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Posts Tagged ‘Globalization’

The Quest for a Sustainable Economic Model – An Essay in Three Parts

Posted by Hemant Puthli on April 8, 2012

“All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” – Adam Smith in “The Wealth of Nations” Book III, Chapter IV

“Business leaders today face a choice: We can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressures of an angry public.” – Dominic Barton, Global Managing Director, McKinsey & Company

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Stagnating economies, helpless governments, depressed markets, diffident businesses, angry citizens. Is there a way out of this quagmire? What could point us in that direction? Without promising any categorical answers, this essay in three parts attempts to: (in Part I) understand how we got here, (in Part II) assess where we are today and (in Part III) look at what might unfold as the road ahead 

This essay does not aspire to be a formal, academically complete dissertation of the kind presented by an economic historian or a political scientist. It does not purport to be either an authoritative chronicle of our history or an all-encompassing narrative of our present condition or a forecast for the future of our species on this planet. Instead, it captures the observations and findings of a curious mind in its attempt to study the etiology of some major forces that have impacted our lives in the last few decades, leading to the severe systemic failures whose fault lines started to show about four years ago and the full dimensions of which are only now becoming clear. 

A lot happened in the last 300 years, and this first part of the essay tries to put in perspective only those events and phenomena that have shaped the socioeconomic and political zeitgeist of our present times. 

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Part I: Understanding the Past

Around three centuries ago, the Age of Enlightenment and its attendant Revolutions – the Industrial Revolution, the American Revolution and the French Revolution – permanently reoriented the social, economic and political vectors of progress and redefined the trajectory of human civilization. The work of prominent inventors, economists, philosophers, social reformers and political revolutionaries such as James Watt, Adam Smith, Jeremy Bentham, Benjamin Franklin, Thomas Jefferson, George Washington, Jean-Jacques Rousseau and Voltaire, to name a few, triggered a series of changes through the 18th and 19th centuries. These changes – some incremental, some dramatic – fundamentally transformed continents on both sides of the Atlantic over those 2 centuries. Orthodox and rigid feudal hierarchies were broken down or relegated to irrelevance. A largely agrarian society ruled by dynastic monarchs gave way to industrialized economies in nation-states governed by elected representatives of the people. In addition to Land and Labor, a third dimension – Capital – became a vital cornerstone of economics. What came to be called the “Industrial Age”, framed in the ideological context of classical liberalism, brought along a new kind of prosperity and placed it within reach of common folk.

The world witnessed even more dramatic change as it entered the 20th century. The work of prominent scientists like Einstein, Heisenberg and Schrodinger changed the way the world looked at the universe. The atom was smashed and nuclear energy was harnessed – for constructive as well as destructive purposes. Leading manufacturers perfected the art and science of mass-production of goods in large volumes in a relatively short time using a smaller number of workers. Mass-produced and affordable automobiles changed how middle-class people got from place A to place B. Not only did Man learn to fly, but also managed to set foot on the moon and send several unmanned probes into the solar system and beyond. The discovery of penicillin opened a whole new chapter in modern medicine. Life expectancy nearly doubled. World population quadrupled in just a hundred years, despite mass destruction on an unprecedented scale (two World Wars, many other international conflicts and numerous genocides, that together accounted for the loss of close to a hundred million lives). Activist-reformers like Mohandas Gandhi, Martin Luther King Jr. and Nelson Mandela demonstrated the power of non-violent civic protests to move (or remove) oppressive regimes. Colonial imperialists gave in to demands for independence and assertions of the right to self-determination from the outreaches of their dominions, and relinquished control to sovereign nation-states. The influence of social liberalism urged capitalist governments (more so in Europe than in America) to address issues such as unemployment, health care, education, civil rights and social justice. Thanks to rapid advances in telecommunications, broadcasting and data processing technologies, the “Information Age” was born, adding a fourth dimension – “Intellectual Capital” – to three-dimensional Industrial Age economics, to represent the new “Knowledge Economy”.

Plus ça change plus c’est la même chose

Unlike imperial feudalism (and its Indian manifestation, religious casteism), the secular polity of industrialized republics enabled citizens, including those of humble background (or “low” birth) to shape their own destiny. While the old order consigned people to their fate by an accident of birth and confined their lives to the boundaries of the specific cell of the societal matrix that they were born into, the new order accorded official sanction to the inalienable rights of all citizens to equally enjoy the same degrees of freedom, allowing for unencumbered upward mobility through socioeconomic strata (at least in theory) based on each individual’s ambitions, abilities and achievements.

Despite these dramatic changes, the core socioeconomic architecture withstood the tectonic shifts of these new Ages. While the quintessentially feudal arc of civilization (of the time) did bend – towards liberty, equality and fraternity – it did not break. A new combination of money and political power, accessible to common citizens of a republic, replaced the old combination of patrimony and inhered aristocracy that was reserved exclusively for those of noble birth and kept beyond the reach of commoners. Hierarchies based on nobility were brushed aside, only to be replaced by hierarchies based on economic and political control, built by capitalism and its doppelganger, communism. A late entrant on the world stage (born out of two other Revolutions in the 20th century: the October Revolution in Russia and the Cultural Revolution in China), communism made an early exeunt in one case and in the other, is currently undergoing its own unique drama of metamorphosis before a global audience. But even communist regimes that championed classless society needed some form of command-and-control architecture to organize their realms and maintain order.

Left or right, might continued to be right – the pyramidal shape of power structures hardly changed much. The harbingers of the new era of prosperity were exalted as the new lords and masters. In capitalist economies the nouveau riche emerged as the new upper class whose conspicuous consumption was designed to flaunt their newly amassed wealth to gain entry into elite social circles. Though slavery (in the United States) and casteism (in India) were abolished by law, old prejudices still remained. Centuries of social oppression, supposedly compensated by the patronage of whimsical aristocrats acting out of noblesse oblige, gave way to economic exploitation in the new capitalist model, ostensibly redeemed by the personal altruism of arriviste industrialists and (later) the institutionalized caritas of Corporate Social Responsibility (CSR) programs. In the new totalitarian communist republics, individual and political freedoms were suppressed in the name of the “great leap forward” towards an egalitarian society.

And so dominance of one kind gave way to dominance of another kind. The barbarism of Ivan the Terrible and Genghis Khan resurfaced as the Industrial Age despotism of Stalin and Mao in the communist republics of the Soviet Union and China, matched equally by the fascism of Hitler and Mussolini in capitalist Germany and Italy. The tyranny of aristocratic feudalism was replaced by the authoritarianism of leaders of neo-feudal republics, on both sides of the infamous “Iron Curtain” that defined a bi-polar world. While this new avatar of feudalism manifested in the form of dirigistic oligarchies in communist countries, in the United States it resulted in crony capitalism and plutocracy in the form of the robber barons of the gilded age and the military-industrial complex in later years, for which an entity called the corporation served as the linchpin.

Portrait of the Corporation as a Psychopathic Person

The corporation became the most powerful non-state actor in the theater of the Industrial Age, exerting strong influence on politics and impacting all levels of policy-making and governance. In the documentary film The Corporation (released in 2003) Mark Achbar and Jennifer Abbott study the behavior of corporations, in much the same manner as psychologists analyze people, and conclude that corporations exhibit behavior that would be classified as psychopathic when observed in humans. Reproduced below are excerpts from the synopsis of the film.

In the mid-1800s the corporation emerged as a legal “person.” Imbued with a “personality” of pure self-interest, the next 100 years saw the corporation’s rise to dominance. The corporation created unprecedented wealth but at what cost? The remorseless rationale of “externalities” (as Milton Friedman explains, the unintended consequences of a transaction between two parties on a third) is responsible for countless cases of illness, death, poverty, pollution, exploitation and lies.

[…]

The operational principles of the corporation give it a highly anti-social “personality”: it is self-interested, inherently amoral, callous and deceitful; it breaches social and legal standards to get its way; it does not suffer from guilt, yet it can mimic the human qualities of empathy, caring and altruism.

A few years after this film was made, a study conducted by psychologists in the U.K. tested senior managers and chief executives from leading British businesses and compared the results to the same tests on patients at Broadmoor special hospital, where people convicted of serious crimes were held in custody. The study found that on certain indicators of psychopathic traits, the executives’ scores matched or exceeded those of patients who had been diagnosed with psychopathic personality disorders, consistent with the message of the film.

During the making of the documentary film, Canadian law professor and legal theorist Joel Bakan wrote the book “The Corporation: The Pathological Pursuit of Power” in collaboration with Mark Achbar. The book traces the corporation’s rise to dominance and urges restoration of the corporation’s original purpose, to serve the public interest, calling for re-establishment of democratic control over the institution[1].

While the film won many awards and was generally acclaimed for being balanced in its approach of including a variety of different views, strident advocates of free market capitalism dismissed its scathing commentary as propaganda by left-leaning activists[2]. Ironically, the film was also criticized by Maoists for “depicting the communist party in an unfavourable light, while adopting an anarchist approach favoring direct democracy and worker’s councils without emphasizing the need for a centralized bureaucracy” (quoted from the Wikipedia page). Clearly, neither capitalists nor communists liked to be seen as psychopathic, though the former emphasized their moral superiority over the latter by pointing to the latter’s horrific crimes.

“If You Think I’m Bad You Should See The Other Guy”

On the eastern side of the Iron Curtain, communist totalitarianism gave a far more gruesome and macabre meaning to institutionalized psychopathic behavior (Stalin’s pogroms and Mao’s purges stand out even today as the most shocking instances of organized mass murder on a scale yet unprecedented in human history) making the evils of capitalistic institutions, in comparison, look about as diabolical as the antics of mischievous school children out on a picnic.

In its initial stages though, communism looked like it was the “right answer”. Lincoln Steffens, an American journalist and reformer visited the Soviet Union in March 1919 and on his return, uttered the famous words: “I have seen the future, and it works“. He went on to comment on the “confusing and difficult” process of a society in the process of revolutionary change, writing that “Soviet Russia was a revolutionary government with an evolutionary plan”, enduring “a temporary condition of evil, which is made tolerable by hope and a plan” (quoted from the Wikipedia page).

However, there was nothing temporary about the denial of personal and political freedom to common citizens of Soviet and Chinese republics. Economic conditions steadily deteriorated in various parts of the Soviet Union, while the government remained preoccupied with the arms race with America and its allies. Despite many protests, especially from the non-Russian minority communities, repression continued unabated till the late 1980s. In China the Tiananmen Square protests, demanding economic and political reforms, were brutally quelled by the State. Demands for autonomy and social and cultural freedom in Tibet continue even today, and though the movement enjoys international support, it has been effectively kept in check by the Chinese authorities.

Just as the Industrial Age saw the deconstruction of feudalism, the Information Age precipitated the dismantling of Soviet autocracy and compelled Chinese statists to rework their economic ideology. Two key weaknesses in the design of communism as the ideal socioeconomic model rendered it unsustainable: (i) the intrinsic inability of the model to foster innovation (a direct result of precluding free enterprise and competition) at a time when consumers in free market economies enjoyed abundance of choice in all categories of goods and services, and (ii) the intrinsic inability of the model to prevent abuse of individual freedoms and civic liberties by the autocratic regimes that it spawned (a direct result of concentrating power in the hands of the State) at a time when elsewhere in the world such freedoms were taken for granted, and free-thinking technocrats of the emerging Knowledge Economy, empowered by access to resources, tools and networks, openly communicated and exchanged ideas with one another.

The Golden Age of Capitalism: a Cornucopian Paradigm

According to many economic historians, the “Golden Age of Capitalism” and the rise of the consumerist society in the two decades or so following World War II were but a natural consequence of the Great Depression[3] from the decade preceding that war. This is consistent with the theory of business cycles, as envisaged by John Maynard Keynes, that anticipates fluctuations in Gross Domestic Product (GDP) caused by phase lags in production and consumption and other factors such as fiscal and monetary policies.

Despite the Great Depression, the 20th century was the most economically prolific period in history.  According to a recent study 55% of all the goods and services produced since 1 AD were produced in the 20th century. Much of this was due to the strategically and pro-actively planned promotion of a consumerist culture in America in the aftermath of World War II, quite possibly taking a cue from a paper titled “Price Competition in 1955” published in the Journal of Retailing, Spring 1955 by economist and retail analyst Victor Lebow.  Excerpted below are Lebow’s “best-known words” from that paper (source: Wikipedia):

Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption. The measure of social status, of social acceptance, of prestige, is now to be found in our consumptive patterns. The very meaning and significance of our lives today expressed in consumptive terms. The greater the pressures upon the individual to conform to safe and accepted social standards, the more does he tend to express his aspirations and his individuality in terms of what he wears, drives, eats- his home, his car, his pattern of food serving, his hobbies.

These commodities and services must be offered to the consumer with a special urgency. We require not only “forced draft” consumption, but “expensive” consumption as well. We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing pace. We need to have people eat, drink, dress, ride, live, with ever more complicated and, therefore, constantly more expensive consumption. The home power tools and the whole “do-it-yourself” movement are excellent examples of “expensive” consumption.

It is not clear whether Lebow was actively advocating a consumerist culture or cynically apprehending its preponderance. It is also not clear whether the policy makers of the time took Lebow’s advice into account in envisioning an economic future for America. Notwithstanding these ambiguities, what seems clear now in hindsight is Lebow’s prescience of the design principles of post-World-War-II capitalism. Not only did this strategy work, it “rocked”. Leading historian and academic Niall Ferguson’s recent book lists consumption (and the consumerist lifestyle) as one of the 6 killer apps of prosperity that have made the “West” more successful than the “Rest”.

Consumerism: The Benchmark for Calibrating Progress

The resounding success of consumerist capitalism has entrenched in our minds – in the West as well as among the Rest – the baseline definition of progress. We have been so deeply conditioned to treat the cornucopian abundance of such booms as “normal”, that after every bust that invariably follows every boom, this “Golden Age of Capitalism” is what we seek to return to. When we find we just can’t, we reset our expectations to a “new normal” – one that advocates austerity measures but doesn’t change the culture that drives consumerist aspirations and lifestyle goals. This leaves us frustrated and angry.

What we don’t realize despite occasional reminders by insightful thinkers, is that consumerism as the path to socioeconomic utopia is an idea whose time has gone, as Tim Jackson, economics commissioner on the U.K. government’s Sustainable Development Commission, explains in his TED talk. If the entire population on planet Earth were to adopt the same consumerist lifestyle as citizens of the Western hemisphere, we would need more than one planet Earth to provide the natural resources needed to support that level of consumption. Physicist and blogger Tom Murphy points out that if one were to “do the math“, it would be obvious that growth has an expiration date. However, developing countries like India, even today, aspire to reach their own golden age of prosperity, unmindful of the pitfalls of Western-style consumerism, though studies[4] show that over-harvesting of natural resources to support growing consumerism could lead to disastrous consequences.

There are many insidious implications of stretching the consumerism formula too far, as the industrialized free market economies did over the second half of the 20th century. Competitive forces in a market economy put considerable pressure on pricing of goods and services, and corporations respond to these forces by developing a variety of strategies aimed at reducing costs at each step of the supply chain (sourcing/ procurement; production; distribution/ delivery). Many (but not all) of these cost-cutting strategies involve “externalization” of costs (as noted in the synopsis of the film “The Corporation” excerpted above). The cost incurred by the corporation (and therefore, the unit cost to the consumer) is indeed lower, but when seen from an overall ecosystem perspective, several cost components are merely taken out of the corporation’s accounting system and transferred on to externalities.

Some examples of the “unintended consequences” of these types of cost reduction strategies include: exploitation of migrant/ overseas workers (sweat shops, child labor, human trafficking and slavery); un-/ under-employment of local labor; neglect of employee health and safety standards; unfair land acquisition and/ or eviction of residents from sites targeted for new plants/ factories/ other corporate premises; depletion of natural resources that cannot be replenished; release of untreated harmful effluents into the ecosystem; careless disposal of waste (non-biodegradable, in many cases) that can be toxic; change in the habitat of local flora and fauna and reduction in biodiversity.

The Grammar of Plutarchy

Clearly, such indirect ramifications of fierce competition among corporations in the consumer supply chain adversely impact social harmony and the ecological balance. The cheaper-faster-better mantra usually turns out to be worse and more expensive in the long run, for corporations’ stakeholder ecosystems and host societies as a whole. However, the powers that be, who benefit from the status-quo, would not have it any other way. This model works for them and they are the ones who call the shots.

Plutarchy, a portmanteau word that conflates plutocracy (rule by the wealthy) and oligarchy (rule by a few), is probably the word that best describes the collusion between the State and the Corporation, based on the nexus between affluent business tycoons and politicians. Drawing on our perspective on the evolution of Industrial Age capitalism over the last 3 centuries as described above, and on the insights shared by observers and analysts highlighted above, we may conclude that capitalist plutarchy is founded on the following underpinning beliefs and imperatives:

# Beliefs Imperatives
1. Consumerism is good. A consumerist culture promotes the good life by granting citizens the liberty to choose from an array of products and services for each category of needs. Competitive forces in free markets trigger innovation, increasing variety. The pursuit of happiness finds its rewards in consumption. Create and sustain a culture of consumerism. Design economic policies, social norms and traditions, and cultural values that spur an ever increasing demand for consumer goods and services, and in doing so facilitate the growth of corporations that constitute the value chain of consumerism.
2. Free markets are good. The freer the market the better. A totally free global economy will develop market-based solutions to all socioeconomic problems anywhere in the world[5]. Promote the advocacy of free market economics by funding and supporting economists, intellectuals, think-tanks and opinion makers aligned with this philosophy.
3. Cronyism at the top of the pyramid is but a natural and inevitable consequence of economic hierarchy. Cooperation among the wealthy and powerful ensures survival and mutual prosperity. The crony network should be robust enough to protects its members and their business interests by controlling policy making, regulation and governance processes, and exclusive enough to make those outside of it curry favors to gain admittance. Cultivate influential politicians, bureaucrats and lobbyists, powerful regulators and enforcement officials, clever accountants and lawyers and upright judges with a formidable reputation. Include media moguls and executives of publishing houses aligned with free market/ consumerist ideology. Become the definition of success. Exemplify the “lifestyles of the rich and famous” and set it as the gold standard for people’s aspirations (in the U.S., that would be the “American dream”)
4. Governance and regulation are necessary evils. The smaller the regulatory footprint the more manageable it is to get your way around it, and the cheaper it is to finance its implementation and administration. Laws and policies must be seen to represent the best interests of the common people and must appear fair and just. However, there must be adequate provisions to support the interests of the crony network. Gaming the system, bending or breaking rules is OK if you can get away with it – this is the natural instinct of self-interest. Minimize the scope and scale of government. Keep taxes as low as possible (small government requires less funding). Ensure that the regulatory framework contains adequate loopholes and escape hatches (known only within the circle of cronies) that can be exploited by cronies when necessary. Hire “fixers” who can resolve complex compliance issues, by working outside the system if needed. Leverage the crony network to ensure that corporate misconduct and administrative malfeasance by its members remains hidden, or even if exposed, goes unpunished.
5. Propaganda works. Mass media can help shape public opinion. Deny a truth vehemently and often enough, and it becomes an untruth. Assert a lie stridently and often enough (“Emperor’s new clothes”) and it becomes the truth. Hire smart PR and advertising agencies. Leverage the crony network to control the media. Silence critics, contrarians and whistle-blowers and demonize them[6] as anti-national and enemies of capitalism/ true democracy.
6. Authoritarianism is the only real form of leadership. People in general respect and fear authority – they will genuflect before it and take orders from it, thanks to the discipline of obedience taught by religion. However, there could be the exceptional rebel. Social activism and protests are organized forms of anti-establishment rebellion and can be dangerous if not checked. Grassroots/ participatory democracy is synonymous with anarchy and should be avoided. Always remain in control, on “top of the food chain”, at the apex of the power pyramid. Ensure that this power structure is never threatened. If it is, nip the bigger threats in the bud. Allow some room to smaller threats, to demonstrate tolerance for freedom of expression, and leverage that allowance to advertise democratic values. Always keep grassroots activism in check. Never let things get out of hand, and if they do, then respond by astroturfing or greenwashing or any other tactic money can buy.
7. There will be always be a divide between the rich and the poor. This is God’s will, and cannot be changed[7]. Where the gap is too wide, charity helps reduce the disparity. Charity is an obligatory duty to be performed by the rich towards the poor, and provides the rich with an opportunity for penance should they feel guilty about overindulgence in economic greed. Ergo, charities should never make money. Donations are also a useful tactic to keep the underprivileged dependent on the generosity of the privileged, and therefore preclude them from developing entrepreneurial skills. This helps in creating evidence that they are lazy and parasitic[8], and also reduces future competition. Indulge generously in eleemosynary acts, for not only is charity the best solution to poverty, it is the best path to a venerable image of moral righteousness. Use charity to keep the status-quo. Maintain the gap between the “haves” and the “have-nots” by designing charity programs in a way that makes recipients dependent on donors while simultaneously making them feel indebted. Leverage that indebtedness when needed. If you must “teach people to fish” make sure to remain the thought leader or else risk creating better fishermen who may surpass you. Squeeze all the possible mileage out of charitable acts to earn goodwill and save on taxes.
8. This is as good as it gets. This model of civilization (i.e. consumerist free market capitalism in a democratic republic led by the righteous elite) has worked for several years and has proved to be the best path to prosperity. It may be imperfect but it is better than all other alternatives that can possibly exist. It has produced more prosperity and delivered more personal freedoms than any other system of organizing social and economic activities of a people. If this model doesn’t work for a certain set of individuals, it is because they are indolent and/or incapable of enterprise or industry. Objections and criticisms pointing to minor imperfections in this model, when accompanied by suggestions for improvement, are valid and are to be welcomed in the name of openness and democracy. Other objections and criticisms, to the effect that this model is fundamentally flawed, can only come from lazy leftist losers, and are therefore invalid and need to be summarily dismissed. Neutralize them using the devices and machinations of crony authoritarianism. As per the principles of Manifest Destiny[9] this model must be replicated globally and it is the moral duty of the leadership of the free world to ensure that it is.

.

None of this might come as a surprise to the average reader who has been “in the system” for some time and seen up close these beliefs and imperatives playing out in various aspects of our daily lives. This neo-feudal model of Plutarchy has become such an integral part of our cultural DNA that we seldom stop to think about its validity today or its ability to support future generations. And if we do, our response is likely to be a resigned shrug accompanied by: “It is how it is” and an impatient wave of hand dismissing the suggestion that there could be, and perhaps should be, alternative models that might help us build a better future for a larger number of people over a longer period of time.

However, towards the last few decades of the 20th century, as the golden age of capitalism started losing its luster, various groups of people – thinkers and doers alike – in various parts of the world rose to challenge the validity of this model despite its resounding success. According to them, the relentless pursuit of this consumerist model of utopia, by an exponentially increasing world population, could only lead to dystopia.

Sturm und Drang, Reprise

The many philosophical, artistic, cultural and social movements that took root in the wake of the devastation and misery wrought by the two World Wars – existentialism (Sartre, Camus et al.), surrealism (Dali, Magritte et al.), the theater of the absurd (Beckett, Ionesco et al.), film (Kubrick, Tarkovsky et al.), rock music (The Beatles, The Doors et al.), civil rights (Martin Luther King Jr., Nelson Mandela) – inspired and shaped the socio-cultural revolutions of the 1960s and 70s. In a throwback to the Romanticism that emerged in the late 18th/ early 19th century as a reaction to the Industrial Revolution, these two decades witnessed a widespread backlash from civil society (especially youth/ students), protesting the inhumanity of war (in particular, the use of nuclear weapons) and promoting world peace; protesting the indiscriminate exploitation of natural resources and promoting ecological balance; protesting racial and gender discrimination and promoting a more inclusive and egalitarian social outlook.

The hippie movement fostered a subculture that campaigned for love and peace and harmony with nature, and prescribed sexual freedom, experimentation with drugs and indulgence in Eastern mysticism as catalysts to self-exploration and self-actualization, unconstrained by the conventional morality of a materialistic technology-driven world steeped in social protocols and (according to them) a false sense of propriety. Authors, musicians and other artists of the “Beat Generation” encouraged a rejection of the status-quo established by the “masters of mankind” and unleashed the angst and frustration of repressed youth worldwide. James Michener’s novel “The Drifters” traces the story of six young characters as they navigate their lives, rejecting lifestyles dictated by an authoritarian establishment, in their honest search for meaning and purpose. As a work of fiction, this novel serves as an excellent documentation and reference point for the intellectual chaos of the youth of the time and their quest for a new reality that was more free and fair, and more environmentally and socially responsible.

When it became apparent that the counterculture spawned by hippies and beatniks (the “baby boomer” generation, in today’s parlance) was incapable of solving world problems (or in fact even sustaining itself as a revolutionary movement), many of these non-conformist “revolutionaries” gradually found their way back into the mainstream, to not only conform to it but in many cases further strengthen and propagate its principles. However, many others dug their heels in and took the fight deeper into the various spheres (environmental conservation, global development, social justice, feminism, etc.) that collectively constitute “green politics” and form its intellectual, ethical and cultural ethos.

The Green Movement and the Genesis of Sustainable Development

In the late 60s and early 70s several initiatives aimed at focusing global attention on ecological issues were launched, of which Greenpeace and the Green Party are prime examples. The foundation of green politics rests on the “Four Pillars” defined by the Green Party: Ecological Wisdom, Social Justice, Grassroots Democracy and Nonviolence. These four pillars “define a Green Party as a political movement that interrelates its philosophy from four different social movements, the peace movement, the civil rights movement, the environmental movement, and the labour movement.” (quoted from Wikipedia).

Since 1970, Earth Day has been observed every year as a day on which events are held worldwide to increase awareness and appreciation of the Earth’s natural environment. “The name and concept of Earth Day was allegedly pioneered by John McConnell in 1969 at a UNESCO Conference in San Francisco. The first Proclamation of Earth Day was by San Francisco, the City of Saint Francis, patron saint of ecology. Earth Day was first observed in San Francisco and other cities on March 21, 1970, the first day of spring in the northern hemisphere.” (quoted from Wikipedia).

In the United States, the Environmental Protection Agency (EPA) commenced operations in late 1970. Many other countries set up their own EPAs, charged with responsibility of defining national standards and regulations aimed at protecting the natural environment and also conducting environmental research and disseminating information to create awareness.

Over a decade or so, the scope of the Green Movement expanded into other initiatives such as Sustainable Development. The United Nations World Commission on Environment and Development released the Brundtlandt Report in 1987, which defined Sustainable Development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This central idea continues to be at the core of the thinking that has emerged over the years and today offers itself as the North Star to the ideation around evolving a better world. This theme runs through the next two parts of this essay, as we go on to discuss our present circumstances and envision strategies for the future.

________________________________________

Endnotes

1. Quoted from the web-page about the book:

Beginning with its origins in the sixteenth century, Bakan traces the corporation’s rise to dominance. In what Simon and Schuster describes as “the most revolutionary assessment of the corporation since Peter Drucker’s early works”, The Corporation makes the following claims:

  • Corporations are required by law to elevate their own interests above those of others, making them prone to prey upon and exploit others without regard for legal rules or moral limits.
  • Corporate social responsibility, though sometimes yielding positive results, most often serves to mask the corporation’s true character, not to change it.
  • The corporation’s unbridled self interest victimizes individuals, the environment, and even shareholders, and can cause corporations to self-destruct, as recent Wall Street scandals reveal.
  • Despite its flawed character, governments have freed the corporation from legal constraints through deregulation, and granted it ever greater power over society through privatization.

2. It is worth noting here that, thanks to the draconian power of McCarthyist witch-hunts of the 1950s which managed to expunge all forms of socialist/ collectivist ideologies from American intelligentsia, people enjoyed freedom of thought only as long as they did not advocate communism. Even today, articles pondering over the wisdom in Karl Marx’s ideology are peppered with apologia in an attempt to clarify and reiterate their pro-capitalism position. A recent post in the blogs sections of Harvard Business Review titled “Was Marx Right?” is an instance in point.

3. In a recent New York Times article comparing the current economic crisis with the Great Depression, David Leonhardt writes:

Economists often distinguish between cyclical trends and secular trends — which is to say, between short-term fluctuations and long-term changes in the basic structure of the economy. No decade points to the difference quite like the 1930s: cyclically, the worst decade of the 20th century, and yet, secularly, one of the best.

[…]

Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

4.  “If the levels of consumption that … the most affluent people enjoy today were replicated across even half of the roughly 9 billion people projected to be on the planet in 2050, the impact on our water supply, air quality, forests, climate, biological diversity, and human health would be severe.” (Excerpted from “The State of Consumption Today“; source: “State of the World 2004” published by the Worldwatch Institute.)

5.  This belief is based on the assumption that materialistic ambition of individual entrepreneurs invariably results in benefits to society, though the motive is purely based on personal gain. Adam Smith used the metaphor of an “Invisible Hand” that guides free enterprise in its intention to maximize profits, to produce outcomes aligned with the common good. A logical corollary to this belief is, in the words of John Maynard Keynes, “the belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”

6.  Economist Paul Krugman in the New York Times op-ed “Panic of the Plutocrats“: “Anyone who points out the obvious, no matter how calmly and moderately, must be demonized and driven from the stage. In fact, the more reasonable and moderate a critic sounds, the more urgently he or she must be demonized …”

7.  Paraphrased from the opening line in John Winthrop’s sermon “A Model of Christian Charity“, in which he called for the establishment of a virtuous community – “City upon a Hill” – that would be a shining example to the rest of the world. It may be noted that many American politicians throughout the country’s history, including present times, have made references to Winthrop’s metaphor in their speeches, suggesting that his vision remains a keystone of America’s view of itself and its relationship with the rest of the world, even today.

8. This goes against the Protestant work ethic that forms the spirit of capitalism and therefore constitutes a strong moral judgment, liable for punishment in the form of poverty.

9.  See Wikipedia page on Manifest Destiny. Relevant excerpt:

Historian William E. Weeks has noted that three key themes were usually touched upon by advocates of Manifest Destiny:

  1. the virtue of the American people and their institutions;
  2. the mission to spread these institutions, thereby redeeming and remaking the world in the image of the U.S.; and
  3. the destiny under God to do this work.

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Posted in Economics, Environment, Governance, Organization, Politics, Society, Technology | Tagged: , , , , , , , , , , , , , , , , | 6 Comments »

Does Your Start-up Need to Grow Up?

Posted by Hemant Puthli on January 21, 2010

Over the last decade or so, the heady blend of technological innovativeness and entrepreneurial drive has resulted in a widespread burgeoning of technology-centric start-ups. This was mostly fueled by quantum leaps in the price/performance of technology products in a climate of de-regulation and liberalization, especially in the telecom industry. At the turn of the century, the spike in Y2K business and the concurrent boom in dot-com opportunism were the most highly visible phenomena that marked this trend. Soon after, the predictable post-Y2K void and the inevitable dot-com bust saw a lot of bankruptcies and sell-outs, and, as one might have expected, very few new launches. A few years since then, however, Web 2.0 — the second wave of web technologies coupled with mobile computing and other trends that have collectively been dubbed ‘social media’ — has brought a groundswell of economic activity around technology-centric start-ups. This has been further spurred on by the success of Facebook and Twitter, which have emerged as role models that many Web 2.0 / social media start-ups emulate. Simultaneously, in the post-Y2K world of global sourcing and off-shore IT and IT enabled services (ITeS), there has been a spate of IT / ITeS start-ups that are all aspiring in some way or other to become the ‘next Infosys’ in their respective markets.

However, not all technology start-ups become mega-corporations (though the reverse may be true: several giants in the technology industry were small boot-strap start-ups in their infancy). Not just that, many don’t even scale up to the mid-market level (defined by, say, annual revenues to the tune of tens of millions of US $ and/or multiple hundreds of employees) and continue to remain at the ‘Small’ end of the ‘Small & Medium Enterprise’ (SME) categorization till they are either acquired by larger and stronger players or are just simply driven out of business. Founders and promoters of such ventures are often puzzled and frustrated by the inability of their start-up, now in its adolescence, to break through seemingly invisible barriers that appear to be limiting its growth, in spite of being in business for several years and having built a respectable brand with a proven track record. What they don’t realize is that a lot of the answers to their conundrum lie within the organization itself and in the mindset of the leaders that define and propagate its culture. In many cases, promoters get rid of the problem altogether by selling off the business, but the organization continues to carry the seeds of the problem which then poses a challenge to the new owner. In any case, the inability to grow beyond the invisible barrier continues to be a confounding mystery. Why does this happen? Quite simply, they have started-up and they have grown but they haven’t grown up. Let’s take a deeper and harder look under the hood and try and understand the anatomy of an average start-up culture.

The “Forever Young” mindset has everybody “Living In The Past”

First, let’s focus on the main malaise that afflicts most start-ups, illustrated by the following near-verbatim quote from a recent interview of Facebook’s Co-founder CEO & President, 26 year-old Mark Zuckerberg: “It is really important to always keep a beginner’s mind and think what we would do if we were starting the company now”. This may have been relevant in the context of Zuckerberg’s responses to questions he was being asked in that interview, but it’s a pleonasm to say that every start-up must have a “beginner’s mind”. The more important question is: must they always keep it? Common sense suggests that as a start-up grows it should develop the “beginner’s mind” further and move on to the next stage in its growth, which usually calls for a shift in mindset. It is always a good thing to go back and revisit the time and the space where the “beginner’s mind” was nurtured, but it would be a big mistake to continue to live in that mental space-time. Like humans, start-ups must learn to leave their childhood and adolescence behind as they start to deal with the complexities of corporate adulthood, if they want to grow beyond a point. (Even for humans who seek personal growth, reminiscence of halcyon days as teenagers does not constitute a vision for the future.) Utterances like the one above by Zuckerberg, pulled out of context, acquire their own life as viral memes of start-up wisdom in the highly impressionable social cyberspace, because they resonate very well with the “Forever Young” sentiment of entrepreneurs who simply don’t want to grow up. On the other hand, entrepreneurs who show a hunger for evolution and who are only too eager to embark on a journey towards maturity and sophistication, at the personal as well as the business level, are more likely to make that very important transition through which they will learn to take on and live out a C-level role on par with leaders of other industry majors.

The myth of the “Hands-on CxO” — portrait of the technician as a businessman

In many ways, the “Hands-on CxO” is a corollary of the “Forever Young” mindset. Beyond doubt, at start-up stage it is crucial for CxOs to be highly hands-on, roll up their sleeves and be exemplars of the ‘Do It Yourself’ (DIY) culture. But at some point along the road to growth and maturity, the business leader needs to grow up and actually become a CEO instead of behaving like an overgrown program manager or a sales rep, just as the technology leader needs to grow up and actually become a CTO instead of behaving like an overgrown code-cutter. That journey is as much a personal metamorphosis for the concerned leader as it is for the organization as a whole. Key focus areas for ‘growing up’, in this context, include learning to appreciate the importance of strategy and tactics on the one hand and structure and process on the other, learning to let go of preoccupations with production and delivery issues, and learning to delegate large chunks of the day-to-day operational routine to other team members (who in all likelihood are only too eager to step up and take charge). Not only does delegation release precious bandwidth of key leaders so that they can focus on understanding and embracing their new responsibilities as C-level executives, but also, delegation provides growth opportunities to the team members who get work assigned to them that they were not doing before. This kind of role transformation represents a major career shift for leaders of a start-up and many who aren’t quite ready for that shift tend to resist it with all they’ve got — they would insist on continuing to be hands-on / DIY specialists and would either refuse to delegate or agree to delegate but compulsively continue to micro-manage through remote control. This is partly because they love working on the technology too much, partly because they loathe and fear their new (‘management’) responsibilities too much, partly because they fear losing control over the start-up’s core technical competencies (and risk being challenged by internal upstarts who might grab the opportunity to get a better handle on the secret sauce) and partly because they fear losing touch with technology per se over the years (which would be a handicap should they have to go back to industry for a job, in case the start-up fails).

Cultivating a culture of gods and rock-stars may be good but could also erode value

In almost every technology start-up, there’s a small group of ‘gurus’ who are revered as the gods of that particular domain. The Hands-on CEO and the Hands-on CTO are at the apex of the hierarchy but others in this coterie are almost equally powerful. Younger team members and fresh recruits who show a lot of promise are encouraged to earn ‘rock-star’ status through their first few achievements, and are then invited to join this elite clique. The symbiosis is quite clearly understood but always tacit, never overtly spoken about — the gods preen themselves, drawing on the idolatry of the rock-stars, while the rock-stars enjoy being mollycoddled as special employees and gloat over the privilege of on-line and off-line proximity and access bestowed upon them by the gods. This caucus of gods and rock-starts drives the start-up’s agenda and scripts its future. They have the power to lift the start-up to great heights, as also to bring it down with a crash. They determine what platforms, what tools and what methodologies the firm will use, what they will create (or won’t) and what kind of work they will do (or won’t), who they will partner with and how they will go to market. They shape the talent acquisition strategy and process. It doesn’t stop there, in many cases: they also go on to influence (if not directly determine) strategic and tactical choices dealing with which business opportunities in which markets to chase and how to play to win. The power acquired by this core group could result in several side-effects that have the potential to subvert growth and end up hurting the start-up. For example, it could give birth to cultural xenophobia against lateral hires from the industry, especially if the new entrants also have stellar resumes and come highly recommended. It could trigger a ‘not invented here’ syndrome against new tools, methods, platforms and even new ways of thinking about the business. It could lead to a clinging-on to technologies or methodologies or ideas (or even operating locations and lifestyles) in which the caucus has deep emotional investments, but which are not aligned to market imperatives or do not support growth targets.

‘My Way or the Highway’ could lead to a dead-end either way

The most difficult challenges that a start-up faces in dealing with the winds of change brought by growth and scale, is the letting-go of points of control and the stepping-away from the comfort zones of the past. Growth and expansion usually involve the inorganic inclusion of new people, new ideas, new tools and new methods. Whether it is parting with equity to a new investor (or a new senior recruit) or having to bring in external talent (that internal old-timers may see as a threat) or having to re-shape the organization (resulting in a redefinition of power centers and personal alignments), start-ups must learn to open their minds and their hearts to change. Rejecting or strongly resisting change can mean stagnancy which eventually leads to failure. On the other hand, embracing change may not always guarantee results and in any case, change is never easy. That said, it is historically evident that start-ups that successfully break through the invisible barriers to growth are the ones whose leaders, gods and rock-stars have seen the need to change well ahead of time and have been pro-active in anticipating and meeting that change, thereby opening themselves up to the opportunities that come with maturity.

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Key Business Technology Trends and Themes

Posted by Hemant Puthli on December 18, 2009

It’s that time of the year again — as the holiday season approaches and the calendar year draws to a close, everybody is out there, trying to assess the year that was and trying to forecast the year that will be. In keeping with that tradition we have put together a list of trends and themes that emerge prominently out of our assessment of important developments that have shaped the growth of the business technology market in the recent past, and which will carry over their impact and momentum into the near future. Some of these trends and themes are at the ascent of their curve and approaching their peak, some have reached steady-state where they will continue for a while, while the others have run through their course and are beginning to enter the last leg of their life-cycle before they fade away (only to morph into new avatars of themselves — technology seems to do that thing quite often — the ‘back to the future’ thing).

We present two lists here: a list of 6 trends and a list of 6 themes, in no particular order. Trends pertain to the supply side of the market and are characteristics of products and services that are produced and delivered by vendors and providers. Themes pertain to the demand side of the market and emerge from major pre-occupations of most CIOs and their teams — their key concerns and the stuff that keeps them awake at night. A good way of reading these lists would be for vendors and providers to ask themselves how they can innovate and continue to develop products and services that leverage these 6 trends and help address their customers’ needs and concerns in those 6 thematic areas. Similarly, a good way of reading these lists would be for CIOs to ask themselves how they can stay focused on these 6 themes and deliver results by effectively deploying products and services emerging out of those 6 trends.

Trends (Supply-side)

  • Mobility and Mobile Computing
  • Web 2.0 / Social Networking and Social Media
  • Outsourcing / Off-shoring / Globalization of services
  • Virtualization and Cloud Computing
  • Analytics and Business Intelligence
  • Content and Knowledge Management

Themes (Demand-side)

  • Business Alignment: IT Strategy & Governance, support organizational / operational innovation and business transformation
  • Stakeholder Relationship Management: accountability to end-users, staff, suppliers, corporate leadership
  • Enterprise Architecture: simplification, standardization, consolidation
  • ‘Green IT’ and Corporate Responsibility: supporting social and environmental causes championed by the business
  • Cost Management: real-estate footprint, power consumption, procurement, licensing, maintenance, salaries and wages
  • Security & Risk Management: data security, customer privacy, access control, disaster management, business continuity

We recognize that there may be many trends as well as themes, other than those we have identified here above, that may be equally (or more) important within specific pockets or niches of the business technology market world-wide. By not including more trends and themes we are not suggesting that they are unimportant — we just wanted to keep our lists reasonably short and so decided to pick around half-a-dozen points for each (again, it was not a pre-defined number). Our lists only seek to represent the top few trends and themes aggregated across all industry verticals (such as banking, manufacturing, etc.) and functional horizontals (such as supply chain, customer relationship management, etc.) that the business technology market covers, across all geographies.

Do write in with your comments, especially if you feel we’ve missed out on something really important that needs to be captured in a high-level scan.

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Staying On Top: The Challenge to India’s Leadership in Off-shoring

Posted by Hemant Puthli on August 28, 2009

In a recent (August 2009) article in the McKinsey Quarterly (accessible by clicking here, and then clicking on the shortened URL link mentioned in the archived tweet), Noshir Kaka et al. suggest that Innovation will be a critical success factor for India to maintain a leadership position in the globalized business / technology services industry. Here’s an extract from that article:

Indian business and technology services companies needn’t stand by passively and watch their global market share decline. Innovation will be the key to maintaining and even expanding their market share. Business models that continue to focus on low labor costs won’t suffice.

While it is true that “business models that continue to focus on low labor costs won’t suffice”, in August 2009 this cannot be a epiphanic revelation! This is yesterday’s news, not thought leadership. Most companies foresaw this many years ago, and (as the McKinsey article suggests) turned to Innovation (among other strategies), hoping to leverage it to create a sustainable competitive advantage for India as a destination. All Indian ITO/ITeS industry majors have been chanting the Innovation mantra since then. (Show me one Indian company of some standing in the global business / technology services space that does not lay claim to ‘Innovation’ as its key differentiator at its web-site or in its brochures.) Several companies have been relentlessly trying to institutionalize Innovation in everything they do, in a bid to maintain their market share in the face of competition — from within the Indian market as well as from companies based in the other BRIC countries (and their corresponding regional neighbours in Latin America, Eastern Europe, Asia / South Asia / South-East Asia) and also emerging destinations such as Egypt (and, potentially, other West Asian / African countries). However, the very act of institutionalization makes it a replicable commodity, just like any other ‘best practice’. Which means others can do it too.

My comment to the article (not visible at the site at the time of writing this post) is reproduced here below, and what follows subsequently is an elaboration of the rationale behind my argument and an elucidation of my point of view on the subject.

India’s competitive advantage (beyond wage arbitrage) has always been scale and process maturity. Other destinations simply cannot match the ability of Indian companies to offer large pools of talent to dip into (in terms of breadth as well as depth), or to ramp-up their teams quickly. Besides, a lot of non-Indian companies are still struggling with the challenges of managing process quality in very large projects. However this is not a sustainable competitive advantage. China has the potential to match and surpass India’s strengths in terms of both scale as well as process maturity, given the size of their literate population and their culture of rigour and discipline (which is being applied even now, for example, to learning English as well as learning large scale process management). But other than China, there aren’t too many countries that represent a real threat to India. Innovation is a buzz word, in my opinion, and though this may sound counter-intuitive, it is a fairly commoditizable and replicable attribute. It does not represent a sustainable competitive advantage. Talent pools from the countries / cultures that presently constitute off-shore destinations (or aspire to join the club) are equally good or bad at learning, practising and delivering on the promise of innovation. There is nothing unique about Indian ingenuity that makes Indian talent intrinsically and significantly more innovative than the average knowledge worker in, say, China or Egypt or Eastern Europe or even Latin America!

Clients based in North America and Western Europe (the predominant ‘buyer’ markets) have been tapping into India as a destination for well over a decade, and by now have a good understanding of the issues and opportunities that India represents. They know where the trade-offs are: while on the plus side, as I have argued, India offers a wider range of skills, better scale and better process quality, the down-side comes primarily in the form of higher attrition, greater geographical distances and time-zone differences, cultural incompatibility and to some extent lack of infrastructural robustness. Attrition can be a major problem for clients who have invested time, cost and energy in transferring knowledge. Secondly, while it is true that India enjoys the advantage of a large educated and English-speaking resource base, one must also remember that cultural compatibility is not just about being able to speak a common language (which itself is debatable in the first place, since a lot of the knowledge workers who originate from smaller towns in India cannot really boast of fluency in English, not to mention American colloquialism). Thirdly, while time-zone differences of up to 12 hours do offer the advantage of having someone, somewhere, working on a project 24×7, they do not solve the problem of logistics (when professionals on either shore need to travel great distances to the other shore) and the problem of disrupted daily routine (when professionals on either shore need to be on conference calls at odd hours in their work day).

Comparatively, Central and South American destinations are closer, by way of both time-zone compatibility (in terms of virtual meetings / conferences) as well as geographical proximity (in terms of travel) for North American clients. The same goes for Eastern Europe in the case of European clients. Also, clients find better cultural compatibility in dealing with teams in those destinations, and business communication between client and provider teams is relatively easier and smoother. Language barriers are not significantly higher than when dealing with India, and in many cases may even be lower. Also, attrition is comparatively much lower in most of these destinations. The only disadvantages these destinations have are: skill mix, scalability (especially in terms of ramp-up time) and process maturity. And that is where India has been scoring. Of all competing destinations, China is the only one that has the capability (not to mention the will!) of outstripping India on these fronts. Through concerted efforts in strengthening infrastructure (power, telecoms, etc.), in fighting attrition, in broadening and deepening the pool of trained and qualified professionals, and in imparting cross-cultural and soft-skills training to its resources (a la finishing schools), India can hope to keep the No. 2 slot if / when China overtakes India (may just be a matter of time). Perhaps this is a more pragmatic goal for India as an off-shoring destination.

That said, the opportunity for Indian companies to maintain their leadership position lies not in trying to fight the up-hill battle of keeping India as the most preferred destination. In fact, it lies in not confining themselves to India as a destination. Again, this is not an epiphany — in fact it is not even news. Most of the top-tier India-based service providers (including those founded by entrepreneurs of Indian origin) have already started the process of building (or in some cases, consolidating) ‘near-shore’ hubs in Central and South America, Eastern Europe and other regions. A few have done this through organic growth, but most have done so through acquisitions of stake in local players, to whom Indian companies offer stability, scale, leadership in process maturity and access to other markets, in return for a better presence in the local / regional market, a ready local client base, and the ability to provide a multi-locational offering to their global clients. Leading Indian companies have already figured out that globalization is no longer about staying in India and offering ITO / BPO type of services to the world, as clients have increasingly started demanding lower attrition rates and flexibility in terms of location and time-zones, over and above range of skills, scalability and process maturity.

India as a destination will lose its leadership position in a few years — at the very least, the gap between India and other destinations will start closing rapidly (it already is) as they ramp-up and start competing. Innovativeness is not a special gift that is unique to India-based talent pools and believing that it is so can at best be termed as misplaced patriotism (at worst, it is a kind of jingoistic denial of reality) on the part of Indians. Innovation is a great value proposition and I am not suggesting that it should be abandoned altogether (especially because others will start offering it too!) The smart thing to do, for service providers of Indian origin, is to focus on developing a global delivery footprint (not just sales offices) and the ability to provide the right mix of capability, capacity (i.e., scale), team stability and cultural compatibility, and process excellence, at locations preferred by the client — on-site/ off-site/ near-shore/ off-shore. And as the adoption of globalization shifts to the mid-tier client base, focus on forging strong partnerships with clients to achieve the distinction of becoming an extended team of the client organization. Cultural compatibility and responsiveness to changing client needs are key. Innovation will just be a hygiene factor.

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