Dynamism 1, 2, 3

Summary: three notes on dynamism in the US and world economy.

Dynamism 1

Virginia Postrel has an interesting post on food prohibition in Europe. It reminded me of work I did for the Canadian drug industry a couple of years ago. I was surprised to see how highly regulated things were there, and someone laughed and said,

“Yeah, that’s the difference [in this industry] between Canada and the U.S. In the Canada, everything is prohibited unless it’s allowed. In the U.S., everything is allowed unless it’s prohibited.”

Prohibition is a very human reaction, isn’t it? It is the way we often respond to highly dynamic circumstances. We think it’s the way to restore order and control. But in a world that is permanently innovative and changeable, it is the wrong instinct.

What we want is an unmediated world that is porous and responsive to change, not resisting of it. What we especially do not want is to have as our mediators government bureaucrats and elected officials. Of all the players in the professional world, these are the parties who have demonstrated the least inclination, skill and motivation to behave in a dynamic way.

What’s interesting from an anthro-econ point of view, is that the feeling for prohibition is written into the cultures and economies of certain countries, especially Canada and the EU, and this must be taken as one of the reason’s the “wealth of nations” will not tip in their direction.

Dynamism 2

But can the US afford to be smug? Must it retain it’s mantel as the world’s “friend of dynamism.”

There is a nice little debate brewing in the pages of BusinessWeek. A couple of weeks ago (April 12), BW ran a cover story on the new CEO of 3M, Jim McNerney. McNerney has been called upon to restore 3M to its “role as one of Corporate America’s most inventive and innovative companies.” As it turns out, 3M hasn’t had a hit since Post-It Notes. Apparently, even the most dynamic companies, in this the most dynamic of marketplaces, in this the most dynamic of cultures, can lose their edge and fall silent.

It turns out that McNerney is a devotee of SixSigma, a cost-cutting tool created at GE in the 1990s (GE is McNerney’s alma mater). The present BusinessWeek (May 3) has a letter to the editor from the Australian academic, John M. Legge who claims “Six Sigma is about eliminating original thinking, not supporting innovation.”

Now, Legge is not my favorite management philosopher, but what if he’s right? The Six Sigma system is proving to be a robust little meme. It is colonizing corporate America. If it is an enemy of dynamism, 3M will not be returned to creativity…and this may be just the beginning of SixSigma’s consequences for the world’s “friend of dynamism.”

Dynamism 3

Tomorrow is the big day. Google goes public.

An article in the New York Times by Saul Hansell (April 26) revealed a certain hesitation on the part of Google founders Larry Page and Sergey Brin.

The hesitation is not hard to understand. Google is cash rich, so it has no pressing need to go public. And once they are public, they will have new obligations and responsibilities. They can’t go shooting their mouths off or promoting nutty ideas.

Nutty ideas? Hansell says that Page and Brin “have talked about building space transporters and implanting chips in people’s heads that can provide them with information as they think.” Say, those are nutty ideas. And then of course there’s Gmail.

But the anthro/econ question is this: does the street make a company more or less dynamic? The argument could go either way. We could argue that the company that stays private remains in possession of the courage and freedom it needs to take on high risk undertakings. Or we could argue that the company that goes public finally gets the resources and the discipline its needs to get on with participating in a real world. (Instead of that crazy “space transporter” one.)

I am no expert, but I have to believe that going public is, for some players in some industries in some markets, probably bad for dynamism. Worrying about the market “concentrates the mind” in ways we do not want it concentrated. The time and money needed to fund innovation has for most companies dropped steadily. This means they can get a lot done on their own and not have to worry about “making their numbers” every quarter.

If any of this has foundation, there are conflicting forces that resist dynamism not just in Canadian and EU economies, but even in the American one.

2 thoughts on “Dynamism 1, 2, 3

  1. steve

    A small correction: GE did not invent Six Sigma–Motorola did, I believe. Jack Welch was initially opposed to bringinig it in to GE, but other executives bascially circumvented him and then he became a true believer.

    A big correction: There is no question that public companies are under more pressures to conform with the expectations of investors than are private companies. Whether the private company behaves in a more innovative fashion than the public one depends, however, on how the private company would use its freedom. I wouldn’t necessarily endorse this argument, but the ecomoic historian Williiam Lazonick has argued, for instance, that British entrepreneurs in chemicals and other industries lost their lead to the Germans and the Americans because they stayed private for a long time. The Germans and Americans, by going public were pressured to maximize profits and so to make huge investments in building giant plants that could exploit scale economies; the Brits, he claims, were much more conservative and worried about preserving their ownership and control. I’m not sure that he doesn’t have the causality reversed, though.

  2. Anonymous

    Steve, but this is the question: what difference does the difference make? I think in most cases, and this is clearly true in the Google one, private companies that can go public and don’t go public, are forgoing huge profits and this suggests that they are in possession of some larger sense of mission that almost quarantees that they are committed to innovation. (I guess there is the possibility that some will stay private to remain “loyal to their principles” and in the process back away from innovation, but this seems to me less likely.) Anyhow, it is an empirical question and someone must have asked (and answered) it. I have placed the question with interested parties and we shall see what they say. Thanks for a very useful post.

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