Friday, October 31, 2008

Forget ‘29: This is More Like the Crash of ‘73. 1873, That Is.

October 29th, 2008 @ 2:39 pm


panic_of_1873_bank_run.jpg“Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.”

Sound familiar? It should. But it’s not the crash of ‘o8, or even ‘29, says Scott Reynolds Nelson, professor of history at the College of William and Mary, in a recent article in The Chronicle of Higher Education, but the crash of ‘73. Wait, ‘73? That’s 1873. Writes Nelson:

When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany’s inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now…

[The] crash came in 1873 and lasted more than four years. It looks much more like our current crisis…

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire… and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris…

But the economic fundamentals were shaky… As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873.

Read the rest over at The Chronicle of Higher Education to see how it all ended »

Re-Examining “Why We Hate HR”

By Peter Galuszka - BNet

October 30th, 2008 @ 8:04 am

75 Comments


When it comes to a critique of human resources departments, the best article I have ever read on the matter remains Fast Company’s 2005 piece “Why We Hate HR.”

Keith H. Hammonds (a former colleague of mine) outlines in telling and hilarious fashion why HR folk are often ineffective, prevent talented employees from progressing and become slaves to form and legal box-checking.

HR people see themselves as protectors of management from lawsuits and embarrassment rather than nurturers of up-and-coming employees and champions of their companies.

Here’s one example. HR relies on the special and often insidious processes to prevent lawsuits and gather dirt on workers. I was a manager at a company where if a problem employee came up, the “PIP” (performance improvement program) kicked in. But PIP was truly Orwellian since it meant anything but improving the employee. Once in PIP, the worker was as good as fired. PIP was designed to gather incriminating information about the employee to be used to intimidate that person when they were dismissed so they wouldn’t file a lawsuit.

Keith comes up with a number of perceptive reasons why HR departments end up doing these things. Here’s a brief list:

  • HR people are often the dregs of the corporate world. Not the “sharpest tacks in the box,” HR bureaucrats get to those positions because they often can’t handle jobs requiring more talent or imagination.
  • HR pursues efficiency in lieu of value. Efficiency is a lot easier to justify numerically and doesn’t require a true understanding of what a corporation does.
  • HR tries to get executives sucked into their system. These include pro forma, annual personnel appraisals. Raises and advancement depend upon them, but who’s to say that annual is the right time frame or you even need them?
  • The corner office doesn’t get HR. There’s often little communication between the C-Suite and HR, but given the state of many HR departments, maybe that’s just as well.

To be sure, there are some firms that do HR well, such as Cardinal Health, Yahoo, Procter & Gamble and General Electric. But Keith’s scathing magazine piece still rings true three years later.

Did MBAs Contribute to the Credit Crisis?

By Jo Owen

October 27th, 2008 @ 10:29 am

As the financial crisis finger-pointing continues, eyes are turning to the business schools. What part did they play in the meltdown? And is now the time to re-think their own assumptions? As Simon Caulkin observes, it’s not just the economics-dominated MBA that’s now seen as unsustainable.

Business schools have become sausage machines — they all preach the same orthodoxies. Years later, greed and groupthink has come back to haunt us.

This is the first global crisis to have been created at leading business schools. Several of the meltdown’s major players, from Merrill Lynch’s Stan O’Neill to Hank Paulson to Andy Hornby of HBOS, are Harvard graduates. Dick Fuld, who ran Lehman Brothers, went to Columbia Business School (perhaps that’s why his bank wasn’t bailed out).

The bankers were advised by the brightest brains at McKinsey and other consulting companies, which are more or less outplacement firms for newly minted MBAs. The brilliant insight of these great brains led all the banks to the same failed strategies which is costing the world a few trillion dollars.

Contrast this with some of the richest entrepreneurs in the world — Mittal, Branson, Abramovich, Gates and Buffet are all MBA-free.

If you’re aiming to be an entrepreneur, an MBA cannot teach you any of the important lessons of success: leadership, the art of the hustle, personal bravery, resilience and risk taking. They cannot teach creativity, daring, inspiration and real insight. They can teach none of the things that matter to a successful entrepreneur.

Doubtless business schools are now writing case studies about the crisis in order to show how regulation failed, individual banks made poor choices and how economic conditions failed everyone. They’d do better to write a case study on how avoid creating a generation of corporate clones who are imprisoned by greed and orthodox thinking.

Friday, October 3, 2008

Security Matters

Commentary by Bruce Schneier

The Seven Habits of Highly Ineffective Terrorists

Bruce Schneier Email 10.02.08

Most counterterrorism policies fail, not because of tactical problems, but because of a fundamental misunderstanding of what motivates terrorists in the first place. If we're ever going to defeat terrorism, we need to understand what drives people to become terrorists in the first place.

Conventional wisdom holds that terrorism is inherently political, and that people become terrorists for political reasons. This is the "strategic" model of terrorism, and it's basically an economic model. It posits that people resort to terrorism when they believe -- rightly or wrongly -- that terrorism is worth it; that is, when they believe the political gains of terrorism minus the political costs are greater than if they engaged in some other, more peaceful form of protest. It's assumed, for example, that people join Hamas to achieve a Palestinian state; that people join the PKK to attain a Kurdish national homeland; and that people join al-Qaida to, among other things, get the United States out of the Persian Gulf.

If you believe this model, the way to fight terrorism is to change that equation, and that's what most experts advocate. Governments tend to minimize the political gains of terrorism through a no-concessions policy; the international community tends to recommend reducing the political grievances of terrorists via appeasement, in hopes of getting them to renounce violence. Both advocate policies to provide effective nonviolent alternatives, like free elections.

Historically, none of these solutions has worked with any regularity. Max Abrahms, a predoctoral fellow at Stanford University's Center for International Security and Cooperation, has studied dozens of terrorist groups from all over the world. He argues that the model is wrong. In a paper (.pdf) published this year in International Security that -- sadly -- doesn't have the title "Seven Habits of Highly Ineffective Terrorists," he discusses, well, seven habits of highly ineffective terrorists. These seven tendencies are seen in terrorist organizations all over the world, and they directly contradict the theory that terrorists are political maximizers:

Terrorists, he writes, (1) attack civilians, a policy that has a lousy track record of convincing those civilians to give the terrorists what they want; (2) treat terrorism as a first resort, not a last resort, failing to embrace nonviolent alternatives like elections; (3) don't compromise with their target country, even when those compromises are in their best interest politically; (4) have protean political platforms, which regularly, and sometimes radically, change; (5) often engage in anonymous attacks, which precludes the target countries making political concessions to them; (6) regularly attack other terrorist groups with the same political platform; and (7) resist disbanding, even when they consistently fail to achieve their political objectives or when their stated political objectives have been achieved.

Abrahms has an alternative model to explain all this: People turn to terrorism for social solidarity. He theorizes that people join terrorist organizations worldwide in order to be part of a community, much like the reason inner-city youths join gangs in the United States.

The evidence supports this. Individual terrorists often have no prior involvement with a group's political agenda, and often join multiple terrorist groups with incompatible platforms. Individuals who join terrorist groups are frequently not oppressed in any way, and often can't describe the political goals of their organizations. People who join terrorist groups most often have friends or relatives who are members of the group, and the great majority of terrorist are socially isolated: unmarried young men or widowed women who weren't working prior to joining. These things are true for members of terrorist groups as diverse as the IRA and al-Qaida.

For example, several of the 9/11 hijackers planned to fight in Chechnya, but they didn't have the right paperwork so they attacked America instead. The mujahedeen had no idea whom they would attack after the Soviets withdrew from Afghanistan, so they sat around until they came up with a new enemy: America. Pakistani terrorists regularly defect to another terrorist group with a totally different political platform. Many new al-Qaida members say, unconvincingly, that they decided to become a jihadist after reading an extreme, anti-American blog, or after converting to Islam, sometimes just a few weeks before. These people know little about politics or Islam, and they frankly don't even seem to care much about learning more. The blogs they turn to don't have a lot of substance in these areas, even though more informative blogs do exist.

All of this explains the seven habits. It's not that they're ineffective; it's that they have a different goal. They might not be effective politically, but they are effective socially: They all help preserve the group's existence and cohesion.

This kind of analysis isn't just theoretical; it has practical implications for counterterrorism. Not only can we now better understand who is likely to become a terrorist, we can engage in strategies specifically designed to weaken the social bonds within terrorist organizations. Driving a wedge between group members -- commuting prison sentences in exchange for actionable intelligence, planting more double agents within terrorist groups -- will go a long way to weakening the social bonds within those groups.

We also need to pay more attention to the socially marginalized than to the politically downtrodden, like unassimilated communities in Western countries. We need to support vibrant, benign communities and organizations as alternative ways for potential terrorists to get the social cohesion they need. And finally, we need to minimize collateral damage in our counterterrorism operations, as well as clamping down on bigotry and hate crimes, which just creates more dislocation and social isolation, and the inevitable calls for revenge.

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Bruce Schneier is Chief Security Technology Officer of BT, and author of Beyond Fear: Thinking Sensibly About Security in an Uncertain World.

Mental theater