impossible to prove. How can I demonstrate that the worst part our complex and wonderful national character has been ascendent for more than a quarter-century with disastrous consequences? How do I demonstrate that the self-dependence praised by Thoreau has given way to self-serving with guile, leaving us with little more than self-destructive incompetence?

The best evidence for my argument lies in the layers and layers of legal corruption that we have built into American life for the quater-century. Though the Bush Administration has perfected legal corruption cynically using 9-11 to chisel away at legal protections, they did not begin the process. They are not to blame for the complicity of the Democrats and the American people. We have done as little to stop legal corruption as we have to stop the war in Iraq. Though there are voices constantly telling us what's gone wrong, we seem not to listen and they seem to have no power to change anything.

The Blackwater scandal to illustrates my point. The use of mercenaries was legal, part of a systematic privatization of government. Privatization in itself is not bad, of course. The problem arises only when a decision regarding government policy is reduced to a make or buy decision. Governments are not firms. Only government have a right to send soldiers into battle. Blackwater never should have been in a position to kill Iraqi citizens. The use of mercenaries is anti-democratic. The use of legal mercenaries in a foreign country is a corruption of the system. Yet Blackwater will continue to work in Iraq, and the measures taken to control Blackwater do not fix the problem. Using mercenaries is "un-American".

So did Americans permit the government to use mercenaries? Why are we willing to let life go on as normal in the United States while our soldiers die in battle in a foreign country? Why do we seem not to care about the Iraqis despite President Bush's protests to the contrary?

Perhaps the answers lie in the web of meaning constructed by the conservative movement in the United States that divides the world into have and have-nots, into those with rights and those without. In a divided world of the deserving and the non-deserving, there is always over-determined reasons for doing what the deserving want. This is the basis of legal corruption. It works in China, it works in Putin's Russia, it works in the United States.

It works everywhere; it always has. We invented the democratic social contract to fight this corruption by building a society of laws and not of men. By creating a system that makes it difficult for the bad guys to win.

We know all about this in business. Capitalism was designed to try to overcome some of this behavior. Oliver Williamson, the Berkeley transaction cost economist, describes the behavior of the bad guys as "self-servingwith guile". We expect some individuals to be self-servers and work in their interest and not the shareholders. Corporate goverance is supposed to protect shareholders from these people. But what happens when the self-servers with guile get there hands on the corporate governance? What happens if they get their hands on government and make their self-selving with guile the law of the land?

Blackwater was made possible because of dozens of legal corruptions, large and small. The "small" ones include hedge fund and private equity partners paying capital gains rather income tax on earnings; the automobile industry lobbying against energy standards, pharmaceutical companies paying for FDA studies. These small corruptions cost billions. The truly large corruptions cost thousands of lives. The truly large corruptions include a multi-billion dollar government contracting system riddled with chronyism that buys us private jails and torture. It bought us Blackwater.

... And it was legal. And it is defended as necessary and good by those who benefit day after day.

The underlying "principle" holding together this socio-economic network of self-interest with guile is quite clear: interest group wealth creation is now a legitimate aim. And irony of ironies: our individualistic, meritocratic neo-conservative movement has given us collectivistic self-protection scheme designed to keep the rich rich.

Now you thought that conservatives believed in individualist meritocracy. You were wrong. If they did, they would not struggle so hard against efforts to provide the poor with opportunities to grow up one day and compete with the rich. One of my favorite examples was the Repulbican assault on estate taxes, built around a not-so-clever Frank Luntz campaign to rename the estate tax "The Death Tax". Never mind that Luntz and friends undid a key part of our Rooseveltian social contract: "avoid concentration of wealth and the creation of dynasties."

Political operatives like Karl Rove and Frank Luntz understand that legal corruption is the way to go and that it can be achieved with the consent of the governed. Their strategy is divide and conquer by finding some common ground, no matter how vulgar or cruel, that convinces the losers that they are actually winners. With their help, we have achieved a society divided between haves and have-nots that has convinced itself that the have-nots have exactly what they merit. The self-servers with guile have convinced the have-nots that they too can some day be rich self-servers with guile.

When I was young, I  believed we were committed to building a society that could be based on opportunity and merit. It was about the time that John Rawls' "A Theory of Justice" set out the basic ideas of how to get this done. Hope was in the air and I believed. Why not? We had antibiotics and birth control pills. We had infectious disease under control and sex was good and safe. It was the best of all possible worlds.

Thirty years later, we have AIDS, fundamentalist terrorism and women in full burkas. We have George Bush in the name of The Haves claiming that there's no health care problem in America because The Have-Nots can always go to an emergency room.

I was wrong about the America we were going to have. We do not have a more fair and more just America precisely because we consider the legal rights of privileged interest groups more important than true meritocracy and opportunity. We were lied to by self-servers with guile and we were stupid enough to believe them. We are dismantling the entitlements of the poor and middle-class on the grounds that these entitlements are inefficient and ineffective. (Tell that to my parents who went to City College of New York for free and bought their first house with Veterans Administration home loan.)

In the name of individualism and meritocracy, we have turned our back on the Have-Nots and we have given free reign to legal corruption. Perhaps there is a connection between the two.

Mourning Mourinho

Mourinho got fired by Abramovitch for not winning the Champions' League. Abramovitch can do that, he can do other stupid things such as believe that it is possible to win the Champions League regularly.  He owns Chelsea, while the members own the social clubs Real Madrid and FC Barcelona, while Juventus and other club trade on a stock exchanges.

It's wonderful this tripod of governance models for running football clubs, much more fun than worrying over the failed governance models that screw up most countries and have had me writing mournful posts of late.

That's why we love professional sports. It's all strategy with no real risk apart from some broken body parts, most suffered by wealthy young men who will receive the best orthopedic care available. It's just football, and if some super-rich owner gets a bug up his nose and fires the most successful coach in the history of Chelsea, fires the most successful European coach of the decade ... well he can, and it's too bad if the fans don't like it.

The Chelsea fans think the club somehow is theirs, at least in their hearts, and most of them are mourning Mourinho, declaring undying love to "the special one" and spewing epithets against the interloper Abramovitch, who is not even British, but a Russian magnate, one of those Russians who have bought up a big piece of central London. As The New York Times reported "Agents estimate that 20 percent of all London-area houses that sold for more than $10 million last year were bought by Russians; for sales over $30 million, that portion climbs to 50 percent."

Abramovitch ought to face up to facts: die-hard Chelsea fans don't really like him. Abramovitch is foreigner, and they assume that he is a thief, which actually is a nicer term than Russian President Putin usually uses for the Russian ex-pats who have installed themselves in London. Abramovitch and Putin, however, have a good relationship, cemented by Abramovitch's decision to sell much of his oil business to Gazprom. For his loyalty, Putin has helped make Abramovitch the richest man in England. Some say, Abramovitch is like a son to Putin.

Putin's love has not helped the richest man in England to establish reasonable objectives for Chelsea. Contrary to Mr. Abramovitch's stated goals, Chelsea will not win the Premier League every year (Mourinho won twice, and came in second last year), and they will win the Champions League no more than once or twice a decade, as there are some 6 to 8 teams with a reasonable chance to win the Champions League. This group hardly changes, though Mourinho won the Champions League as coach of Oporto, which following its victory was dismembered by the rich clubs, signing its best players to big contracts, and then its coach. In sum, it appears that Mourinho is a bit more likely than the other top coaches to win championships. He may be, after all, "the special one".

No wonder the fans mourn Mourinho, who will end up coaching at another of the big clubs and being successful there to. Mourinho will be successful whereever he goes, assuming that the budget is sufficient to buy outstanding players. By the way, the same top players rotate between teams, helping to make their agents rich and giving us all something to write about in the off-season. The coaches rotate, too. Fabio Capello, who won the 2006-2007 Spanish League Championship for Madrid with only the fourth best team, was fired as a reward for exceptional service. The fun part is that he had won a League Championship for Madrid actually a decade earlier and soon after was gone. Given that Capello is now over 60, it seems unlikely that he will get a third chance at Real Madrid, but there is always hope.

Yes, the fans mourn Mourinho and if Chelsea does badly this year, they can call for the head of Abramovitch, but that won't do very much. Abramovitch will fire coaches and shuffle the roster until the team wins again, and when Chelsea wins he will congratulate himself for being a brilliant team owner. And why not? Being Vladimir Putin's favorite son and richest man in England ought to account for something.

9-11 and getting help from the French

Fernando Vigón's extraordinary comment -- clear, knowledgable, detailed and well-argued -- rightly points out the role of post-colonial Islamic national politics in development of Muslim fundamentalism and terrorism. Equally important, he reminds us that the failure of the Middle peace negotiations has been attributed to Arafat and not the Clinton Administration, which did a laudable job guiding the negotiations to agreement before Arafat reneged on the accord.

Why then do I insist on the U.S's moral standing and our responsibility for stopping terrorism? To start with, the boss is always responsible for what happens. If things don't work, then it is the boss's job to fix it. It the boss's hired hand can not fix things, then a new hired hand should be contracted. Successive U.S. Presidents have done a bad job defending our competitive advantages: moral standing, economic superiority, and cultural imperialism.

When I speak of U.S. "moral standing" it is comparative. In an awful world, the United States pre-Iraq was borderline decent, weilding astonishing power with relative gentleness. Few world leaders are sanguine about possible replacements for the U.S. at the world's most powerful nation. Doubters can ask diplomats if their countries's leaders are happy about the rise of China. And so I return to my already outworn line: "If you think we are S.O.B.'s wait until the Chinese run the world." (I expect China's military spending to equal or surpass the U.S. before 2025 years.)

During much of the 20th-century the U.S. was "a beacon on a hill". Following Vietnam, we became tepid and lax in our foreign policy and in defending American values. We ceded manufacturing leadership to Japan, buckled to OPEC pressure, began borrowing from the Chinese, step by step making ourselves vulnerable. With the election of George W. Bush, it was expected that the U.S. would retreat from interational involvements; President Bush's limited international experience and apparent indifference spelled a further retreat from leadership, and yet another blow to the U.S.'s moral standing.

Then came 9-11 and refocused the world on the need for U.S. moral, cultural, and political leadership. The Bush Administration failed miserably, and the world is worse place because of it.

Perhaps the U.S. ally that best understood what was at stake was France, not Great Britain. The French, including French intellectual critics of the U.S. like Beaudrillard, have pleaded for decades for the Americans to recoup their proper role in world affairs. Even Villepin denouncing the pending Iraq War as "immoral" was a plea for America to do its job and not a rejection of the United States.

Ever since de Toqueville, the French have been obsessed with the surviving partner in the political and social experiment we call democracy. The French revolution came to ruin and Napoleon, the French ceded to the British and then the German; and then, in the 20th century, the French became famous for their intellectuals and for philosphical downers like existentialism and deconstruction.

As the French sunk into the "thinking" that Sarkozy has rejected, American philosophy in the 19th and 20th century gave the world the transcendentalism of Emerson and the pragmatism of James and Dewey. America joined romanticism and reason in a philosophy of positive action that conquered the world. America's leadership could be crude and simple, it was sometimes puerile, but for more than a century it gave the world for the first time a society in which equality of opportunity meant something close to a fair chance for everyone. On this, the U.S. built its moral standing, powered its economic jaggernaut, and sold its life and culture worldwide.

I doubt that George Bush has given this much thought any more than he understands the French passion for the "exception culturelle". America conquered the world morally, economically and culturally, binding all this together in a world view that was optimistic, sometimes simplistic, sometimes overbearing, but true to itself. When we stopped being "American" and we started on the road to paranoic self-righteousness, we took to grandstanding (one of Bush's favorite tactics) and torture. In short, we turned from basic to base. The road back may not be easy.

Perhaps Sarkozy, the part-immigrant, the pragmatist who thinks the French thinks too much, who wants to be more French than the French, has figured it out. Maybe he can take George W. out on a ride to the Statue of Liberty and remind him why the French gave it us.

Readers Comments on "9-11 on 9-10"

Thanks for your comments and e-mails. Readers brought up two issues that merit attention. First, one reader asked if I was blaming Bush for something he didn't start.

No, it did not start with Bush. As I mentioned in the post, the serious failures began with the first oil crisis and the decision to play the OPEC and oil dependency game. This was mostly Nixon's doing. All the ensuing Presidents got it wrong, most importantly Bill Clinton, who failed to respond adequately to the growing terrorist threat.

But it took a self-righteous, incompetent President, George W. Bush, to turn much of the world into the U.S.'s enemy following 9-11. I ought not to make this argument again; I spoke my piece already.

Second, I was asked if it would have been possible to use strategy tools, e.g. game theory, to do a better job in managing the terrorist threat. Effective strategic management is always necessasry. However, this was not the Bush Administration's problem. The Administration's actions have been driven by its values, not by the facts.* There was perfectly good data to tell that Saddam Hussein did not have weapons of mass destruction and that there were insufficient troops to occupy Iraq. Rumsfeld ignored the data out of hubris ( one of the less exciting forms of self-righteousness) and sent American troops to die. I am afraid that good data, game theory and sophistocated scenario planning tools will never be a match for stupidity, arrogance, corruption and callousness.

*On the fact-value question, I have written several posts. I would suggest, howerver, reading the first chapter of Herbert Simon's "Administrative Behavior".

9 - 11 on 9 - 10

In lock-step with the Bush Administration's non-strategy, Rudolph Guiliani and the rest of the Republican Presendential candidates have demonstrated that they too are prepared to depend on nothing more than self-righteousness to wage war in Iraq and combat global terrorism.

This is an awful thought to have on 9-10, the eve of 9-11. As I prepare for tomorrow's mourning, it is tremendously painful to recall that 9-11 was made possible by the progressive loss of American moral standing throughout the world. The truth is ugly, but needs saying -- more than once. Nothing, of course, can justify 9-11, but our responsibility as strategists is to discover in our own actions the weaknesses that the enemy exploited to attack us and consequently take strategic action to defeat the enemy. The U.S. itself is responsible for undermining America's moral standing over the last decade and permitting terrorists to develop an anti-American, anti-Western ideology supported by millions. Nothing could be worse for a country called on to lead.

Such leadership, according to Machiavelli, is based on respect and fear. "Respect and fear" is the internalized, unchallenged belief held by both rulers and ruled that those in power today are doing what must be done, and will continue to do what must be done in the future. This is "moral standing".

Moral standing provides three main benefits. 1. Moral standing establishes guideposts for strategic action; 2) Moral standing is the basis of social cohesion and commitment; 3) Moral standing cowers potential enemies before they take action.

Moral standing is difficult to achieve and even harder to maintain. In order to create and hold moral standing, it is necessary to profess and defend ideals that are coherent, congruent, and consistent. In short, ideals must make sense, they must meet a real need, they must be adhered to across generations.

This may sound to some like idealistic globbly-goop, but it is not. Quite simply, unworthy ideals eventually undo themselves and fall, like the Berlin Wall, though admittedly the process may be long and painful.

In the years following World War II, the U.S.'s moral standing seemed unquestionable. Having defeated Nazi totalitarianism, the U.S. confronted the Cold War and a Communist enemy so perverse that the U.S.'s moral superiority hardly seemed an issue; even Vietnam did little to undo that leadership. But then came the first oil crisis. The U.S. caved into OPEC. The U.S. made a mess in the Middle East, Northern Africa and Asia. The United States wavered, and we suffered terrorist attacks supported by Libya. We bombed the Libyans, and this quieted them. We slowed, but did not stop, the demise of U.S. moral standing. And as we continued to borrow from the rest of the world to pay for our oil and consumption habits, as we made ourselves vulnerable to our enemies, our moral standing continued to wane. Nowhere was this more evident than in the first Gulf War where the U.S. and its allies failed to achieve closure. Throughout the world, it was considered a sign of weakness to leave in power a leader whom we had defeated in war. All we cared about it seemed was making sure we had the oil.

The Clinton Administration sought to undo some of the damage, but failed to achieve peace in the Middle East. Focused on a single strategic action, the U.S. committed too few resources to foreign diplomacy, foreign intelligence gathering, and the emerging Islamic fundamentalist threat. When its peace initiatives failed, The Clinton Adminstration was left with no strategy and billion dollar commitments to arms for Israel and Egypt, and millions more to a corrupt Arafat regime in Palestine as well as to the Saudis. Periodically during the Clinton Administration, fundamentalists tested the U.S.'s moral standing via terrorism against American targets. The response was tepid and disorganized.

9-11 put the terrorist threat at the top of the agenda. The world asked the U.S. to make a serious strategic response. World sympathy provided an opportunity to revitalize America's damaged moral standing. Unfortunately, the Bush Administration spurned strategic thinking, and instead relied on the crude tools of self-righteousness -- scare tactics, lying, secrecy and torture. Self-righteous is an ideology that speaks only to itself; it will never win over the uninitiated. It may kill subjugate them, but it will never convert. Rather than revitalize the U.S.'s moral standing and world leadership, the Bush Administration create dangerous enemies.

Why did Americans let this happen? Self-righteousness ideologies have never been acceptable to the American moral consciouness, but following 9 -11 the American public and Democrats were unable to say no to the Bush Administration. 9-11 had presented the Bush Administration with an opportunity to reconfigure and reassert U.S. moral standing, and Americans stood by as our world leadership was dismantled.

The Bush's administration most agregious attack on U.S.'s moral standing was the invasion of Iraq itself. Remarkably, our French and German allies called U.S. military action "immoral". As I have written on other occasions, the French and German response to the exercise of U.S. power was staggering. It signaled the end of America's power and privilege. It was now legitimate to kill immoral Americans. Nearly half a decade later, hunting season in Iraq is still open, and any fool can take out a license to murder.

If you want to know how this all worked (and didn't work) you can read Frank Rich, who every Sunday in The New York Times does his duty by spelling out in detail the weekly catastrophe. I read his column quickly, as I no longer have the stomach for navigating in Bushian self-righteous ruin. As Mr. Rich correctly reminds us, this tragedy is not Mr. Bush's, but America's and Iraq's.

The American tragedy is not just about failure in Iraq. Having cowed the American public and the Democratic party and desemboweled U.S. moral standing, the Bush Administration has proceeded to engage in astonishing incompetence.The tragedy lived by the "average American" is not about moral standing. What drives Americans crazy is trying to make do in a country that does not work. Iraq, Katrina, and the sub-prime mortgage crisis are not easy to swallow. Yet, most Americans simply shrug their shoulders and wait for something better. Insecure and confused, Americans are demoralized to the point that they have not even taken to the streets to demonstrate against a hated war. Our enemies are gaining ground without having made another attack.

In my search for answers for how this could have happened, I have turned to looking at big concepts, like moral standing. And I ask myself, as a strategist, whether the moral self-righteousness the Bush Administration suffers from is necessarily linked to operational incompetence and corruption.

Frankly, there is no way to be certain, but there is reason to believe that moral self-righteousness only works in simple situations where the goals are short-term and easy to achieve. In a complex world, moral self-righteousness is a blunt instrument that leads to rigidity and an inability to adapt to new circumstances. At every failure, the self-righteous refuse to change and claim they are staying the course. As the failures mount, they bend the truth, and when that does not work they begin to rewrite the rules in the name of their self-righteous ideals. And so they justify torture, lying, corruption and chronyism, and manipulate the news and information. In this fashion,the Bush Administration created fertile ground for its incompetence.

Putting my readers through this brief discourse on morals and government failure is only justifiable if it somehow helps us to respond to the disaster left by the Bush Administration and threat of terrorism. The key is to understand the link between moral standing and the social contract. A new strategy must be based on reclaiming the core values of our social contract. We have a right to a government which does its job of ensuring the necessary public goods -- universal free education and health, public safety, honest government . We seek a society in which the differences between the best off and the worst off diminish as we become wealthier.

Under the Bush Administration, every single public good has been damaged and large and petty corruptions have become standard practice. The Bush Administration legalized and defended corruption and torture. It has defended gross and perverse economic inequality as the "fair outcome of competition which rewards the most talented and hardest working," while consistently rigging the game in favor of those who have. While exalting meritocracy, it made chronyism and loyalty more important than abilily.

As a result of these myriad failures, our free society is weaker and we are more vulnerable to enemies who self-righteously believe that they can impose their values on others through violence.

On 9-10, I seek to comprehend the enormity of these moral, social and economic failures. As I mourn tomorrow, 9-11, those who died and were injured in my city, New York, and in the other terrorist attacks, I renew my pledge to work to re-build America and recuperate the values that in the past have protected us from our enemies not matter how brutal their methods nor immoral their aims.

Trichet ECB leaves rates at 4%

My blogmaster sent me a note with the headlines showing that I was "wrong" about the pending ECB rate hike.

That's fine. In the face of uncertainty, Trichet said, it was best to do nothing. Did Trichet succumb to French and Spanish pressure? Who knows? In any case, he did the smart thing: this way he won't get blamed if things get worse.

Trichet will have more big decisions to make before the year is out. The fun is just starting.

Jean-Claude Trichet -- Punishing the bad guys

While the U.S. Federal Reserve lowers interest rates, the European Central Bank is set to raise them. The Fed's position is easy to understand. The Federal Reserve fears a bank collapse, and the Republicans know that every home foreclosure is several votes more for the Democrats.

Mr. Jean-Claude Trichet, European Bank President, however, seems neither to fear bank collapse nor the leaders of countries. Despite pressure from French President Sarkozy and Spanish President José Luis Rodríguez Zapatero to lower rates, Trichet has stood firm, insisting that market conditions are normal and that the little blips on the European home loan market really don't matter, and what counts is controlling inflation.

For the moment, Trichet has the official support of German Chancellor Angela Merkel in extolling the high road of central bank independence, but this may not last very long.

Besides, it is hard to figure out what the Trichet is really up to. My guess it that he is having a ball punishing the free-spenders and speculators who took out variable mortgages at 100% of the value of the property, most of them in Spain, with about half of all European home starts in the last 4 years. Moralizing is great fun, and who better than a career government finance officer to enjoy setting things straight.

Fortunately for us home-owners, Trichet may not hold on to Merkel's support for very long. Chancellor Merkel seems to have forgotten that Germans are up to their eyeballs in the Spanish market, with 80,000 homes in the Balearic islands alone. So if interest rates rise and housing prices fall in Europe as predicted, Germans property owners in Spain will begin to hurt. These are mostly Merkel voters, whom she can not afford to offend given her fragile majority. In this scenario, we can expect Merkel to shift from bashing the ratings agencies to joining the call for lower interest rates.

By the way, Merkel is going after the wrong guilty party. The banks knew all along that at some point the game would come undone, but the upside was too good to give up. Even the stupid bankers knew, with The Bank of Spain issuing warnings and "asking" the banks tighten up lending. The bankers turned the usual deaf ear and securitized what loans they could. They had too much to gain from being naughty, and the good guys had nothing to gain from being good.

Those of us with experience in retail banking (I was a partner in a retail banking consulting firm) knew from the beginning what was wrong: variable rate mortgages shift interest risk from the bankers, who know asset and liability management (ALM), to individuals, who know very little about ALM.

I probably have no right to indulge in bank bashing; a bank gave me the 100% variable rate mortgage that let me buy the house in which I am writing this post. Then again, I've taught classes in ALM, and I ran scenarios where the interest rate went to 8%.

I'm not worried. It won't come to that. 25 or 50 basis points more and Merkel with get the message and see Zapatero and Zarkovy are right and she will rachet up the pressure on Trichet, too. Then we will find out whether Trichet can hang on to his rational, Calvinist views of money and responsibility.

Summer book leave over

Dear Readers,

Trust you all had a great summer.

Summer book leave has ended, and we return to the usual. I will continue to write about the things that matter to me and hope that there is an audience. My first post is on the home mortgage crisis and interest rates -- a subject dear to many of us.

Regards,

David

Summer book leave

Once again, I am off for the summer to continue work on a book on corporate social strategy. My sincerest gratitude to all of you for your support of the blog this year. We will be back September 15th with a "new improved" product.

Best regards,

David

Mr. Murdoch and the Journal

The New York Times’ Sunday, June 10th, 2007 editorial begins with a truism -- "Editorial pages generally do not compliment the competition" -- and ends with a plea to the Mr. Murdoch not to undo the Wall Street Journal.

We all know the basic argument: Murdoch will take the Journal and gut its vaunted editorial independence and journalistic professionalism. Accordingly, the Bancroft family, who have systematically destroyed value for shareholders in the 21st century, are obligated to reject Murdoch's $5 billion and to save the institution of the Journal, qua Journal.

In fact this is the current Wall Street Journal management has used Journal's editoial page to make the selfsame argument, leading to the rather strange set of circumstances by which the editorial pages of the two most influential U.S. newspapers, inveterate opponents and competitors, coincide. And so we have one of those rare ecumenical moments where competitors agree on institutional purpose.

For we strategists, negotiating between value creation and institutional objectives remains the great unsolved challenge. Where ethics and social responsibility is involved the response is relatively easy: Do the right thing. But the Journal’s social contribution consists in giving voice to a particular economic and political ideology and doing it better than anyone else; while of great social value, it is not a social obligation. People like me depend on the Journal (and the Times) to give us the news and opinion straight and don't mind paying for it. The question is whether there are enough us and enough profit to make it worthwhile for these newspapers to continue doing things as they have decades.

The Times and The Journal are businesses, not public goods. Their shareholders are free to decide if they wish to maximize their wealth by selling the brands to those, like Mr. Murdoch, who are likely to change editorial and journalistic policy in the pursuit of value creation. The same shareholders are also free, as both the Journal and the Times have asked in their editorial pages, to risk economic value for more "institutional value". I like to call such companies "maintenance-for-profit" companies in that they defend an institutional position though it may reduce economic rents. This differs from social entrepreneurship, which consists of setting up companies whose mission is to solve clearly defined social problems while also turning a profit for owners. The Times and The Journal do not engage in social entrepreneurship. Rather over the course of time, they have acquired the institutional role of "defenders of the faith" and we are loath to lose their voices.

Customers like me recognize that the Journal brand might create greater economic value if it abandoned its its editorial voice and the commercial constraints that defending that voice require, and that media magnates like Rupert Murdoch are skilled at squeezing out economic value by repositioning brands to broader segments. Snobs like me consider this vulgarization, and end up screaming that the product has been destroyed. A Schumpeterian would be more likely to call it creative destruction. But as all of us have a right to decide what to do with our money, I am hoping that the Bancrofts consider themselves rich enough, and institutionally committed enough, not to need Mr. Murdoch’s billions. My world, if not the world itself, will be a better place for it.

Does It Matter Who Owns The Wall Street Journal?

The Bancroft family says it is now willing to talk to Rupert Murdoch. The Bancrofts would not have to even think about selling The Wall Street Journal if Dow-Jones' share price had not tanked, from $70 in 2000 to $36 in this past April. With Murdoch's offer on the table the share price in now fluctuating in the $50's.

The Bancrofts, and others, have made lots of noise about defending the Journal's "editorial independence", concerned that the Journal would fall victim to Murdoch's sensationalist streak in various of News Corps publications and the flamboyant, combative, and frequently incoherent, Fox News.

But does this really matter? Does it make sense to attach social values to a company? If so, then maybe the Journal should be independent, separated from the rest of Dow-Jones, and taken private so that share price would be irrelevant.

The rules of business strategy tells us that if you want to keep control of your company don't take the company public. If the share price goes down, you may be unable to keep control, as Anita Roddick found out.

The strategy lesson here is that firms are subject to the legal constraints that differentiate publically-traded businesses from privately held businesses and from other types of organizations. Business firms, just like all social entitites, are infused with values, but these values are less stable for two fundamental reasons. Control (ownership) changes hands easily, and the requirement to make profit means that sentimental attachments to products and services may not be sustainable.

This is NOT NOT NOT a question of ethics, but of the kinds of organizations we have developed to populate our world made up of organizations. If we want to see how goals and values are sustained over long periods of time, better to consider universities and religious organizations.Outside of a few family businesses and several giant MNE, it is hard to find a company over 100 years old with the same continuous ownership structure. Curiously, with few exceptions, long-lasting continuous governments are also quite rare. War, revolution and famine do most of them in in a quite short period of time.

As for The Wall Street Journal, a new owner would probably be foolish to change editorial policy. The reason has less to do with values than with value creation. The Journal's independent, firm, and clear liberal economics and social conservatism has brought it success. 

-Hugo Chavez -- "dictator-in-training"

With the shut down and takeover of independent television broadcaster RCTV, Hugo Chavez appears to be about to take off the training wheels and convert himself into a "freely-elected socialist dictator".  It appears that Mr. Chavez has sufficient support in Venezuela and Latin America and elsewhere for him to convert a Venezuela's struggling democracy into a proprietary dictatorship.

Castro is Chavez's role model. Once a pariah, Fidel Castro's PR has improved thanks to the Bush Administration's abuses in Iraq and Guantánamo, as well as the election of sympathetic Presidents in Bolivia, Argentina and Brasil. Even Castro's illness has helped; he hardly looks like a dangerous dictator anymore. Then again, neither did Franco nor Pinochet.

Michael Moore's recent appearance at Cannes, with his much acclaimed "Sicko", was also a boost for Castro. Moore counterpointed the "success" of Cuba's bare bones medical system with the horrifically expensive U.S. system that leaves 40 million Americans uninsured while it makes drug companies and doctors rich. At Cannes, no one seemed to worry that Moore does not see how badly Cuban medicine has deteriorated without Soviet subsidies. Just as in "Fahrenheit 9-11", he was right about the message of what a mess the U.S. is in, though Moore's tendency to take cheap shots stripped credibility from a story that needed to be told.

But as annoying as Castro is, China and the democratically-elected Latin American Presidents Chavez counts as allies will have a much more serious influence on Chavez's future.

Why China? China's growing power and status is a boon to dictatorships all over the world that claim that democracy is an obstacle to serving the people. No surprise then that corrupt governments, e.g., Sudan, are happy to deal with the Chinese who systematically turn a blind eye to human rights violations. We can expect strengthened relations between China and Venezuela, particularly in oil.

With the U.S. engaged in it own violations of rights in Iraq, we don't seem to have a good answer to China's policies. Our moral standing has been badly damaged. In the 1990's it seemed that we were making progress, however, with tougher laws and healthy pressure from NGOS and the press, but the war in Iraq has taken us several giant steps backwards.

That said, I have great hope for China. We should not forget that China's capitalist revolution is a permanent threat to a selectively repressive one-party State, China will change, but not soon enough to help Venezuela.

Which brings us back to RCTV and the immediate problem in Venezuela. The Chavez government depends on support from Bolivia, Brasil and Argentina for its legitimacy. The dependency is due largely to the failure of the Chavez government to make real progress meeting its citizens fundamental needs despite the influx of billions in oil money. As yet this has not undermined popular support for Mr. Chavez, who see their leader welcomed as part of a group of committed socially-oriented Latin American Presidents.

We should not underestimate Chavez's support in Venezuela. During decades the majority of Venezuelans suffered under corruption and incompetent governments. Chavez won election by giving voice to the formerly disenfranchised; in fact, Chavez was also supported by many middle-class and professional Venezuelans anxious for change. But Chavez was impatient with democracy from the start, and his authortarian bent and populist rhetoric divided the country. Sadly, the incompetent opposition, unable to defeat Chavez at the polls, supported a coup attempt. Chavez survived, and since has progressively moved to install his version of socialism. Increasingly he has maintained power by engaging in populists measures against the "oligarchy", encouraging squatters to expropriate land, nationalizing utilities, and has invented a broad array of Chavezist social programs and citizens groups with great fanfare. While it is difficult to gauge the real impact of the Chavezist social policies, the real data on crime and unemployment have worsened considerably and key infrastructure appears to be deteriorating.

As the situation inside Venezuela deteriorates, the Chavez government has become increasingly authoritarian. Finally, Chavez moved to take over RCTV, the television broadcaster in Venezuela not emitting hours and hours of Chavez talks and "educational" programming.

Which brings us to big question: Why haven't Latin America's other leftist democratic government condemned his actions? To begin with, Chavez provides financial support as well as trade agreements on highly favorable terms. Second, other leftist leaders are delighted that Chavez has the U.S. government so worried that they look like positive allies. Third, Chavez's expropriations and violations of legal agreements with multinationals gives them bargaining power at home.

The Presidents of Brasil, Bolivia and Argentina could do a great deal by coming out strongly against Chavez's takeover of RCTV. Brasil's Lula da Silva is probably the most important, but he has refused to comment: "It is a problem of Venezuelan legislation. A problem of the Venezuelan government... In the same way I don't want them to give opinions about what I do here, I don't want to comment on what they do."

And so Chavez will continue to disregard minority rights, separation of powers, and the rule of law. Recent violations include expropriating property without compensation, creating a private militia, assuming control of the judiciary and now the media. Without pressure from friendly governments, Chavez will move ahead to institutionalize control. With the pieces in place, Chavez will get the legislature to "vote" for dictatorship. Chavez's dictatorship will squash those foolish enough to express disagreement. They will be hounded, their civil rights abused, jailed and forced to leave the country. Or, as in the case of some stubborn landowners, simply murdered.