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September 19, 2012

An Excerpt from The Fine Print

Filed under: Current Events,Excerpts and Essays,Finance and Economics,Global Business — dylan @ 1:41 pm

Since Michael did such a fine job in his review of Steven Johnson’s Future Perfect on Monday of describing how the future may well be, well… perfect, I will take the role of Debby Downer to remind everyone that the present is far from it. Or, rather, I will use Pulitzer Prize Winning reporter David Cay Johnston’s excellent new book to do it for me.

I don’t think anyone needs to be reminded of just how bad it is back here in the present, but it turns out that much of the current chicanery taking place today is hidden in the fine print so few of us actually read. David Cay Johnston has done an excellent job of reporting those details in The Fine Print: How Big Companies Use “Plain English” to Rob you Blind, released yesterday by Portfolio. (Fans of Retirement Heist, the excellent exposé from Wall Street Journal reporter Ellen Schultz on how corporations manipulate the retirement plans of their employees for their own profit, will find more excellent reporting along the same lines here.) Hopefully you’ve heard something about The Fine Print in the press and will continue to hear more, because it’s a very timely, topical, and important book that’s perfectly suited to the moment.

The Daily Beast ran an excerpt from the book at the beginning of the month about America’s Coming Infrastructure Disaster that is worth a read, and the good people at Portfolio have been kind enough to give us a second excerpt from the book to run here.

If you’d like a book in which “the corporate point of view is secondary to that of customers, workers and taxpayers,” you’ll find affinity with the point of view in The Fine Print. If you’re interested in learning why your phone bill looks the way it does—why in spite of the fact that the FCC requires your phone bill be easy to understand, you may need a lawyer or an accountant to parse it for you—then this book is for you. If you’d like to know how, in spite of laws that ban government gifts to corporations or business entities, your state income taxes may be going directly into your boss’s (or a foreign business owner’s) pockets, then by all means… please read on.

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Jacking Up Prices

The distribution of wealth is not determined by nature. It is determined by public policy.
—Eric Schneiderman, New York State attorney general

1. Friends and colleagues have always known that Adam Leipzig husbands his own money and reliably earns profits on funds others entrust to him. As a young executive at Disney, Leipzig oversaw Dead Poets Society; Good Morning, Vietnam; and Honey, I Shrunk the Kids. Later, as president of National Geographic Films, he was behind March of the Penguins. His films have brought in $2.1 billion, seven times what it cost to produce them. That makes him a Hollywood rarity—a reliable steward for investors in the risky business of moviemaking.

Because it was so small, the one thing Leipzig never gave much thought to was his monthly phone bill. When it came, Leipzig checked to see how many long-distance calls, if any, had been made and wrote a check. But his casual view changed one day near the turn of the century during a meeting at the AT&T offices in Los Angeles.

Leipzig had wrangled a meeting with AT&T marketing executives to propose a strategic alliance to help him start his own film production company. Leipzig left with everything he wanted, but a decade later the terms of his successful deal were mostly forgotten. What remained vivid in his memory was what the phone guys had said about the future of his and everyone else’s telephone bills. Their private comments differed dramatically from what everyone in America had been hearing for a quarter century about the costs of telephone calls and, for the previous fi ve or so years, about this wondrous new thing called the Internet. The promise of cheap and abundant telecommunications service, to be available almost anywhere, was becoming a major theme in telecommunications industry marketing.

But that was not at all what the telephone guys said in private while meeting with Leipzig.

“They said their corporate strategy was that, within a few years, AT&T wanted to draw at least $100 a month from each client household,” Leipzig recalled. “They would do this with phone service, and also things they were not offering at the time, or had not expanded as much—mobile, Internet and cable.”

As your monthly phone bill probably tells you, this is exactly what has happened. At the time, Adam Leipzig’s home phone bill ran $35 a month. A decade later, the total amount due AT&T every month was more than $200, even though he buys his cable television service from another company.

What the marketing executives had forecast had indeed come to pass.

THE RISE OF FALLING PRICES

Since 1974, politicians, pundits and professional economists all have said that, thanks to competition, the cost of telephone service would fall. The Justice Department sued that year to break up the American Telephone and Telegraph Company, saying Ma Bell’s monopoly hindered new technologies and shouldered aside competitors who wanted in on the lucrative business of long-distance calls. (Back then calls were so expensive that many people kept little sand dials by their telephones when calling loved ones long distance so as not to go a second too long saying good-bye and be charged for another full minute.) Eventually the antitrust case was settled by negotiation and, in 1984, Ma Bell spun off seven regional telephone monopolies known as the Baby Bells.

AT&T kept the lucrative long-distance business, but even before the breakup, another monopoly business, a railroad, found a way to compete in long-distance calling. Southern Pacific Railroad began offering limited long-distance service in 1972. SP microwave towers, which kept the trains running on time, sent signals along the narrow rights-of-way that the federal government had given the railroad in the nineteenth century. These towers had the capacity to handle calls, too, and by 1978 SP was providing a cheap long-distance system connecting business customers in Los Angeles, San Diego and Anaheim, California, with those in three East Coast cities, Boston, New York and Philadelphia.

Southern Pacific Communications would eventually evolve into today’s Sprint Nextel, but by the 1990s, a number of competing systems were being served by a growing network of glass fibers buried alongside the tracks. These braided glass strands, each thinner than a human hair, held vastly more capacity than the microwave system, which in turn was far more powerful than the old copper wires used to make the first commercial telephone call in 1878 and still in use today in most homes and small businesses. In the last decade of the twentieth century, the whole country buzzed with talk of a new Information Superhighway that would connect everyone in America; the oft-expressed expectation was that, thanks to competition, prices would fall lower and lower. Some published studies even showed that the cost of long-distance calling would fall more than 99 percent, which was not exactly good news for AT&T as a dedicated long-distance company, nor for its nascent competitors. In Washington, awestruck lawmakers marveled at the idea that every word and image in all 22 million books in the Library of Congress could be sent in the blink of an eye to any place connected by the new fiber-optic cables.

Across the country from our friend Adam Leipzig, Bruce Kushnick in Brooklyn, New York, had his own epiphany. Visiting an aging aunt, Kushnick discovered twenty years’ worth of monthly telephone bills. Kushnick worked as a telephone industry consultant, paid to extol the virtues of the coming new era of digital communications.

Kushnick knew a research gold mine when he saw one, and he set to work. When he cross-checked his aunt’s telephone bills over the years, he could hardly believe the numbers. His aunt paid $9.51 for her local phone service in 1984. By 2003 her bill had swollen fourfold to $38.90. In the two decades since the breakup of the AT&T monopoly, even after adjusting for inflation, his aunt’s telephone cost $2.30 for each dollar paid in 1984. And that was without any charges for long-distance calls.

His little history lesson prompted Kushnick to think about the telephone bill itself. Old telephone bills—from the era of the Great Depression of the 1930s, for example—often consisted of three lines. One was the monthly charge. The second was the cost of long-distance calls. The third was the total.

With the passing years, Kushnick noted, the bills had gotten more and more complicated. When AT&T started offering phones in colors, colored phones came with an extra charge. So did the immensely popular Princess telephone for the bedroom in 1959. In 1963 the first push-button phones were introduced (called Touch-Tone), and people paid extra to escape rotary dialing. Two years later came sleek Trimline phones with lighted dials—along with another extra charge.

The publicly switched telephone network, as it was known in the industry, was upgraded for emergency calls to 911. Then it was upgraded again with ANI (automatic number indicator) so that emergency dispatch centers would know the numbers of callers, and later with ALI, or automatic location indicator. The cost of ALI was justified, as it saved the lives of many people in the midst of medical emergencies or assaults, even if they were unable to say where they were. But the public paid both for its installation and for some other things, too, as some of the money collected was diverted to other uses, including new equipment the phone companies said was necessary to make ALI work.

Soon after the railroad rights-of-way microwave towers made possible the first sliver of long-distance calling competition, telephone bills became even more complicated. In the late 1970s, while the breakup of Ma Bell was under negotiation with the Justice Department, AT&T began seeking limits on free directory-assistance calls. It seemed a curious move—Ma Bell executives and spokesmen at the time told anyone who would listen that free directory-assistance calls encouraged more calling—but the AT&T shift away from free directory assistance was brilliant in the way that it quietly raised prices.

State utility regulators were told that telemarketing companies were taking advantage of free directory assistance, placing many thousands of calls to 411. That, in turn, was described as a hidden cost borne by residential and small-business customers. Thus, AT&T was able to argue that the consumer would pay a little bit less if fewer operators were employed looking up numbers for “junk calls.”

The state utility regulators might have just slapped a charge on any business that made large numbers of directory assistance calls. Or a rule could have been adopted that applied only to telemarketing firms and commercial customers. Instead, as the telephone company had requested, the state regulators limited how many free calls to directory assistance any customer could make.

At first, the limit was ten calls. Over time, the limit was trimmed in stages to zero; by 2008, “free” had become a fee, with many customers paying $1.99 each time they called directory assistance, adding more lines of fine print to telephone bills. Verizon Wireless and some other companies did not list charges for calling directory assistance separately, but hid them in plain sight among the monthly list of calls made, a portion of the bill many people typically find tiresome to examine line by line.

Today it’s typical to be charged for not being listed in the telephone directory, and, by the way, it’s not a one-time fee to defray the cost of flipping an internal computer signal, but a monthly fee. Think of it as a charge for no service. Over the years the white pages, which used to be dropped free on every doorstep, became less common and less thorough; they no longer appear in some communities. That translates to an increased number of calls to directory assistance—for which a fee is collected. While various white-pages listings appeared on the Internet, the telephone companies spent little to keep them up to date, which of course drove more business to paid 411 services. When new services such as call waiting and three-party calling were introduced, they bore stiff additional charges, too.

With AT&T’s breakup into Ma and the seven Baby Bells, new charges were introduced for regional calls, those that were neither local nor long distance. Known as Local Access and Transport Area or LATA, the implementation of this system also meant that, in some metropolitan markets, the circle shrank within which unlimited calls could be made at no extra charge. In some cases a call to a neighbor went from free to dear because of illogical LATA boundaries.

New costs came at the consumer from all angles. Until the 1984 breakup, regulations required customers to use the telephone set installed by Ma Bell. After the breakup, customers were told they could either buy or rent their phone. At first, the rental seemed cheap, but gradually people learned how little a telephone costs to make and also realized how much an open-ended rental could cost.

And then there was the expense associated with making sure the phone line in your house actually worked. Ma Bell got state public utility commissions to transfer ownership of the telephone line at the point where it entered your home or office. Once that happened, customers had to pay to fix any wires inside their homes or businesses that, say, got wet or gnawed by a rodent. But there was an option, namely a monthly “wire maintenance” fee, which added yet another extra charge for what once had been included in the basic price.

Bit by bit, the line items grew, and others were added. It was easy to miss the escalating prices because they came separately over time—a nickel on one line of the bill, a quarter or two on another. With many small line items, people tended not to notice how the total was creeping upward much faster than the rate of inflation or the size of their income.

Kushnick found his aunt’s bills printed on multiple slips of paper, making it hard to spot everything at once. He noticed some charges were for services his aunt did not use; a few were for services she couldn’t possibly use because her telephone was too antiquated. And the monthly rental for the phone itself? Kushnick calculated that his aunt had paid more than twenty times the price of the instrument with that small monthly rental fee.

One of the fastest-growing items Kushnick found on his aunt’s bill was labeled “FCC Subscriber Line Charge.” Other phone companies call this “FCC Charge for Network Access” or “Federal Line Cost Charge” or “Interstate Access Charge.” Variations include “Federal Access Charge,” “Interstate Single Line Charge,” “Customer Line Charge,” “FCCApproved Customer Line Charge” and even “End User Fee.”

These may sound like government fees, or perhaps a disguised tax on telephone users that goes into federal coffers. Not so. Each of those labels identifies the charge for connection to the long-distance network. The government does not collect a penny from that charge. All the money goes to the phone companies.

According to Federal Communications Commission rules, phone bills are supposed to be easy to understand. The FCC truth-in-billing policy supposedly “improve[s] consumers’ understanding of their telephone bills.” According to the FCC:

Section 64.2401 of the rules requires that a telephone company’s bill must: (1) be accompanied by a brief, clear, non-misleading, plain language description of the service or services rendered; (2) identify the service provider associated with each charge; (3) clearly and conspicuously identify any change in service provider; (4) contain full and non-misleading descriptions of charges; (5) identify those charges. …

Despite the misleading labeling of the network “line charge,” the FCC has approved it for years, offi cially helping confuse consumers. Among the honest descriptions the FCC might have required would be “long-distance system access” and “telephone company network charge.”

Inspired by his study of the evolution of the phone bill, Bruce Kushnick decided to find out how many people were misled by terms like “FCC Subscriber Line Charge.” In a survey of one thousand Americans, he found three people who understood their phone bill, which means 99.7 percent did not. Round to the nearest whole number, and Kushnick’s finding was that 100 percent of those surveyed did not understand their phone bill. In effect, no one understands his or her telephone bill, which amounts to a powerful rebuke to FCC policies that clearly harm consumers and benefit the telephone companies. In the years since that survey, however, the FCC has made no meaningful changes to rules that allow phone companies to confuse people. Don’t blame the FCC staff for that. As with all government agencies, the bureaucrats do what the politicians tell them to do.

PROMISES, PROMISES
What Leipzig and Kushnick encountered were early signs that the lower prices made possible by competition and digital technology were just empty promises. This involved more than money, since the telephone industry, together with the cable television industry, quietly saw to it that written into the fine print were laws and regulations that made it easier for them to minimize their investments in new technology and to serve only the customers the companies wanted.

Since 1913 Americans had enjoyed a legal right to a landline telephone at any address, but by 2012 that right had been legislated away so quietly that my Reuters columns were the first to report this trend. The right to a landline was taken away without any news coverage in Alabama, Florida, North Carolina, Texas and Wisconsin. In Kentucky and New Jersey enough attention was aroused that consumer groups fought the changes, but they faced powerful obstacles. AT&T hired thirty-six lobbyists to work the Kentucky state legislature. In California the consumer group The Utility Rate Network (TURN) counted 120 AT&T lobbyists, one for each member of the Golden State legislature.

The telecommunications companies wanted to build the most profitable electronic toll road possible. Their aim was, first, to spend as little as possible on technology, which ultimately meant slow Internet service for many customers. Second, they wanted to serve areas where lots of customers could and would buy a monthly pass to get on this electronic highway; potential customers in sparsely populated areas were at best incidental to such plans. Third, they wanted to set prices as high as the market would bear, even if it meant many people could never afford to access this electronic roadway.

Lost in the rush to profitability was the crucial fact that the federal government had established an underlying policy to make telecommunications services available to all at reasonable prices. Compared to the rest of the modern world, American phone companies, along with cable television companies, have done a spectacular job of building only what and where they wanted while shoving the cost on to their captive customers.

Instead of increased competition between the telephone and cable companies, a new cartel emerged in the first decade of the twenty-first century. While telephone and cable companies posed in public as rivals, Verizon made a deal to sell its branded services over cable company Comcast’s lines, and vice versa. The only risk of real competition arose when some local governments favored the idea of building a municipal telephone, cable television and Internet access system that would be faster and cheaper. The industry responded like sharks, determined to do in the opposition and protect their predatory position. [In The Fine Print, you’ll] see how those and other efforts to kill competition fared (see chapter 5, “In Twenty-ninth Place and Fading Fast,” page 50).

READING BETWEEN THE LINES

How the promise of cheap, competitive and unlimited telecommunications service has been turned into a reality of expensive, monopolistic and limited service is just one part of the larger transformation in the American economy since the late 1970s. A host of large industries, including banks, credit card lenders, electric utilities, health care, oil pipelines, Hollywood studios, property insurance, railroads and water companies, all have worked quietly to rewrite America’s economic playbook in their favor.

In The Fine Print, we’ll look at how legislatures have rewritten basic business laws, some whose principles date back thousands of years. Too often the goal has been to thwart competition, artificially inflate prices, hold down wages by decimating unions, reduce worker benefits and then restrict or bar access to the courts by those aggrieved. Businesses have gotten policies adopted that have allowed some managers to run corporations as, effectively, criminal enterprises, something modern management and economic theory regard as outside their fields of expertise (and at best implausible) but that criminologists have a name for: control fraud. That means, in short, that those in control run the fraud, as we shall see.

While schoolchildren are taught about heroic figures who raised the capital to build new factories and fill offices, these days large companies rely on taxpayers for that money. Almost every brand-name company is in on these deals; state and local governments alone spend at least $70 billion a year of taxpayers’ money to subsidize factories, office buildings and the like, according to Professor Kenneth Thomas, a University of Missouri–St. Louis political scientist. That burden comes to $900 per year for a family of four. My only criticism of Thomas’s work is that I believe he understates the cost by an unknown but considerable sum.

The worst of these are laws in nineteen states that let companies pocket the state income taxes withheld from their workers’ paychecks for up to twenty-five years. Hard as it is to believe such laws exist, they do, and they are spreading fast. General Electric, Goldman Sachs, Procter & Gamble and more than 2,700 other big companies have these deals. It is not just American companies, either. Siemens, the big German computer maker, the Swedish appliance maker Electrolux and a host of Japanese, Canadian and European banks have similar arrangements with states from New Jersey to Oregon. In many of these subsidy programs, no jobs are created. Instead the state income taxes are given to companies that agree to move jobs from one state across the border to another, as AMC Theatres agreed to do in moving its headquarters from Kansas City, Missouri, to Leawood, Kansas, just ten miles away. AMC will get to pocket $47 million withheld from its workers, a boon to its major owners: J. P. Morgan, Apollo Management, the Carlyle Group and the firm Mitt Romney cofounded in 1984, Bain Capital Management.

From the corporations’ point of view, the best part is that the workers are left in the dark. None of these states requires that workers be told that their state income taxes go to their employers—that they are in effect being taxed by their bosses. GE says that it did tell its Ohio workers about how it updated its operations there, investing $126 million and pocketing $115.3 million of tax monies. GE shareholders paid just eight cents on the dollar for the investment.

Legislatures passed these laws, presidents and governors signed them and the courts have endorsed them. In many cases they effectively gut state constitutional provisions and laws banning gifts to business.

In New York, lawyer James Ostrowskifi led a lawsuit on behalf of more than fifty citizens, ranging from serious libertarians to liberal Democrats, challenging a gift of at least $1.4 billion of state taxpayer funds to a company controlled by Abu Dhabi’s hereditary ruler, Sheikh Khalifa bin Zayed Al Nahyan, one of the wealthiest people in the world. The sheikh’s company, GlobalFoundries, is building a microchip factory in the Hudson River Valley near Albany. Back in 1846, the New York State constitution banned gifts to corporations or other business entities, a provision that the voters reaffirmed in 1874, 1938 and again in 1967. In each case the vote was by a margin of two to one, which would seem to make the desires of voters clear.

In deciding Ostrowski’s suit, two justices said such gifts were plainly illegal. But the court majority found a way around this. They reasoned that while the state government could not make such gifts, the legislature could create an economic development agency, give it the money and, in turn, the agency could give it away to the sheikh and any other business owner. If parallel reasoning were applied to drug deals, the kingpins who finance the drug trade could never be convicted of a crime as long as they do not touch the drugs.

The court also showed its contempt for those who challenge giveaways in its final order in the case, which ordered Ostrowski to pay $100 because he asked for a rehearing to show the factual errors in the court ruling.

You’ll learn in The Fine Print how other courts, including the United States Supreme Court, have diminished the rights of consumers, voters and workers while enhancing corporate power. One instance was the Lilly Ledbetter case, which demonstrated the willingness of the court majority to favor corporations over people. Ledbetter retired in 1998 after almost two decades at a Goodyear Tire & Rubber plant in Gadsden, Alabama. Only when she was leaving did she learn that the men holding the same job she had held all earned significantly more—as much as $18,000 a year more. Paying men 40 percent more than women for the same work looks like an easy case of discrimination. But the Supreme Court said that Ledbetter’s legal right to sue ended 180 days after the discrimination first took place, which was so many years earlier that the court ruled she had lost her right to sue. But how would Ledbetter have known she was being discriminated against? Only by a tortured reading of the statute could the majority rule against Ledbetter.

Bits and pieces of the complex story of business gaming government and gaining unfair advantage over consumers have been reported in the press, most often on the business pages. That coverage, however, tends to be narrow, typically portraying what are fundamental issues as disputes between competing industries, say, telephone companies versus cable companies or truckers versus railroads. Looked at from a larger perspective, these disputes were really about how to raise prices, limit competition, and diminish consumer protections. But the forest was often lost in the trees.

Similarly, banking gets lots of news coverage, but usually from the point of view of the bankers or bank investors, not customers. This seems odd for mass media given that bank owners are few and bank customers abound. An exception to this focus on bank owners came in the intense coverage in 2011 of Bank of America’s plan to impose a $5 monthly fee on some debit card users, a plan it withdrew in the face of popular criticism. To corporate publicists this fiasco was a reminder of why they are employed—to make sure the news media stays focused on what the companies want, not on customers, lest they demand reforms.

That meant you didn’t read how Bank of America treated customers who deposited a check that bounced. BofA hits customers with a $12 “chargeback” fee for each bounced deposit. Suppose you waited for your bank to advise that the deposit had cleared and only then wrote checks. In New York the courts say the bank can still unclear the deposit and hit you with overdrafts fees, which at BofA are $35 per check.

What does it cost banks to deal with a bounced check? Back in the late 1970s, when checks were still processed by a person and a machine rather than digitally, Crocker Bank (now part of Wells Fargo) was forced to reveal in a California court case that its cost was thirty cents. At that time, the bank was charging customers $6 for bounced checks, a markup of 2,000 percent. The California Supreme Court held that charging twenty times cost was not necessarily unconscionable. Adjusted for inflation, that $6 fee would now be $21, less than half what BofA charges.

What are today’s bank costs for processing a bounced check? BofA won’t tell customers, but research papers on costs in the digital era suggest it could be less than a penny, making the markup by BofA in the neighborhood of 470,000 percent. But corporate values now so infuse our society that price gouging is easily brushed off as a function of competition, regardless of whether that’s the truth or an ideological fantasy.

No other modern country gives corporations the unfettered power found in America to gouge customers, shortchange workers and erect barriers to fair play. A big reason is that so little of the news, which informs us about the world around us, addresses the private, government-approved mechanisms by which price gouging is employed to redistribute income upward. When news breaks about one company buying another, the focus is almost always on the bottom line and how shareholders will benefit from higher prices and less competition; much less is said about added costs for customers as competition wanes. This powerful yet subtle bias appeals to advertisers such as mutual funds and other financial services companies who wish to address investors.

On arrival at the Philadelphia Inquirer in 1988, I sought to chronicle the coming spread of gambling. Part of the job was to report the monthly results from Atlantic City. Most papers reported how much the casinos won, but on the theory that there was just a handful of casino owners and millions of players, I looked at the story from the players’ point of view, reporting the sum of all player losses at the slots and table games.

That first month, I wrote that Atlantic City gamblers lost a record amount of money in the seaside temples of chance. When I left Philadelphia for The New York Times, however, the Inquirer went back to reporting the casino winnings, just like every other news organization, once again seeing the story from the corporate point of view.

I believe people want news about the issues that concern them, but the slant, whether it’s on corporate takeovers, consumer price levels or gambling outcomes, is typically reported in ways that address the interests of investors, not customers. Such investor-oriented reporting is one reason why fewer people pay to have a newspaper delivered at home.

In The Fine Print, the corporate point of view is secondary to that of customers, workers and taxpayers. Much of what is reported in these pages will be new to you; even specialty industry publications don’t cover this ground. You will read about the machinations used to inflate profits through a regulation that imposes a tax that does not exist and how, in one case, I got this legalized theft stopped, a result that demonstrates that foul practices can be ended if readers simply act on what they learn and speak up at public hearings.

You will read about why your retirement funds are not safe and why you and your children are endangered because of little-known government rules that give safety waivers to deadly industrial facilities underneath schools and playgrounds whose locations are kept secret by the federal Department of Transportation.

You will even read about an insurance company owned by one of America’s most admired billionaires that asked a paralyzed man to die because the cost of keeping him alive was cutting into the insurer’s profits.

I invite you to read, to see these and other awful stories in context, and to learn how business has been regulated throughout history. I will try to offer a sense of how, in the past four decades, we have forgotten the tried and tested (and therefore profoundly conservative) principles of business developed over thousands of years. Allowing corporate values to overwhelm us is not necessary—I will close with some suggestions and solutions—but, in the meantime, our wealth, our well-being and our freedom are being diminished daily.

Excerpted from The Fine Print: How Big Companies use “Plain English” to Rob You Blind
Copyright © David Cay Johnston, 2012.
All rights reserved
Reprinted by arrangement with Portfolio/Penguin, a member of Penguin Group (USA), Inc.

ABOUT THE AUTHOR

David Cay Johnston is a Pulitzer Prize-winning reporter who has been called the “de facto chief tax enforcer of the United States.” His most recent books, Perfectly Legal and Free Lunch, were New York Times bestsellers. he was a reporter for The New York Times for thirteen years and now writes a column for Reuters. He also teaches at Syracuse University College of Law and the Whitman School of Management, and he was recently elected board president of Investigative Reporters and Editors, Inc. He live is Rochester, New York.

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September 12, 2012

500 Days, Eleven Years Later

Filed under: Book Reviews,Current Events,Finance and Economics,History and Biographies,Leadership — dylan @ 9:35 am

It’s the morning after 9/11, eleven years later.

As I sat down to write this post yesterday, I began typing up a description of four commercial airplanes hijacked by religious zealots and flown into the heart of the American establishment: two hitting a set of twin towers in the middle of the country’s financial district, which when built were the tallest on Earth; another crashing into a five-sided office building—still the largest on Earth by sheer floor area—that housed the nerve center of the mightiest military the world has ever known; and one that was brought down in a field outside Shanksville, Pennsylvania before it could reach it’s final target, believed to be either the White House or the U.S. Capitol Building, to strike at the political leadership of a 235-year-old experiment in self-government that constructed a system from scratch that built those buildings and the civilian infrastructure that each of them housed.

As I was writing that description, two things struck me. First, that everyone already knows that story and can conjure up images of each horrific scene just by hearing the words nine and eleven placed next to each other. And, second, if we hadn’t lived through it, it would sound unbelievable—it would sound like a scene from a second-rate thriller or science fiction film. But, as they say, truth is stranger than fiction. What isn’t mentioned is that it’s also more brutal, and the only way we get along at all or get through the day is that we don’t dwell on how close we are to the precipice of potential chaos that exists in every moment.

But as many somber ceremonies reminded us yesterday, it wasn’t science fiction. It really did happen, and the country that those planes flew above and then smashed into has altered drastically since. Some of the biggest changes are chronicled in Kurt Eichenwald’s excellent new book, 500 Days: Secrets and Lies in the Terror Wars. The 500 Days (“554 to be exact”) the title refers to are the eighteen months after 9/11 in which the judgements that “every aspect of the terror wars flowed from” were made.

He writes in his brief introduction to the book that “Readers looking in these pages for my view of these events will no doubt be disappointed. I have little faith in opinion, even my own. Instead, this book is meant to be a dispassionate history of this crucial time.”

I have little faith in opinion, as well (especially my own) but I found Eichenwald to be a very passionate, though non-partisan, reporter. He writes with an immediacy and an intimacy with his subjects that is rare in nonfiction.

Originally intended to be a book about the Bush Administration’s response to 9/11, the author quickly realized that the scope of the story was much, much larger and his approach was off-base, writing:

I found that the strategy cobbled together in those initial days was not the creation of a single group of politicians or even a single government. The Bush Administration was important, but America did not hold a monopoly on shaping the multipronged assault on terrorists.

So, I changed directions. By concentrating my research on the rush of events over those 554 days, I would be able to lay bare the essence of a trauma that haunts the world to this day. I later decided that the full story could not be understood simply from depictions of events in the corridors of power; this history was also shaped by the experiences of the powerless. Extraordinary rendition was not simply a policy adopted in government conference rooms—it played out in real ways on real people’s lives, as did decisions about the application of the Geneva Conventions, the use of secret prisons, and the like. These experiences, sometimes horrendous, helped shape directions of international policies in profound and often unseen ways. I would be remiss in ignoring those individual consequences.

So instead of a book solely about one administration, this book is a complex quilt of human stories, and Eichenwald pulls at each thread to unwind and then reconstruct the entire picture. Beginning twelve months before 9/11 on a ranch in Crawford, Texas with soon-to-be-president George Bush, and ending aboard the USS Carl Vinson as the body of Osama Bin Laden “sank silently to the bottom of the sea,” the author tells the story of our times with the individual stories of people wrapped up in each decision and every moment.

Fans of Andrew Ross Sorkin’s Too Big to Fail will recognize a similar narrative approach in Eichenwald’s 500 Days, and will find that the pages turn just as fast. That’s good, because like Too Big to Fail it is a big book. The cast of characters he lists at the front of the book alone reaches eleven pages (Sorkin’s was eight), and the way the author reconstructs their stories makes you feel as if you were in the room when it all went down. If you remember the scene at the beginning of Too Big to Fail in which the leaders of Lehman Brothers, Dick Fuld and Joseph Gregory, are making their way to Wall Street (in a chauffeured Mercedes and private helicopter, respectively) as the financial world is collapsing around them, you’ll be equally transfixed by the scene in which secretary of transportation Norm Mineta is driving up the White House as an exodus of staffers heads the other way on the morning of 9/11—and 500 Days is filled with such stories.

The buildings hit on 9/11 were symbols of our financial and military might. The terrorists didn’t succeed that day, but within a decade we had done much of their work for them from within, with those on Wall Street bringing the financial system to its knees, and those in the Pentagon and offices of government chipping away at individual liberties in the name of security. When historians look back at the beginning of what I hope will be a second “American century,” they will look at the events chronicled in 500 Days and Too Big to Fail—the Great Crash and Pearl Harbor of our generation—and find two excellent narratives that bring the two crises back to life.

They will study these two catastrophic events and our responses to them, and be either amazed that—despite some initial missteps—we overcame them and got it right in the end, or they will see the beginning of the end of American ascendancy. The choice really is that dramatic, and it really is up to us. It doesn’t have to do as much with political party as it does with pragmatic principles and problem-solving, and like the challenges our grandparents confronted in the middle of the last century, ours aren’t confined within our borders. We emerged from a Great Depression and a two World Wars in the last century as an engine of growth the likes of which the world had never seen, helped rebuild a continent abroad and stand it up against the rise of political and economic totalitarianism—totalitarianism we defeated without firing a single shot. That say that truth is stranger than fiction, but it can also more spectacular.

9/11 will forever be a day to look back, to remember the dead, and to honor our soldiers and first responders with moments of silence and ceremony. It’s now the morning after 9/11, eleven years later. It’s time to look forward again, to get back to building our future, and the next 500 days will be critical.

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August 20, 2012

Innovation Economics

Filed under: Book Reviews,Current Events,Finance and Economics — dylan @ 4:19 pm

Politicians and the punditry across the country are making a good living discussing America’s decline, but no one seems to be doing very much about it other than asking people to “vote for me” or “listen to me.” It seems like every time we turn to the news, it’s the same story with a different punchline, usually dictated by what side of the political divide the speaker is coming from.

Robert Atkinson and Stephen Ezell’s new book, Innovation Economics: The Race for Global Advantage, is a welcome, wonkish 440 page respite. As both parties harden their rhetoric in the run up to the November election, Atkinson and Ezell discuss the forces reshaping the world economy and what America needs to do to remain competitive and regain its position as the world’s economic and innovation engine. It will take, first and foremost, changing the conversation and challenging the status quo:

Success for any organization, whether a company or a nation, depends first and foremost on an ability to challenge status quo thinking, for “groupthink” leads individuals to believe that they know what the problem is (or worse, that there is no problem in the first place). As Henry Ford once said, “Thinking is the hardest work there is, which is probably the reason why so few engage in it.” For any nation to win the race for innovation advantage, it has to start with thinking and, when necessary, challenging the prevailing thinking.

Challenging prevailing, out-of-date thinking is innovation in its own right, but innovation is more than that. … While organizations (and entrepreneurial individuals) drive innovation, it is nations that enable, support, and spur it on, or restrict, hinder, and retard it. Because of that, innovation policy—the constellation of government policies from tax, to trade, to talent, to technology that support a nation’s innovation ecosystyem—has become the single most important factor nations need to get right if they are to thrive in the globally competitive economy.

Atkinson and Ezell begin by discussing the underlying causes of the housing bubble and Great Recession, and paralleling the story of American decline with that of the United Kingdom a decade ago, showing the striking similarities between the nature and causes of each decline. They lay out twenty major causes at work, demonstrating that industrial decline is not a mystery and certainly doesn’t have to occur. They then tackle the “myths, nostrums, and dogmas that all too often pass for reasoned economic analysis” before clearly defining what innovation is and how it has become the determining force of every nation’s economic success. They follow this by discussing the need for good innovation policy and show us just how poorly most countries are doing in this regard, relying on outdated economic policy thinking and “innovation mercantilism,” and “making the global economy less prosperous and more fragile in the process.”

The authors then lay out in sharp detail something missing from the national debate at the moment—solutions. These are the Innovation Policy “I’s” of Inspiration, Intention, Insight, Incentives, Institutional Innovation, Investment, and Information Technology. Each is discussed in detail, and illustrated with real-world examples. Hopefully policy makers will take note.

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July 23, 2012

The Best Business Writing 2012

Filed under: Book Reviews,Current Events,Finance and Economics,General Business,Global Business — dylan @ 11:10 am

There is nothing that excites me quite as much as the English language when beautifully crafted, burdened with a purpose, and bearing the truth. I find it in my favorite poetry and great works of fiction that expose our human core, in artfully crafted works of nonfiction that explore the human story in all its facets and fascination, and yes, even in the best that business books have to offer.

But, I find it most often when I sit down with The New York Times, The Wall Street Journal, or The Milwaukee Journal Sentinel every day over lunch, or when I follow the thread of a story contained in the a link in an email from ProPublica, when I relax with The New Yorker, Fast Company, and Foreign Affairs at home, or when I listen to a well-crafted story on This American Life or a great interview with Charlie Rose. It’s this everyday reporting, story-telling, and exploration of current events and interests—the fruits of our free press—that enriches and informs us on a daily basis, that many call the lifeblood of democracy, and that forms the tapestry of our collective intellectual lives.

In the first of what I hope will be many annual publications, The Best Business Writing 2012 from Columbia Journalism Review Books, edited by Dean Starkman. Martha M. Hamilton, Ryan Chittun, and Felix Salmon, captures much of the finest examples of that output from the last year in one collection. You’ll find within it some of the past year’s greatest stories crafted by some of the best storytellers working today, the most exhaustively researched and fact-checked journalism, with some opinionated and insightful commentary sprinkled throughout from the likes of Paul Krugman, Warren Buffett, and many more—all from a wide variety of sources and mediums. Dean Starkman’s introduction explains more:

[O]ur fearless panel scoured the Internet, approached traditional and nontraditional news organizations for what they thought was their best, and asked people in our networks what they had read and liked. We also asked Twitter and received some of our strongest entries. We didn’t care about medium. This book has newspapers, magazines, blogs, radio, even a movie. [...]

The result is a collection of nonfiction writing of the highest caliber. Never mind the subject, these are fantastic stories. You will find a riveting yarn of executive-suite intrigue at a major multinational corporation (psst, it’s Pfizer); fascinating behind-the-scenes profiles of businesses behaving badly (Countrywide, Massey), business behaving brilliantly (Ford), and business behaving weirdly (Ikea). You’ll read trenchant critiques of failed policy makers (yes, Greenspan is there) and business boners (Netflix, Hewlett Packard). You’ll find penetrating looks at a distorted market (psychotropic drugs) and searing investigations. We have insightful think pieces on subjects including the rise of the new elites, Steve Jobs’s genius, and Google’s omnipresence.

These kinds of anthologies are important not only because of the recognition they bestow upon great work, but because it is essential to put the events of the day into a larger context, and books like this help us do that.

George Santayana once wrote that “Those who cannot remember the past are condemned to repeat it.” Living in the midst of the modern, 24-hour news cycle, it often seems like we’re stuck on repeat. We can barely remember what made the news yesterday, let alone last week or two months ago, but it usually feels the same as what’s happening today. If there is nothing to comfort or enrage us, you can be certain that something will be manufactured for those purposes, and all we have to do is turn the dial, flip the channel, or head to one of our go-to websites to find the feeling we’re looking for.

So often lost in the mix are the facts we should be seeking, and the stories that ferret them out. The Best Business Writing 2012 searched those facts and stories out and gathered them back up in one important and entertaining collection. Some of those facts and stories may challenge your beliefs and change your mind; I know they are doing so for me. You are also certain to find much that will comfort and/or enrage you. Most importantly, you will find excellent, purposeful writing, well-told stories, and a search for the truth.

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April 16, 2012

An Interview with Peter Kiernan, Author of Becoming China’s Bitch

Filed under: Big Ideas,Current Events,Interviews — dylan @ 2:27 pm

It’s an election year, a year in which everything will invariably be colored by politics. This is especially true when discussing small business, entrepreneurship, and the economy as the candidates are certain to do—ad nauseam. I recently reached out to Peter Kiernan, a successful businessman, philanthropist, entrepreneur, corporate and government advisor, and the author of the recently released and provocatively titled Becoming China’s Bitch, to get a view of the challenges we face and how we can refocus the debate from what he calls “The Radical Center.” Withouy further ado, here is that exchange.

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You open the book bemoaning the current atmosphere of scaremongering and hyperbole in our national debate, yet the title of the book itself is, self-admittedly, quite provocative. Can you tell us why you settled on the title, Becoming China’s Bitch?

I deliberately chose a provocative title for two reasons: to act as a defibrillator and to command attention. The shock was intended to waken us from sleepwalking when it comes to really understanding why we are differently divided as a nation today. Going back to the pre-framer days, our nation has always been characterized by divide, debate and from time to time malice over issues. But in each of the prior periods we developed compromise and consensus on extremely vexing problems.

Today’s divide is different.

We have created an architecture of divide that flourishes with rise of far right and far left. There are multi-billion dollar engines of division that carry with them sufficient reach, capability and capital to lead every chess match to a stalemate.

Unless we understand this architecture we can never thaw ourselves out.

Among the most prominent elements is the multi-billion dollar business of talk television and opinion radio. More than ever before consumer broadcast choice and preference can be directed and fed with programming and ideological enthusiasms. News has evolved from the once objective big three anchor men to the opinionator class of information sharing where prerequisite skills may be news gatherer or comedian or professional wrestler.

Less obvious but even more impactful are changes to the cycle of policy formulation. Lobbying has evolved into a huge enterprise—$6 billion plus in revenues in the last 24 months involving over 15,000 extremely talented researchers, analysts and former members of the House, Senate and Federal leadership. Gone are the days of the stereotypical wine and diner whose boozey application of charms and attention supported corporate wish lists in the Congress. The game is far more broad gauged and sophisticated today. And there is much of our governing and rulemaking that is significantly supported by the new professional lobbyists—they are like an outsourced professional class of government operatives who stay at their post even as the elected and appointed officials whom they advise come and go with the political winds.

Another element of the influencer class is the selectorate—people of enormous influence who are in the room when you and I are not there. Think tanks have evolved too. They are increasingly well capitalized, some with endowments bigger than small colleges. Others enjoy robust funding from wealthy benefactors. Think of policy formulation as a cycle rather than a discrete event. At key points in this process think tanks can provide research, coaching and well-timed two page memoranda sent to precisely the right policymaker. Think tanks also carry great convening power and play a role in helping legislators and federal operatives access to important people from around the globe. England has its shadow government; our answer is an extraordinary collection of experience and great minds under the banner of think tanks. These well financed organizations are blessed with some exceptional talent. Well-timed communications, lectures, policy briefs, and major research initiatives can have profound impact on the outcome of our policy.

The sophisticated deployment of these resources leads to a new level of paralysis. We have become somnambulists as a nation even as these think tanks are cited tens of thousands of times a year in the media. Brookings alone publishes a book a week. So think tanks operate on two levels: behind closed doors at the important sessions, and in plain sight with 27 or 30 thousand media citations a year. In the marketplace of policy ideas, these are the ultimate brokers.

It is counterintuitive to consider our inability to act forcefully as costless. But nevertheless we hear endlessly of the virtues of delay. My provocative title is meant to assign a cost to our intransigence. It clearly is outside some people’s comfort zone. But any cursory review of the book indicates that the book is really about America far more than it is about China. Though our tango with China as our leading lender and trade counterparty means our fate and theirs are intertwined for as far as the eye can see.

Can you talk a bit about how, though we produce and consume more news and media today then ever before, our attention is being diverted away from the real issues we’re facing as a nation, and we may actually be less informed?

One of the fascinating developments in the history of how we “get informed” in our nation is the role that choice has played in altering the steady and objective news that used to emanate from the Big Three TV Networks decades ago. Just as the cable universe expanded with the rewiring of our nation, radio hosts and shock jocks, entertainers and comedians all found outlets for a more interpretive and impressionistic slant on the news.

The surge in the internet has also played a role in speeding up the transmission of news, often forcing individual readers to be their own editors in chief. Increasingly people are creating their own independent ways of being informed. Often the practice involves searching for shows on TV and radio and selecting hosts or even internet sites or bloggers who feel much the way you do. This cocooning has led to intense followership and viewership ratings creating almost the opposite of broadcasting… narrowcasting. And in the give-and-take world of the web, it means finding your voice to share in places that wish to hear it. Blogs and chats pervade and opinion flourishes—often at the expense of objectivity and even at the expense of the facts.

You call yourself a Radical Centrist. Can you explain what that means, and what role there may be for those of us in the vast center to help refocus the debate on the issues we face as a nation rather than the petty, polarizing partisan fights currently amplified by lobbyists and the media?

Tip O”Neill famously said of moderates “They are always around when you don’t need them.” Well we don’t need them now. It takes great courage today to break ranks from a rigid ideology to find the right answer if it leads you away from your party. Radical centrists believe that no ideology has a monopoly on solutions. Sometimes the right has a keener sense of how to resolve a problem and sometimes it’s the left. Radical centrists celebrate common sense solutions rather than blind adherence to a particular political persuasion. In my book I outline ten challenges that vex our nation and beg for an orchestrated solution. Many of these solutions will involve difficult compromisers and leaders will have to cross party lines to implement the necessary changes.

Radical Centrists stand with the problem solvers, particularly when elected officials do something brave. Radical Centrists don’t vote like invertebrates. Standing for the independent common sense view is as central to the American core values as its DNA.

Resisting the centrifugal forces that swirl us to extremes is a courageous act—hence pairing the more passionate word “Radical” with the more typically moderate word “Centrist.” Radical Centrists vote with their eyeballs and switch the channel if the opinionators are blaring. They stand with their legislator when they cross party lines and they reward their leaders for being brave and being problem solvers.

What is the difference between a Radical Centrist and a moderate? Can you talk about the idea of gentleman giants, and how we can affect the world with greater personal humility—rather than belligerence?

While the first part of your question was answered in the last entry, the second part reflects an astute reading of the book. In it I celebrate the gentleman and gentlewoman giants one encounters in every walk of life: Lena Horne, Tom Hanks, Jimmy Stewart, Charles Kurault, Bonnie Raitt, Christine Lagarde, Chuck Yeager, Sully Sullenberger… you know the drill.

We need to channel that distinctly American character into our leadership and into our day to day discussion. Read through the vitriol and venom on most political chat rooms, message board and many sharing venues on the web and anyone can attest that we have lost a bit of our common courtesy in the discourse.

It’s not a matter of politesse, but practicality. Once some blowhard has ruined the barbecue or blown up the dinner party, civil conversation rarely results. Tolerance and a willingness to stretch to accommodate were hallmarks the framers brought to the Constitutional Congress—even when they vigorously disagreed.

It boils down to what defines winning. Is it the perturbation and complete frustration of any advance by the opposing party? If that is winning, then our leaders are world champions. Of course that victory isn’t shared by Americans at large.

Ben Franklin is purported to have said something which captures the idea: “Compromisers don’t make great heroes, but they do make great democracies.”

Can you give us a brief description of what the key issues are in your mind—the “ten catastrophes” as you call them in the book—and an idea of how we as individual citizens can come together to begin addressing them?

If any one of us were asked to enjoy the privilege of command we would begin our task by listing 20 or 30 challenges we all face. Naturally we might arrive at a different list of top ten priorities. But we would make a list of ten true vexations which demand resolution and then we would commit to devising a way to resolve each one together.

If you look at our history that’s how the truly great things in America were created, by a grand compromise hammered out together. That approach gave us our Constitution, Woman’s Voting and other rights, Civil rights and forged some of our greatest infrastructure and technology achievements.

My ten issues are these: (I recognize yours may differ)

Our studied indifference to a thoughtful relationship with China\
The Silver Surge of Aging Americans and the opportunity to craft a Longevity dividend
Our shifting Labor Movement and our determination to adopt pension and entitlement promises that will never be kept
Our patchwork quilt of same sex marriage laws creating a second class citizenry
Our 16 Federal Agency 100 Congressional Committee front line against terror
Our willingness to allow Tobacco, Drug and Alcohol Abuse to create a $700 Billion annual cost to society
Our three Untouchables: Social Security, Medicaid and Medicare—all a half a century plus in age and all desperate for modernization and upgrade. And our inability to cure our most threatening diseases because we are ignoring the right problems and solving n the wrong ones
Education is slipping while our prison population has more than doubled since 1990
Our short sighted and timid Immigration policy
Our complete unwillingness to bravely forge an energy policy.

In my judgment, if we really tackled any 5 or 6 of these issues with the full force and commitment of our ancestors we would improve society both for ourselves and for the coming generations. Others may choose a different list by dropping one or two and adding others. I have no quarrel.

But in almost anyone’s book energy, education, health care and our role as world leader would be in the top ten. The real question for Americans is who can you trust to solve these problems intelligently and with force and visor? Washington leaders? Wall Street? Your Church? Your political party?

My answer and my book’s premise is that we have delegated too much responsibility to people who simply cannot get the job done. The time has long past for Americans to reframe their relationship with their leaders and their government. The time for a radical return to the common sense solutions of the founders and the tough-minded compromises that have marked our path every decade since the framers is now before us. Denying the problems or postponing them will mean at the least that China surpasses us economically. But the toll is far worse than some jingoistic ranking. Throughout our history, America has stood for something and we have felt great pride in what that culture meant around the globe.

What I ask is not a journey to a far off place, but a return to the core of who we are. Henry Adams wrote his expansive nine-volume history of the United States and covered only 17 years. He postulated that by 1817, the end of the Madison Presidency, America was a settled country in terms of national temperament. At an extremely young age, the American character was already determined and Adams put his pen down. America’s role in the world was predetermined.

It is with urge to rekindle that quintessential American spirit that I picked my pen up.

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November 14, 2011

Thoughts on “Generation Sell”

Filed under: Careers,Current Events,Finance and Economics,General Business,Innovation — dylan @ 9:09 pm

“The characteristic art form of our age may be the business plan.”

That quote comes from an intriguing opinion piece called Generation Sell that was published in the New York Times this weekend. It is a piece about a generation just coming of age and today’s youth culture. It really deserves to be read in its entirety, but I think that if one passage can sum up the basic argument of the article, it is this:

Today’s ideal social form is not the commune or the movement or even the individual creator as such; it’s the small business. Every artistic or moral aspiration—music, food, good works, what have you—is expressed in those terms.

Call it Generation Sell.

The piece was written by William Deresiewicz, and there is so much I agree with and so much I disagree with in it—and it’s all wound tightly together in a wonderful and entertaining piece of writing. I’m a member of the generation he’s writing about, “people born between the late ’70s and the mid-’90s, more or less,” so I probably took it more personally than others, more personally indeed than I should, but I do take issue with some of Deresiewicz’s characterizations.

The first issue I ran into was in what I think was an unnecessary or misguided attempt to say something about hip-hop, which has undoubtedly had an affect on the generation and merits mention, but the sentence Deresiewicz offers doesn’t do it justice. After describing the (counter)cultural characteristics of the beatniks, hippies and punks, he briefly offers this:

Hip-hop, punk’s younger brother, was all about rage and nihilism, too, at least until it turned to a vision of individual aggrandizement.

Because that’s all he offers us on the subject, I feel it would have been better to have left it out altogether. Because hip-hop, like jazz or rock-and-roll, shouldn’t be defined as a “youth-culture” in and of itself, but as an art form that influenced youth culture. And while some of its currents may have been “all about rage and nihilism,” it began as party music more predominantly wrapped up in a social conscience and commentary, cultural irreverence, and the urban art forms of dance, painting and poetry. There may have been a decent amount of rage there, but I don’t get the nihilism. To “punk’s younger brother” seems to miss its roots and how it ended up as part of the youth culture he’s critiquing. It would be more accurate to define it as a part of the millennial generation in the way he did with jazz and beatniks, of which he wrote:

Theirs was a culture of jazz, with its spontaneity; … of flight, on the road, to the West; of the quest for the perfect moment.

Something like this might have been more accurate:

Theirs was a culture of hip-hop, with its social conscience and cultural irreverence (and confusion); of finding a voice, of the city street; of the quest for personal invention and aggrandizement.

But, of course, that doesn’t ring true either, because it isn’t a culture defined solely by rap. The generation wasn’t defined by any single movement in music as much as previous generations have been—movements that the major record labels could latch onto and push out into the wider consciousness to become the soundtracks of their generations. I think, if anything, this generation was shaped by the demise of the major labels’ cultural influence, the proliferation of independent labels, and all the noise, cross-pollination, creativity and confusion that has spawned from that. The last real uprising or rebellious “movement” in popular music was the rise of grunge music in the ’90s. Since then, the only movement I can detect is one toward ever smaller, more focused independent labels. It is, as the author rightly notes, a movement to a new business model, and he’s right that “selling out” has largely left our lexicon since then:

It’s striking. Forty years ago, even 20 years ago, a young person’s first thought, or even second or third thought, was certainly not to start a business. That was selling out—an idea that has rather tellingly disappeared from our vocabulary.

But I think there’s a more important reason for that. “Selling out” used to mean that a band was abandoning one of the little labels so many cherished for a major. People were passionate about those labels—Dischord, Matador, Thrill Jockey, Touch & Go, etc.—and a move like that felt like an abandonment of something just on the verge of exploding and choosing a paycheck over principle. “Selling out” was also applied to those who sold a song for use in advertising, a move I don’t think many begrudge bands for anymore due to the paradigm shifts in the music industry. And I think the larger idea that starting a business 20 years ago was considered selling out is a misnomer. I doubt anyone accused Fugazi’s Ian MacKaye of selling out when he started Dischord in 1980, or told Aaron Rose he was selling out when he opened Alleged Gallery in the early ’90s. Selling out would have been signing with a major label or taking a job curating art at the The Met.

And this leads me to a the generalized character at the heart of the article—the “hipster” that the author feels is “a lot more representative [of the Millennial Generation] than most of them care to admit.” The definition is bandied about and applied to many people, but I’m still not sure what exactly a “hipster” is (though perhaps n+1‘s What Was the Hipster could help), and putting it in the same category as the counterculture figures that preceded it seems problematic to me. Beatniks, hippies and punks were all actively participating in larger countercultures, and defined themselves with those movements. The one predominant characteristic of a “hipster” is that nobody self-identifies with it. It’s always a label attached to others, and usually with a heavy dose of derision. As such, it’s not really a counterculture that anybody’s participating in or defining themselves with as much as it’s, if anything, an alternative lifestyle loosely defined. I do agree with the author that this lifestyle and its bohemian values were heavily influenced by the baby boomers and “Bobo in Paradise” parents that David Brooks wrote about a decade ago.

But outside of the skinny pants and fixed gear bicycles, the irony and the vanity, the defining character traits of the so-called “hipster” lifestyle—being young, urban, fashionable, artistic, and entrepreneurial—are mostly seen as positives. And I think the aversion to the label “hipster” is an aversion to labels and definitions in general. This generation hasn’t fully defined itself and doesn’t want to be defined by others—even their peers. Statistically, it’s more likely to switch jobs many times, move to new cities, to freelance, start a business of the their own or work for themselves. I don’t think of this as the end of history of counterculture in any major way, but as the rise of many independent yet interconnected subcultures that are entering the popular culture in a way that mirrors how previous countercultures were absorbed and watered down—except that today’s subcultures seem to be entering it with more artistic and economic control and largely on their own terms.

The characteristic art form of our age is not the business plan; it is do-it-yourself, independent local production, scale and control. Most people I know didn’t start with a business plan and still don’t have one. They started with a vision and are working every day to realize it. They made the decision to strike out on their own and practice their art, craft or trade—and hope people value their vision enough to pay for it. My wife, a self-employed photographer, began Ellagraph Studios. My friend dwellephant is a working artist. My friends Daniel and Maria run Ball & Biscuit, the best catering company in Milwaukee. My neighbors run Orchard Street Press, an eco-friendly printing company. I could go on and on, and wouldn’t be able to find a “hipster” in the bunch—just a lot of hard-working, creative and passionate people.

If I could sum up the generation, it would be with the once annoying labels “indie” or “underground” (which became so annoying simply by virtue of being such ubiquitous labels). The indie rock and the underground dance music and hip-hop that grew up in the ’80s and ’90s dominated the subcultures that we ourselves grew up in, and have since turned into more codified and sustainable (though possibly not very profitable) small business models. That simple yet profound change in how we learn about, purchase and consume (in the best sense of that word) the music that so shaped us during our formative years has fundamentally altered the cultural landscape. The “rockstars” of our generation were closer to us, more accessible, usually a part of our artistic communities. And alongside the independent music sprang up independent labels, music venues, galleries, coffee shops, screen printing operations, skate shops, DIY arts and crafts fairs. The internet then came along and kicked it all into overdrive.

The author says “the hipster ethos contains no element of rebellion, rejection or dissent.” But I think that that is what so defines the generation. It’s a rebellion of production, a commercial rejection and inner dissent. It’s a rejection of corporate principles and a simple consumer choice for the alternative. It’s a generation not fundamentally different in attitude than its predecessors, but in the solutions it offers. The heretics of today saw previous generations’ protests and rebellions crushed in the street, so they rented the abandoned buildings beside it and started trying to build something new inside them. It’s in some ways a return to mom-and-pop capitalism.

Sure, you can call it “generation sell,” but I think “selling” is a dirty word rather deliberately used. It could easily be called “generation create” or “generation present.” It does often seem as if everyone nowadays has something to present, advertise, market or “sell,” but by-and-large I think it was and is being done with good art, the right intention and decent manners. And if one of the results of that shift is that people fault this generation for being polite and pleasant, well… being the affable generation it is, I think they’d be okay with that.

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October 4, 2011

The Coming Jobs War

Filed under: Big Ideas,Blog,Book Reviews,Current Events — Jon @ 8:00 am

Right now, some of us are sitting in positions we’ve held for years, and looking forward to staying that way. Others are scrambling to prove their worth in a highly competitive market. Yet others still may have given up, after years of trying to find work, with no hope in site.

The new Gallup book The Coming Jobs War, by Jim Clifton, says the situation is going to get more intense for each of those groups. And while an entrepreneurial spirit is certainly important for individuals during this time, the book’s aim focuses on cities’ business leaders and philanthropists as the solution to the crisis.

In this case, Clifton argues, a war, as severe as it sounds, is warranted. “He states, “I don’t use the term ‘war’ lightly. This really has to be a war on job loss, on low workplace energy, on healthcare costs, on low graduation rates, on brain drain, and on community disengagement. Those things destroy cities, destroy job growth, and destroy city GDP. Every city requires its own master plan that is as serious as planning for war.”

While his research seems dire, his urgency and passion are an inspiring look at what America can and should do to turn around the marketplace, the economy, and our own personal survival. A compelling and important read.

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September 26, 2011

The Flaw and the Preface to Lost Decades

Filed under: Big Ideas,Current Events,Excerpts and Essays — dylan @ 12:36 pm

This will be the second year that 800-CEO-READ sponsors a film at the Milwaukee Film Festival.
Last year it was the David Hillman Curtis directed concert film of David Byrnes’s 2008/2009 tour, Ride, Rise, Roar. As a company full of musicians and music lovers, sponsoring the film seemed to fit our personality and culture. But this year we’re sponsoring a film whose issues relate more strongly to what we actually talk about and review here at 800-CEO-READ. The film we’re sponsoring (and seeing as a group tonight) is The Flaw, whose title comes from Alan Greenspan’s testimony before a congressional committee investigating the financial crisis in 2008:

I have found a flaw in the model that defines how the world works. I was shocked.

Directed by David Sington, The Flaw attempts to expose and explain the underlying causes of the financial crisis, interviewing victims of the crash, people who witnessed it from the ground, and some of the world’s brightest economists. One such economist is Joseph Stiglitz, who explains:

When you have growing inequality, typically your level of consumption goes down. In the United States we said to those whose income was not going anywhere, don’t worry, continue to spend as if your income was going up. But the only way you do that is through debt and that particular model has been broken.

Released last week, Lost Decades: The Making of America’s Debt Crisis and the Long Recovery also attempts to explain the underlying causes of the crisis, and it also comes to the issue of debt. In fact, the book’s authors, Menzie D. Chinn and Jeffry A. Frieden, define the financial crisis at its very core as a debt crisis. The debt is an issue that is in the news every day, and has Capitol Hill at loggerheads on seemingly every issue. From afar, it looks and sounds like a debate that is leaving the realms of reason. Hopefully the context, history, analysis and expertise that Lost Decades provides can help make sense of it all—if not in Washington, then at least in our own minds.

To help spread the word, I asked the good folks of W.W. Norton & Company for an excerpt I could share with you here on the blog, and they were kind enough to oblige.

Preface to Lost Decades BY MENZIE D. CHINN & JEFFRY A. FRIEDEN

The midterm elections were over, and the Republicans had made stunning advances. The GOP had picked up over seventy seats in the House of Representatives and seven seats in the Senate. Perhaps just as important, the Republicans had taken a number of crucial governorships from the Democrats, including the pivotal states of Michigan, Ohio, and Pennsylvania. The election was a dramatic reversal of the Democrats’ landslide victory two years earlier, and was a particular blow to the president, who had swept into office in the midst of a devastating economic crisis.

Certainly the Democrats could be satisfied with some major legislative accomplishments, passed with their previous majorities. But now, a disappointing economy and stubbornly high unemployment rate had brought back to life a Republican Party that had appeared moribund two years earlier. For the foreseeable future, the Republicans, together with allies among conservative Democrats, would be able to block or force changes in just about any initiative the president had in mind.

The year was 1938, and the economic recovery from the Great Depression was in deep trouble. Back in 1933, when Franklin D. Roosevelt became president, the country was in the fourth year of the deepest depression in its history. The Roosevelt administration had moved quickly and aggressively to try to bring the country’s economy back to life. Roosevelt and his fellow Democrats in Congress purged the nation’s banking system and imposed stringent new regulations. They created an ambitious array of federal programs to put the millions of unemployed to work. And they initiated the first serious federal social program in American history, Social Security.

By 1936 the economy was recovering. The unemployment rate had fallen to 14 percent, still high but down from where it was, 25 percent, when Roosevelt took office. Both national income and the stock market were rising rapidly. In light of the upturn, the Roosevelt administration resolved to tackle the federal government’s budget deficit, which in 1936 had reached nearly 5 percent of gross domestic product (GDP), a level unprecedented in peacetime. Delivering on promises to trim the deficit, the administration cut spending by 20 percent and raised taxes by even more; within a year the budget was practically back to balance. Meanwhile, the Federal Reserve tightened monetary policy, apparently to avoid a resurgence of inflation.

In the aftermath of the fiscal and monetary retrenchment, in the summer of 1937 the American economy collapsed into a steep recession. Industrial production dropped by one-third, the stock market plummeted more than 40 percent, and the unemployment rate shot back up to 19 percent. As the American economy slumped, the administration’s popularity faded rapidly. And the result of the 1938 midterm election reflected this loss of confidence in the federal government’s ability to bring the nation out of the Depression.

Today the United States and the world are slowly recovering from the most serious international economic crisis since the Great Depression of the 1930s. As was the case in the late 1930s, the causes and consequences of the crisis are hotly debated. And just as then, a great deal rides on an appropriate understanding of why and how the United States got to where it is today. How could the world’s richest economy go broke? How did the world’s most powerful banks collapse? Why would the most conservative government in modern American history nationalize enormous portions of the U.S. economy? Why did millions of American families lose their homes, and millions more their jobs? Whose fault is it all?

We have a unique perspective on these debates. We have spent, between the two of us, more than fifty years working on debt crises. We have lived through and studied financial and currency disasters in Europe, Latin America, Asia, and Russia. We have witnessed firsthand, and analyzed in detail, the human, social, and political wreckage of irresponsible borrowing. We have watched country after country lose decades of economic progress to the austere aftermath of financial crises. But we never feared that we would see a classic debt crisis in our own homeland. And we never imagined that our country could face the prospect of almost two decades lost to misguided policies, an unnecessary crisis, and a daunting task of economic reconstruction. Nonetheless, there is value in our ability to compare the current crisis to those we have known and investigated. As we examine the events of the past decade, and look toward the decade to come, we can draw on a wealth of comparative and historical experiences to guide our analysis.

The United States is in the midst of the greatest failure of economic policy, and of financial markets, of recent times. This is the story of how and why it got there, and of what the nation must do to repair a wounded economy.

The crisis

The most serious economic crisis of the past seventy-five years began as the summer of 2008 ended. In August and September, credit markets everywhere entered a downward spiral that spun faster and faster until, in the first two weeks of October, it seemed that the world economy might be coming to an immediate end. During those dark weeks and months, an international economic order that had inspired faith bordering on rapture around the world appeared to have turned on its creators and strongest supporters. The United States, the very center of economic globalization, was gripped in a panic that threatened to destroy the world economy. The collapse seemed to surge out of nothing and nowhere. One week there was mild concern about a sluggish housing market in the American Sunbelt, the next week the whole world was staring over a precipice into the end of global capitalism. The world’s strongest economy turned into the sick man of international capitalism. The American paragon of capitalist virtue, protector of the free-market faith, took over huge swaths of the private sector. What happened? How could this come to pass?

The United States borrowed and spent itself into a foreign debt crisis. Between 2001 and 2007, Americans borrowed trillions of dollars from abroad. The federal government borrowed to finance its budget deficit; households borrowed to allow them to consume beyond their means. As money flooded in from abroad, Americans spent some of it on hard goods, especially on cheap imports. They spent most of the rest on local goods and services, especially financial services and real estate. The result was a broad-based economic expansion. This expansion—especially in housing—eventually became a boom, then a bubble. The bubble burst, with disastrous effect, and the country was left to pick up the pieces.

The American economic disaster is simply the most recent example of a “capital flow cycle,” in which capital floods into a country, stimulates an economic boom, encourages high-flying financial and other activities, and eventually culminates in a crash. In broad outlines, the cycle describes the developing-country debt crisis of the early 1980s, the Mexican crisis of 1994, the East Asian crisis of 1997–1998, the Russian and Brazilian and Turkish and Argentine crises of the late 1990s and into 2000–2001—and, in fact, the German crisis of the early 1930s and the American crisis of the early 1890s. We can best, and most fully, understand the current debt crisis by understanding the dozens of debt crises that have come before it. What causes such crises? What can we learn from the paths to them, through them, and out of them?

To be sure, the most recent American version of a debt crisis was replete with its own particularities: an alphabet soup of bewildering new financial instruments, a myriad of regulatory complications, an unprecedented speed of contagion. Yet for all the unique features of contemporary events, in its essence this was a debt crisis. Its origins and course are of a piece with hundreds of episodes in the modern international economy.

For a century American policymakers and their allies in the commanding heights of the international financial system warned governments of the risks of excessive borrowing, unproductive spending, foolish tax policies, and unwarranted speculation. Then, in less than a decade, the United States proceeded to demonstrate precisely why such warnings were valid, pursuing virtually every dangerous policy it had advised others against.

Most analysts of the crisis miss this central point. Each of the many accounts published since 2008 has focused on one or another limited aspect of the crisis. Some follow the financial meltdown and response blow by blow, yielding vivid insights into the personalities and institutions involved. Other accounts emphasize the role of financial regulators in the collapse, documenting the influence of Wall Street over the deliberations in the halls of Washington, D.C. Yet others explain how the financial crisis caused so deep a global recession. Our analysis starts with the macroeconomic drivers of the experience, includes the political pressures, incorporates the regulatory enablers, and puts the crisis into a comparative and historical context, drawing parallels and lessons from the dozens of similar episodes from the past.

The American crisis immediately spread to the rest of the international economy. The world learned a valuable lesson about global markets: they transmit bad news as quickly as good news. The American borrowing binge had pulled much of the world along with it—drawing some countries (Great Britain, Ireland, Iceland, Spain, Greece) into a similar debt-financed boom, and tapping other countries (China, Japan, Saudi Arabia, Germany) for the money to make it possible. The collapse dragged financial markets everywhere over a cliff in a matter of weeks, with broad economic activity following within months.

Impact and implications

The global crisis raises the specter of global conflict. As governments scramble to protect their citizens, their actions can be costly to their neighbors: a bailout favors national over foreign firms, devaluation puts competitive pressures on trading partners, big deficits suck in capital from the rest of the world. The 1929 recession became a depression largely because of the collapse of international cooperation; the current crisis may head in that direction if international collaboration similarly fails.

With or without broader international complications, the United States faces hard times. The country lost the first decade of the twenty-first century to an ill-conceived boom and a subsequent bust. It is in danger of losing another decade to an incomplete recovery and economic stagnation.

In order to not lose the decade to come, the United States will have to bring order to financial disarray, gain control of a burgeoning burden of debt, and re-create the conditions for sound economic growth and social progress. None of this will be easy. The tasks are made more difficult by the fact, which we have learned to our alarm, that all too many policymakers and observers cling to the failed notions that got the country into such trouble in the first place. If Americans do not learn from this painful episode, and from others like it, they will condemn the nation to another lost decade.

Excerpted from Lost Decades: The Making of America’s Debt Crisis and the Long Recovery
Copyright © 2011 by Menzie D. Chinn and Jeffrey A. Friedan
All rights reserved
Reprinted with permission of the publisher, W. W. Norton & Company, Inc.

ABOUT THE AUTHORS
Menzie D. Chinn teaches at the University of Wisconsin, Madison, and coauthors the influential blog Econbrowser.

Jeffry A. Frieden teaches at Harvard University. He is the author of Global Capitalism: Its Fall and Rise in the Twentieth Century.

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September 12, 2011

Retirement Heist

Filed under: Book Reviews,Current Events — dylan @ 5:21 pm

Pabst Blue Ribbon has become a trendy beverage across the country. It has developed a blue collar, sub-culture friendly image. But while Pabst has been a huge part of Milwaukee’s history, its connections to the city today are limited to its branding, and there are still plenty of working class folks here who won’t touch it. That is because, on top of shuttering their Milwaukee factory in 1996, they reneged on their pension obligations to their former workers when they left. In this respect also, it seems Pabst was setting a trend.

Where they still exist, the pensions and health coverage earned by millions of workers in this country are being slashed. Like Wall Street did with people’s mortgages, companies have been using a heavy dose of financial engineering to turn worker’s retirement benefits into piggy banks—piggy banks they’re breaking. It is a story told by Wall Street Journal investigative reporter Ellen E. Schultz in Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers, being released this week by Portfolio.

She begins by telling the story at GE.

In December 2010, General Electric held its Annual Outlook Investor Meeting at Rockefeller Center in New York City. At the meeting, chief executive Jeffrey Immelt stood on the Saturday Night Live stage and gave the gathered analyst’s and shareholders a rundown on the global conglomerate’s health. But in contrast to the iconic comedy show that is filmed at Rock Center each week, Immelt’s tone was solemn. Like many other CEOs at large companies Immelt pointed out that his firm’s pension plan was an ongoing problem. The “pension has been a drag for a decade,” he said, and it would cause the company to lose thirteen cents per share the next year. Regretfully, to rein in the costs, GE was going to close the pension plan to new employees.

The audience had every reason to believe him. An escalating chorus of bloggers, pundits, talk show hosts, and media stories bemoan the burgeoning pension-and-retirement crisis in America, and GE was just the latest of hundreds of companies, from IBM to Verizon, that have slashed pensions and medical benefits for millions of American retirees. To justify the cuts, companies complain that they’re victims of a “perfect storm” of uncontrollable economic forces—an aging workforce, entitles retirees, a stock market debacle, and an outmoded pension system that cripples their chances of competing against pensionless competitors and companies overseas.

What Immelt didn’t mention was that, far from being a burden, GE’s pension and retirement plan had contributed billions of dollars to the company’s bottom line over the past decade and a half, and were responsible for a chunk of the earnings that the executives had taken credit for. Nor were these retirement programs—even with GE’s 230,000 retirees—bleeding the company of cash. In fact, GE hadn’t contributed a cent to the workers’ pension plan since 1987 but still had enough money to cover all the current and future retirees.

[...] So a question remains: With its fully funded pension plan, why was GE closing its pensions?

It is a question the book does a great job of answering, investigating and exposing what has really happened to the pensions of American workers, and how accounting rules actually reward companies for cutting benefits.

With perfectly legal loopholes that enabled companies to tap pension plans like piggy banks, and accounting rules that rewarded employers for cutting benefits, retiree benefits plans soon morphed into profit centers, and populations of retirees essentially became portfolios of assets and debts, which passed from company to company in swirls of mergers, spin-offs, and acquisitions. And with each of these restructuring deals, the subsequent owner aimed to squeeze a profit from the portfolio, always at the expense of the retirees. The flexibility in the accounting rules, which gave employers enormous latitude to raise or lower their obligations by billions of dollars, also turned retiree plans into handy earnings-management tools.

Unfortunately for employees and retirees, these newfound tricks coincided with the trend of tying executive pay to performance. Thus, deliberate or not, the executives who green-lighted massive retiree cuts were indirectly boosting their own pay.

As their pay grew, managers and officers began diverting growing amounts into deferred-compensation plans, which are unfunded and therefore create a liability. Meanwhile, their supplemented executive pensions, which are based on pay, ballooned along with their compensation. Today, it’s common for a large company to owe its executives several billion dollars in pensions and deferred benefits.

Retirement Heist is an important book, excellently researched and well-written, and I hope finds a wide audience in both the general reading public and the halls of power.

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July 7, 2011

Stranger to Fiction

Filed under: Big Ideas,Book Reviews,Current Events — Jack @ 8:10 am

I read something in the industry newsletter Shelf Awareness recently that took me aback. It was from an interview Philip Roth did with Jan Dalley of the Financial Times.

The conversation I’d longed to have with him since I first read him many decades ago, a conversation about fiction itself, died an early death.

“I’ve stopped reading fiction. I don’t read it at all. I read other things: history, biography. I don’t have the same interest in fiction that I once did.”

How so?

“I don’t know. I wised up … ”

And with those three words he gave me a long look from those fierce eyes and then a significant glance at my notebook, as if to say: that’s what I want you to write down.

It was a remarkable quote from a man who not only writes fiction, but who has won pretty much every award there is in the field. In fact, the reason for the interview from which that was taken was that he won this year’s Man Booker International Prize, which is awarded for international achievement in fiction.

But the more I have thought about it, the more it makes sense to me. We all read because it provides context, whether it’s to a problem we’re trying to solve at work or to the larger life we’re living outside it. And I have largely left fiction, as well. As I get older, the psychological and emotional context that fiction provides doesn’t seem as urgent to me as the larger narratives of history. Whereas I once enjoyed a good page-turning, I-don’t-want-it-to-end novel, I am much more likely to dive into a good piece of non-fiction these days, the history and biography categories Roth mentions being at the top of the list.

It is this tendency that brought me to The Quest: Energy, Security, and the Remaking of the Modern World. The book’s author is Daniel Yergin, who was awarded the Pulitzer Prize for his previous book, The Prize. That book was about the “panoramic history” of energy, and The Quest continues that story.

This is a book about the energy world in which we depend so completely—how it came to be the way it is, how it works, the risks and challenges it portends, and how different it might be in the future. It explores how energy is constantly being reshaped by the interplay of technology and markets, by the bounty and forces of nature, and by politics and public opinion. It is the story of a quest—the quest for the energy on which society so completely relies, for the position and rewards that it can accrue to individuals and companies and nations, and for the security it requires. It is about our future way of life. It is also about the quest for power in the modern world.

What is remarkable about the book is that Yergin tells stories that, at least for me, capture the immediacy of the headlines while at the same time revealing the deeper narrative involving all the behind-the-scenes personalities and maneuvering. From The Caspian Sea to Nigeria, Venezuela to the Persian Gulf (with a healthy dose of China featured) The Quest is 700+ pages of fascinating stories and the latest reason I’ve too become a stranger to fiction. I am sure you’ll hear the same from other reviewers as we near the book’s release in September.

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