Partnership Governance – S16.2

Political scientist Elinor Ostrom (1933-2012), the first female winner of the Nobel Prize in economics (2009), suggested that the tragedy of the commons could be avoided in situations where partnerships were developed. Rather than leaving common pool resources ungoverned, at one end of the spectrum, or resorting to a private property regime, at the other, Ostrom identifies a system of governance known as a limited access commons, in which a specific number of users own and operate a common resource without outside assistance. She provides examples of land and fisheries management from around the world to demonstrate that such systems can function well without the sort of overarching government mechanisms that are required to establish, adjudicate, police, and enforce private property rights.

In a recent article in the American Journal of Economics and Sociology (2016, 75.2: 289-318), Walter Block and Ivan Jankovic offer a critique of Ostrom’s work, in which they demonstrate that there is a fundamental flaw in the way she understands the idea of partnership. The authors show that partnerships are merely one of many possible arrangements of owners within a private property regime. One of the key elements of their argument is the fact that ownership rights within a partnership are transferable – a concept that is completely inconsistent with the notion of a commons. Further, they demonstrate that many private property regimes function well without an appeal to external government administration. To call them a commons, even with the qualifier that they are limited, is inconsistent with their actual legal status, their means of operation, and their role in the economy. In their view, Ostrom’s use of the word commons represents a rhetorical stance. To say that you are part vegetarian, for example, is not substantially different from saying that you are part carnivore. It’s a question of perspective and impression management (identity).

In a true commons, there is no opportunity for leadership to emerge because there is no governance structure to provide the sort of institutional (rules of the game) environment in which it can do so. In the narrowest possible interpretation of private property, the idea of leadership is irrelevant because both the rules of the game and the way the game is played reside within the purview of a single owner. In the sort of limited access commons identified by Ostrom, governance is established and practiced by a set of individuals who have agreed to work together in managing a common resource, from which they can each extract benefit, without jeopardizing the potential benefits of other partners. Whether or not this kind of arrangment can be carried out in the absence of an overarching administrative law regime provided by government is not the key point. Partners can exclude others from utilizing the resource and they can transfer their share through inheritance or sale. The question for us is – what kind of leadership can emerge, if any, in such a system, and what would be the purpose of such leadership?

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Leadership Ontology – S16.1

In 2007, Warren Bennis (American Psychologist, 62.1: 2-5) expressed the dominant ontology of leadership, which had been informing research and practice for decades, as consisting of a ‘tripod’ of three basic elements: leader(s), followers, and common goals. The notions of leader and follower capture both the tangible human elements of leadership, as well as suggesting a causal arrow, with the title of leader designating a position both prior and superior to that of follower. Unlike leaders and followers, common goals represent ideas and concepts that are intangible. Rather, their existence requires a shared understanding of their content and purpose, suggesting that epistemology (knowledge) is prior to ontology (being). The epistemological element opens up a number of problems. For example, the mere existence of common goals does not necessarily imply that the individuals involved, whether leaders of followers, share a common understanding of what those goals mean, what means will be used to accomplish them, and what the implications of actually accomplishing them may be.

In 2008, Wilfred Drath and his collaborators published an article in the Leadership Quarterly (19: 635-653), in which they attempt to offer a more integrative ontology of leadership. In their view, the tripod ontology is too restrictive for both leadership theory and practice. They suggest that a new ontology needs to allow for peer-based and collaborative forms of leadership, in which the very concepts of leader and follower are both inadequate and unnecessary. What Drath et al. suggest is that this new ontology be based on three leadership outcomes: direction, alignment, and commitment (DAC), defined as:

(1) direction: widespread agreement in a collective on overall goals, aims, and mission; (2) alignment: the organization and coordination of knowledge and work in collective; and (3) commitment: the willingness of members of a collective to subsume their own interests and benefit within the collective interest and benefit. (p. 636)

There are several elements in this statement that require disentangling and clarification. For example, unlike the traditional tripod ontology, DAC is built on a series of assumptions about the prior existence of a collective and a number of processes that the members of the collective seemingly naturally engage in. The authors state that their ontology of outcomes necessarily encompasses “the beliefs and practices that produce them” (p. 651), which appears to place both axiology (values) and epistemology (knowledge) ahead of ontology.

Further, they suggest that their new ontology is both pragmatic and functionalist. By pragmatic, they mean that the focus should be on effects rather than causes, with the result that discussions about the structure and processes of leadership are largely irrelevant. Only the outcome is important. By functional, the authors mean that their ontology can be applied, without modification or the need for alternate explanations, across levels of analysis (e.g., small groups, communities, organizations) and without concern for cultural differences.

Drath et al. present an interesting and controversial approach to altering the way researchers and practitioners think about leadership. On the positive side, they recognize the need to start from basic assumptions about what entities constitute the realm of leadership (ontology). However, in my view, they base their approach on the faulty presupposition that there is something called leadership, which we will be able to recognize when we see evidence of direction, alignment, and commitment.

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Finance and Food – W16.5

In a recent article in the Journal of Peasant Studies (2014, vol. 41, no. 5, 797-814), Jennifer Clapp examines the political implications of the increased financialization of the global food system. She uses the concept of distancing to describe the two major impacts that the expansion of financial markets into agriculture is having. First, there are a greater number of parties involved in the value chain of agricultural commodities, providing many opportunities for interference, manipulation, dodging accountability, and constructing competing narratives. As a result, not only is it increasingly more difficult for consumers to access and evaluate information, but food prices are both higher overall and remarkably unstable. Second, financialization abstracts food from its actual physical form. Agricultural products are no longer something to be grown and eaten, to satisfy a fundamental human need. Rather, they are something to be invested in and profit from. Consequently, there is an increase in the number of environmental and social problems related to farming, food safety, and dealing with global hunger.

Investing in food, and the land it is grown on, has become more and more popular as other markets become more risky (e.g., oil), or fail to produce expected gains. The fact that food is essential to human existence, which should drive efforts to ensure that the world’s people get fed, instead provides a level of certainty to investors. Consumers may get tired of a particular brand of clothing, cars, or smartphones, but people are never going to get tired of bread.

Many analysts and scholars have pointed out how disruptions in the agricultural commodity markets resulting from ever-shifting patterns of valuation, as investors hop from market to market in an effort to maximize profits, lead to food security problems, especially for the world’s poorest people. At the same time, it is distressing to observe that the World Bank and the Organization for Economic Cooperation and Development have downplayed the impact the financial speculation on food price volatility, suggesting instead that it is merely a result of the normal operation of supply and demand in the food markets.

In response to the situation, several civil society organizations, like the World Development Movement, Friends of the Earth, and Foodwatch, have launched public awareness campaigns aimed at coercing financial institutions into completely eliminating, or at least tightly controlling, speculation on food. At the legislative level, relevant measures were included as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Unfortunately, these efforts have met with limited success, as the financial industry pumps large sums of money into lobbying the government and related regulatory agencies.

With the rise of cities and the growth of the consumer culture, we have become increasingly separated from nature. Countless children in the developed world have never seen a cow or a chicken in the flesh. For them, milk and eggs simply come from the store. Financialization further distances us from natural processes and the satisfaction of basic needs. At the end of the day, however, no matter what the state of our investment portfolio, if we even have one, we cannot eat money.

 

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Waste Frontiers – W16.4

World-systems theory views the globe like a complex living organism, in which there is a constant flow of various elements between the core of developed nations and the periphery of less developed ones. While the world-system is largely open, allowing for the free flow of any and all elements throughout the entire system, some flows are highly directed. For example, wealth tends to accumulate in the core, while anti-wealth gets distributed throughout the periphery.

Some elements of anti-wealth, such as carbon emissions, which contribute to global warming, sea level rise, and desertification, impact the entire globe. Other elements, like discarded plastics, tend to accumulate in remote areas of the world’s oceans (e.g., Great Pacific Garbage Patch), and are easily dismissed as non-problems (out of sight, out of mind). Still other elements, such as outdated electronic equipment (particularly computers and smartphones) and ships, are transported over great distances to be taken apart in seemingly remote locations, so that their constituent parts can be used again to fuel the global economy.

While the numbers vary, depending on current global economic conditions (shipping demand and steel prices), there are about 1,000 ships scrapped every year. Only about 10% of these (mainly naval vessels) are dismantled in industrialized nations, due to strict environmental and occupational health and safety regulations, as well as the high cost of labor. Of the remaining 90%, the vast majority (60-70%) are scrapped at Alang, in India, a smaller number (~15%) at Chittagong, in Bangladesh, and the remainder at various sites in China, Pakistan, the Philippines, Turkey, and Vietnam.

Alang is located in the prosperous Indian province of Gujarat, which boasts well-developed manufacturing and agricultural sectors, as well as possessing the highest grade transportation and energy infrastructure in India. And yet, as this recent short documentary film demonstrates, core and periphery have become fused, at least geographically, as concerns about human life and the environment are subjected to a grotesque reconceptualization. The working conditions are much the same in Chittagong, as this film shows. Bangladesh is far less developed than India, especially with respect to heavy industry, and it gets 80% of the steel it uses for construction purposes from ship breaking.

There are more than 3,500 special export processing zones, in Asia, Africa, Latin America, and the Caribbean, where limited regulatory restrictions allow for the haphazard disposal of toxic materials. Our first instinct might be to view this offshoring of the developed world’s garbage to these waste frontiers, as a crime against both humanity and the planet. It is just as easy, however, to reframe the situation as countries in the developing world deliberately onshoring this same waste to bolster their economic position. Waste recycling activities can be viewed as a means of augmenting existing economic drivers in a way that compensates unskilled, or displaced (e.g., fishermen) members of the labor pool, thus quelling labor unrest and raising the financial wellbeing, if not the health and safety, of large disadvantaged populations.

 

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Destroyed by Finance – W16.3

In his book by the same name, John Urry (2014) describes offshoring as involving movement, relocation, and concealment; the intentional stepping outside of traditional borders – geographical and otherwise. Thus, it is rational to suggest that the global economy has been offshored away from its foundation in the concrete world of the production and exchange of goods and services, aimed at meeting the needs of the world’s citizens, into a virtual world of speculation, grounded not in utilitarian assets, but in debt. At the heart of this economic offshoring is the process known as financialization.

The amount of money circulating in this virtual economy now exceeds global GDP by a factor of more than ten. What impact is this having? In a 2008 article published in Industrial and Corporate Change (17.6: 1097-1112), Ronald Dore suggests that financialization generates a number of negative social consequences: greater inequality, less security, a misdirection of talent, and an erosion of trust.

The Gini coefficient is a measure of the distribution of income and wealth among a country’s citizens, with a coefficient near zero indicating greater equality and a coefficient near one indicating greater inequality. Dore observes that the coefficients are rising rapidly in the developed world, especially among the most financialized nations, primarily the UK (.326) and the USA (.411). At the same time, data indicates that the coefficients are slowly declining in many developing nations. Should we interpret this latter shift to mean that these populations are rising out of poverty, or does it signal a downward levelling of wealth in these countries, with a corresponding concentration of wealth growing among a handful of people in a small number of countries. In the USA, for example, there are more than 400 billionaires controlling a collective net worth equal to just over 10% of the country’s GDP.

The issue of security pertains to the volatility of wages and employment. For years, conventional wisdom suggested that home ownership was the key to financial security. Now, for a large segment of the population, even in developed countries, home ownership is only a dream. The economic staples of continued employment, stable wages, and reasonable health and pension benefits that made home ownership and long term family planning possible have all been eroded. Through the securitization of debt, the wealthy have managed to transfer risk down to the segment of the population least equipped to deal with that risk. In order to combat this trend, average citizens must devote more and more energy to mastering investment skills and managing their ever decreasing piece of the pie – not a very promising or likely scenario.

Related to this last point, business schools are no longer training general managers with broad-based business skills, ready to enter the workforce and meet the challenges facing every sector of the economy. Rather, they are producing professional investors trained to let money do the work. Even graduates in engineering, mathematics, and physics are forsaking the world of substantive and material work in order to apply their analytical and computational skills to create and take advantage of ever more sophisticated financial instruments (e.g., derivatives). Who will be left to design and build the computers they use, let alone maintain them?

The final negative consequence is the erosion of trust in institutions, related to the phenomenon of eliminating those individuals we used to deal with on a regular basis, in handling aspects of our lives in which we had little expertise. We developed trust with educators, healthcare providers, bankers, religious leaders, suppliers, and many others. The process of disintermediation leaves us having to deal with these matters on our own. There is no one to help. If you want something done, you must do it yourself. All of our transactions have become impersonal – leaving society in a state where people are living alone together.

The ills of financialization have long been recognized, and some potential corrective measures have been offered. For example, back as far as 1972, Nobel Prize-winning economist James Tobin proposed a small tax on foreign currency exchange transactions that could be used to support economic development in less wealthy nations. Not only has this idea been ignored for the most part by academics and pundits, but Dore remarks that all serious discussion of the Tobin tax as a national or international policy has been quashed by governments controlled by financial interests.

Despite what all the naysayers think about climate change and other environmental issues, they are genuine threats to life on this planet. However, perhaps it is time to take seriously the idea that, long before sea levels rise too high or our breath is taken away by smog, the world will be destroyed by finance.

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Libertarian Paternalism – W16.2

The notion of libertarian paternalism entered broader public consciousness with the publication of the book Nudge by Thaler and Sunstein (Yale UP, 2008). Grounding their ideas in the emerging field of behavioral economics, the authors described a mechanism for the promotion of positive social change through the use of indirect suggestion and positive reinforcement (a sort of soft paternalism) without limiting freedom of choice (libertarianism). In contrast to the standard view of neoclassical economics, which is predicated on the assumption that individuals make rational decisions, behavioral economics recognizes that our decisions are constrained by choice architectures – the ways that things are presented to us. For example, the location of goods on store shelves and at the ends of aisles influences our buying decisions. The nudge principle suggests that, if we want people to behave in a particular way, then we need to construct choice architectures so that positive outcomes appear more desirable, but are not forced upon them.

In an article that evaluates efforts by the UK government to implement policies based on the nudge principle, Jones, Pykett, and Whitehead (Progress in Human Geography, 2011, 35.4: 483-501) explain that these policies have arisen from the recognition of the difficulties governments face in trying to address a plethora of social ills. These include increasing levels of personal debt, a myriad of health issues such as addiction and obesity, the demise of the family, increasing social unrest and violence, and global issues like climate change and environmental degradation.

Jones et al. identify four ways in which nudge initiatives can be carried out. First, the spatial arrangement of the environment can provide greater exposure to desirable choices, while keeping less desirable choices out of sight, thus linking good behavior to least effort. Think of the way Ikea stores are laid out, so that customers are guided along a predetermined path that causes them to pass by all the merchandise in the store, eventually arriving at the cashiers. Second, choices can be provided at opportune times, such as promoting fitness and better eating habits at the beginning of a new year, hoping to take advantage of the tradition of making new year’s resolutions, and capitalizing on the guilt that many people feel from overindulging during the holidays. Third, initiatives can also attempt to shift people toward making more rational choices. Voluntary enrolment schemes, such as pensions, savings bonds, and organ donation have usually relied on opt-in selection, whereby individuals must make a conscious decision to familiarize themselves with the program, fill out a form, sign their name, and so on. The natural tendency to procrastinate or simply avoid dealing with such matters means that too few people actually take part. However, if individuals were automatically enrolled in such programs, then the same human weaknesses would lead to much greater levels of participation, as few people would make the effort to opt-out. Finally, choices can be presented as community challenges, or through association with the values of a particular group (e.g., parents, cancer survivors, ethnic minorities), such that selection or participation becomes part group identity maintenance. The initiative becomes part of what is normal for us, whoever we are.

One of the major criticisms levelled against government efforts at libertarian paternalism is that, in psychologizing the state and society, policy implementation is grounded in a process of infantilization – treating citizens like children. In the face of almost too many choices, our inability to handle the freedom we expect and demand, leads to situations where our actions (inactions) demonstrate all too clearly that, in fact, we are hapless creatures – perpetual victims of our anxieties and insecurities, our whims and sense of entitlement.

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Organizational Learning – W16.1

Following the logic of Kurt Lewin’s model of change, before people in an organization can learn a new way of doing things, they must unlearn the way they have done things in the past. As I discuss elsewhere (Unlearning), unlearning is not the same as forgetting. In the unlearning process, knowledge and skills are not lost, but replacing them often requires a fundamental shift in values and attitudes. Unlike forgetting, unlearning must be intentional.

In a recent article in the Harvard Business Review (November 2015), Francesca Gino and Bradley Staats identify four biases that, despite the best of intentions, prevent organizations from institutionalizing the learning process into their culture. According to the authors, organizations tend to focus too much on success, take action too quickly, devote too much attention to fitting in, and rely more than they should on experts.

The bias toward success is related to a fear of failure, a fixed mindset, an over-reliance on past performance, and attribution bias. While a fixed mindset often prevents people from seeing things other than the way they are now, attribution bias represents the tendency to link success to hard work and skill, rather than luck, and link failure to bad fortune, rather than personal inadequacy and mistakes.

A bias toward action is linked to exhaustion and lack of reflection. Trying to do more, by working harder and putting in longer hours, is unlikely to produce better results. Efficiency, effectiveness, and personal satisfaction can all be increased when people take breaks during the day, avoid overtime, and take regular holidays. Furthermore, people should be encouraged to take time at the end of the day to go back over the day’s activities and accomplishments (making a done list).

The bias toward fitting in reflects the belief that organizations need to conform and the failure to capitalize on strengths. From early childhood, through our schooling, and as we enter the workplace, we learn the value of following rules and conforming with social and organizational norms. Organizations are no different. In order to gain acceptance in a particular market, organizations attempt to closely resemble their competitors, even as they try to stand out. Individuals fall into the same trap. People will often suppress their attitudes, opinions, and even their knowledge and skills, in order to fit in with those around them.

Finally, a bias toward experts results from an overly narrow view of expertise and inadequate frontline involvement. Expertise tends to be associated with outsiders. The reason for this is that organizations have a tendency to believe that if they possessed the necessary skills and knowledge internally, they would be more successful, or know how to respond to some external driver of change. Consequently, rather than looking to the people who are actually involved in the day to day operations of the organization, and giving them the opportunity to make suggestions, outsiders with flashy titles and credentials, possessing some form of esoteric knowledge (e.g., Six Sigma), are brought in.

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