Thursday, March 26, 2009

Lights out - now we need the light bulbs on

It was sad to see the beautiful Chrysler headquarters building outside Detroit seemingly deserted when I passed by it last Saturday evening. While office buildings normally leave many of their lights on 24/7, the only lights visible that night in the glass and steel Chrysler tower were the faint emergency exit lights. I figured it must be some cost saving measure (it is), but the momentary thought that the building might actually be vacant was jolting.

Chrysler is an American institution. Founded in 1925 by Walter P. Chrysler, the company introduced numerous innovations, many of which became industry standards. Walter Chrysler was a manufacturing and engineering genius who cut his teeth in the locomotive building business before switching to automobile manufacturing. The company is one of the "Big 3" American automobile manufacturers that survived competition and consolidation in the industry that saw literally hundreds of companies go out of business since the 1920s. None of this, of course, mandates that Chrysler must survive the current economic turmoil. On the other hand, the possible demise of this venerable American corporation is neither necessary, nor necessarily helpful.

It would be really sad, I think, if Chrysler ceases to exist. Not just for sentimental reasons, either. But the current artificial life support, the government loans with their strings attached, may not be the solution to bringing Chrysler from the brink of extinction. It seems to me that now is the time to open the floodgate for all kinds of creative ideas, as many as possible, from anywhere across America and around the world. I teach my students that modern corporations must be learning organizations in order to survive the global competitive environment. Now is the time for Chrysler to become a learning organization- to plug into as many people and other organizations as possible, to plug into any source of ideas that might flame the creative sparks, which might lead to new, innovative, creative solutions for its current predicament.

There are thousands of business and engineering school students who crave for an opportunity to put their minds to work on really challenging real-life cases, there are tens of thousands of workers (and former workers), with their ears (and noses, and eyes) close to the ground who have perspectives and experiences that the corporate executives lack, there are civic organizations and others, thousands, if not hundreds of thousands, who may be interested in solving a challenging problem like bringing Chrysler back from life support. Thomas Friedman would call this "open source innovation." It's possible, it's doable, it's a bit crazy, but it's the way the knowledge economy (fyi: that's today's economy) works. The real question is, can Chrysler plug into, and manage, such an open source innovation model, or will it just wait to hear for whom the bell tolls? Alas, the answer is out there: Its own blog rules state:

1-In the spirit of honest, free-flowing conversation...
11-The blog is not intended as a forum for outside suggestions, including but not limited to those which pertain to vehicle design, product attributes, marketing or advertising, and no such material will be posted.

Yes, I know, the Chrysler blog is just one out of many possible ways to plug into the open source innovation 'thing' in this flat world of ours, still... The company saves a few thousand dollars by turning the lights off at night, but what it really needs is to find a way to turn lots of light bulbs on if it should have any hope of survival. In the spirit of honest conversation, I'd like to help you out, Chrysler, really, but my entire lifetime tax dollars just went to the guy sitting over there, in the dark corner of the AIG executive cafeteria. Sorry, all I've left is advice.

Wednesday, March 18, 2009

This all began back in the Renaissance

A couple of months ago I was flying to Switzerland to co-teach a class on innovation to students from five continents. Coming from the United States, I would inevitably be asked about my take on the financial crisis. Formulating my analysis, I noticed the irony that while I would be commenting on the proposed government bailouts and economic stimulus packages, I would be doing so a few miles downhill from Hotel du Parc , Mt. Pelerin, site of the first gathering of the Mont Pelerin Society sixty years earlier. This group, mostly economists, had argued that government intervention in the economy leads to government monopoly, and worse. (related post)

Above the Atlantic, I was also catching up on my WSJ reading, perusing KLM’s in-flight magazine, HollandHerald, during my breaks from the Journal. I found two interesting articles.
The first one, When It Comes to Cash , A Thai Village Says ‘Baht, Humbug!’ in the WSJ (Jan 7, 2009), told the story of a village in Thailand, which decided to print its own money after the 1998 Asian financial crisis. Unable to rely on the value of the government-issued baht, the villagers started printing their own local currency, and have been using it successfully for a decade, side-by-side and in competition with the baht. The result has been local economic growth and development largely unaffected by the vicissitudes of the broader Thai economy that relies exclusively on the monopoly currency.

Therefore, if competition is better than monopoly (anti-trust legislation is almost universal) and government monopoly is worse (especially so, according to the Mont Pelerin Society), why do we have a government monopoly on money, and could that monopoly have contributed to the current financial crisis?

The second article, Douglas Rushkoff’s Futurenomics in the HollandHerald (Jan 2009), gave perhaps the easiest to understand answer to these questions. I strongly believe in the need for clear communication, thus, impressed by the clear explanation, I quote a few of the most relevant passages below, throwing in one example from US history for a good measure:

“This all began back in the Renaissance, when a waning monarchy was looking for ways to preserve its power in the face of a rising merchant class. The merchants were becoming richer than the royals. So the monarchs came up with an idea: chartered monopolies. By granting one of these new companies exclusive province over a particular industry or region, monarchs earned their undying loyalty—as well as a generous portion of shares in the enterprise. They began to write laws that favoured their chartered companies,…

Such a law was the Tea Act of 1773, which granted the East India Company, originally chartered by Elizabeth I in 1600, exclusive right to import duty-free tea into the American colonies. This mandated cost advantage gave it a virtual monopoly. Bostonians, in protest of such special privilege, boarded the company’s ships in the harbor and dumped the tea overboard. Interestingly, it may have been Benjamin Franklin who proposed that the British Government relieve the East India Company of paying duties on its tea as a way to prop up its finances. Nowadays we call that bailout.

“…such as preventing inhabitants of colonies from creating any value for themselves; they had to ship raw resources back to the mother country, where they were processed into clothes or other finished goods. This model of business-by-extraction carried over to finance as well. European towns had used local currencies for centuries. Farmers would bring their wheat to a grain store, who would in turn give them receipts for the amount of grain kept for them. These receipts served as local currency. The system was so efficient, and people were living so well, that people of this era were taller than at any time until the last few decades. By making local currency illegal, a monarch could force people to use his own more expensive ‘coin of the realm’ instead. So, rather than being earned into existence, this money was borrowed into existence.

“Over the next 400 years, the business of money slowly grew bigger than business itself. A central bank creates money and charges interest to the next bank down the line, and so on, until it gets to the business that needs to do something useful. The problem is, more value is being extracted on each level than business can produce. There are simply too many institutions—too many lenders—to be paid.

Monday, March 2, 2009

How the free market conserves limited resources

A display in a museum in Ft. Worth, Texas. This is one way, in which the free market served both the needs of the less well off and simultaneously conserved a precious natural resource, in this case--water in the Southwest.

(Photo courtesy of Ioana-Claudia Iordache, Bucharest, Romania)