Strategy Op. Ed.

No car industry bailout ... unless they do it my way

On October 13th I gave my remedy for the car industry, ("GM and Chrysler: How the U.S. Chose to Fail"). My plan was probably over the top, but nothing I have heard or read since sounds even close to right. In fact, what I read and hear is so wrong-headed that I want to up the ante on my original plan. Here it goes.

In exchange for the taxpayers bailing out Detroit, we the people propose:

1. GM and Ford will promise even better fuel efficiency than we asked for before. 40 MPG by 2011 and 50 MPG by 2015. All models including SUVs. No nonsense about fleet averages!

2. Chrysler will be spared and be rechristened, Phoenix Motors. Phoenix will not make cars, rather the bailout money will go to developing technology for clean energy engines and systems. One big project ought to be refitting cars and buses for fuel efficiency and reduced CO2. Another ought to be developing high speed trains (target 300 MPG) as we spend billions on transportation. The train unit will be headquartered in New York City and staffed by hedge fund billionaires who agree to take 0 pay in service to their country.

3. No executive will make more than $500.000/yr., including performance-based pay. Designers and engineers who come up with real innovations will be rewarded accordingly -- as if they were the athletes who win the world championships in the big three sports.

I have lots more hare-brained ideas that could save the industry. I think them up as I type. And in the meantime, Washington and Detroit get nowhere because they refuse to accept that Detroit makes lousy cars and management stinks. To reinvent this business we need to kill it and then fumigate.

And one final key measure: Any and all ideas proposed (or supported) by Henry "Hank" Paulsen will be rejected out of hand.

The First Obama Administration

A somber Obama knows what he is getting into, and he is smart enough not to make predictions. I, on the other hand… So here goes.

On the bright side:

1.       The U.S. will get out of Iraq.

2.       The wealthy will pay more taxes, the poor and middle class a bit less, and this is fair. (By the way, progressive income tax means wealth redistribution.)

3.       Expect better management of government resources and significant investment in infrastructure and alternative energy.  

4.       Accordingly, there will be less corruption as the Obama administration appoints competent managers who have some scruples.

5.       U.S. relations with its allies and enemies will improve – with allies because an Obama administration will listen, with enemies because the enemies have less money.

6.       Roe v. Wade will remain the law of the land.

7.       The Department of Justice and Environmental Protection Agency will be reformed, reinvigorated and once again take up the tasks of defending our legal rights and the environment. (Now if we could only get Obama to do away with the Department of Homeland Security so that the Armed Forces, the FBI and the CIA could do the job they are supposed to do without another political hack sticking his nose in and multiplying the costs and the threats to our civil liberties. )

8.       Foreign graduate students will flock to U.S universities; we welcome scientists because our basic education system stinks and we don't produce them ourselves. We have the developed world's worst primary and secondary education alongside the best universities.

9.       We will have a President who can string together a few sentences and is not ashamed of Latinate words – and knows what "Latinate" means.

On the dark side – (longer explanations are required)

1.       Disappointment among  African-Americans. Changing social-cultural life patterns among African-Americans is not within the purview of Obama's mandate. He would be better off deferring to Bill Cosby, actor-comedian, and Alvin Poussaint, Harvard Medical School professor, co-authors of  "Come on People! On the Path from Victims to Victors". Like Cosby and Poussaint, I have argued for years that the problems of social structure that plague the African-American community will not be fixed by government. I have not, however, argued that they could not  be fixed by government. Such government remedies would be too "socialist" for Americans to swallow. Today, most Americans believe it is up to the African-American community to solve its problems. Fair or not, the success of Asians is pointed to by many as an example the right path for ethnic communities.  

2.       One problem millions of Americans cannot fix on their own woefully inadequate health care. Unfortunately, children and the working poor will continue to have substandard health care despite reform. Obama's health care proposals are inadequate. We need to separate health care from the work place. Firms should not be asked to provide workers with health insurance. Health care costs should be covered by general tax revenues with individuals and companies paying their taxes. We also need community health services. Health care for poor is appalling and is likely to remain so.

3.       Education will improve only slightly. Education is managed locally in the United States, and there is relatively little the federal government can do while local school districts teach Creationism and waste billions. The federal government cannot protect children from a culture that discourages effort and achievement at school. Too many Americans are comfortable with a social structure in which most are dolts, and the educated are somehow special.

4.       We are likely to get bogged down in Afghanistan. The Chinese, the Indians, the Russians and even the Iranians have more to worry about from Muslim fundamentalist terrorism that the United States. Shifting U.S. foreign policy to a truly collaborative approach is still a long way off.

5.       Managing the financial sector will be a giant headache. Consolidation makes surviving banks even more arrogant. Consolidation is bad in itself. We need more banks, not fewer banks. We ought to encourage community banks and set up rules that make sure that retail banking is tied once again to the real economy. This will not happen.

6.       The auto industry will continue to be badly managed and will waste the $25 billion in soft loans it has received from the Bush Administration. Obama will need to strong arm the industry to turn it around. This is a top priority, one without a very happy solution.

7.       In 2010, if there is a return to economic growth, we can expect higher oil prices. We will be unprepared despite the best efforts of the Obama administration. Investment in infrastructure and alternative energy though significant, will be insufficient. There will be limited progress on global warming and Obama will lose support among environment groups. Maybe even Al Gore will say something unpleasant.

8.       In 2010, if there is NO return to economic growth, expect screaming and yelling and disastrous mid-term Congressional election results for the Democrats. Maybe even Paul Krugman will say something unpleasant.

9.      In 2011, Jed Bush meets with Cuban exiles in Miami. Peppering his talk with Spanish phrases, Bush announces his candidacy for the Republican Presidential nomination on the day in which Obama's approval rating falls below 50%. He cites a litany of Obama failures – turmoil in Iraq, violence in Afghanistan and Pakistan, rising oil prices, in Cuba a paid mob burns down the old Guantanomo base. He praises brother George W. Bush for keeping America safe and for pursuing victory in Iraq. Today, he says, America's reputation has been stained by defeat and chaos in Iraq. Bin Laden is still on the loose. Terrorism is on the rise in Asia and Europe. Two American cities have suffered minor attacks. He promises an end to the disorder and a return to the true American values.

 … And so, last night as I discussed with my daughters Obama and what his election means, I told them that his race was now irrelevant. We have big problems to work on in the United States. All I ask for is consistent progress; all Obama is asking for is commitment and patience. It's a fair deal.

Alan Greenspan: Confessions of an Innocent Mind

In his testimony before the House Committee on Oversight and Government Reform, former Fed Chairman Alan Greenspan spun a yarn in which he was an innocent fool of ideology who got blind-slided by reality. Below, two of Greenspan's wonderfully revelatory statements.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,”; and

“This modern risk-management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year.”

Readers of this column, know that I have criticized Mr. Greenspan for having been an acolyte of Ayn Rand, the astonishly bad novelist/economic philosopher. Author of two of the 20th century's most read, horribly written and longest novels, Atlas Shrugged and The Fountainhead. (Both novels still sell over a 100,000 copies of year.)

Rand is the progenitor of an equally bad, simple-minded and utopian philosophy which she called "objectivism", but was nothing more than the idea that the few of us with the guts to be heros need to be left alone and that for this to happen government has to wither away. Ms. Rand insisted that she believe in reason. This is nonsense. Ms. Rand was a hero-worshipper, a utopian romantic who considered loving herself the greatest love of all.

What does this tell us about Mr. Greenspan -- and several other liberal economists that I have had the pleasure of conversing with about matters of public policy. They believe in the Enlightment idea that reason is natural and that human beings will choose what is best for them.

Unfortunately, this idea ignore three rather important problems human beings face: 1) short-term and long-term needs and desires may differ; 2) we have more needs and desires that we can act upon; 3) inevitably, we must discriminate between conflicting needs and desires; 4) we sometimes get the facts wrong upon which 1-3 depend.

In cognitive science, Herbert Simon, used the term "bounded rationality" to describe how difficult it is make clear-headed decisions and why classical economics provided a much too simple explanation for human behavior. In my view, Simon was much too generous. The problem with the "classical model" is that it runs away from the irrational. In the words of John Searle, the philosopher, "the classical model can not describe its irrationality".

And so, poor Alan Greenspan is shocked and overwhelmed by the inexpicable, the irrational and sometimes destructive behavior of markets. Of course, markets don't behave at all. People behave, seeking ends, rathional and irrational, reasoned and unreasoned, conscious and unconscious, with outcomes that are predictably unpredictable.

At 82 years of age, Alan Greenspan has finally found out that life is complicated. I envy his 82 years of blissful innocence -- an emotional risk-management edifice he happily confused with intellectual truth.

GM and Chrysler: How the U.S. Chose to Fail

In the on-going melodrama "How the U.S. Chose to Fail", the demise of the U.S. auto industry over the last quarter-century may just be the key piece.

Forget about the financial crisis for a moment. We will get over that. But the self-immolation of the automobile industry congers up visions of Jared Diamond's sad tales civilizations gone done the tubes in "Collapse: How Societies Choose to Succeed or Fail"-

In the blog on Sept 27th, 2006, I wrote,

Some would have us believe that the problem for General Motors and Ford is the pension burden. While the pensions are costly, this is not reason GM and Ford don't sell enough cars. We are frequently reminded that GM and Ford sell big gas guzzlers. This is true, but they have a complete line, and American small cars are are not competitive either. We have been told that American workers could not manufacture quality cars. But the Japanese car plants put the lie to that idea.

Of course, we know the real reason: Awful management. Awful management that manufactures mediocre cars. The verdict is in: the American cars that General Motors and Ford make in America are mediocre. In Consumer Reports' list of the best cars for 2005, in all 10 categories the winner is a Japanese car. Not one U.S. car made it. Not one! The bottom line is that Japanese cars are better. To that we can add that European cars are more stylish, and Korean cars are less expensive.

Since then, things have only gotten worse. The proposed $25 billion bailout won't fix things either.

Now, as a last resort, GM and Chrysler are in merger talks. When I teach mergers in strategy, I use a matrix where we match up big and small companies and good management and bad management.

Take a guess what's the worst option: two big, badly managed companies decide to merge as they run away from their problems.

Do I have a better idea. Of course, I do.

Chrysler should be liquidated; the sooner the better.

Now to General Motors.

1. GM should close its Chevrolet, Buick. Oldsmobile, Pontiac divisions. (I can see Alfred P. Sloane, Jr. grieving). Get rid of Saab, etc.

2. Spend whatever it takes to turn Saturn into a brand that can compete with Toyota, etc. Saturns sells only cars that get a minimum 30 mpg. Make sure the world knows it.

3. Cadillac will go head to head with Lexus, BMW, etc. The odds are awful, but there is no choice but to try.

Sound crazy? You got a better idea? You think the "visionaries" who are running GM have a better idea? Do you think they have any ideas at all?

Getting "hot" over greed: Defining the financial crisis

A Dear Reader of my recent post "CEOs and greed: tell me something I don't know" asked me why I left out the AIG story, the one where the managers go and spend millions at a spa just after the government has ponied up a $85 billion bailout. My reader wondered why I did not explain in detail what they drank, what they ate, the tab for champagne, and who knows, maybe they even got in a little lap dancing. My Dear Reader wanted me to crank up the energy and get readers on board.

My Dear Reader is right that I would get more attention if I spelled out gory details of the mind-boggling AIG greed. We, the people, have been "educated" to get hot (stimulated, titilated, and angry) over this stuff. But I resist, I refuse, I object. It's a prurient high I don't want to offer up to My Dear Readers nor to myself. It's the American Puritan tradition in me that resists inauthentic joy.

This goes for watching T.V. news. as well. I am appalled, horrified, embittered by t.v. news. As soon as I hear the word "accident" or "terrorist attack", I know I am going to get an object lesson in the importance of having a strong stomach and how to identify detached body parts. I remember, as you do, the incessant replays of 9-11, the planes crashing over and over into the Twin Towers and us with our eyelids stuck open a la Malcolm McDowell in Clockwork Orange .. without the Beethovan. Yes, we were sickened; yes, we wanted to respond. But all we got operant conditioning outcomes: numbing impotence and sleepless anxiety.

Of course, the networks did not do anything illegal; we were being "informed". And if in the process, our hearts and minds were damaged, whose fault is that? If we had been stronger, we would have shut off the television, closed the "Department of Homeland Security" (a Soviet-style sound-bite ministry of fear) and turned out in mass demonstrations against the war in Iraq and the crime of torturing prisoners. We would have elected John Kerry, no savior of course, but at least not four more years of Bush incompetence and corruption.

Not that we weren't angry, of course. We just could not overcome the feelings of impotence and anxiety. And though the saner, authentic part of us yearned for public dialog about the horrors of Iraq and the decline of America, we watched on television the death and destruction and we did precious little about it.

I deeply dislike t.v. news -- all of it from Fox to CNN. I dislike pornography for similar reasons. Both damage our innate authentic response to experience.

As I have commented elsewhere, if you are watching pornography and not doing "it", that's pretty bad because that ought to make you wonder why that you're watching it and not doing it; if you are watching it because you need it in order to do it, that's not so great either. What happened to passionate, joyful sex between consenting adults who found sufficient material in their own bodies to work with?

So there we have it. None news news and none sex sex. Non news news inures us to the issues that matter and to the hurts and problems we can do something about. And as for sex, which ought to be the source of our greatest physical joys is just another commodity. Woody Allen was wrong when he said that When sex is good it's good and when it's bad it's still good. Bad sex is bad for us just as violence masquerading as news is bad for us.

When we are battered with violent images and when we participate in gratuitous sexual acts, we lose our ability to recognize and engage in authentic information and experience. In effect, we sacrifice our freedom of will.

My argument may sound a bit "touchy feely" for some of you; I recognize that the reductionist categorization of complex human experience. In particular, I realize that sexuality is unfriendly to moralizing. And yet, I believe that the argument is mostly right.

If I am right, where does this message lead us? In America, experience as greed became the substitute for what the great Greek philosophers called "happiness" and the American Declaration of Independence wisely termed our "inalienable right ... to the pursuit of happiness". Happiness is an outcome, not a feeling. Greed is a feeling, a superficial response to experience that only offers temporary satisfaction, like pornography. Greed has no long-term objective, and as such worries little about who losses out as greed has its way.

When there are enough powerful people whose brains are wired so that they confuse Greed with Happiness, we the people get screwed. As the financial crisis unfolds, the daily news now brings us the spectacle of the powerful getting "hot" as they see the great unwashed "deservedly" go down the tubes.

This is my definition of the financial crisis.

CEOs and greed: tell me something new

As the U.S. Congress rakes former Lehman CEO,  Richard Fuld, over the coals for taking $350 million in salary over 5 years but giving back 0 in responsibility, "normal" people ask themselves several obvious questions:

1. Why do we have to pay so much money to someone to run a big company?

2. Why would someone run a company into the ground and then vote himself a multi-million dollar severance package?

3. Why do corporate boards vote in favor of the huge CEO salaries?

4. Is there any relationship between how much CEO's of big companies get paid and firm performance?

Fortunately, there are pretty simple answers to these questions.

1. CEO's get paid huge salaries not because they make money for shareholders, but as a reward for becoming the CEO of a huge company. Think about how hard it must be to get to be the biggest S.O.B. in a company 20,000 people. How about 100,000 person firm with operations in 60 countries?

2. CEO's negotiate great contracts that are "standard industry practice". CEO's believe they deserve what they receive -- don't forget how hard they fought to become CEO. Only a few are smart enough or modest enough to believe otherwise.

3. Corporate boards vote for the huge salaries, perks, etc., for several reasons. Some of the board members are CEO's themselves who enjoy the same emoluments. Corporate boards members get off on being part of the big money scene; it makes them feel important and powerful. Unfortunately, corporate board members don't actually do very much. (See my November 4, 2007 post "Why corporate boards are mostly useless")

4. There is no relationship between the amount of CEO and performance. There may be some relationship between how CEO pay is structured and firm performance, but this is different from tying performance to the total amound received. Quite simply, no one has demonstrated that CEO's who make $1 million work less or are less talented than those who make $5 million.

Bottom line: CEO salaries are a social constructed phenomenon that has little to do with economic rationality and a lot to do with a very screwed up value system in the United States, the U.K., and even in mainland Europe.

Now you would like me to tell you something you don't know already. Then try this one on for size. Don't expect the crisis to change anything.

Save the banks: Save our children

The financial crisis will be resolved, at greater or lesser cost, in more or less time, but the financial crisis is not the principal problem facing the United States. American society is riddled with corruption, chronyism, conflict of interest, and unfettered self-interest.

Over the last half-century, the United States has met with defeat in Vietnam; the precipitous decline of the automobile industry; a demographic revolution driven by immigation and one-parent families. Morevoer, two opposing popular cultures deeply rooted in traditional American values rage against each other: the MTV videoclip, reality show trash as class culture is going head on against an emergent Christian evangelical counter-culture that weds feel-good salvation with market-based materialism. These competing social movments are but shallow and vulgar fast food versions of tradtional American social ideals that have vied for the allegiance of Americans for two centuries. (Later on, I give a fuller description of the two traditional American value systems.)

The MTV culture and the equally media-savvy evangelical counter culture are little more than a quarter-century old. They are both by-products of the sociological revolution has turned our demographics and social structure upside down and inside out in ways that few Americans understand. Both the MTV and evangelical cultural movements can best be explained in the context of the competing values systems that have dominated American life for the last two centuries.

The United States has since its inception struggled to find common ground among enlightment progressives and religious conservatives. By the end of the 19th century, American transcendentalism and pragmatism emerged as "native" philosophical movements capable, it seemed, of reconciling the two traditions and providing us with a clear vision of an inclusive civil society founded on the principles of equal opportunity for all. We defeated slavery, instituted universal education and the rule of law, achieved a democracy with true separation of powers and successfully fought two world wars based on moral principles. There were, of course, failures and contradictions, but internally we believed that we were on the right track; we believed we were building a true, inclusive democracy. 

However, following the collapse of communism, we have seen the reemergence of the conflict between conservative religious individualism based on Puritan religious thought and liberal social action rooted in American transcendatlism and pragmatism and embodied in the New Deal. An emboldened and triumphalist neoconservative movement forged an alliance between evangelical Christians and libertarians, between millenarians and free marketers, and promoted a political and social philosophy that blamed government and civil society for all of America's ills, and proposed as the solution the withdrawal of government from liberal social action. The "solution", as it were, was actually a non-solution. Either the losers in society would fix themselves or they would go down the tubes.

And many did, and more are about to follow the slide into poverty. We ought not to forget that America 2008 bears little resemblance with the Mom, Dad and Sister and Brother 1950s happy nuclear family story we sold to ourselves following World War II. Divorce, personal choice, mobility, and immigration have made the 1950's nuclear family an endangered species. In itself, this is would not be problem. Societies change. Our problem is that the new neocon story about ourselves turned out to be a fraud: and now, in the absense of a coherent story, as Americans face greater and greater uncertainty, some they "cling" to their religion, their guns, their drugs, their MTV, their idols, etc. Few see civil society as an anchor for their lives, and most end up going it alone. Church, family, job don't provide a fix, but we cling to them like lampposts in a hurricane. Worried Americans recognize that the forces of change are bigger than they are, and that our institutions, our marriages, our churches, our daily activities are all vulnerable to the jaggernaut of uncertainty. It all seems so unfair. And it is.

In the face such unfairnness, Americans do whatever is necessary to pursue wealth and property. Wealth itself becomes the holy grail. Greed is good because other "goods" -- constancy in love, friendship, work, community -- have lost their currency.

And with the collapse of civil society, the purpose of politics shifts from public service to servicing the needs of those who control the political institutions. I am not so naive as to believe that once upon a time politics in America was an exercise in doing good for the people. Rather, I would like to believe that in following the New Deal there was at least some commitment to improve the lives of most Americans. Public service was part of the equation; unfortunately, sadly, the principles of public service simply went out the window in favor of self-interest.

In fact, we now consider it normal for everyone to pursue self-interest. No wonder the lobbying industry has quadrupled in the last decade as the concept of conflict of interest has gave way to the idea that "we, the insiders, can all get rich together. This, the powerful told themselves, was good. It was simply the natural order of things.

It turned out not to be so good. The result has been serious and harmful corruption: billions in non-competitive contracts in Iraq, private security firms killing Iraqi citizens. And then there are the corporate boards that legally award failed CEOs million and justify their actions as "industry practice". And there is more and more, much of it so banal and obviously unethical that it is hard for must of us to understand how it could happen. One of my favorite examples is how it became standard practice for loan officers at universities to receive payment as "advisors" to companies that had been granted "preferred partners" status for student loans. The assumption has always been that financial aid personnel at universities were there to help students figure out how to pay for college, not to shill for companies. Instead we had financial aid advisers steering students to the "preferred company". Even better yet, with the loan guaranteed by the government it was instant, easy, no risk income. Astonishingly, when this cozy arrangement came to light the financial aid officials defended thenselves arguing that the set-up helped students get their loans more easily and faster. They were completely blind to the conflict of interest.

In industry after industry we get the same story. Perhaps the most troubling is drive by the pharmaceutical industry to market prescription drugs like breakfast cereals. The whole system is simply awful. Doctors are paid by pharmaceutical companies to give talks to other doctors promoting about the benefits of specific, highly profitable drugs that received FDA approval often on research funded by the pharmaceutical companies themselves. The industry considers this set up a "service" to society, doctors and patients. As one industry executive explained to me. By setting up the conferences with doctors and paying doctors to speak we get the word out on new and better treatments. By funding the research for the FDA, we save the taxpayers money and ensure that the new products get to market faster. Our advertising on television alerts people to potential health problems and solutions that might have geen ignored otherwise. When I suggested that the whole system was designed to fill patients with expensive new drugs that drive health care costs through the roof, I was told: the medications relieve pain and suffering. Are you against that?

I said that I believed industry practice was detrimental to the health care system. Doctors should receive nothing from pharmaceutical companies; the FDA should not cede its public responsibility to privately held companies; patients, especially mental health patients, may not be in a position to know what medications are appropriate for them. In short, I don't want pharmaceutical companies paying anything to doctors, nor participating in the drug approval process, nor advertising prescription drugs on television. I tried to explain what I thought is the proper role of government, the industry, and physicians in the health care system. I got nowhere. Our views are irreconcilable. I believe I am right, of course, and I believe that my view is grounded in the tradition values of liberal social action. In the section, below I will try to apply the basic principles of liberal social action to the financial crisis. In so doing, I will provide the discussion of both the Puritan and liberal social action value systems I promised earlier.

*     *     *     *

Let us return to the financial crisis. As we now know, the crisis was not an accident. Industry practices are to blame. Aside from lending money to people who could not pay it back, industry executives saw nothing wrong, for example, in handing out credit cards willy nilly and when they had consumers hooked changing interest rates and payment schedules on unsuspecting customers; they were happy, as we said, to lend money to people who might not pay it back. All the bankers had to do was repackage the loans in increasingly complex financial instruments that would be sold and resold. Some understood the risks, but they simply did not care because they knew that they themselves would not pay.

Enough said about the crisis and the bad guys. The good news is that there is a fix. I saw as a banking consultant how fixing a financial crisis gets done. In 1991, my consulting firm was charged with saving Christiana Bank in Norway. We couldn't save Norway's second largest bank as the real estate crash in Norway did in the entire sector. The government swiftly nationalized dozens of banks, taking equity positions. Bank shareholders lost nearly everything, and by the end of the 90's the State had recovered it's investment. Sweden managed its banking crisis similarly, with similarly positive results. The lesson is clear: the model for how to manage banking meltdowns is fairly well-known. Countries like Japan that try to fudge the process by protecting failing banks, prolong the agony.

And so, the recipe for getting out of the mess is already known. There was no need for Republicans and Democrats to get into a blather over how to justify spending $700 billion and whether or not we were "violating" free market principles. Mostly we needed a control-copy control-paste job and a commitment to fire top management with no severance pay whatsoever. Instead, we get posturing and blathering and position-taking and pontificating and John McCain running around like a lunatic. In short, we see the playing out of a confused society that with deliberation elected George Bush, a man unqualified to be President, twice over. Even so, we will get through the financial crisis.

But we may not get through the crisis in values. And so I will turn, finally as promised, get to the more serious question of what American values are, where they come from, and how we recuperate the best of those values as we search for a new direction for the United States.

Admittedly, the starting point is not good. We elected and reelected an incompetent George Bush and we have put up with an absurd and devasting war in Iraq with hardly a protest. There are lots of possible explanations for why this happened. The most obvious is 9/11 and the Bush Administrations skillful manipulation of fear.

But fear alone is not sufficient to explain what went wrong. We need to understand how the Bush team could so successfully sell to millions of Americans a hodgepodge of Christian social mores and libertarian free market practices. The Republicans claimed rights to traditional American, Puritan philosophy and contrasted it with the liberal social action tradition which they alleged the Democrats used to destroy individual initiative and turn America into a society of "whiners" and freeloaders.

The most sophistocated among the Republicans knew that these two values systems have been competing in United States for well over two centuries. The Republicans deliberately used just part of the Puritan tradition, and they deliberately misrepresented the liberal social action tradition. They were good at it, and knew how to communicate their ideas.

With this in mind, let us reconsider the two value systems in a more objective light, if we might, before I argue that neither party truly practices the values they are said to represent.

A bit of American intellectual history is in order. Since the founding of the United States, there have two competing visions of America. One we can call the liberal social action tradition. It roots are solidly grounded in Franklin, Jefferson, Emerson, Dewey and Rawls. Dewey's contribution speaks most directly to the issue at hand. In the 20th century, Dewey's lived committed to liberal social action emphasized universal education, social equality, religious ecumenism; he was deeply committed to human progress and helping educators and government workers understand how to implement his ideas. As a philosopher(educator, Dewey practiced his own version of pragmatism, while also borrowing from Emerson the transcendentalist's romantic vision of a free and actualized independent self. Dewey's work is a logical development of the enlightment project in which men and women are seen to be blessed with infinite potential, each capable of self-reliance and independence made possible through full participation in the community. The individual reaches his or her full potential when civil society enables individual development. Civil society's principal responsibility, Dewey insisted, was to provide each child with the means to achieve his or her potential. Each child has an inalienable to personal safety, health, and education.

Our second tradition is Puritan, its principal philosopher Jonathan Edwards. We should not be cavalier nor dismiss the contribution of the Puritans. The Puritan tradition emphasizes prudence and sacrifice, knowledge of self through God and the hope of salvation. Puritan ideology is surprisingly rationalist in its social and political philosophy; the independent self must struggle both with his relationship to God and himself to achieve salvation. The Puritan is, admittedly less optimistic about human nature than the liberal social action tradition. It accepts that there will, perforce, be winners and losers.

The Puritan tradition's emphasis on personal effort and responsibility and its belief that the worldly success might be sign of spiritual success provided a solid ground for the emergence of managerial capitalism. In the 20th century, libertarian philosophers like Robert Nozick and popularizers such as Aynn Rand broke with the restrictions on personal behavior imposed by the Puritans while retaining their conviction that life offers each of us what we merit. Nozick and Rand and others adapted Puritan discipline and commitment to an emerging market economy capable of creating extraordinary wealth and advances in every area of human activity.

As I argued earlier, the Bush Administration and neocon theorists gave a simplistic reading of American social and political life: they said that the Democratic party practiced "socialism", a version of liberal social action that destroys the economy and individual initiative, while they, the Republican Party, took up the Puritan (evangelical) and libertarian banner arguing that by getting government out of their lives and God into them that they would create wealth and make the deserving among us rich, happy, and saved.

Unfortunately, the Republican representation of themselves has turned out to be a fraud. Equally, unfortunate has been the failure of the Democratic Party to truly embrace liberal social action. Sadly, each of the parties offers little more than a pastiche of the powerful value systems they claim as theirs.

Let us begin with the Republicans. As we have seen, in its own muddled way the Republican Party has picked up the banner of the Puritan-Libertarian tradition, imposing Puritan constraints on sexual behavior while waving the banner of libertarian economic and social policy. However, the Republicans have shown little interest in the Puritan traditions of thrift, probity and personal responsibility and the role of the community as a watchdog of appropriate behavior. And so while the Republicans preach the Puritan/liberatarian litany of merit and responsibility, they systematically engaged in corruption.

How did this happen? Do they not believe what they preached? Were they victims of a larger system that institutionalizes corruption? Did they forget that the Puritans taught absolute modesty before the power of God?

If I may be so bold, I will offer my view on each these questions: 1) Many Republicans don't really believe what they preach nor do they even understand very well the Puritan intellectual tradition; they convinced themselves that they piety and material self-indulgence went hand-in-hand; 2) Yes, many have been victims of a system that corrupts; alas, too many neither had the will nor the training to manage temptation; 3) They ignored Puritan strictures against pride and avarice and foolishly believed that by making themselves and their friends rich they were demonstrating the greatness of the United States and the market economy. They accepted the "logic" of the rich getting richer and poor getting poorer; they believed that this was the result of the natural order of things. They privatized the most basic task of government -- defending our nation. As a result, mercenaries tortured and killed in the name of American public. I would hope that serious liberatarian philosophers, like the late Robert Nozick, we be as appalled by the Republican spectacle as I am.

The Republicans have, in fact, long abandoned the proscriptions inherent in the Puritan and Libertarian belief systems. The intense self-examination required by Puritan religious belief and libertarian ideology is too big a burden . It is far easier to assume that what is "good for me" is right and natural and that my success and the failure of others is simply the playing out of the natural order. As a remedy, I would suggest to the evangelicals that they read Jonathan Edwards and discover getting close to God is not a self-help orgy of feeling good about yourself as you suck up bromides in a mega-church. As for the libertarians, I would assign them Ayn Rand's pathetically bad novels if for nothing else than to be reminded that personal integrity means doing the job the right way no matter who it makes mad. Libertarianism does not mean getting rich at the expense of those who are too unskilled or unwise to know that they are buying, nor does it mean using contacts to win government contracts irrespective of merit. Libertarian philosophy was meant to enable free human beings to fulfill their potential; it is a merit-based philosophy, which excludes sucking up to the powerful as well as all other manners of legal corruption. Unlike Bush Republicans, libertarians really do believe in small government.

I am not a libertarian. In principle, I ought to be a Democrat. I wish.

The Democrats commitment to liberal social action would appear, at first glance, to be far more solid than the Republican commitment to Puritanism and Libertarianism. As set out by Dewey and brilliantly explained by John Rawls' Theory of Justice (1971), liberal social action promises a society in which individuals are provided with the education necessary to participate in democracy and achieve their human potential. In short, Dewey and Rawls defend equality of opportunity and argue that this is the responsibility of the State and can not be left to the will of parents, religious groups or any other actor in society. The right to education and the tools necessary to make decisions for oneself are inalienable and belong to the child. The State's responsibility is to deliver on those rights to everyone. Rawls' "veil of ignorance" explained clearly how if each of us were blind at birth to our original position in society, we would all wish to have this same opportunity, and we would all support governmental institutions designed to ensure equal opportunity for all.

Unfortunately, the Democratic Party commitment to liberal social action has been inconsistent at best. When in power, the Democratic Party's patchwork of government programs has largely failed to provide poor children with the means to become a fully-entitled member of society. Inner-city neighborhoods offer neither safety nor education. Children are mostly unprotected from bad parenting. In the worst instances, social services intervenes, though lack of resources and an incompetent judicial system customarily make a mess. In sum, not only do poor children suffer from bad parenting more often than wealthy children, we spend less on educating poor children due to an antiquated, absurd system of local financing for schools. Poor children also receive far inferior health care. In short, the Democratic Party has failed to guarantee children their right to equal opportunity. The social intervention required is beyond what they are willing to consider. We are not even close to a serious discussion of how to combat social injustice.

Even worse, there is no evidence that Democrats in office actually believe in Deweyian pragmatism and Rawlsian social justice. Democrats share with Republicans the same comfortable relationship with the current arrangement of social structure and power. They are equally corrupted by lobbyists, equally likely to kowtow to corporations in matters as important as child obesity, the pernicious effect of advertising on children, and so on.

We have little reason to believe that Democrats either understand what I mean by social justice nor that they are prepared to rearrange the federal budget to make all American neighborhoods safe and educate our children.

Which brings me to what I want. Free year round day care for children, free local community pediatric care including monitoring of children to ensure that they receive vaccines and are in good health. I am ready to go after the  manufacturers of children's food and take serious measures against child obesity. I am ready to spend big-time to develop community-based programs for children in sports, arts, etc. I am ready to spend the millions necessary to protect the poor in their neighborhoods and eliminate poverty for all children independently of who their parents are. I am ready to ban all advertising aimed at children. I want a children's bill of rights and programs to break the cycle of poverty and violence that afflict poor children throughout the United States. By the way, I suspect that middle class children will also benefit.

To both Republicans and Democrats what I want sounds like socialism. I am not worried about the label. I am perfectly happy to have adults navigate capitalism, but frankly corporate America is hurting our children and we need to give them the tools to make it to adulthood with a fighting chance to survive as healthy and happy human beings. I am also willing to do whatever is necessary to get government to provide children with what they need to succeed in life. This will be very, very expensive... Then again, it would cost a lot less than Iraq.

Money is not the obstacle. The hard part is rethinking what we hope for our children. There is little evidence that American society is prepared to do so.

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 b