Here’s an idea Malcolm Gladwell throws out in a long back-and-forth with ESPN’s Bill Simmons that’s mostly about the NBA. Simmons argues that career longevity, European imports, and overachieving young players have helped make the current NBA particularly well-stocked not just with talent, but with well-used talent. Gladwell makes one of his trademark Gladwellian connections:
What we’re talking about is what are called capitalization rates, which refers to how efficiently any group makes use of its talent. So, for example, sub-Saharan Africa is radically undercapitalized when it comes to, say, physics: There are a large number of people who live there who have the ability to be physicists but never get the chance to develop that talent. Canada, by contrast, is highly capitalized when it comes to hockey players: If you can play hockey in Canada, trust me, we will find you. One of my favorite psychologists, James Flynn, has looked at capitalization rates in the U.S. for various occupations: For example, what percentage of American men who are intellectually capable of holding the top tier of managerial/professional jobs actually end up getting a job like that. The number is surprisingly low, like 60 percent or so. That suggests we have a lot of room for improvement.
What you’re saying with the NBA is that over the past decade, it has become more and more highly capitalized: There isn’t more talent than before, but there is — for a variety of reasons — a more efficient use of talent. But I suspect that in sports, as in the rest of society, there’s still an awful lot of room for improvement.
Noam Scheiber, writing in The New Republic this week, says basically the same thing (about management, not basketball):
A lot of people talk about reviving the domestic manufacturing sector, which has shed almost one-third of its manpower over the last eight years. But some of the people I spoke to asked a slightly different question: Even if you could reclaim a chunk of those blue-collar jobs, would you have the managers you need to supervise them?
It’s not obvious that you would. Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, “That’s how you end up with GM rather than Toyota.”
In effect, what we’ve been doing in American industry is overpaying flashy ball hogs who put up great statistics but don’t know how to build teams or win games. In a similar vein, Umair Haque says that the whole model of a “leader” needs to be rethought, and what we really need are builders:
Leadership was built for 20th century economics. It’s a myth that leadership is a set of timeless skills. Is it? Abraham Zaleznik famously defined leadership as “using power to influence the thoughts and actions of other people.” Influence is the key word. The textbook skills of the “leader” — persuasion, delegation, coalition — aren’t universally applicable. Rather, they fit a very specific context best: the giant, evil, industrial-era organization.
Leaders don’t lead. How did this particular skillset emerge? Influence counts because the vast, Kafkaesque bureaucracies that managed 20th century prosperity, created, in turn, the need for “leaders”: people who could navigate the endlessly twisting politics at the heart of such organizations, and so ensure their survival. But leaders don’t create great organizations — the organization creates the leader. 20th century economics created a canonical model of organization — and “leadership” was built to fit it.
Haque actually doesn’t do a great job at articulating what a “builder” does differently, other than throwing out a few examples. (Yes, Obama isn’t as accomplished a builder as Gandhi — but saying that Gandhi “built” nonviolent resistance only scratches the surface.)
But if you use Haque’s new-economy and Scheiber’s old-economy critiques of current practices, you get something very powerful. The pre-managerial, heroic-age-of-capitalism industrialists of the 19th and early 20th centuries didn’t always build things that were good, from our perspective — but coalsmoke aside, they BUILT things, creating real capital and value along the way. It’s this fifty-year-blip of late uncreative capitalism, milking old property for its dregs, reshuffling money to create something from nothing, that has culturally really screwed us up.
Umair Haque bangs the drum:
Socially useless business is what has created a global economy on life support. Socially useless business is what has created a jobless “recovery” and mass unemployment amongst the young. Socially useless business is why we don’t have a better education, healthcare, finance, energy, transportation, or media industry. Socially useless business is a culture in shock, reeling from assault after assault on the fabric of community and comity. Socially useless business is the status quo — and the status quo says: “You don’t matter. Our bottom line is the only thing that matters.”
Until now. Today, socially useless businesses are living on borrowed time — and the clock’s about to reach zero hour. Somewhere out there is a Constructive Capitalist who’s going to use the power of meaningful economics to relegate you to the dustbin of economic history — just like Google and Apple are doing to big media, Wal-Mart’s doing to big food, FMCG, and retail, and Nike’s doing to shoes.
So far, so good; smart, critical, visionary. Probably even true.
But then, Haque pulls out a lighting bolt of an analogy to remind us that he’s a young guy who’s writing a blog, not a stuffy magazine writer proffering an op-ed:
Here are four different paths to becoming a socially useless supervillain:
Skeletor. Skeletor’s goal was to learn Eternia’s time-honored secrets, and use them against Eternia itself. Sound familiar? It should. It’s what telcos, pharma players, health insurers, and automakers do when they lobby against the common good — and for a license to be socially useless. The secrets of Eternia were the key to its prosperity, just like laws that protect the common good are the key to ours. Yet GM was lobbying against higher mileage standards until this year, right up until their bankruptcy. That’s about as brain-dead as Skeletor trying to take on He-Man, over and over again — and never winning.
Gargamel. Gargamel isn’t really a supervillain — just an evil old dude with the ability to create magic potions. He wants to destroy the Smurfs because he thinks he knows how to run a better Smurf society. Sound familiar? It’s the economic equivalent of financial engineering. Private equity funds are textbook examples: their magic potions never seem to work very well. Though the companies they run may benefit in the near-term, eventually, they run iconic companies into the ground. Think of the sad story of Simmons — the focus of seven deals in 18 years. Today its debt load is ten times what it was two decades ago. Yet from the merry-go-round of private equity owners, no authentic value has been created.
Also mentioned: Wile E Coyote and Cobra Commander. Awesome.
One thing I want to add: “constructive capitalists” (not a bad term) find ways not only to generate qualitative value, but to realize it. This is why smaller businesses have so much to offer, to their owners, their workers, and their customers: they’re less concerned with extracting value to pass up the chain (to shareholders, parent companies, etc.) then with realizing it by creating great products, treating people with respect, offering humane policies, job flexibility, mentorship, etc.
You can forego maximizing profit if you can realize some of these qualitative benefits. It’s impossible for someone trading your stock to realize those qualitative benefits. It’s not that a shareholder is economically rational while a self-employed business owner isn’t — it’s that in each position, only certain kinds of economic decision-making are even possible.
Instead of buying and cooking and eating a meal — where at every step you’re balancing qualitative and quantitative value — it’s like buying a gallon of gasoline: who cares, really, how good it is? I just need a full tank at the best price. I don’t know about you, but cooking a great meal isn’t just more socially valuable — it’s more personally valuable too, because all of that qualitative goodness ends up on our tongues and in our bellies.