25 August 2014

Some Wisdom About Leadership From the Depths of the Depression

"Management is doing things right; leadership is doing the right things."

Peter Drucker

In other words, management is about the process of organization. A manager may be a great organizer, but a terrible leader. Management is an essential skill. But it lacks traction in times of great change.  Management will almost always choose what is expedient, but a leader will do what is both practical from within a set of choices that are right.   Superior management skills in the hands of the efficiently immoral, or even amoral, can create a hell on earth.

Leadership is about the substance, the overwhelming sense of what is wrong and what is right based on set of principles that can energize a people to accomplish goals greater than the sum of their parts. The vision of a leader can guide a people through a time of change and turmoil, where the tradeoffs are not clear, and in dispute. Leadership is not possible without a dedication to a set of principles that transcend mere operational goals. 

Goals must be joined together in a coherent manner. To merely state that our goals are low inflation and high employment are not sufficient.  How do they complement one another?  From whence do they derive?  How are priorities to be set between them?

And above all, leadership is more than a title, and power, and high pay.  A leader must have a natural empathy and affinity with those whom they lead, and that concern must be closely aligned and apparent.  They understand the worries and concerns of their people, and more importantly can speak directly to them with not only words but action. Leadership sets an example, and adheres to a set of principles greater than itself.  If the principles are worthy, and the strategy well thought, and the management sound, then the chances of success are good.

The social safety net is certainly important, in that it keeps individuals and families from falling into tragedy and despair because of our no-longer-so-recent financial dislocation.

However, direct government assistance is best as a temporary salve to a problem, especially a natural disaster.  It is not effective as a permanent state of affairs.

The great shortcoming of the liberal economists has been to ignore those conditions which have caused the ongoing financial crisis, which has been ebbing and flowing since at least 2001.   By the way and in their defense, the greater failure of their adversaries or counterparties is to address themselves fruitfully to the problems and conditions of the real world, rather than a world of top down idealisms and slogans of their own creation.  The liquidationists and austerians seek to create a clean slate by blowtorching the landscape of those things that offend their purely intellectual sensibilities, and the victims be damned.

Adding stimulus to a system that is broken only produces more of what has gone before, because the situation has not changed sufficiently to restore the economy to balance, to an equitable distribution of its growth in both profits and wages.

Thanks to Pam Martens for reminding us of that prescient speech by Franklin Roosevelt, delivered in the depth of the Great Depression, about the need for leadership and new ideas, especially those of progressive reform. Memo to Fed: Interest Rates Are a Sideshow; the Problem is Income Inequality Her essay rightly takes the Fed to task on their trickle down approach to The Recovery which is inexcusable in a monetary authority which is also a major banking regulator and economic policy influencer. 

The problem is not so much the inequality itself. No, the problem is in a corrupt system that routinely gives the upper hand to powerful private organizations in formulating political and policy decisions in the halls of Congress and the Courts.  Over time this transforms the economy into a machine for transferring wealth from the public to the Banks, and the corporations that have sprung up around them.

The problem is not so much the inequality, but the corruption of a system intended to reward productivity with a similar amount of benefits for labor as afforded to those who organize it, for the benefit of all.   This is the difference between market capitalism, where labor is fairly compensated, and slavery.  

And it is the proper role of government to address the imbalances of power amongst its various constituents to maintain equal protection, as much as it is the role of government to guard against incursions of the powerful from abroad.

And when government falls into this trap of corruption by private power, the solution is not to further diminish government, giving even more free reign to private power. The solution is to reform and restore balance between public and private interests.

Where power in an economy falls into such an imbalance, and concentrates in fewer and fewer hands, that society will find itself increasingly trying to remain standing on a two legged stool, held up increasingly by more fraud and more force, and the steady erosion of justice and the rule of law.

"I believe that the recent course of our history has demonstrated that, while we may utilize their expert knowledge of certain problems and the special facilities with which. they are familiar, we cannot allow our economic life to be controlled by that small group of men whose chief outlook upon the social welfare is tinctured by the fact that they can make huge profits from the lending of money and the marketing of securities--an outlook which deserves the adjectives 'selfish' and 'opportunist.'

You have been struck, I know, by the tragic irony of our economic situation today. We have not been brought to our present state by any natural calamity--by drought or floods or earthquakes or by the destruction of our productive machine or our man power. Indeed, we have a superabundance of raw materials, a more than ample supply of equipment for manufacturing these materials into the goods which we need, and transportation and commercial facilities for making them available to all who need them. But raw materials stand unused, factories stand idle, railroad traffic continues to dwindle, merchants sell less and less, while millions of able-bodied men and women, in dire need, are clamoring for the opportunity to work. This is the awful paradox with which we are confronted, a stinging rebuke that challenges our power to operate the economic machine which we have created.

We are presented with a multitude of views as to how we may again set into motion that economic machine. Some hold to the theory that the periodic slowing down of our economic machine is one of its inherent peculiarities--a peculiarity which we must grin, if we can, and bear because if we attempt to tamper with it we shall cause even worse ailments. According to this theory, as I see it, if we grin and bear long enough, the economic machine will eventually begin to pick up speed and in the course of an indefinite number of years will again attain that maximum number of revolutions which signifies what we have been wont to miscall prosperity, but which, alas, is but a last ostentatious twirl of the economic machine before it again succumbs to that mysterious impulse to slow down again.

This attitude toward our economic machine requires not only greater stoicism, but greater faith in immutable economic law and less faith in the ability of man to control what he has created than I, for one, have. Whatever elements of truth lie in it, it is an invitation to sit back and do nothing; and all of us are suffering today, I believe, because this comfortable theory was too thoroughly implanted in the minds of some of our leaders, both in finance and in public affairs...

No, our basic trouble was not an insufficiency of capital. It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital, and at the same time the purchasing power of other great groups of our population was permitted to shrink. We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend this capital at home and abroad.

I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.

It is well within the inventive capacity of man, who has built up this great social and economic machine capable of satisfying the wants of all, to insure that all who are willing and able to work receive from it at least the necessities of life. In such a system, the reward for a day's work will have to be greater, on the average, than it has been, and the reward to capital, especially capital which is speculative, will have to be less. But I believe that after the experience of the last three years, the average citizen would rather receive a smaller return upon his savings in return for greater security for the principal, than experience for a moment the thrill or the prospect of being a millionaire only to find the next moment that his fortune, actual or expected, has withered in his hand because the economic machine has again broken down.

It is toward that objective that we must move if we are to profit by our recent experiences. Probably few will disagree that the goal is desirable. Yet many, of faint heart, fearful of change, sitting tightly on the roof-tops in the flood, will sternly resist striking out for it, lest they fail to attain it. Even among those who are ready to attempt the journey there will be violent differences of opinion as to how it should be made. So complex, so widely distributed over our whole society are the problems which confront us that men and women of common aim do not agree upon the method of attacking them. Such disagreement leads to doing nothing, to drifting. Agreement may come too late."

Franklin D. Roosevelt, Address at Oglethorpe University, May 22, 1932