Monday, July 13, 2009

Everyone needs to learn accountability

“Moderate” NYT columnist David Brooks apparently wrote a column last week criticizing capitalism. Since I put little store in what Brooks (or any other NYT op-ed columnist) says, I hadn’t noticed.

However, in responding to the Brooks column, economist, Hoover Fellow and EconLog blogger David Henderson shared his own personal story about his first job at age 16. He quickly learned that a job was not a right, but a privilege, and if he didn’t perform he wouldn’t have a job. I guess because he assumes his audience is economically literate, Henderson doesn’t circle back to make the larger point.

Central planning has been shown to be an abject failure — no one person is so smart or knowledgeable (even with computers) to be able to make all the right decisions for everyone, whether in a city, a state, a country or an economy. The only alternative is decentralized authority and initiative, with the proper incentives and feedback mechanisms. (Cure cancer=make piles of money; cheat customers=go to jail.)

The one thing that’s often missing (as elsewhere in society) is accountability. Young David H. learned accountability from his restaurant supervisor, but not all workers do. The entire system fails if good workers (CEOs, middle managers or grunts) are not rewarded or bad workers are not punished, whether due to laziness, indifference, or a desire to be surrounded by sycophants.

What applies to individuals also applies to companies. If you make something good, people buy it; if it’s drek, they won’t. The worst thing that happened to the American auto companies is that people continued to buy their (mostly) lousy cars during the 1980s and 1990s out of loyalty or due to superior distribution, postponing and magnifying the inevitable day of reckoning. (The companies also cleverly created new product categories like minivans and SUVs which gave them temporary monopolies until the Japanese learned to make them better.)

When I study the best tech startups, they succeed as ruthless meritocracies fighting for survival, where good ideas and people win out. As they get older, they get more comfortable, more political, more bureaucratic. Eventually, they become indistinguishable from an American car or steel company — that is to say, like RCA, Zenith or (soon) Motorola, once-great electronics companies that drifted into irrelevance and oblivion.

Some of it is the loss of the founder and his (or her) ruthless vision and demand for accountability, such as HP after Dave Packard retired. Apple was this way between the Jobs I and Jobs II eras, and could easily revert when Jobs leaves for good. Google and Qualcomm are heading in this direction, and Intel (despite its paranoia) seems to have lost the battle.

Oddly, the verdict seems still out on Microsoft. The past two decades were more about pugnaciousness — fighting all comers — and milking monopoly rents rather than driving innovation. But a few recent signs (such as Windows 7) suggests that the company is coming back. Perhaps it realizes that it won’t be able print money forever, and (like the post-Gerstner IBM) will have to learn to succeed in the marketplace by providing things that people actually want.

In February, Microsoft CEO Steve Ballmer observed that each generation has to re-learn the need for prudence in saving and spending. Blogger Mike Shedlock applied this to the dissipation of entrepreneurial family fortunes across three generations — until the 3rd (or 4th) generation had to learn how to make a living the way their (great-)grandparents did, by earning it.

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