Untelling the Dominant Economic Story

David Sloan Wilson thinks there must be another story based on better assumptions

In How Putting Shareholders First Harms Investors, Corporations, and the Public, David Sloan Wilson (interviewing Lynn Stout) debunks several central aspects of conventional business thinking:

A bedrock assumption of economics is that firms become well adapted by competing against each other. If so, then consider a study that I reported upon earlier, which monitored the survival of 136 firms starting from the time they initiated their public offering on the US Stock Market. Five years later, the survivors—by a wide margin—were the firms that did best by their employees.

If only the fittest firms survive, then doing well by employees would have become the prevailing business practice a long time ago. That hasn’t happened, so something is wrong with the simple idea that best business practices evolve by between-firm selection.

So, if companies supposedly learn from the successful practices of 'high-performing' companies, why aren't more -- if not all -- businesses dedicating themselves to doing well for employees, instead of pushing for short-term returns? The reality is the opposite, he tells us:

The dominant economic story rests upon a theoretical foundation that is extraordinarily weak.

Wilson wrote earlier (the 'earlier' in the quote above), in Business Schools Have It Backwards. Companies Survive Longer When They Put Employees First., where he makes three strong recommendations, based on the '90s work The Human Equation: Building Profits By Putting People First by Jeffrey Pfeffer.

1) Insist on a strong theoretical framework. The dominant economic story rests upon a theoretical foundation that is extraordinarily weak. This is sometimes difficult to detect, because absurd assumptions about human nature and economic systems are hidden behind a thick wall of mathematical formalism that most people can’t penetrate and therefore accept on faith. [...]

2) Insist on empirical evidence. A single business is a complex system, not to speak of a multi-business economy. A business strategy that seems to make sense based on an underlying rationale, such as cutting costs by paying the lowest possible wage or claiming the right to dismiss employees at will, can easily backfire based on unforeseen consequences. Rigorously designed studies are required to track all of the consequences of any given business practice. [...] Most businesses have not adopted a culture of basing their management practices on evidence-based research. The second step toward changing the story is to demand evidence to justify any given business strategy, even one that is informed by the best theory.

3) Beware of practices that lead to short-term benefits and primarily benefit the elite. These practices might benefit the common good over the long term but they are more likely to be part of the problem. The third step toward changing the story is to demand an especially solid theoretical justification and empirical evidence for these practices—even when they appear well-intentioned.

These insights lead us to the conclusion that companies are not in fact operating empirically, searching for the best long-term way to operate, in general. There are operating on either a/ folklore or b/ the aim to strip-mine the company in the short term for the benefit of shareholders and the management elite. As Wilson puts it,

Putting people first has not become the norm in the business world and treating employees as chattel is perversely spreading worldwide like a cancer.

Work Futures Update | Learners Inherit

The learned fall behind

Beacon NY 2021–01–13 | I am experimenting with a shift in my writing: more frequent, but shorter, and focused on a single thread.

And returning to publish on Substack as well as Medium.

My focus today is how learning strategies can counter fragility and make us more resilient.

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Quote of the Moment

In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.

| Eric Hoffer

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Beyond resilience: Toward ‘antifragile’ urbanism | Michael Mehaffy is nominally writing about urbanism, but his points have greater impact than that:

Key to this antifragility is the ability to fail in small doses, and to use that failure to “gain from disorder” over time — paradoxically producing a greater order. Muscles get very small tears and strains, resulting in strengthening; a few cells get infections and die, but not before sending out markers that identify the invaders to many other cells. So keeping things “small enough to fail” (as opposed to “too big to fail”) is key. So is the ability to transmit lessons from these small failures, so that the structure can develop new strengths.

But getting “too big to fail” is precisely what’s going on in too many places today. The 2008 financial crisis, and its “too big to fail” banks, was a case in point. Modernity, [Nassim Nicholas] Taleb says, is dominated by a culture of specialists who are rewarded for excessive intervention, and for predictions that are routinely inaccurate. The big reward for them is not in creating antifragility or even resilience, but stability — or rather, the temporary appearance of stability. Then, when disaster strikes, these specialists, who have very little “skin in the game,” pay a very small price, if any.

The result of this dynamic is that there is very little learning within the system, and we go right back to making structures that are more unstable over time. In evolutionary terms, we are not advancing into greater resilience, but lesser resilience.

Thus, instead of creating a world in which the most destructive Black Swans are more survivable, all the emphasis is on preventing such Black Swans, and creating an unsustainable state of normality. The inevitable result is that these Black Swans come anyway — with ever more catastrophic results.

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Resilience vs. Efficiency: Calibrating the Tradeoff | Martin Reeves, Simon Levin, Sasi Desai, and Kevin Whitaker look into the role of learning strategies to build resilience:

One learning strategy is to assess the firm’s resilience to past crises. Crises provide leaders with valuable intelligence by shining light on poorly calibrated tradeoffs. Leaders should use every crisis to critically evaluate their company’s tradeoffs and adjust their approach if needed: Was the firm sufficiently prepared? Which resilience mechanisms worked better or worse than expected? To this end, organizations can institute reflection sessions as part of their planning processes to conduct post-mortems on crisis performance and diagnose what they should do differently. For example, certain East Asian regions such as Taiwan studied the SARS epidemic and used the learnings to recalibrate their pandemic response plans. As a result, they were better prepared when COVID-19 struck.

Another learning strategy is to understand the distribution of historical shocks. Of course, historical crises will not cover all potential shocks, as evidenced by recent crises that were without precedent. But for threats that follow power-law distributions, such as stock market crashes, the likelihood of shocks of unprecedented magnitude can be roughly calibrated, even if specific events cannot be predicted. For example, while individual earthquakes are unforecastable, their distribution of intensity and frequency follows a power law. So regulators can assess the likelihood of an earthquake of a certain magnitude when designing building codes. Similarly, business leaders can calibrate the required level of investment in resilience by using power-law distributions to identify the likelihood of shocks one or two orders of magnitude greater than those experienced in the recent past. Of course such an analysis should also not be taken as an absolute guarantee — circumstances and distributions can change.

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Opinion | How to Protect Your Mental Health During the Coronavirus | Emily Esfahani Smith shares insights on why it’s important ‘to learn to suffer well’. Victor Frankl believed we need to adopt a perspective of ‘tragic optimism’ to become resilient:

The term was coined by Viktor Frankl, the Holocaust survivor and psychiatrist from Vienna. Tragic optimism is the ability to maintain hope and find meaning in life despite its inescapable pain, loss and suffering.

[…]

It may seem inappropriate to call on people to seek the good in a crisis of this magnitude, but in study after study of tragedy and disaster, that’s what resilient people do. In a study of over a 1,000 people, 58 percent of respondents reported finding positive meaning in the wake of the Sept. 11 attacks, such as a greater appreciation of life and a deeper sense of spirituality. Other research shows that benefit finders grow not only psychologically but also physically. Heart attack survivors, for example, who found meaning in the weeks after their crisis were, eight years later, more likely to be alive and in better health than those who didn’t.

This doesn’t mean that people should endure adversities with a smiling face. In fact, Mr. Frankl specifically said that tragic optimism is not the same thing as happiness. “To the European,” he wrote, “it is a characteristic of the American culture that, again and again, one is commanded and ordered to ‘be happy.’ But happiness cannot be pursued; it must ensue. One must have a reason to ‘be happy.’”

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How Autonomy Creates Resilience in the Face of Crisis | Howard Yu and Mark Greeven provide background on Haier’s management with attention to autonomy of microenterprises and how important that has been to the company’s capacity to rebound from coronavirus-caused plant closures.

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Final thoughts

We’re going through many crises at once, particularly the coronavirus and its impact on us personally, societally, and organizationally. A few lessons to learn from these writings:

  1. Learning strategies, which systematically try to examine where things fall apart, lead to greater resilience. This, in particular, should include looking back at historical examples.

  2. Greater autonomy makes people and organizations more resilient.

  3. The most important key to resilience is developing a mindset of tragic optimism, where we seek to find hope and meaning even in the darkest days and to not yield to despair.

Work Futures Update | A Bad System

| Minimum Office | Thinking about Work Management | Ride-Hailing Ailing | Elsewhere |

Photo by Clint Adair on Unsplash

Beacon NY 2020–08–29 | Minimum office (aka remote work) is still the biggest meme out there. No surprise.

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Quote of the Moment

A bad system will beat a good person every time.

| W. Edwards Deming

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Minimum Office

Pinterest cancels huge SF office lease in unbuilt project, citing work-from-home shift | Roland Li reports on Pinterest about-face:

Pinterest terminated a massive 490,000-square-foot lease at San Francisco’s unbuilt 88 Bluxome project, citing a shift toward more remote work amid the coronavirus pandemic.

Minimum office also means saving a fortune on real estate costs.

Working From Home: Why the Office Will Never Be the Same | Claire Cain Miller thinks workers are happier WFH:

America’s office workers have been miserable and burned out for a long time. The expectation of long hours at the office has been particularly hard on parents — especially mothers. Women, young people and people with disabilities have for years been among those on the forefront of pushing for more freedom in where work gets done.

Perhaps not surprisingly, employers have offered many reasons they can’t give people quite so much autonomy. People can’t be trusted to get their work done on their own, they have said. Clients expect in-person, round-the-clock service. Running into co-workers in the hallway is sure to spur serendipitous ideas, right? And, people need to attend meetings, as well as meetings to prepare for those meetings and meetings to debrief after them.

But in the last few months, it has become clear to everyone what was really going on. Corporate America just didn’t want to change. “All these things could be done yesterday: This is the reality,” said Betsey Stevenson, a labor economist at the University of Michigan.

It’s also clear that America’s workers actually like the new way of doing things, even amid the challenges of the pandemic. In the survey by The Times and Morning Consult, which polled 1,123 people who have worked at home these past few months — representing the range of jobs, demographics and income levels of America’s remote workers — 86 percent said they were satisfied with remote work.

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It seems to be reducing stress levels. Even in a time of extreme stress over all, people who have been working from home were more likely than not to say they were less stressed than before about both work and home life. Roughly 60 percent said working from home had made them more able to focus on their health; saved them a lot of time each day; and made them feel more connected with their families.

Three-quarters said their productivity was either the same or improved. It doesn’t take a survey to tell us that interspersing work with rejuvenating activities like walking or resting often boosts energy and creativity.

Workers are already thinking about ways they can keep this going after it’s safe to return to the office. Only one in five said they wanted to go back full-time. Nearly one in three said they would move to a new city or state if remote work continued indefinitely, which companies like Zillow and Twitter have already said they would allow. Some people have moved to less expensive places, or to be closer to family or nature.

However, the backlash against minimum office is starting, as in Companies Start to Think Remote Work Isn’t So Great After All, as executives want to get people back in the office:

Months into a pandemic that rapidly reshaped how companies operate, an increasing number of executives now say that remote work, while necessary for safety much of this year, is not their preferred long-term solution once the coronavirus crisis passes.

“There’s sort of an emerging sense behind the scenes of executives saying, ‘This is not going to be sustainable,’” said Laszlo Bock, chief executive of human-resources startup Humu and the former HR chief at Google. No CEO should be surprised that the early productivity gains companies witnessed as remote work took hold have peaked and leveled off, he adds, because workers left offices in March armed with laptops and a sense of doom.

They will come up with all sorts of reasons why we need to go back to the office, even if they are spurious.

Go read it.

Remote work in the age of Covid-19 | Slack research reports:

Of the nearly 3,000 knowledge workers we surveyed between March 23–27, 45% reported working remotely. Of these, more than half (66%) say they’re doing so because of Covid-19 concerns, while 27% say they “normally” work from home.

Remote work snapshot

| 45% of knowledge workers surveyed work remotely

| 66% of remote workers are doing so because of Covid-19 concerns

| 27% of remote workers say they “normally” work from home

While the number of remote workers is certainly high, 55% of those surveyed are still going into work. There are several possible explanations. For one, stay-at-home orders have rolled out piecemeal across the country. As of March 26, 21 states had instituted stay-at-home directives. That number jumped to 30 by March 30, and 42 as of April 7. The number of remote workers has undoubtedly grown as more states have urged people to stay home.

Image for post

source: Slack

Undoubtedly? Man, that’s an understatement.

In Exploring the effects of trust, task interdependence and virtualness on knowledge sharing in teams, researchers D. Sandy Staples and Jane Webster advise companies to structure teams and tasks so that collaborators are either all distributed or all co-located, because hybrid teams can have the greatest communication challenges:

Social exchange theory was used to develop a model relating trust to knowledge sharing and knowledge sharing to team effectiveness. The moderating effects of virtuality and task interdependence on these relationships were examined. A strong positive relationship was found between trust and knowledge sharing for all types of teams (local, hybrid and distributed), but the relationship was stronger when task interdependence was low, supporting the position that trust is more critical in weak structural situations. Knowledge sharing was positively associated with team effectiveness outcomes; however, this relationship was moderated by team imbalance and hybrid structures, such that the relationship between sharing and effectiveness was weaker. Organizations should therefore avoid creating unbalanced or hybrid virtual teams.

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Work Management

The Anti-Facebook: 12 Years In, Facebook Cofounder Dustin Moskovitz’s Slow-Burn Second Act Asana Finally Has Its Moment | A puff piece celebrating the rise of Asana under CEO Dustin Moskovitz and its imminent IPO. But I have to fact check something from co-founder Justin Rosenstein:

Asana cofounder Justin Rosenstein long served as Moskovitz’s extroverted foil before stepping back in 2019. Says Rosenstein: “We are, to my knowledge, the two people on earth who have thought the most about the work management problem.”

No disrespect, Justin, but there are some of us who have been thinking deeply about work management long before you and Dustin started to work on it at Facebook. For example, I led a conference in 2003 in London called Social Tools for Business. And I coined the term work management, by the way.

Entrepreneurs in work management companies apply their efforts toward making a winning work management tool, but those of us who watch the market look at hundreds of products a year, and inhabit many perspectives, not just the improvements that can be made to a single system.

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Ride-Hailing

Lyft, Uber Get More Time as They Fight California Order | Preetika Rana on the newest turn in the Cailifornia v. Ride-Hailing:

Uber Technologies Inc. and Lyft Inc. will be able to continue conducting business as usual in California for now, after a state appeals court on Thursday paused a lower-court ruling that required the ride-hailing companies to reclassify their drivers as employees.

The reprieve means both companies can continue operating while they fight a high-stakes legal battle with their home state.

The court’s decision followed a flurry of public messaging by the companies earlier Thursday, capping a week of threats that they would shutter their services in California if the courts compelled them to reclassify their workers. Lyft posted an announcement on its website Thursday morning saying it would halt its business there as of midnight. Uber put up what appeared to be a placeholder post on its site, with the heading, “Important Information About California Ridesharing Shutdown,’’ which it later removed.

Lyft confirmed it no longer plans to halt ride-hailing service in the state.

A state judge last week gave Uber and Lyft until Friday to reclassify their drivers as employees, after California sued the companies in May alleging they were violating a new state law.

California’s so-called gig-worker law that went into effect on Jan. 1 requires companies to treat workers as employees rather than independent contractors if they are controlled by their employer and contribute to its usual course of business, among other things. As employees, drivers would be eligible for sick days and other benefits, issues that have become more pressing during the coronavirus pandemic.

What’s next?

Why Uber’s business model is doomed | Aaron Benanav deconstructs ride-hailing as a huge VC gamble on autonomous vehicles and their eventual disruption of taxi and delivery vehicles.

One might assume that misclassifying drivers as independent contractors enables rideshare companies such as Uber to make exorbitant profits. The reality is far weirder. In fact, Uber and Lyft are not making any profits at all. On the contrary, the companies have been haemorrhaging cash for years, undercharging users for rides in a bid to aggressively expand their market shares worldwide. Squeezing drivers’ salaries is not their main strategy for becoming profitable. Doing so merely slows the speed at which they burn through money.

The truth is that Uber and Lyft exist largely as the embodiments of Wall Street-funded bets on automation, which have failed to come to fruition. These companies are trying to survive legal challenges to their illegal hiring practices, while waiting for driverless-car technologies to improve. The advent of the autonomous car would allow Uber and Lyft to fire their drivers. Having already acquired a position of dominance with the rideshare market, these companies would then reap major monopoly profits. There is simply no world in which paying drivers a living wage would become part of Uber and Lyft’s long-term business plans.

We need businesses to commit to creating well-paying jobs to stop the precarity that the gig economy feeds on.

People need security that is not tied to their job. The pandemic has revealed this imperative more than ever before. In a world that is as wealthy as ours, and given the technologies we have already produced — even without the realisation of the dreams of automation — everyone should have access to food, energy, housing and healthcare. If people had that security, why would they choose to work in terrible jobs where they are paid low wages? The owners of Uber and Lyft know that their business is predicated on a world in which they get to make the key decisions that shape our futures, without our input. The world of work is going to have to be democratised. They are just delaying what should be inevitable.

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Elsewhere

Weak Ties and Brainstorming | What we miss when we don’t organically share space

Work Week | Infrastructure and Ultrastructure | Funding: Mural, Asana | Slack: The Netscape of Work Chat? | Tech Resistance |

Work Futures Update | Normal Was The Problem

| Matt Mullenweg | Retail Apocalypse | Massachusetts Sues Uber and Lyft | Remote Work or Minimum Office? |

I am now publishing Work Futures Update on Medium. Please sign up there to have the full newsletter sent to your inbox.

Because of the way Medium is operated I can’t simply import the email addresses of subscribers here, because Medium requires a Medium account. Don’t miss out.

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Excerpt

2020–07–20 Beacon NY | We owe the title of this issue to Ziauddin Sardar’s quote of the moment. He is also the source of this:

We live in an in-between period where old orthodoxies are dying, new ones have yet to be born, and very few things seem to make sense. A transitional age, a time without the confidence that we can return to any past we have known and with no confidence in any path to a desirable, attainable or sustainable future.

In a word, the postnormal.

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Quote of the Moment

Because normal was the problem in the first place, rather than teaching us anything new, the pandemic forces us to look in the mirror. But can we accept what looks back at us?

| Ziauddin Sardar, who is the instigator of the concept of the postnormal era.

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