Robert Herbold’s Shared Delusions

July 19, 2011

In a recent essay in the Wall Street Journal Robert Herbold, former chief operating officer at Microsoft, uses a recent trip to China to offer his opinion on what ails the United States. First, Herbold gushes about the success of China’s “five-year plans:”

In every meeting we attended, with four different customers of our company as well as representatives from four different arms of the Chinese government, our hosts began their presentation with a brief discussion of China’s new five-year-plan. This is the 12th five-year plan and it was announced in March 2011.

Of course, central planning is not compatible with the decentralized decision-making that goes with free markets. Yet, Herbold writes, “The autocratic Chinese leadership gets things done fast (currently the autocrats seem to be highly effective).”

And so, how to dig the U.S. out of its hole? Among other things, you guessed it, Herbold advises “start approving some winning plans.”

Herbold seems to be completely ignorant as to how “winning plans” really evolve. Are they really accomplished through central-planning and autocratic leadership?  Would I be rude to wonder if Herbold is a student of economics or history? Could he be unaware of what centralized “winning plans” have wrought in North Korea?

If Herbold is as deluded as he appears, many Chinese are not. Just a few days before Herbold’s essay appeared, Liu Junning wrote in the Wall Street Journal, “Westerners who think that authoritarian rule is China’s natural state misunderstand its culture.” Junning adds that China’s prosperity is not due to a mixture of central planning and markets.  Instead, “the most significant transformations from the perspective of boosting prosperity,” according to Junning, “have involved loosening of control over the people, not some alchemy of power and Marxism.”

Why is the Wall Street Journal allocating space for Herbold to share his delusions? Presumably because, as Junning points out, many others share the belief that Chinese success is due to central planning. Further, Herbold has credibility because presumably he had a successful tenure at Microsoft. But did he really?

In his 2002 Harvard Business Review article “Inside Microsoft: Balancing Creativity and Discipline,” Herbold describes the cultural differences between Microsoft and his former employer Proctor and Gamble:

It was exhilarating to experience this degree of informality and delegation of responsibility to individuals throughout the organization, which clearly fostered both creativity and speedy decision making. But the experience was also disorienting. At Procter & Gamble, where there was a procedure for almost everything, board meetings were tightly scripted affairs.

Herbold then explains his job which he held from 1994-2001:

My job was to bring some discipline to Microsoft without undermining the very characteristics that had made it successful. I hoped to do this by creating central systems that would standardize certain business practices and give managers instant access to standardized data on each business and geographical unit.

Herbold goes on to claim that his central-planning reforms were responsible for rising profit margins at Microsoft during his tenure. Then he “charitably” adds, “I don’t take sole credit for this.”  Nowhere in the essay is there any hint that Microsoft’s success had anything to do with an unprecedented mania for technology stocks, strongly rising demand for personal computers, and most importantly, Microsoft’s game-changing smash hit, Windows 95, which Herbold had absolutely nothing to do with.

Yes, like most of us, Herbold has legendary status in his own mind. But Herbold has not matured to the point that he can recognize that his legendary status is delusional. In other words, Herbold is as deluded about Microsoft as he is about China and, importantly, he is deluded about the way to cure the American malaise.

No doubt in the coming years the snake oil that Herbold peddles will be increasingly welcomed by a segment of the American population—those who almost every day ask, “Why don’t they do something?”

Every day, many entrepreneurs are doing more than “something;” they are inventing the future Microsofts of the world. They don’t need Herbold to tell them the “winning plan.” They need those who are ignorant and delusional to stay out of their way. As Herbold’s delusions are increasingly shared by others in the United States, future Microsofts will find their homes in other parts of the world.


Learning from Suffering

September 30, 2010

At the recently convened conference of North Korea’s Workers’ Party, despot Kim Jong Il’s twenty-something son, Kim Jong Un, was named a four-star general. Kim Jong Il’s sister and her husband were given powerful new posts; speculation is that the couple is being groomed to be the “regents” if Kim Jong Un becomes dictator.

As their economy continues to collapse, even more repression and more deprivation could be the plight of North Koreans. The suffering of the North Koreans could at least go to some good use, if they and the rest of the world are learning from their extreme example.

Unfortunately, it is not clear that this is the case. In his classic work Man’s Search for Meaning, Victor Frankl wrote: “You do not have to suffer to learn. But if you don’t learn from suffering… then your life becomes truly meaningless.”

My children, sophomores in high school, are taking an economics class. From my seat at home, their teacher seems to be enamored with command economies. My children observed that he seems to naïvely think that when command economies have problems, it is because they have the wrong people in charge. Despite many lessons from history, economics, and the contemporary world, this viewpoint is sadly all too common.  After all, as Friedrich Hayek observes in his seminal work The Road to Serfdom, many well-meaning people ask: “Why should it not be possible that the same sort of system, if it be necessary to achieve important ends, be run by decent people for the good of the community as a whole?” That command economies are inherently flawed is not understood.

In The Road to Serfdom Hayek explains that it is essential to understand why there can be no such thing as the “good of the community as a whole.” Why not? Hayek writes:

The “social goal” or “common purpose for which society is to be organized is usually vaguely described as the “common good”, the “general welfare”, or the “general interest”. It does not need much reflection to see that these terms have no sufficiently definite meaning to determine a particular course of action. The welfare and happiness of millions cannot be measured on a single scale of less or more. The welfare of the people, like the happiness of a man, depends up on a great many things that can be provided in an infinite variety of combinations.

Let’s consider, for example, food. If you lived in the former Soviet Union—with their centrally planned command  economy—very fatty sausage, cabbage, potatoes and vodka were about the only “foods” readily and reliably available. Those whose tastes and values led them to prefer fresh fruits, vegetables, whole grains, and fish were simply out of luck. Yet, for those who have been reduced to eating tree bark in North Korea, even in the diet in the former Soviet Union would seem like a cornucopia.

Since there is no majority to agree on a specific plan to promote a non- existent “common interest,” Hayek explains in The Road to Serfdom that “the worst get on top” in a centrally planned economy. The “worst” will take advantage of the fact that “agreement” can be achieved by focusing on an external enemy:

It seems to be an almost a law of human nature that is easier for people to agree on a negative program—on the hatred an enemy, on the envy of those better off –than on any positive task. The contrast between the “we” and the “they”, the common fight against those outside the group, seems to be an essential ingredient in any creed which will solidly knit together a group for common action. It is consequently always employed by those who seek, not merely support of a policy, but the unreserved allegiance of huge masses.

As I have been writing about in this blog, we see this splintering in contemporary America. There is no possible way to gain agreement about the course of action concerning bailouts or health care or you name it. There is no agreement because there is no common good. Many Tea Partiers, Republicans, and Democrats speak in contemptuous “we” and “they” terms about each other. A trade war against China is brewing; yesterday the House of Representatives passed legislation that would label the Chinese currency as fundamentally undervalued and, as such, could be labeled an illegal export subsidy.

If our economy continues to deteriorate and politicians continue to seek centrally planned solutions, further political splintering around “we” and “they” will be the consequence. Politicians on all sides of the political spectrum are putting forth centrally planned solutions, and none of their solutions will ever work. To be sure, a centrally planned economy in America would almost certainly be more benign and less extreme than the one we see in North Korea. Yet, it would be doomed to the same failure.  In his seminal essay “The Use of Knowledge in Society,” Hayek explained why:

…the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

In other words, it doesn’t matter how honest, how well-intentioned, how kind-hearted a politician or planner is. The knowledge they need to command an economy is impossible to obtain. There is no common good, there is no way to centralize knowledge—these are two timeless lessons that Nobel laureate Friedrich Hayek taught. We continue to ignore his lessons at our own peril. Many continue not to learn from the suffering all around us.

If you are wondering, at home, my children are supplementing their high school economics textbook with The Road to Serfdom, “The Use of Knowledge in Society,” Russell Roberts’s The Price of Everything, and Matt Ridley’s Rational Optimist.

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