Tag Archives: Organization

Limited liability is causing unlimited harm

The purpose of limited-liability protection was to encourage investment in corporations, yet it has evolved into a source of systemic market failure.
By Katharina Pistor – In a recent tweetOlivier Blanchard, a former chief economist of the International Monetary Fund, wondered how we can ‘have so much political and geopolitical uncertainty and so little economic uncertainty’. Markets are supposed to measure and allocate risk, yet shares in companies that pollute, peddle addictive painkillers, and build unsafe airplanes are doing just fine. The same goes for corporations that openly enrich shareholders, directors and officers at the expense of their employees, many of whom are struggling to make a living and protect their pension plans. Are markets wrong, or are the red flags about climate change, social tensions, and political discontent actually red herrings?

Closer inspection reveals that the problem lies with markets. Under current conditions, markets simply cannot price risk adequately, because market participants are shielded from the harms that corporations inflict on others. This pathology goes by the name of ‘limited liability’, but when it comes to the risk borne by shareholders, it would be more accurate to call it ‘no liability’.

Under the prevailing legal dispensation, shareholders are protected from liability when the corporations whose shares they own harm consumers, workers and the environment. Shareholders can lose money on their holdings, but they also profit when (or even because) companies have caused untold damage by polluting oceans and aquifers, hiding the harms of the products they sell or pumping greenhouse-gas emissions into the atmosphere. The corporate entity itself might face liability, perhaps even bankruptcy, but the shareholders can walk away from the wreckage, profits in hand.

The stated justification for limited liability is that it encourages investment in—and risk-taking by—corporations, leading to economically beneficial innovations. But we should recognize that sparing owners from the harms their companies cause amounts to a hefty legal subsidy. As with all subsidies, the costs and benefits should be reassessed from time to time. And in the case of limited liability, the fact that markets fail to price the risk of activities that are known to cause substantial harm should give us pause. more>

Collaborators in creation

Our world is a system, in which physical and social technologies co-evolve. How can we shape a process we don’t control?
By Doyne Farmer, Fotini Markopoulou, Eric Beinhocker and Steen Rasmussen – This is a disorienting time. Disagreements are deep, factions stubborn, the common reality crumbling. Technology is changing who we are and the society we live in at a blinding pace. How can we make sense out of these changes? How can we forge new tools to guide our future? What is our new identity in this changing world?

Social upheavals caused by new technologies have occurred throughout history.

Cultural institutions are also a kind of technology – a social technology. Just as physical technologies – agriculture, the wheel or computers – are tools for transforming matter, energy or information in pursuit of our goals, social technologies are tools for organizing people in pursuit of our goals. Laws, moral values and money are social technologies, as are ways of organizing an army, a religion, a government or a retail business.

While we are fascinated and sometimes frightened by the pace of evolution of physical technologies, we experience the evolution of social technologies differently. Our values, laws and political organizations define and shape our identities. We often regard those who use different social technologies – people from different cultures, regions, nations, religions or those with different values and beliefs – as ‘others’.

When social technologies change too quickly, we experience a loss of identity, a collective confusion about who we are and how we distinguish ourselves from others. But when social technologies change too slowly, this can create tensions too – for example, when political institutions fail to keep pace with wider changes in society.

Physical and social technologies co-evolve all the time, pushing and pulling on each other. The influence is in both directions. Physical and social technologies are so entangled that it can be hard to separate them.

What drives technological change? In many popular narratives, invention is an act performed by heroes such as Thomas Edison and Tim Berners-Lee. In reality, technological change comes about through an incremental process that involves a great deal of trial and error, and networks of people working in ecosystems of innovation. Technological change is an evolutionary process, very much like biological change is an evolutionary process. more>

Updates from McKinsey

The drumbeat of digital: How winning teams play
Pace and power go hand in hand for digital leaders, which typically run four times faster and pull critical strategic levers two times harder than other companies do.
By Jacques Bughin, Tanguy Catlin, and Laura LaBerge – Most executives we know have a powerful, intuitive feel for the rhythm of their businesses. They know how hard and fast to pull strategic levers, move their organization, and drive execution to achieve their objectives. Or at least they did. Digitization has intensified the rhythm of competition in many industries, leaving executives adrift, with information-gathering systems that are too slow or disconnected, direction-setting approaches that are too timid, and talent-management norms that are misaligned and incremental.

These leaders know their companies must adjust and accelerate. Digital is putting pressure on profit pools as it transfers an increasing share of value to consumers. Furthermore, those profit pools are bleeding across traditional industry lines as advanced technologies enable companies to forge into adjacencies, changing who in the value chain is making money, what share of the pie they capture, and how. The slow and inefficient are left behind, competing for scraps.

What is unclear to these executives, however, is how much and how fast to adapt their business rhythms. The exhortation to “change at the speed of digital” generates more anxiety than answers. We have recently completed some research that provides clear guidance: digital leaders appear to keep up a drumbeat in their businesses that can be four times faster, and twice as powerful, as those of their peers.

You can’t quicken the pace of an organization by fiat. You have to build it by accelerating the frequency of manageable practices that are integral to achieving key goals, such as serving the customer or driving internal efficiency. These “light-touch” actions are low risk and low investment, but they can provide high-yield returns. We have grouped them into two buckets that can help mold incumbents into digital players.

How often does your organization analyze customer data to look proactively for new ways of delighting your customers?

How frequently do your senior business leaders take time to investigate and understand new digital technologies so that they recognize which ones are truly relevant to their areas of the business?

How quickly and consistently does your company share lessons acquired from test-and-learn experiments performed by those on the front lines? more>

This is the one secret to managing an organization

By Maynard Webb – It’s all about people. You don’t have anything if don’t have great people doing great things.

So, what’s the secret? You have to have conviction about what you are doing. You have to have a mindset that says you are doing something amazing and exciting and people will want to be a part of it. In order to attract people to your endeavor, you must believe that it’s an incredible opportunity for others and you must execute and deliver on that promise.

Always be on the lookout for great people, and do so with a mindset of abundance. People are yearning for good opportunities and you have the privilege of being able to offer them a chance. See what you have as what’s scarce—a rare and special opportunity. Instead of thinking of hiring as chore, see it as a gift that can change someone’s life.

Always pick and promote people who will help you and your culture grow.

Don’t eliminate people because they don’t seem like a “culture fit”—embrace differences and stay rigorously focused on the cultural attributes that actually define your company. more>

No, Productivity Does Not Explain Income

Marginal productivity is a thought virus that is sabotaging the scientific study of income.
By Blair Fix – Did you hear the joke about the economists who tested their theory by defining it to be true? Oh, I forgot. It’s not a joke. It’s standard practice among mainstream economists. They propose that productivity explains income. And then they ‘test’ this idea by defining productivity in terms of income.

The marginal productivity theory of income distribution was born a little over a century ago. Its principle creator, John Bates Clark, was explicit that his theory was about ideology and not science. Clark wanted show that in capitalist societies, everyone got what they produced, and hence all was fair.

Clark was also explicit about why his theory was needed. The stability of the capitalist order was at stake!

Clark created marginal productivity theory to explain class-based income — the income split between laborers and capitalists. But his theory was soon used to explain income differences between workers.

In the mid 20th century, neoclassical economists invented a new form of capital. Workers, the economists claimed, owned ‘human capital’ — a stock of skills and knowledge. This human capital made skilled workers more productive, and hence, made them earn more money. So not only did productivity explain class-based income, it now explained personal income.

Given the problems with comparing the productivity of workers with different outputs, you’d think that marginal productivity theory would have died long ago. After all, a theory that can’t be tested is scientifically useless.

Fortunately (for themselves), neoclassical economists don’t play by the normal rules of science. If you browse the economics literature, you’ll find an endless stream of studies claiming that wages are proportional to productivity. Under the hood of these studies is a trick that allows productivity to be universally compared. And even better, it guarantees that income will be proportional to productivity. more>

Europeanization from below: still time for another Europe?

By Donatella Della Porta – Progressive social movement organizations have long been critical of the European Union—and progressively more so. Yet at the same time they have sought to promote ‘another Europe’.

They Europeanized their organizational networks and action strategies, developing cosmopolitan identities.

Research on social movements and Europeanization had indicated a move away from protest towards advocacy, understood as an adaptation of movements to EU structures. But there was also evidence of a repoliticization of EU issues, which saw the selective use of unconventional, protest-oriented strategies among groups forming part of the GJM (global justice movement).

The increasing criticism of existing EU institutions has targeted their democratic deficit, perceived as worsening during the financial crisis and counterposed to national sovereignty, but also their policies, perceived as less and less driven by considerations of social justice and solidarity. There has been criticism too of the definition of Europe as an exclusive polity, with proposals to go instead ‘beyond Europe’. more>

Updates from Ciena

Tomorrow’s cities: evolving from “smart” to Adaptive
Cities are going smart – trying to deal with the proliferation of people, sensors, automobiles and a range of devices that demand network access and generate mind-boggling amounts of data. However, being smart is not an instance in time, and a “smart city” is not static. To be worthy of the name, a smart city must continually evolve and stay ahead of demand. This is only possible if the city’s underlying network is just as smart and can adapt to its constantly changing environment.
By Daniele Loffreda – Cities are constantly in flux. Populations move in; populations move out. Demographics change, economic growth falls and then soars. New leadership steps in and—if you believe all the commercials—technology will make everyone’s life better.

Municipal governments understand the need to consider which smart city applications will best serve the demands of their diverse demographic segments. The City of Austin’s Head of Digital Transformation, Marni White, summed up these challenges stating, “Our problems will continue to change over time, so our solutions also need to change over time.”

The one constant in the smart city is the network running underneath these solutions—and the truly smart city has a network that adapts.

Smart city applications must be aligned with where a city and its citizens want to go. Some municipalities that created model smart-cities early on have had to initiate extensive revamping. For example, the City of Barcelona has long been at the cutting edge of using digital devices and the Internet of Things to improve municipal operations; however, in 2017, Mayor Ada Colau gave Barcelona’s CTO, Francesca Bria, a mandate to “rethink the smart city from the ground up.”

This meant shifting from a “technology-first” approach, centered on interconnected devices, to a “citizen-first” focus that responds to the changing needs that residents themselves help define. more>

Related>

A New Americanism

Why a Nation Needs a National Story
By Jill Lepore – Carl Degler issued a warning: “If we historians fail to provide a nationally defined history, others less critical and less informed will take over the job for us.”

The nation-state was in decline, said the wise men of the time. The world had grown global. Why bother to study the nation?

Francis Fukuyama is a political scientist, not a historian. But his 1989 essay “The End of History?” illustrated Degler’s point. Fascism and communism were dead, Fukuyama announced at the end of the Cold War.

Fukuyama was hardly alone in pronouncing nationalism all but dead. A lot of other people had, too. That’s what worried Degler.

Nation-states, when they form, imagine a past. That, at least in part, accounts for why modern historical writing arose with the nation-state.

But in the 1970s, studying the nation fell out of favor in the American historical profession. Most historians started looking at either smaller or bigger things, investigating the experiences and cultures of social groups or taking the broad vantage promised by global history.

But meanwhile, who was doing the work of providing a legible past and a plausible future—a nation—to the people who lived in the United States? Charlatans, stooges, and tyrants.

The endurance of nationalism proves that there’s never any shortage of blackguards willing to prop up people’s sense of themselves and their destiny with a tissue of myths and prophecies, prejudices and hatreds, or to empty out old rubbish bags full of festering resentments and calls to violence.

When historians abandon the study of the nation, when scholars stop trying to write a common history for a people, nationalism doesn’t die. Instead, it eats liberalism.

Maybe it’s too late to restore a common history, too late for historians to make a difference. But is there any option other than to try to craft a new American history—one that could foster a new Americanism? more>

Overcoming The Trust Deficit

By Dimitris Avramopoulos – A prosperous, secure and united Europe will not be delivered to us on a silver platter. We will have to fight for it more than ever – with facts, with authenticity, with courage. It will not be enough to have the right solutions on offer – our citizens will have to be willing to trust and accept them too.

Citizens in Europe and across the world today are experiencing a growing deficit of trust. While the world is increasingly becoming globalized, interconnected, digitized and information-saturated, citizens are having trouble discerning what is fact and what is fancy – and most importantly: who to turn to and who to trust. Our citizens are looking for clear and straightforward answers and solutions, in a reality that is becoming all the more complex.

Populists and nationalists are experiencing heydays in times like these. What they tell citizens and their electorate no longer has to be true, as long as it is simple and appealing. We have seen very recently how in the absence of an actual crisis or problem, an imaginary one is created instead and how the seeds of distrust, confusion and fear are sown daily.

Today, there is no single, coherent enemy or threat: terrorism, cybercrime or hybrid threats constitute a particularly toxic and interchangeable cocktail of risks that we need to face on a daily basis, with the same unity in our approach. The cooperation between Member States was enhanced especially in the field of exchange of information between law enforcement authorities, crucial to fight terrorism, organized crime and cybercrime. more>

Averting The Death Of Social Democracy

By Neal Lawson – Reformist social democracy has just two problems that result in its crisis. The first is that it’s heading in the wrong direction. The second is that it’s heading in the wrong direction in the wrong way.

If this crisis is to be averted then we need to understand why the ends and means are wrong and establish a different set of goals and ways of achieving them – ones applicable to the tail end of the second decade of the 21st century.

To set out an alternative course and process to get there is not so difficult. Some ideas are offered below. Others are available. What is difficult, and could well be impossible, is the ability of social democrats to truly adapt or transform both their course and their culture. Instead of change, their stock response is to blame the media, poor communications or even the people, and go on doing the same thing and expecting a different outcome.

Even when some recognize the scale of the crisis, they shrug because meaningful change is more difficult to face than the prospect of electoral annihilation. If social democrats can’t or won’t transform themselves then it will be up to others to carry the torch for a society that is more equal, democratic and sustainable and to fight the lurch to the far right.

Let’s start by observing that the crisis is not tactical or cyclical but existential because it is cultural and structural. It can be witnessed most obviously and dramatically through the electoral decline of almost every social democratic party in Europe. The Dutch, French and Greek parties have or have almost been eradicated. The Germans, the Italians and even the Scandinavians and Nordics struggle for life. more>