The Dead hand of Zombienomics

Umair Haque always writes thought provoking stuff - whether you agree with him or not, it makes interesting reading. He was one of the kindred spirits calling the Crunch a while before it happened, and his recent post on the US response to it is interesting:

The real problem isn't stimulus, it's responsiveness. We're trapped in a zombieconomy: one full of brain-dead organizations who are about as intelligently responsive as Homer Simpson.

Want better clothes? Don't ask the Gap. Want better software? Don't ask Microsoft. Want better cars? Don't ask Detroit. Want better music? Don't ask record labels. Want better healthcare? Don't ask big pharma. Want to hold on to your money? Don't ask a banker. Welcome to economic Bizarro World.

The economy has gone catatonic. Unresponsive corporations are just the tip of the iceberg. Markets can't allocate. Investors won't invest. Banks can't value, or hold onto anything of value. People don't trust, much less consume. What's going on? The real problem isn't how or what we stimulate - but that almost none of our organizations could respond in the first place.

I think the Gap is probably wrongly called (they are one of the few places in the UK making clothes for tall women, for example), but his point is well made - by and large the structures that have grown up in the post-war era to supply us with what we need just don't seem to be fit for purpose now. Drug companies focus on the diseases of the rich, US car companies on machines optimised to waste resources, and as for bankers - well, they are just - lets just say there is an onanistic flavour in Umair's post's heading - Seed Your Own Stimulus - that rhymes

Umair's argument is essentially that the Stimulus won't work, because shovelling money into structures that aren't working is a waste.....the Smithian Invisible hand has died, we now have the dead hand of Zombienomics.

Today's organizations need the opposite of a stimulus: a responsiveness upgrade. A 21st century stimulus isn't about stimulating - it's about responsiveness. We need a new kind of stimulus today: an institutional stimulus - not just a financial one. The point of an institutional stimulus is to make our lame, brain-dead, zombified organizations more responsive.

It's 2009: Gap, Detroit, Microsoft, big pharma, record labels, evil corporations of the world - hello? Anyone home?

Money, value, and wealth are an outcome of having responsive organizations in the first place. We can stimulate trade from here until Doomsday - but without more responsive organizations, today's failure to create new industries and renew old ones will simply recur at an accelerating pace.

Yesterday, the Manhattan Project renewed America's technological base. Today, we need a Manhattan Project to renew our institutional fabric - because yesterday's rules and principles are limiting responsiveness.

He is arguing for structural change in a number of areas:

Are you redefining the economics of ownership? Ownership has its own costs and benefits. Here's an example of costly ownership: companies building patent thickets purely for the purposes of deterring competition. Here's a better one: the media industry eviscerating itself through brain-dead "rights management". Who can develop better kinds of ownership that create value for everyone? Advantage will flow inexorably to those economies - and companies - who can.

Are you redefining the economics of contracts and standards? How do we know today's contracts are inefficient? The sheer size and growth of the legal industry is an existence proof that contracting is becoming more and more costly. Ever read an absurdly heavy-handed Microsoftian shrinkwrap license? Of course not - and that's exactly why contracting today is often costly, cumbersome, and inefficient. Whoever can invent better kinds of contracts for the 21st century will realize a tremendous advantage. (Facebook need not apply...)

Are you redefining the economics of governance? Today, governance of economic organizations has devolved to cronyism, back-slapping, and glad-handing [Only today? - Ed]. Boards are happy to look the other way when CEOs line their pockets. CEOs are happy to look the other way when board members invite their bffs to join the board. Toxic governance has poisoned industries as disparate as autos, pharma, apparel, finance, and housing. New rules for the structure, composition, roles, and tasks of senior managers and boards will redefine the economics of governance. Advantage depends on doing so - when we can reinvent more efficient ways to manage managers, new value is created: just ask any open-source community, where everyone's simultaneously a worker, manager, and de facto board member.

Are you redefining the economics of management? Today's financial crisis isn't about money: it's about management. Bankers mismanaged our money catastrophically - because they were too busy managing their bonuses. Advantage will flow unstoppably to those who can redefine the economics of management - for the simple reason that, unlike bankers, they will be able to create greater amounts of more durable, lasting value. Responsibility, accountability, and transparency aren't just buzzwords - they're the keys to radically altering the costs and benefits of management.

Its a good start, but the issue is how will we execute? If anything, the forces still in the saddle are charging the other way. We see Nathan Myhrvold and others building businesses aggregating patents to create enclosed thickets of patents, legal systems where the cost of taking on any well funded entity (typically the owners of the Gordian Contracts) is prohibitive, the bailouts using public money are of the selfsame people who got us into this cr*p (this infuriates me - in any commercial takeover of failing businesses the first thing you do is fire the people who were in situ), and public money is used to prop the banking bozos up and carry on paying them undeserved bonuses.

On current evidence, the stimulus will just bloat the current Zombienomic structures because they, so far, are the main recipients of the money. The only way things can change is if the stimulus goes to the people and they then choose where to dispose of it. The risk of this is that The People by and large will spend it on today's frivolities rather than on long term benefits, and even if they were to radically change their spots, the only large scale structures around to take the money are those Zombie ones unless new ones are identified.

The good news is that We The People have the power to make big changes, because quite simply we can - via public pressure - turn these things around (I was heartened at the UK Governments recent rapid re-focus on bankers' bonuses when it became clear the populace were not willing to hand over their cash to pay for them - till then it almost seemed as if there was a clubby closing of the pinstriped ranks ).

The challenge we now have is how to do this - its probbly necessary to set up viable alternatives for people to argue for - non Zombie institutions. In the specific areas Umair mentions, here are some thoughts:

Patents - The US system is broken, though it looks like recent moves are going in the right direction - needs Federal acceleration. I've long argued for a "use it or lose it" clause, also making patent holding massively taxable for entities not actually in an industry (thus you can be a patent troll, you just have to pay huge taxes annually to hold the patents). For rights, we need to roll back to before the "Sonny Bono Infinite Life" clause and take it back to the 15 or so years protection it originally gave.

Contracts - The movement for plain english in contracts is a good start, and I'm quite impressed with various organisations that do standard contract templates, and courts are increasingly moving against unfair terms (like non-competes in employment contracts for example) and contracts that the reasonable ordinary person wouldn't understand. The main problems with contracts today are:

- that they are meaningless if you can't afford to take a defaulter to court (survival of the richest)
- they are useless if they are not clear (and the longer they are, the less clear they are)

There was a movement a few years back that argued that if you couldn't write any contract in 10 A4 pages of Font 10 text, it was probably not understandable and definitely not worth signing - maybe put that into legislation?

Governance - For a starters, basic M&A practice - if you take over a failing concern, you sack the incumbents under the not unreasonable assumption that they are incompetent. To f*ck up at this level in my opinion means a concerted effort to chuck a lot of them in prison (hell, I'd pay good money for that rather than their bonuses), that should start to modify behaviour of les autres. I also think ther is avery good argument for going after the bonuses paid over the last few years, as they were clearly based on fraudulent behaviour in many cases. Other simple laws like limits to number and time on board memberships, as Umair notes, will probably be required. A thought is that maybe bailout money should be targeted towards entities that have mutual ownership?

Management Economics - The problem is always aligning rewards to longer term performance - options were once seen as a way to do this (when they vested after 4 years) but somehow board remuneration committees always seem to allow management to feather their own nests post haste, no doubt for a small consideration (thank you, sir..No, thank YOU sir), and institutional shareholders never bleated so long as the bacon was delivered. The only opponents were usually small shareholders who had no voice anyway. Personally, I think a good play would be to limit the differential between lowest and highest paid in a company to say 30x, so its impossible for the unholy trinity above to ratchet rewards into the stratosphere without it trickling down. The key is to get the an enterprise's owners reconnected with its governance - another argument for mutual ownership?

But big picture, the real call to arms is for The People to wake up and make it clear where, and how, they want their money spent - if they don't, it won't just be the Dead hand of Zombienomics that allocates it, but the live hand of Porkonomics. And the tools will have to be User Generated, as frankly the Mainstream Media's performance over the last few years in calling these people to account has been woeful (unsurprising, as that is by and large one pillar of the interconnected Zombieconomy).