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GP 14 September 2005: Gales of Creative Destruction? Islands of Self Reliance

“The opening of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.  This process of Creative Destruction is the essential fact about capitalism.  It is what capitalism consists in and every capitalistic concern has got to live in.” - Joseph Schumpeter in Capitalism, Socialism, and Democracy, pp. 83-84; http://www.apee.org/quotes-schumpeter.html

Schumpeter.  The Austrian economist and minister Joseph A. Schumpeter (1883-1950) felt that a dialectic was built into our economic system that unleashed “gales of creative destruction” which almost mystically swept away antiquated business organizations and practices.  For this, he has been canonized as the Saint of Free Markets and Strident Capitalism by those who believe in no-holds-barred capitalism, ranking higher with them than St. Jude (and St. Rita), the Saint of the Impossible.  He spent the last part of his career teaching at Harvard, blown out of Vienna by another kind of destructive force about which he was much less sanguine—the Nazis. 

The trouble, lately, of course is that we have had a lot of destruction—without the creative.  The recent tragedy in New Orleans and throughout the Gulf States has seen a breakdown of Federal, State, and local governments, and a giving way of everything from levees to telephones and electric systems to any pretence of civic order.  F. Scott Fitzgerald would say that this was “a real dark night of the soul” when “it is always three o’clock in the morning, day after day.”  It’s hard to point to anything that worked right.  All and everything suffered from under-investment and political erosion.  What, for now, will take the place of an infrastructure in disarray? 

It would be a mistake, of course, to think this disintegration is limited to a few poor Gulf states walloped by a hurricane.  Just a while back our national electric grid took a big hit with darkness even reaching into Canada, and more blackouts are on the way.  Just this week, Los Angeles dimmed during a Monday PM snafu, all brought about because of crossed wires at a utility (http://news.yahoo.com/s/ap/20050912/ap_on_re_us/la_power_outage).  Our educational system, even where it is well-funded, is clearly dumbing the minds of America.  The healthcare system, siphoning off another 10 to 15% of our wealth each year, is not making us any healthier, even if our expenditures, largely spent for the wrong things, are the highest in the world per capita.  To use somebody’s quote, “There’s no there there.”  Beautiful, wilted New Orleans is just a metaphor for our larger fragile estate. 

Blogs and Emails.  We, as many, were tuned in to our TV sets and newspapers last week, wondering how the beset and bereft were making out in Louisiana and Mississippi, hoping the cavalry would arrive.  The media has been very self congratulatory and puffed up about its coverage of Katrina, telling us it has done a wonderful job of following this story.  This, of course, is largely a snare and delusion, since neither the broadcast networks nor the cable groups had much to say, though they said it at great length and repetitively.  Would it be a stretch to say that less is more—that we know so much less now that we have 50 or 100 channels, instead of say 13?  The professional journalists did not get the story, and their drivel is surely one reason why we don’t know how to repair things for now or the future.   

But emails and blogs ran circles around the armchair, well-manicured newshounds.  Very detailed information came our way through the computer, put together by concerned citizen reporters and relayed by hubmasters in Houston, California, New York, and elsewhere.  That’s where we got very specific information, even block by block, of what was happening, with terrible detail about the depredations visited on the waterlogged by mindless authority.  In light of the good accounts available from these sources, one would have to say that the national broadcasters and other established media are just part of our broken infrastructure.  Oddly enough, the Times-Picayune staff still got out a newspaper that told an awful lot, even though the paper’s presses and building were laid low (www.nola.com/t-p).  But, in the main, it is worth understanding that our very expensive media doesn’t get it and so can’t convey it to us.  

Personal communication systems do get the job done, a subject we will explore more in future letters, since it suggests that each individual must become his own self-contained information powerhouse in the 21st century.  For years the computer and telephony people have been asking us to rely on the network: better that you put your faith in a digital wallet that you have in your hip pocket. 

Today the consumer sits at the end of dumb or at least lame terminals that abet his appetites but do not give him the tools, content, and smarts to play his destined role in society.  His I-Pod will carry 15,000 songs or 25,000 photos.  With that kind of storage heft now available to John Q. Public, we have the capacity if not the insight or will to put some real horsepower in his hands.  Right now we have become a global nation, but we are still struggling to become a strategically informed society.

Internet City Hall.  What few of us knew was that Mayor Ray Nagin of New Orleans and his top aides were cut off for long periods of time from the city and the world, since the City’s circuits largely got whacked by the weather.  The Wall Street Journal’s “At Center of Crisis, City Officials Faced Struggle to Keep in Touch” (September 9, 2005, pp. A1 and A13), captures the efforts of a very innovative staff to keep wired at the Hyatt, where the top team had decamped to, even with rising waters and  rapacious looters.  Basically most of the circuitry everywhere gave way very quickly because it was not on high enough floors.  The disaster planning of the city assumed that the telephone system would work no matter what; it did not.  City officials were forced to resort to some back-up radio channels of the police department, but these were much too crowded even for policemen who fell out of touch with one another.  As Schumpeter was wont to say, “We always plan too much and think too little.” 

What saved the day was that Scott Domke, a member of the City’s technology team, remembered that he had recently set up an Internet phone account.  With his laptop he plugged top officials back into the phones.  Greg Meffert, the chief technology officer, went a bit further, appropriating a server, with the local police chief looking on, from a nearby Office Depot.  This gave the City the means to get email going.  Interestingly, just as personal computer efforts got the real news out about New Orleans, instead of the networks, a personal system (an Internet phone account and a laptop) put the city’s top officials back in touch with the world.  All the super systems failed, even if BellSouth proudly claimed that its “nearby telecom hub was operative throughout the crisis.”  This is typical: generally utilities and telecom providers do a lousy job on the last mile or even on the small stretch from the curb into the house.  In an age of broken infrastructure, the one thing that appears to work is guerilla innovation and personal communication systems that circumvent cumbersome companies and political morasses. 

New Orleans, incidentally, learned in the middle of all this that the city’s website had gone from 70th to number one in the rankings among major cities.  Further, Mr. Meffert’s team has created a wireless system weaving together open-air cameras with the Internet that has halved crime in some parts of New Orleans.  It takes just one technology officer, even one with very slim resources, to make a very big difference. 

Democratized Decision-Making.  As our old systems self destruct or policymakers lay waste to them, we are thrown back on the self-reliant individual about whom Ralph Waldo Emerson rhapsodized more than a century ago.  See www.emersoncentral.com/selfreliance.htm.  We are learning that, at least during this transition period in world history, the individual cannot rely on societal mechanisms which are broken.  Happily, with some of the information technology now at hand, he can act on his own and even start the process of shaping our next infrastructure.  In fact, the smartest leaders in our society are making sure that concerned individuals have more and more of a hand in running things that touch the vitals of their existence. 

Shared Medical Decision-Making.  Healthcare, which is consuming too much of our national purse while making us unhealthier, is starting to let the patient play a part in his or her treatment.  The most important commercial exponent of shared medical decisionmaking is Health Dialog (www.healthdialog.com), which we follow closely on The Global Province at www.globalprovince.com/healthdialogindex.htm.  Nurse coaches help patients understand the credible medical options for dealing with their health problems, so that the patient and physician can elect and follow a course of treatment that reflects the patient’s values as well as good medical practice. It has long been clear that patients do better if they are clearly engaged in their treatment, and, in some instances, it is also evident that an informed patient will shy away from costly, ineffective treatments.  As it stands, both the medical and health insurance systems are plainly out of control: the best hope of bringing them to heel is the individual patient. 

Sensible Marketing.  For all sorts of reasons, our consumer marketing increasingly falls on deaf ears.  Now companies and ad agencies are involving consumers in the making of ads as well as using other tactics that better engage the consumer with the product or service.  We are struck by a whole series of adventuresome tactics used by stodgy old automakers.  Audi’s ads for the new A3 hatchback, appearing in magazines and on TV, billboards, and the Internet, weave a complicated serialized mystery of a stolen car.  (See Business Week, July 25, 2005.)  As importantly, Audi and many others are drawing consumers into the process, by getting them to participate in the ad itself.  Audi spent $5 million on its “Art of the Heist” game where consumers followed clues and tried to solve the mystery (www.audiworld.com/news/05/060805/content.shtml).  One couple, who broke the code, then participated in a round of Audi activities.  Traffic was up heavily on its website, and both sales leads and test drives appeared to rise sharply from this campaign.  Increasingly, one can expect producers of both commercial and consumer products and services to find yet more interesting ways to help the buyer contribute to the shape of that which he is purchasing. 

Wikipedia.  There is now a growing literature about “wikis,” a very interesting technology for collaboratively building and sharing knowledge about an array of subjects.  The first Wiki-Wik … was created in 1995 by Ward Cunningham as a method for researching the nature of software development.”  In the wiki system, a page about some subject can be endlessly edited and added to by visitors.  See http://wiki.org/wiki.cgi?WhatIsWiki.  For an appraisal of the part that wikis are playing in corporate knowledge management systems, see “Wiki and the Wiki Way: Beyond a Knowledge Management Solution,” by Jennifer Gonzalez-Reinhart at the Information Systems Research Center based at the University of Houston.   

From our point of view, the most interesting outgrowth of the wiki technology is Wikipedia, the brainchild of one Jimmy Wales (www.jimmywales.com).  It is an online, endlessly growing encyclopedia with perhaps 30,000 or so active contributors.  People at large are being asked to help catalog and create the knowledge they will use.  Wikipedia offers a rundown of itself at http://en.wikipedia.org/wiki/Wikipedia.  For an evaluation of how it has turned out, including an account by a former editor of the Encyclopedia Britannica, see  http://jove.eng.yale.edu/pipermail/eas-info/2004/000721.html

Today you can find some 2,000,000 Wikipedia articles in a host of languages.  Despite the carping of some purists about the quality of Wikipedia, the articles are reasonably informative, touch on many au courant phenomena the reference books have not gotten to, and, most importantly, tap into the brains of a host of literate people, often bringing in bits of data and strings of ideas that would escape traditional publishers. Importantly, we find, Wikipedia often supplies a mildly authoritative article on some subjects that otherwise fall by the wayside when you perform an Internet search.  In this sense, Wikipedia has filled in some serious holes in the Internet.  To follow the organizational developments behind Wikipedia, see http://en.wikipedia.org/wiki/Wikimedia

Electronic Democracy.  Back in the 20th century, when he ran for president, Ross Perot put forward the idea of an electronic city hall.  He was much scoffed at by the very hidebound intelligentsia at various temples of wisdom.  For sure he’s a bit wacky and a bore at the dinner table, but, as the saying goes, he’s crazy like a fox.  It is clear that computerdom and phonedom have given us the ability to put an expressive citizenry in the thick of things, just not in the ways he imagined.  Even with a 1,000 caveats, that’s the best way to carry on, when all the machinery we used to rely on to make things work is plumb broken.  For a bibliography on electronic democracy, see www.scottlondon.com/reports/bibl.html. 

Gridlock.  The evidence before our eyes says that many of our systems are in gridlock, working against each other instead of with each other, forcing us to rely on ourselves.  Emerson suggests, “In skating over thin ice, our safety is in our speed” (“Prudence”).  And further, “Nothing can bring you peace but yourself” (“Self Reliance”).    

P.S.  Our hearts go out to Armand and thousands like him who lost both their place on the planet and also their kin and friends to the chaos of the South this last week. 

P.P.S.  Despite all this stumbling, there is a consolation.  Winston Churchill, half an admirer of Americans and half a Dutch uncle (and after all Jennie, his mother, was American), reminds us, “You can always count on Americans to do the right thing—after they’ve tried everything else.” 

P.P.P.S.  In our August Investment Outlook, we suggested that infrastructure was a place to invest (www.globalprovince.com/investmentoutlook.htm).  True enough.  But long-term investors should also take a hard look at those companies that are better engaging their customers, turning passive consumers into active enthusiasts, since they are certain to gain market share.  Which companies, one must ask, are truly putting customers in the driver’s seat? 

P.P.P.P.S.  For more on our precarious systems, see “Systems on the Edge of a Nervous Breakdown.”

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