Category Archives: Change

You Feel the Earth Move Under Your Feet

You feel the sky come tumbling down.

EGYPT

Egypt is about much more than a popular uprising against a ruler who has stayed in power through what can only be described, charitably, as a corruption of the democratic process. Egypt is the most compelling example to date of how the physics of human society are being rewritten. In much the same way that Quantum Physics turned Classical Physics on its head, the twin revolutions of information and connectivity are turning society upside down or perhaps better put, every which way and loose. 

The fact that Egypt, the society political scientists always marveled at for its stability even in the face of daily, accumulating disasters, is the country that’s exploded has concussed even the most loyal adherents of the Status Quo. When the Tunisian regime fell you could discount it as the kind of thing that happens to small countries, even the Colored Revolutions of the former Soviet Union didn’t really capture the elite’s attention, because in these revolutions you often were replacing one elite-based power construct with another. (And this might still happen to Egypt, by the way.)

But Egypt seems different right now.

And everyone should be paying attention. Not just the political scientists, the national security experts in their dark suits reciting by rote the laws of classical society, the intelligence agencies. Everyone should be paying attention, particularly anyone supposedly in charge of an organization of any kind. Steve Denning today writes a blistering post on what the dynamics behind Egypt mean for American business leaders. There’s very little I can add but these two points:

  • The history of the world has been dominated by the machinations of men, and they’ve usually been men, making secret deals in backrooms. Transparency and Collaboration are destroying the backrooms of all institutions. Open, dynamic forces that carry with them their own advantages and disadvantages will take their place. Start adjusting now.
  • All institutions of any age are disconnected from this powerful dynamic. Their survival depends entirely on how quickly they adjust to it. Time grows short.

Thoughts for the New Year

Does my right to privacy extend to the right to be invisible?

Are humans basically good or bad?

Why do we try to control others?

Why do we tolerate such a sub-optimum nation-state system?

Is the material world the only reality?

Something big is going on right now in how we humans organize our societies and our lives. Most people don’t deny that now even though I still encounter folks who ask me whether all this social media is just a fad. I’m full of optimism about how humans will continue to learn and thus improve our lot. These steps forward are not for anyone to prescribe; they will emerge from our interactions and our improving ability to record and share our experiences.

Still there are some habits of thought, propositions that are too often accepted as true in public discourse, that stand in the way of that forward momentum. In my view, they’re increasingly not true but I must admit also tremendously stubborn in their influence. These 5 mental frameworks, most of which have been with us for a very long time, for the most part create friction and inefficiencies in human society. I’m betting that in the years to come they will all be recalibrated as we work to achieve a fuller human potential.

Does my right to privacy extend to invisibility? OK, I admit this is a relatively new difficult question. It’s been with us for most of the post WWII period but sharpened acutely in the last five years. But here is the distinction I want to make. Much of what we think of as privacy issues in this social media/Facebook/Twitter/Google Latitude/pervasive video cameras-engineered world aren’t really privacy issues at all. They are visibility issues. When I go to the store to buy milk, I’m not trying to keep that transaction “private.” It of course would be impossible to do so. What’s really different is that by checking in on Four Square or using my loyalty card or simply carrying my smart phone (really consumers lost this battle a long time ago!!) I am making the transaction more visible (and more important recordable and thus analyzable). There are legitimate privacy concerns out there: I don’t want everyone to know my bank balance or my SSN but it’s important to distinguish that much of what we are fretting about is a new kind of visibility, not an invasion of privacy. If something bad happened on the way to the grocery store–if I backed into a car leaving the parking lot and fled the scene–the police would immediately look for people who “saw what happened.” I would not be able to claim a right to privacy because none exists. Why is any of this relevant? A society that understands more of what is happening will be a smarter society and should make better decisions. I would be smarter about myself if I understood the patterns of my own life better. And a society with improved understanding should be able to self-organize more effectively. Again, it’s not my intent to argue for the right trade-off between visibility and invisibility. We will work this out over time with the usual fits and starts. I just believe we’re confusing two important terms–privacy and visibility.

Are humans basically good or bad? I’m in the basically good camp, always have been, although I would phrase it a little differently. I think humans are usually well-intentioned but feckless. I think bad behavior follows bad decisions and bad outcomes, not the other way around. Most people don’t set out to do the “wrong” thing; they think they are choosing the best option, although admittedly there is plenty of delusional thinking out there, and frankly absence of thinking, not to mention hyperactive lizard brain. (Absence of knowledge and lack of understanding of other perspectives also contribute to the bad decisions that lead to bad behavior.) But when the decision begins to go bad and they are scrambling to recover, that’s when I think humans most often fall into the bad behavior trap. They run with their survival instincts, which evolution tells us are largely selfish. So to return to the visibility issue, if you think humans are basically bad then no wonder you worry about what people will do with all that information about you. My friends who ask me if social media are a fad also like to ask me if I’m not worried about all the information that is out there about me. Well as an optimist about human nature I’m not worried. And even if I were to worry, I trust that the general lack of feck will waylay most plans to do bad by me.

My first point here is that I really hope we humans can get beyond this debate about our basic natures sometime soon. I am biased here as to what I think the right answer is. The belief that humans are basically bad, in my view, is the driver behind many institutions/processes that over-control and micromanage. But I also recognize that we will only bury the humans-are-basically-bad meme through a long record of actions, fueled by truly millions of personal conversion experiences. My second point: if you are an advocate of self-organizing communities, you are essentially assuming people are basically well-intentioned and that more, shared information will allow them to make better decisions. So it’s best not to mock people who don’t get it; I know I’m guilty of that myself sometimes.

Why do we try to control others? The belief that you know the right way and your job is to force others to accept that truth is the single most destructive quality in humans, in my view. It must also have some significant evolutionary benefit for it to persist. If you’re asking: well, isn’t your writing of this blog an indication you too want a slice of that control, then I have to admit you have a point. I think enough of my views to try to express them carefully, although luckily I can’t force anyone to read my blog. Indeed, this is why this particular drive is so seductive and so strong in so many individuals, even those that start off with the best–that word again–intentions. I believe our human potential will be best expressed when we minimize our control instinct, but I’m not sanguine this will happen quickly. But it will happen. Governments and organizations built on the desire and need to control others will eventually contract as individuals learn–and have the capabilities–to manage most of the transactions themselves.

Why do we tolerate such a sub-optimum nation-state system? Why indeed? You know, I worked for 32 years in one of the great creations of the modern nation-state, the Intelligence Agency, so you would think I’d know better than to ask such a question. After all, I must be a realist, right? But nevertheless I’m puzzled more people don’t question why we tolerate such a nutty arrangement. The nation-state system, and here I’m speaking specifically about how countries relate to each other, runs on a set of rules–spoken and unspoken–that have been largely discredited in and abandoned by other systems. The nation-state system still assumes the inevitability of conflict, the need to expect the worst from others, the need to hide things from and trick others, the wisdom of short-term, grab-it-while-you-can thinking, etc. etc.  (There was recently a good article in Financial Times by Parag Khanna describing how the world system might evolve differently.)

The reason I phrased the question the way I did is because I think the answer is in the question. The nation-state system exists as is because we tolerate it. In fact, we more than tolerate, we accept it and some–neocons and marxists, for example?–revel in it. We are complicit. What will be interesting to see is the reaction of nation-states as individuals and communities begin to distance themselves from their status quo. You see the beginnings of this today as individuals, many of them completely delinked from their nation-state identities, interact with each other seamlessly across Twitter and other social media. If you dismiss such thinking as utopian or pollyanish, fact is humans have already broken at least twice in our history with very powerful governing systems–Royalty and Churches. But both aristocracy and the church heirarchy went down swinging and I’m betting the governing class will find it hard to accept its displacement. Stay tuned, more coming.

Is the material world the only reality? Well, in for a penny, in for a pound. If you don’t already think I’m nutty, this will convince you. But as I read about theoretical physicists struggling to understand the universe or universes, I can only surmise that our own existences are more complex than just the physical entities we know. Understanding what that exactly means is a purpose for human existence. We exist in large part to understand. And we understand better together.

What To Say about Wikileaks

Now that Clay Shirkey has posted the following on Wikileaks, there’s very little left for me to say. Shirky expresses I hope the discomfort of many when they read of otherwise wise individuals embracing the idea of extralegal action against Wikileaks (including thinly veiled threats of violence.) Are people nuts?

So I’ll restrict my comments to some thoughts about how the Wikileaks/open internet controversy appears to me to be part of the next big battle in the millenia-long war over the proper relationship between government and society.  When I was a kid in college, some 35 years ago, I came to hope that government is in essence a temporary construct, a necessary evil. Humans need to cooperate on a whole host of transactions to make living with each other more pleasant, particularly as we clumped into larger and larger groups, and for millenia we’ve decided to hand over day-to day responsibility for this management function to something we call government. Actually we didn’t quite always hand it over; in the beginning some people or institutions such as warriors, priests, or religions actually just kind of grabbed the power and the populations essentially acquiesced. But even before the ancient Greeks, some communities were trying to figure out ways to handle these transactions and resolve differences in ways that didn’t require the creation of a permanent governing class, which unfortunately throughout history has tended to acquire a PERSONALITY OF ITS OWN, and, darn it, not always a very pleasant one.

So for all my adult life, I’ve been kind of a practical libertarian in the sense I always thought government was a lamentable but unavoidable fact of the human condition. (Along with this conviction, is the related view that the worst characteristic of humans is the desire to control others–the conviction that “I know the best way forward and you’re going to follow me or else.” (I’m afraid, based on admittedly incomplete knowledge, that Julian Assange suffers this all-too-common affliction) That’s why I tweeted the other day that the people I most admire in history have been those with radical goals who adopted moderate tactics. It’s always seemed to me that your pursuit of change always has to leave open the possibility you might be wrong and/or that better ideas exist. Going a little bit more slowly than your ardent followers would want is one way of accommodating that possibility.)

But back to imagining a good world with minimal Government. In the last ten years or so,  the internet revolution, the ability to link millions across the globe in essentially peaceful dialogue (Twitter) got me to hoping  we might eventually think our way through to a self-organizing planet. Woohoo!! Now there are lots of problems, not the least of which is the “I’m right, you’re wrong”, the “I’m better, you’re not”, and the “We’re together, you’re the ‘other'” pathologies that plague the planet. I know, I know, but, gosh, a Puerto Rican can hope.

This revolution underway is not, of course, the first global revolution against previous concepts of government. The Age of Enlightenment marked by the American and French Revolutions, essentially discredited the “divine right of kings” concept of government.  And the collapse of the remaining aristocracies at the beginning of the last century brought down the idea that only a particular, genetically-defined group of people could serve as the governing class. (I know this is a distorted thumbnail view of history, I’m leaving out all the really thrilling economic bits, for example, not to mention the cultural dimension, but I’m already at 580 words…)

And so the Wikileaks controversy is unfortunately part of the next battle in this effort to define the relationship between government and society. What’s at stake in this battle is the idea that governments require secrecy and control of information to protect its citizens and that there are a lot of things that citizens just don’t need to know. Many people are arguing against this concept, including many politicians who are winning elections based on the call for more open and transparent government. Many existing governments  in power, in fact, are demanding that other governments be more open.

Now, unfortunately, I don’t think Wikileaks is a particularly good ally to have in this battle, because it is taking an absolutist position–nothing needs to be secret –and because it is increasingly clear it’s agenda is not really about open government and transparency. Before its most recent leaks, most advocates of open government probably viewed Wikileaks much in the same way Winston Churchill viewed Josef Stalin during World War II; now advocates of open government and transparency need to be clear as to whether they want Wikileaks to represent their goals and vision. I don’t.

But that doesn’t mean I completely support how governments are reacting. One of the lessons I’ve learned in life is that when something unfortunate happens, it is difficult to contain the damage; lots of other suboptimal consequences follow. Eventually we will navigate  through this period and come to a better understanding and an agreement between government and the governed as to what is appropriate transparency. I suspect this transparency will be much greater than most members of the governing class can imagine today. And it will be a necessary precondition for much greater social self-organization and much smaller and less secret government.

The Angry Birds Guide to Organizational Change

This is such a cheap, exploitative blog post that, really, I’m just ashamed of myself. But at least I can say it’s authentic. Like  several other million people on the planet recently, I’ve been playing Angry Birds. I’ve completed all the levels, but haven’t gone back to get the 3 stars. And as I whiled away, oh I don’t know, maybe ten hours on the game, about half of them on plane flights, I got to thinking, there’s something about these crazy birds attacking the Pig Castles that’s like a metaphor for organizational change, more precisely for the quixotic charge of the rebel trying to bring down the status quo. And if you know me at all, I’ve yet to meet a metaphor I didn’t fall madly, if only temporarily, in love with.

So maybe there are some people out there that haven’t played Angry Birds yet. Or, like I ten days ago, had only heard of the mania but hadn’t actually seen the game. So let me explain it briefly. These green pigs steal the eggs of some local birds. The pigs construct these Rube Goldberg-inspired castles to protect the eggs and assorted other  treasures they pick up along the way. The now Angry Birds, which have unique offensive characteristics, launch themselves against the castles like Avian Kamikaze. Your task is to direct the birds in an optimum way against the pig castles until you bring them down. Here’s a nice little cinematic trailer that summarizes the setup.

So what have I learned about organizational change from directing my birds against the Château de Cochon (sounds cooler in French, methinks.)

1. It’s all about the angle of attack. Not all the birds are equally powerful, some drop bombs, some mirv into multiple birdheads, others speed up and penetrate the targets like torpedoes. But it’s rare for a bird, until the end when the Red Giants emerge, to be able to take down the Pig Castles or even do much damage unless you precisely aim it at a critical junction or weak point. We organizational heretics, we would-be topplers of the status quo really spend too much time on frontal assaults, getting beat up because we’re not willing to analyze the best place, time and way to make our arguments.

2. It’s all about trail and error. I know there are some gifted Angry Bird players who never waste a shot, but for most of us the sweetness of the game play is in the learning slowly, often painfully incrementally, the best way to get to the pigs. Here’s a part of the metaphor that doesn’t apply that well to organizational change. The rebels and organizational heretics certainly don’t get that many chances to reshape an organization. But we do usually get at least a couple. Observe what goes down very carefully. Learn from it. Share lessons within your rebel alliance. And then, like the birds, take a couple of aspirin, dust yourself off, and try again. BUT IN A DIFFERENT SPOT.

3. Stop banging your heads against Brick Walls.

4. Show some patience and let some of your moves play out over time. Angry Bird kamikaze attacks against Pig Castles often play out slowly. Sometimes when you don’t think you’ve landed a particularly powerful blow, the superstructure nevertheless begins to sway just enough to bring down the entire Château.

5. Resistance can be found in unexpected nooks and crannies. At the higher levels of Angry Birds, there can be upwards of a dozen pigs in the castle. Naturally, we concentrate on bringing down the obvious Pig Leaders, but even when we’ve used up all our bird attacks, a small seemingly insignificant pig lurks in the tall grass to defeat us.

6. It’s all about the sequencing. The larger Château de Cochon can require about ten Angry Bird attacks and many of your early launches appear to do very little damage to the superstructure. But your final assaults won’t succeed without those early attacks. All organizational heretics need to think hard about where to begin their campaign against the status quo. And organize it like a campaign!!! I think one of the things that kills change initiatives is that the status quo defenders have much better tactics and strategies than the change advocates.

And Finally…

7. Sometimes you just have to chip away.

Anyway, that’s what playing Angry Birds taught me about organizational change. Any others?

Do We Have to Choose between Transparency and Real Authority?

A friend sent me this email in response to my last blog post. He has agreed to let me post his thoughtful reply on my blog:

I enjoyed your recent blog post “Five Scary Thoughts for Halloween“.

I wanted to push back on your first scary idea (actually listed as number five) about making your ideas public.   The story you used involved a man who doesn’t even own a computer and his inability to comprehend why someone would want to share their ideas.

My question to you is who is more out of touch?  Him or you? How powerful was this man?  How much authority does he wield?  If refusing to share broadly is such a disability in today’s networked world, why do so few people who have power and authority actively engage in the conversation?  Could it be because they have real power and authority?

I may be reading more into your scary idea than you intended as you only speak about the complexities of the challenges we face.  However, your statement exudes the air of someone who feels all but certain their view is right when all of the evidence around us suggests that traditional power comes through quiet networking amongst a select group of individuals of roughly equal stature.   Even powerhouses who participate broadly in today’s global conversation make their deals in private meetings, not in public.   The real decision over who will partner with whom to accomplish something remains opaque until well after the deal is sealed.

I do believe we are on the fault line of two tectonic plates colliding (opacity and transparency) and that, at least at the moment, transparency is putting up a good fight.   If history is any guide, the opacity plate has tremendous resistance to movement and often lurches back in earthquake-like convulsions.   I think the lack of trust of large organizations today is interlinked with this idea.  Large organizations are always complex jumbles of partially formed deals, challenges, and new ideas.  Organizations have to lie to anyone outside their walls to protect those ideas (intellectual property, legal issues, pre-decisional material, etc) as well as their very existence and thus there is real schizophrenia in their actions.  When confronted with one of these falsehoods they rationalize their actions by saying “we weren’t at liberty to divulge that information at the time” or “that was proprietary information” or “it would be improper to talk about the deal before it is finalized” or “it was classified”.  To those outside though each episode is another withdrawal from the trust bank account.   Yet, the folks in charge of these organizations wield tremendous power and can, for the most part, weather these storms because the entire apparatus around them is designed to protect them and keep itself going.   They have tremendous capital.  They have tremendous legal authority.  They have tremendous ability to legislate, investigate, shape, pressure, buyout, and influence.

In your recent speech you described two possible models for the “motor” that runs the world and then proceeded to categorize people by which motor they believe is the true driver of world events.  This duality, IMHO, misses nuance and complexity.  For instance, a third model, can be some weird hybrid in which the benefits of large high-mass organizations as described above sustain opacity and give those who run them very real advantages even if they aren’t consciously and intentionally undertaking “secret agreements and machinations” but rather just trying to advance and protect their organization. That same size and complexity creates vulnerabilities and blind spots to the organic and unpredictable nature of the world in which they reside.  Historically, the benefits of the large organization have outweighed the disadvantages.  The question in my mind is whether that equation is changing.

As a complex planet with complex problems will we always need these large complex organizations from Exxon to the USG to Salvation Army to manage the globe’s complexity?   If the answer is yes, then I believe it is likely the primary centers of power will almost certainly continue to reside with folks who do not broadly share their views and ideas  in a global conversation because the organizations around them will demand they remain silent for a whole host of reasons and because to succeed in those organizations requires cunning and bureaucratic savvy that is the antitheses of a dynamic dialog.   When transparency gets too close to unraveling these centers of power, they use their heft to put things back in the bottle.  As one example, a researcher used publicly available information to show all of the infrastructure that was below Manhattan only to have the “system” react by classifying the report and having it removed from the web. When RIM provides security that is too good, India demands a back door, as does the US, as does Saudi Arabia, and countless others.   Products quietly are discontinued.  Tools quietly disappear.  Information quietly disappears from Google.  Capabilities are hobbled.   The examples are too numerous to count.

If the answer is no, large organizations are not required (maybe not even healthy) for the planet to effectively deal with the complexity of the challenges we face as a global community and a global society, what does that transition look like?

Five Scary Thoughts for Halloween

Waiting for my first trick or treater gets me to thinking about some of the ideas floating around our society that I think are really, really scary. Here are my Top Five:

5. Why do you want to make your ideas public? Said just last night by a kind man who admitted he never had visited a blog (which is pretty easy for him to not do as he does not own a computer.) Now this individual is also quite educated and reasonable, but I could tell as I described blogging and tweeting to him that he could not comprehend why people would see any benefit in sharing ideas as broadly and as often as possible. Given the difficulty and complexity of the problems facing our species right now, I see no alternative but to be part of the Great Insight Stream, from each according to his abilities, to each according to her needs. (said tongue in cheek.)

4. A great leader makes decisions quickly and never compromises. Oy!! Who came up with such a ridiculous notion? Maybe somewhere there is still an organization that can afford leadership by gut instinct and ideology (more on that later), but I’m not hearing too many success stories these days along those lines. Even an NFL quarterback needs to read the defense, work through his progressions, and make the right decision, which is often a compromise from his first choice.

3. I have the right to be invisible . OK, I admit you probably haven’t heard anyone say this directly, but if you listen carefully this is exactly the argument some people are making when they claim the right to privacy. If you think about it, most if not all of our actions have always been visible, but only to that limited number of people who could “see” what we were doing at any given time or place. If any of us did something criminal, the authorities would then go look for those witnesses who could testify to what they had seen. For the most part, today’s technologies don’t make activities more visible but they do reliably make a record of ALL visible activities; the digital record acts as the new witness. I myself am not sure where to draw the line here; some type of consensus will emerge. But I think we need to be clear that the right to privacy does not mean the right to be invisible.

2. If you’re a progressive, you believe in big government. Aaargh!! I consider myself a progressive because I believe humans have a lot of upside potential and as we collaborate and share more knowledge we will find better ways of doing just about everything. This does not mean, however, that I believe government has to do most of the heavy lifting. In fact, I fully expect Government to be one of the things we will find a better way of doing.

1. The US will become stronger if it returns to the past. It pains me that this even needs to be argued, but there you have it. Its funny how organizations in trouble and societies that become less confident revert to the same argument: we need to return to the principles of our glory days and just execute them better. Please, someone, show me one example where this strategy has actually worked. Deterioration in our competitive postures doesn’t occur because we’ve abandoned our principles; it happens mostly because the environment around us is changing. Ideologically-based attachment to old ideas is the greatest sin of politics.

Attitude Adjustment

A Twitter mate wrote me that the “Collapse” meme was strong on the internet today. “Collapse of what?” Of the US empire, of course. I myself had fed the meme earlier in the day by ReTweeting a reference to Otto Scharmer’s blog post from earlier this month where he wrote how stark the decline in the US appears after returning from a summer of visiting more vibrant nations overseas. (Otto Scharmer is a Senior Lecturer at MIT.) Scharmer also referenced the arguments of Johan Galtung, who predicts the fall of the US empire by 2020.

I think the evidence is pretty clear that the US is in a period of economic decline relative to much of the world–we’re just not growing as fast as they are. The US, which accounted for 50% of the world GDP immediately after WWII, accounts for something like 20% today, and as long as other, very large economies such as India, China, and Brazil continue to grow at 2 to 3 times the US rate, our share of the world economy will decline further. The Congressional Research Service in 2007 cited statistics that by 2025, the Chinese GDP would be 50% bigger than that of the US, although its per capita income would still only be about 40% of the US level.

This need not have any significant impact on US prosperity; in fact, overall growth in the world economy, if we manage it responsibly and sustainably, should be a good thing for everyone.  But it will change the dynamics of the world economy in ways we cannot fully anticipate today. World capital flows will change, US foreign investment patterns will change, other economies will become centers of world-class innovation and education, human talent will flow in different directions, and world investors will have many more stable options to park their long-term funds.

It’s harder to tease out exactly how these changes will alter US ability to project power, but the strong sense is that they will, even if, and this is important, countries such as China, India, and Brazil never have a bad word to say about the US. Leaner defense budgets are in our future. And I also suspect that, as these other countries emerge as world economic engines, the mantle of economic and diplomatic leadership will at first imperceptibly but eventually steadily slip off US shoulders. As China becomes the EU’s largest trading partner, for example, it will only be natural for Bonn and Paris to worry more about what Beijing thinks. Again, this need not be a horrible thing.

But we can certainly turn it into a horrible thing. That’s the problem with all this “collapse of empire” talk. It tends to feed the tendency of Americans to think we’re on the road to ruin and that therefore drastic measures are necessary to reverse the dynamic. Now that would indeed be unfortunate, because it is exactly this kind of overreacting that could lead to a messy denouement. Grandstanding and puffing out our depleted pectorals will only divert us from what we need to do, which is to begin to shift money away from military-oriented spending to investments in human and societal development that will allow us to compete effectively in a more balanced world. (And by the way, I don’t think it’s up to government to do all the investing.)

Generally I’m bullish about the US capability to do well in this competition. But one not so small thing gives me pause. America’s mental shortcuts for thinking about the rest of the world are not very helpful, and these shortcuts unfortunately spring from our founding legends and myths. So as Americans we learn that:

  • We were founded by people who wanted to escape the messy ways of bickering nation-states and it’s best to remain independent from them and Self-Sufficient.
  • Almost all problems scale to individual solutions. At worst, maybe every once in a while Americans have to voluntarily form a small group to tackle something difficult. (The only real exception to this is the military) So essentially we believe Complexity is Un-American.

So let’s stop writing about the collapsing empire–and please don’t bring in the comparison to Rome, which after all occured like 2000 years ago. I’m tired of it already and it’s just applying old vocabulary and concepts to describe a world dynamic that will be new, different, and exciting. And let’s concentrate on what really matters–a long overdue Attitude Adjustment.

Lessons from a CIA Heretic

Last week I told a story at the Business Innovation Factory Summit, a wonderful event that I was blessed to attend. The storytellers were awesome. (Let me also give a big shout-out to my friends and reverse mentors Tony and Jen Silbert of Innovation Partners, who were the kind folk who connected me to Saul Kaplan and all the wonderful people at the Business Innovation Factory.) I was talking to a friend last night about all the interesting people I met and I couldn’t talk fast enough to keep up with my memories.

Anyway, even as a retired CIA person, I still need to get public or published comments approved if they deal with subjects pertaining to my CIA employment. And so this forced me to actually write out a draft of my extemporaneous comments to submit to the publications review board. You can catch the differences (not that significant) between what I wrote and what I said here, where you can download the MP-3 file of my remarks. So I thought I would post that text below. I think particularly toward the last half there are some ideas I rushed through or omitted that might be of some interest. I’m sorry it’s so long…

TALK BEGINS

My hope is that 15 minutes from now you will have developed your own answers to the following three questions or at least be provoked to think about them.

The questions are:

1.  Is the perception of the CIA in the popular media accurate, distorted, and/or useful to the organization and US national security?

2.  What is the motor that runs the world? Is it the secret agreements and machinations of men (and historically it’s been men) getting together in smoke-filled rooms generally up to no good; or, Is it the large dynamic and trends that emerge on the planet from God knows where and set in motion events that elude our attempts at prediction and manipulation.

And

3.  Are we the world?

So question 1. The perception of the CIA. Now first I have to tell you that I hate spy fiction and spy films and I even dislike nonfiction about the topic, so I’m not the best person to have an opinion as to whether the common perception out there is accurate. But I can tell you a little bit about my early days at the Agency. That’s a start.

Unlike many young people I’ve met over the years, I never dreamt of working for the CIA. As the first person in my extended family to graduate from college, I of course had no idea what I was supposed to do with the degree I was earning but because I was a college debater I’d always assumed I would be a lawyer. Until at Catholic University I started meeting law school students and went “OOOO….I don’t want to end up anything like them.” At that point I was at a loss. The only thing I was really interested in was the world, and so I thought well, I’ll go to Georgetown for graduate school. And so I did and the first semester there was a CIA recruiter on campus and I said sounds good. That’s the sum total of the story.

Now when I first joined the Agency, in 1978, it wasn’t what we would call a very diverse environment. (and even today Agency leaders are not satisfied with the level of diversity in the organization.) In later years I would tell people that I used to wander the halls searching for another Latino or Latina, because someone had told me there was another Puerto Rican working in the Agency and I was determined to find that person. Now that story is not specifically true, but it is generally accurate, if you get my drift. I used to get strange comments, like people in a conversation suddenly volunteering, in a culinary non sequiter,  how much they liked Mexican food or assuming that I would only want to work on Latin America. But for the most part, the Agency environment was a meritocracy, specifically I can say that about the analytic directorate where I worked, and I can’t point to any particular issues. In fact, when I would speak on college campuses kids were always asking me to comment on how being a woman and Latina affected my career, and I always told them the truth, that neither had as near the effect as being a different type of thinker—but I’ll talk more about that later.

I soon learned that most of the work at the Agency was, well, like the work at any other knowledge organization, although of course we didn’t use that term then. (By the way, given the malodor in which managers and management are generally held, I just don’t understand why consultants banded together and decided they could make a lot of money pitching organizations on Knowledge Management, but I digress.) True, the CIA is by law responsible for carrying out covert actions, an activity that, for my taste, assumed a heck of a lot about the planning abilities and foresight of the average American, whatever, but for some time now great powers (another term I rather dislike) have assumed they needed the ability to do some things secretly to make their way around this big, blue planet and, rather endearingly, the US decided to give this activity a legal structure. But much, most of what most Agency employees do has very little to do with covert action. It has to do with trying to make sense of the world, and trying to gather information about the world that others would rather us not know, so it’s a bit like trying to figure out what Steve Jobs is going to do next at Apple. But for the press the CIA is like the Lindsay Lohan of government. No matter what we do, how insignificant or banal really, it makes headlines and it’s always bad. “CIA uses solar-powered lawn mowers!!” Ridiculous!! I guess stories about the CIA sell newspapers, if anyone bought them anymore. I had a colleague at the Agency, wonderful fellow, who started every morning reading multiple newspapers (and he also has his office decorated with Brooklyn Dodgers memorabilia, so you know the type—salt of the earth.) And for the last six or seven years, I would stick my head into his office and say, “You know, newspapers are dying.” It was really mean of me.

So this is a good point to start making the segue to the second question, which as you recall has two parts. So I’ll repeat them.

What do you think is the motor that runs the world?

Is it the secret agreements and machinations of men (and historically it’s been men) getting together in smoke-filled rooms generally up to no good or

Is it the large dynamic and trends that emerge on the planet from God knows where and set in motion events that elude our attempts at prediction and manipulation.

So right about now, I’m going to start connecting my comments to the topic of innovation, which will be very exciting, I think.

So my point in asking you to think about this question is that how you choose and/or what reality is tells you a lot about what kind of intelligence organization you’ll need. If you think that the world is driven mostly by the secret deals and aspirations of powerful people—the Hitlers, the Communist Party of the Soviet Unon, Mao Tse Tung, Idi Amin, Saddam Hussein, Osama bin Laden, I’m desperately trying to think of a likely woman here—then you will conclude that you need some kind of capability to figure out what these people are doing, to ferret out their secrets. To protect our nation from some very nasty ideas these individuals cook up. And you may also want an organization that can impede their plans, cross your fingers.

But if you think that most of the forces the US will need to navigate are not specifically man-made, or at least not specifically made by one man or a small group of them–then you need a different kind of organization. If what matters is that the US understand the trends in the world, like globalization or the emergence of new economies such as India and China and Brazil (which clearly no one is like trying to keep a big secret) than spending a lot of time digging out secrets seems not as important, and what you really want is to have your hand on the pulse of the world, to be out there sensing and in many ways just being part of the whole big ride.

Now of course the question is a false dichotomy, because it is not either/or, and both dynamics can exist at the same time. But what is critical for understanding the CIA and why I spent my last 20 years there as a frustrated innovator, is that much of the Agency’s theology and modus operandi are built on the first assumption. This was the driving principle in the Cold War—countries hostile to us are planning to destroy us and do us harm and we’ve got to get out there and figure out what they’re up to. And of course it’s a Mad Magazine Spy vs. Spy world and the bad guys are trying to figure out what you know, so you have to be secret about everything, be very, very quiet, and trust no one.

It’s all very tiring but it was all very important up until about 1990 or so, which curiously, now that I reflect back on it, was when I published my first article in Studies in Intelligence arguing that we needed to do analysis in new and different ways. We needed to recognize that policymakers often knew as much about the open world as we did and that these newfangled operations like CNN were providing news faster than we could and well we needed to adjust. And then the internet came along and the Agency was really thrown for a loop. One has to understand that for intelligence organizations how one handles information is not a secondary or enabling activity. Handling information is the essence of our mission so that changes here are doctrinal and theological. Well, of course, we had a really hard time figuring out what to do, and I would argue we are still having a hard time.

This period, the 90s, ended up being the most difficult of my Agency career because it just became harder and harder for me to reconcile what I believed needed to be done with what the Agency was actually doing. There was a small group of us that I in any case referred to as the Rebel Alliance. We tried to raise the Agency’s awareness of how the world was changing around it, we would bring in guest speakers to talk about Change—how naïve it all seems in retrospect. During this time, and I’m afraid this is a danger all innovators run, I began to get the reputation of being cynical and negative…positive thinking has its limits, you know. During a reception up in NYC around then, I was approached by someone who had been watching me, I remember she worked for DuPont, who said. “I can see you are a heretic in your organization. And I just want to tell you that you need to learn to live with the feeling of discomfort all heretics get. In fact you need to learn to be comfortable with these feelings of discomfort. Not just comfortable, you need to learn to like, love them, because when you get those feelings then you can be sure you are being true to your convictions.” I never spoke to this person again and I’m convinced she was one of the two guardian angels I’ve encountered in my life. (If you want to know the other one, catch me later!!)

Despite all this doom and gloom, I spent the last ten years or so of my Agency career as a senior executive—and ended up in positions of increasing responsibility. I wish I could tell you exactly how I as a heretic innovator managed to succeed in the system anyway, but part of it was just sticking to it, many good friends and mentors—especially reverse mentors, and that extremely important variable in all plans—luck. By 2005 I was part of the executive team that led the analytic Directorate, the Directorate of Intelligence. Very soon after I assumed that position, a young man and his manager approached me about an idea they had at that time to use the media wiki software to create an Iraqipedia so that analysts throughout the Intelligence Community could collaborate and work together on the problem set. I thought what a great idea but did they know that the Agency was OK with using collaboration software as long as you only collaborated with people within the Agency. No, they didn’t, they said. And I said that was OK because I doubted anyone in the bureaucracy realized any longer this stricture existed so let’s proceed, full speed ahead. (It never ceases to amaze me how bureaucracies create rules at a rate no human can ever remember, not even bureaucrats.)

So that was my small role in getting Intellipedia started, which is still viewed by many as the most important adjustment the intelligence community has made to the Internet Age. Nothing came easily and I remember Sean and Don, the two heroes who ended up pushing the concept throughout the intelligence community and winning last year one of the Service to America awards given to outstanding civil servants, often asking in frustration if we couldn’t just MAKE everyone use Intellipedia. To which I said, wrongly or rightly, no, we can’t. I happen to believe organizational change is a lie—organizations don’t change, people do, and each person changes for particular reasons of their own. You can’t make people think differently. You can create an environment where they can have a Eureka moment. You can MANIPULATE them into thinking differently. But you can’t FORCE the issue.

Not only that, many in the intelligence community then, and perhaps now, didn’t think ideas such as Intellipedia were such good ideas in the first place. Virtues of Intellipedia such as transparency don’t sound too hot to intelligence professionals accustomed to clandestinity. The CIA and Intelligence Community also were hung up on the concept of authoritative views. National Security intelligence is just too important to be handled through collaborative processes, they would argue. During this period I came to the exact opposite view. Making sense of the world is so hard and so important that it demands collaboration with as broad a network as possible. It was around this time that this thought entered my mind: The CIA will end up being the last secret organization in the world. And being the last of anything is never a good thing.

And so back to the question. I actually think the answer to it is very complicated. But I do believe that more of what will be important to US prosperity in the future will lie in the second dynamic and our success will depend on how well we understand these large shift changes underway and are able to engage them. Here’s where the imbalance of the Intelligence Community really can hurt us. To deal with the first circumstance it’s important to be a closed network. But to understand and prosper in the second dynamic it’s best to be an open network.  What we have here is a real innovator’s dilemma.

Which brings me to the last question: Are we the world? In the immediate aftermath of WWII, the US was 50% of the world economy. We also make a big deal of how we led the world in innovation, but of course most of that was probably just a function of our size. So during the Cold War we dealt with the world as if we were the world. We called the shots. And that is the world our intelligence community learned to function in. Of course individuals were ready to share secrets with the US government because we were after all where the action was.

That world is ending very rapidly. The world to follow will be a good world too. A world in which the US will remain very influential and prosperous. But once the US represents, let’s say 10% of the world economy, which could happen in most of our lifetimes, the arithmetic of dealing with the world from a position of absolute strength sort of falls apart. Much of the American public, from what I can tell, doesn’t appear ready for this turn of events. We learn, as kids, that America owes its prosperity to its independence from the rest of the world. It is part of our founding myth. We also believe that the world and its problems scale to the capabilities of individuals or small groups of individuals, freely associating. So in a very real sense, Complexity is Un-American!

That’s why one of my passions now that I’ve retired from the Agency is to do what little I can to help Americans think about connecting, about working in open networks, about transparency. I believe as a successful multicultural society the US is poised to be innovative in this new world, and this time perhaps all out of proportion to our size. I love all social networks and in particular Twitter because of its power to spread ideas faster than the speed of light. Just think of it. One thought can reach a thousand people much faster than a single beam of light could physically touch those same individuals. I found myself a few weeks ago teaching a group of 20-somethings my Twitter secrets. This is nuts, I thought, but what a blast.

So there you have it. My last lesson: All organizations, no matter how reactionary or conservative, always have people in them thinking how we can be better.  All organizations need to find better ways to tap into what these individuals have to offer, because they often have an orientation to the outside environment that you may be lacking.

And for you frustrated innovators out there, form a Rebel Alliance. But remember, that optimism is the greatest act of rebellion.

Thank you.

On Work, Consumption, Economy and the Whole

Saul Kaplan, the founder of the Business Innovation Factory–where incidentally I will be a storyteller on 16 September–writes a Labor Day post on his blog listing what he calls 20 random thoughts on the Future of Work. (They’re not so random, really, but it’s a really good list.) Naturally agreeing with points such as

Projects are more important than jobs; and

Free agent nation becomes a reality,

I got to thinking that change of this scale will have GINORMOUS downstream effects (I’ve been told by some very reliable sources that ginormous is now officially a word!). Because if we change how we work, don’t we in fact CHANGE EVERYTHING? Saul touches on some of these broader implications when he notes that

Workforce and economic development are transformed and become indistinguishable; and

Work and social become indistinguishable

but what I’d like to do in my Labor Day post is draw these points out even more.

We cannot underestimate how important steady 9 to 5 work is to the American economy; it is that steady, predictable income that has allowed US consumers to become the BEASTS that we are. (It was part of Henry Ford’s genius to realize the connection between his profits and the wages he paid.) The US consumer has been the engine behind world economic growth since WWII. I wasn’t able to easily find a statistic on what percentage of the world economy is ingested by the US consumer–the closest I could get is the oft-cited data point on how we account for about a quarter of world energy consumption despite being in low single digits in percentage of world population. But you get some indication of the importance of US consumption to the world economy from the website of the Worldwatch Institute, which in its press release for its 2004 monograph on world consumption noted that “the 12 percent of the world’s population that lives in North America and Western Europe accounts for 60 percent of private consumption spending, while the one-third living in South Asia and sub-Saharan Africa accounts for only 3.2 percent.” It’s safe to assume the US consumer accounted for more than half of that 60 percent.

So let’s get in that trusty Time Travel Apparatus and fast forward let’s say 50 years. If the predictions about how work will change are true, then one of the implications–unless we come up with interesting new methods of compensation, question mark?–is that the steady income that drives American consumer consumption will dissipate, to be replaced with more aperiodic payouts. Presumably these payouts will average out to meet our needs and sustain roughly approximate standards of living, but not without some important adjustments. I would imagine, for example, that the average individual’s willingness to accept large revolving debt balances will weaken once she cannot rely on a regular, stable income. Similarly, companies and business models that are based on consumers handing over huge amounts of money on a regular basis, like the cable companies, may have to retool.

Many industries in fact will have to rethink. Agreeing to five years of car payments? I don’t think so!! The 30-year mortgage? Perhaps not!! It’s interesting that already in the car industry companies such as Zip Cars are introducing new ways to acquire the services of a car on a pay-as-you-go basis. And the shambles in the mortgage industry have led people to question the inviolability of the American dream of home ownership. Finally, the emergence of Cloud Everything probably will allow consumers to dispense with the need to own important consumer goods such as music, videos, books, etc.

So my hunch–a sophisticated analytical term–is that a redefinition of work will be the prelude to a redefinition of economic prosperity. Prosperity and economic growth would no longer be synonymous. I don’t know yet whether this will be a net plus or minus, although the optimist in me believes of course it will be a net plus. Certainly the world’s ecology could tolerate a break from constant growth, particularly growth dependent on mass utilization of finite resources. Again from the Worldwatch Institute, “WWF’s Living Planet Index, which measures the health of forests, oceans, freshwater, and other natural systems, shows a 35 percent decline in Earth’s ecological health since 1970.”

Nevertheless, there’s also a part of me that senses the wisdom of the view that the opposite of growth is death. Without economic growth, can we advance as a species and improve the lot of those who live and die without ever getting a chance to explore their human potential? I know many have conceptualized what they argue are more equitable economic models, but these always seem to ignore the demonstrable quirks of human nature.

Clearly, there’s still a lot of work to be done.

The Importance of Innovation to the US Economy

I know I still owe pictures on my African trip, but first I’m going to insert below what I have been working on most recently, which is a short talk on the importance of innovation to the US economy. I welcome comments and brickbats.

In the new National Security Strategy articulated this year by the Obama administration, prosperity is identified as the second of four US national interests.  Specifically, the US seeks a strong, innovative, and growing US economy. In my comments today, I want to focus on that second adjective—innovative. I want to discuss the issue of innovation as it relates to economic security, although I guess I would rather use the term economic prosperity. I chose the topic of Innovation because it’s a “thing”, a dynamic, that really appeals to me intellectually and psychically. Despite 32 years in the Intelligence Community, I’ve come to realize that my cognitive orientation is essentially a progressive one. I am much more interested in what can be than in what is.

I’m sure that many of you share my sense that we’re living in one of those periodic spurts of progress and innovation that punctuate human history on a fairly regular basis. I’m not prepared to argue that this spurt is unprecedented, although personally I’m inclined to believe the impact of the changes we’re seeing now will have particularly profound—dare I say it—unprecedented consequences. For my purposes, it is enough that technological and process-based changes and improvements are bunching up right now in volume  and chunkiness rivaling beach traffic approaching the eastbound Bay Bridge on a Friday afternoon.

So how important is it—to our economic-slash-national security for the US to be an important driver of this Innovation Caravan? To answer that question adequately, I indented four additional questions.

  1. How important is Innovation to the overall economic health of the US?
  2. Where does the US currently stand in the world’s innovation index and how are we vectoring?
  3. How do our likely peer competitors compare to the US in their innovation potential?
  4. What is contributing to the conditions described in the answers to Questions 2 and 3? What are the causes and correlates?

I’ve tried to take the approach of the so-called objective intelligence analyst in answering these questions. So I’m not going to try to persuade you of my beliefs necessarily, but rather just lay out what I think is known and not known about this topic. When I do have a personal view I will label it clearly as such. I don’t expect you all to agree with me, I don’t want you to agree with me, although I hope you will find my approach and conclusions credible.

Before proceeding to answer the questions, let me spend a little time providing you with some definitions of Innovation. The World Bank, in a recent report on agricultural innovation, had a definition I liked, which I’ve paraphrased slightly for efficiency.

Innovation is neither science nor technology but the application of knowledge of all types to achieve desired social and economic outcomes. Specifically, innovators master and implement the design and production of goods and services that are new to them and/or their societies.

People speak of many different types of Innovation. The taxonomy of Innovation is usually presented in the form of paired concepts that are in opposition to each other. So, for example, people speak of fundamental innovation, which is often technology-based and leads to new industries, as opposed to social innovation, which refers to changes in the way people behave. These changes in societal behavior, for example most people adapting to cell phones or GPS systems, are often essential to harvesting the advantages of fundamental innovations.

Process vs. Product Innovation: The experts generally agree that product innovation often creates jobs; although my question would be does it lead to a net increase in jobs? After all, new products usually displace the individuals working on the old products. Process innovation, however, usually eliminates jobs as few innovators seek to increase labor costs through process improvement.

Then there are several twin-headed taxonomies that strike me as generally describing similar qualities—the extent of change.

Is the Innovation Revolutionary or Evolutionary? This usually is assessed in terms of outcome.

Radical vs. Incremental Innovation. This usually distinguishes ease of adaptation.

Continuous vs. Discontinuous. This distinguishes those innovations that trigger mass extinctions from those that don’t.

A final taxonomy pair distinguishes fundamental innovation, this time from applied innovation. In this case fundamental innovation involves science and engineering leading to a new “AHA” moment. Whereas applied innovations take these “AHA” moments and turn them into something utilitarian and in some respects pedestrian.

So with that out of the way, let’s return to the four questions I set out to answer.

  1. How important is innovation to the overall health of the US economy?

Although some of the subsequent questions have less clear or authoritative answers, here the facts appear to be without controversy. Everyone agrees that innovation has accounted for most US economic prosperity in the post WWII period. The Department of Commerce notes for example that technology innovation is linked to 75% of US economic growth since WWII.

Perhaps less appreciated—or less appreciated in any case by me until I started to do the research for this talk—is the unique role that venture capital and the modern private equity firm had in fueling post WWII US economic growth. It is generally agreed that the venture capital industry really began in the US in 1946. You had private investment before then—the Transcontinental Railroad was a startup—but the investors were rich individuals acting on their own. (A trend by the way that we appear to be returning to as the amounts required by startups decline precipitously as a result of web services and cloud computing, but that’s another talk.) Venture capital firms in the post WWII environment began by investing in the new businesses started by returning veterans. This was a uniquely American concept at the onset, but Europe caught up by the 1990s.

Venture capital reached its highest percentage of GDP in the mid-1990s at just about 1%, but the cascading effects of venture capital are more significant. The National Venture Capital Association estimated in 2003 that ventured-backed companies were then providing more than 9% of all US employment.

But we don’t have to take the lobbying group’s word for it. The OECD estimates that in the US firms less than 5 years old have accounted for almost all of the new jobs created in the US economy in the last 25 years. Put another way, established companies have essentially created no net new jobs during that same period. The Kaufman Foundation in a very recent study based on a new set of data from the government called Business Dynamic Statistics analyzes that firms more than a year old actually have destroyed net more than a million jobs since 1977.

Although I couldn’t locate a breakdown of exactly how these new jobs link to innovation, I think it is safe to assume that the many of the new firms every year are based on some type of innovation, whether it is fundamental, applied, or social.

So there’s no arguing, I think, that the capacity for innovation has been the primary catalyst of US economic growth. (And indeed capitalism essentially is built on innovation and the concept of creative destruction.) But my research suggests to me that, going forward, innovation will be even more critical to US economic prosperity. And that’s because our particular economic circumstances today imply that innovation not only will need to contribute all US economic growth but will have the additional burden of compensating for anti-growth dynamics currently infecting the US economy.

Specifically:

  1. The financial crisis and the necessary deleveraging occurring in the US economy. Economists agree that the hangover from a debt crisis is the worst kind and lasts the longest. I also have the hunch—very technical analytic term—that this economic downturn is made worse by a simultaneous disruptive secular shift in the economy—from analog to digital. Employment will stay stubbornly high because companies, I believe, are using this downturn to divest themselves of employees and occupations they no longer need in a digital and knowledge economy. (There are some economists who have argued a similar dynamic deepened the Great Depression, which was the occasion that finally allowed—so the argument goes—for the complete unwinding of the agrarian/horse economy that had dominated the US during the 19th century.) The only elegant way for the US to resolve its deficit issues is to grow ourselves out of them. A nice average 5% per annum growth rate for the next ten years might be a good place to start. Unachievable without the frisson of significant innovation.  (And I suspect unachievable, period.)
  2. The mature nature of the US population. Although there is considerable difference of opinion among academics as to how population growth affects economic growth, particularly for underdeveloped and developing economies, most agree that the declining and aging populations of Western Europe and Japan necessarily cut into economic demand. The US economy is not there, largely because of the positive impact of immigration, but we’re also no longer going to benefit from the economic boost that was provided by the consumption patterns of the baby boomer generation.

So having established that innovation is critical to the future of the US economy, let’s turn to Question #2.

2. How are we doing in terms of innovation—specifically, given the focus on national security, relative to other countries?

My exploration of this topic did not reveal as much clarity as on the first question. Measuring where countries stack up on the Innovation Table appears to have become a cottage industry in the last ten years. Let me cite the two most recent and most credible:

A report compiled by the Boston Consulting Group and the National Association of Manufacturers. Like most of these studies it measures innovation inputs and outputs and has the US ranked 8th in the world.

A second report by the Economist Intelligence Unit, sponsored by Cisco, has the US as 4th.

A third report by Insead, the Paris-based economic school, still ranks the US as first in the world in innovation, God bless them.  But I did not use it because I wasn’t able to readily locate the details on the internet. Both of the reports cited below were published in the last couple of years.

Boston Consulting Group                                     Economist Intelligence Unit
National Association of Manufacturers                 Cisco Systems

1.  Singapore                                                            1.  Japan
2.  South Korea                                                         2.  Switzerland
3. Switzerland                                                           3.  Finland
4.  Iceland                                                                4.  USA
5.  Ireland                                                                5.  Sweden
6.  Hong Kong                                                           6.  Germany
7.  Finland                                                                7.  Taiwan
8.  USA                                                                     8.  Netherlands
9.  Japan                                                                   9.  Israel
10. Sweden                                                               10. Denmark
China 27th                                                                China 54th

Projected Rankings in 2013 (Economist Intelligence Unit)

Russia 32
Brazil 45
China 50
India 52

What these tables tell me is that the methodology for these studies isn’t very exact or agreed upon. Although most people agree on what are innovation inputs (skilled work force, education, R&D expenditures, etc.) innovation outputs are another matter. For example, the number of patents, a popular metric, is criticized by others who argue patents only indicate inventions and societal concepts of intellectual property, not innovation.

I don’t know about you, but I can’t quite work up a lather of concern because Iceland or Switzerland is considered more innovative than the US. I can say without doubt or equivocation that neither country will become threats to US national security. On the other hand, I believe these studies underestimate where China is—the Status Quo always underestimates the new kid on the block because the Status Quo owns the yardsticks. That said, however, I share the view of many commentators who think China’s status as a holder of US debt will be a strategic problem for the US long before China’s innovation capacity. It should matter in the long term, of course, but by then China will be dealing with its own structural problems, such as the graying of their labor force.

There is, however, no doubt that the US capacity for innovation has declined in relative and absolute terms over let’s say the last 20 years or so. Our standing on these inexact charts has consistently declined. Other evidence points to a less vibrant American economy. For example, according to Deloitte’s Center for the Edge, the rate of return of US assets has declined by 75% since 1965.

We’ve already begun to touch upon the Third Question.

  1. How do our likely peer competitors compare to the US in terms of their Innovation potential?

We’ve already discussed China’s innovation performance and my instinct that the methods of measurement discount China’s progress. Other potential national security concerns for the US, such as Russia, are essentially non issues, according to these studies, when it comes to economic innovation. Obviously Russia, given its strong performance on pure scientific research, retains the potential for military innovations but its economy, which is dwarfed by China’s in any case, is increasingly based on exploitation of natural resources and is not poised for strong growth or innovation.

At first blush then, the European Union and China then are the two coherent economic powers that could deny the US leadership of—or a significant share of the economic innovations that will shape the 21st century.  But a broader trend, the emergence of the BRIC economies—Brazil, Russia, India, and China—will, if Goldman Sachs is right in its projections earlier this year—fundamentally alter the world economic map by 2020. (By the way, I bet Goldman Sachs regrets its inclusion of Russia in this list given the developments of the last decade. The Economist Intelligence Unit indeed only speaks of the BIC.)

Let me quote directly from the Goldman Sachs report, which can be found on their website.

Our baseline projections, underpinned by demographics, a process of capital accumulation and a process of productivity catchup, envisage that the BRICs, as an aggregate, will overtake the US by 2018. In terms of the size of the economy, by 2020 Brazil will be larger than Italy. India and Russia will be individually larger than Spain, Canada, or Italy. By 2020 we expect the BRICs to account for a third of the global economy and contribute about 49% of global GDP growth.

One of my favorite analytic sayings/precepts is that quantity has a quality all its own. (Josef Stalin) This kind of change in the global economy will have profound effects on the world which we in the West, in my view, are inclined to not even want to think about.  And it only serves to underscore the argument that US economic prosperity depends upon our capacity for innovation, by which I mean that only innovation will allow us to fight about our weight class (i.e. absolute size of our economy—largely a function of demographics and maturity.)

So back to China and the EU. While many of the most innovative countries are in the EU, it is still hard to imagine the circumstances by which the EU becomes a peer competitor for the US, which returns us to China. Although China, in the EIU survey, is projected to rise to 50th in the Innovation Index by 2013, its low ranking is deceptive. China has risen 9 places in just 5 years, a rate faster than the EIU anticipated. In a separate study of Innovation in BRIC economies published last year in the journal Research Technology Management, it was noted that in 1995 the patent count, duly caveated by my earlier discussion, of China was the same as Brazil’s. Now it is 7 times that of Brazil.

John Seely Brown and John Hagel, at the 2006 Davos conference, asserted that China is now the world leader in management innovation. I’m not clear as to the basis for their claim, but I do believe, as I’ve mentioned before, that the methodologies used to rate innovation by country are based, unavoidably, on how the West has done it and thus have a tendency not to appreciate how countries such as China, Brazil, and India might be doing things differently.

In theory, China’s success (or any other country’s) at innovation need not pose a problem for the US. But it can affect US economic capacity if US-based multinationals choose to divert more of their R&D efforts to China, which is graduating scientists and engineers at an incredible rate. The US, as we have discussed, is lagging badly on STEM education. If Chinese and Indian graduates stop wanting to work and live in the US, our innovation potential suffers. (By some estimates, Indian immigrants lead up to a third of the startups in Silicon Valley.) Finally, the economic advantage of innovation, that surplus income, goes to those who do it first and well.  The more countries that have the skilled workforce and modern economic base for innovation, the harder it will be for the US to be first to the pole.

Let me be clear here. I’m not suggesting any malice or nefarious intent on the part of any other nation. These trends have impact regardless of the policies of specific governments. It’s really just a matter of physics and arithmetic.

The Fourth Question

  1. Why is the US losing momentum in economic innovation? The literature presented several compelling reasons. We’ve already discussed one, the US is falling behind in STEM education. Given the size of China and India’s population, we will never be able to match them numerically, but at the rate we’re going, the US will simply be overwhelmed.

A second related issue is a current workforce that needs new training and skills.

A third reason is the inadequate US federal and state government support for an innovation-friendly environment. We lag many other parts of the world. I’m not necessarily advocating increased federal R&D spending, which I suspect is not the answer. But today the US, for example, ranks 17th among OECD countries in the generosity of its tax credits for R&D. France is four times more generous than the US, according to the Information Technology and Innovation Foundation. This is not good.

A fourth factor points to the short term perspective of too many US companies and their outdated-slash-myopic management/leadership concepts. Steve Denning, a leadership consultant, notes that the management principles of most US companies are scalable bureaucracy. Bureaucracy is of course the natural predator of innovation. As a personal observation too many US companies seem to have become quite innovative in inventing ways to use fees to bolster their bottom lines rather than seeking to innovate a new product or process.

Finally, I also believe but have no sources or citations for support that the US, as a society and culture and economy, suffers from having transitioned into a Status Quo mentality. When I listen to the public debate, which I try to avoid, I hear altogether too much about preserving what we have or returning to core values. Having been a student of dozens of countries over the last 30 years, I believe I can detect the difference in the vocabulary and body language of a nation looking forward versus that of a nation looking to preserve what it has.

So let me share some concluding personal opinions that I think you may find negative or positive, depending upon your perspective.

  1. Innovation is our economic strong suit but it will not solve all of the US economic problems. It can create many jobs, but my hunch is we are undergoing a significant transition in labor markets and the nature of jobs. It will not cure our debt problem.
  2. As we transition from the knowledge economy, already OLD HAT, to the Creative economy, we are shifting away from economic concepts that can be captured in nationalistic or mercantilistic terms. (The Chinese, by the way, issue statements and doctrine that suggests they don’t quite believe this.) National boundaries are not only irrelevant to knowledge and creativity, they are actually counterproductive. Innovation is becoming more collaborative. So what do the terms economic and national security mean then?
  3. In my opinion, we are focusing on security and spending on military matters out of proportion to our economic capability and economic potential. (By the way the experts tell us that our spending on health is similarly out of whack.) Paul Kennedy in his seminal book the Rise and Fall of the Great Powers, written during the 80s I believe, argued that such disproportionate spending is an indicator of a declining great power. There is presumably an optimum balance between wealth creation and military strength. Are we there yet?
  4. The conditions I’ve described are not a platform for continued US “dominance” of the world. We don’t want to talk about it, but the US economy will not support single, great power dominance once our economy represents only about 10% of the world economy, vice the 50% it represented after WWII.

I always want to tell young people just starting their careers that their greatest challenge will be to help the US make the adjustment from great power status to a more complex but I believe still quite comfortable relationship with many peers. Our choice is clear: we can either not talk about reality and continue patterns of deficit spending that will only hasten a messy denouement or we can begin to make the intelligent choices today that will ensure we remain the most influential society in the world even as we relinquish the only superpower status.

Thanks.