April 9, 2013

The end of power by Moises Naim

The end of power by Moises Naim
From Boardrooms to battlefields and churches to states, why being in charge isn’t what it used to be.

Power is the ability to direct or prevent the current of future actions of other groups and individuals. Or put it differently, power is what we exercise over others that leads them to behave in ways they would not otherwise have behaved.

For Aristotle, power along with wealth and friendships were the three components that added up to a person’s happiness. Power is spreading and long-established, big players are increasingly being challenged by newer and smaller ones. And those who have power are more constrained in the ways they can use it. We know that power is shifting from brawn to brain, from north to south, west to east, from old corporate behemoths to agile start-ups, from entrenched dictators to people in town squares and cyberspace.

But power is decaying. To put it simply, power no longer buys as much as it did in the past. These trends extend beyond traditional power arenas - war, politics, business - into philanthropy, religion, culture and the personal power of individuals. The long entrenched power of the major organized religions is decaying at a remarkably rapid pace. For instance, Pentecostal churches are advancing in countries that were once strongholds for the Vatican and mainline Protestant churches. In Brazil, Pentecostals and charismatic made up only 5% of population in 1960 - compared to 49% in 2006.

In practice, power is expressed through four different means - call them the channels of power.
The muscle - force or threat of force
The code - (e.g. religious code)
The Pitch - (e.g. advertisement)
The Reward

In strategy Formulation: Politics Concepts published in 1978, MacMillan sought to educate business students about complexities of power and negotiation. He observed that in any power interaction, one party manipulates a situation in a way that affects the actions of another party. But various kinds of manipulation are available depending on the answers to two questions:

1. Does the manipulation change the structure of the existing situation or does it instead change the second party’s assessment of the situation?
2. Does the manipulation offer the second party an improvement, or does it instead lead the second party to accept a result that is not an improvement?

Outcome seen as improvement: inducement by reward or persuasion via pitch
Outcome seen as no improvement: coercion via muscle (law) or obligation via code (religion or moral duty)

Identify the barriers to power and whether they are coming up is going down and you can solve a large part of the puzzle or power. In his seminal work (the visible Hand), Chandler argued that the visible hand of powerful, managers replaced the invisible hand of market forces as the main driver or modern business. The ascent and dominance of these large industrial companies led Chandler to identify three distinct models of capitalism, each associated with one of the three leading bastions of capitalism at the time of the second industrial revolution:
a)personal capitalism found in Great Britain, b) the competitive (or managerial) one common in USA and c) Germany’s cooperative capitalism.

UK companies are usually family owned/dynasty that lacked the drive, agility and ambition of their counterparts. In contrast, separation of ownership and management that Chandler called managerial capitalism enabled American companies to adopt new org forms - that were far superior for raising and allocating capital, attracting talent and innovating and investing in production and marketing. In turn, the propensity of German companies to cooperate with labor unions led to a system that Chandler labeled cooperative capitalism which eventually became known as codetermination. German firms thrived to include more stakeholders in the company’s governance structure beyond shareholders and top managers.

Power and the three revolutions:
More revolution - overwhelms the barriers: “harder to control and coordinate
Mobility revolution: Circumvents the barriers: No more captive audience
Mentality revolution: Undermines the barriers: Take nothing for granted.

Consider these three revolutions in different types of powers:

Muscle Power (actual or potential use of coercion)
More Revolution: Can laws or armies ‘keep the lid on’ when people are more numerous, healthier and more informed?
Mobility revolution: Jurisdiction and market boundaries are porous and slippery; frontiers are harder to police
Mentality revolution: Automatic deference to authority is no longer the case.

Code power (moral and traditional obligation).
More revolution: Can moral claims keep up with changing material realities and more information?
Mobility revolution: Aspirations attacks all certainties
Mentality revolution: Universal values take precedence over dogma

Pitch power (persuasion, appeal to preference):
More revolution: Is a big market an advantage when there are so many promising niches?
Mobility revolution: There is an awareness of almost infinite alternatives and a growing ability to get them.
Mentality revolution. Skepticism and mindset are more open to change and there is an increased propensity to switch preference.
Reward power (inducement in exchange for compliance):
More revolution: How to tailor incentives in a world of so much choice?
Mobility revolution: How to tailor incentivizes when people, money and ideas are on the move?
Mentality revolution: The cost of loyalty is ever increasing and there are weaker incentivizes to accept status-quo.

Consider the crisis of Roman Catholic Church, whose growing inability to recruit priests who accept the vow of celibacy - or to compete with small evangelical churches that can tailor messages to the culture and the concrete needs of specific local communities-makes for a particular cautionary tale.

The Forbes 2012 ranking of the world’s 2,500 biggest companies found 254 based in US -more than 200 fewer than 5 years prior and 14 fewer than the year before. More and more of the world’s largest companies have headquarters in China, India Korea, Mexico, Brazil, Thailand, the Philippines and the Gulf states.  Among the top 100 companies in the Fortune 500 listing in 201, 66 were survivors from the 2000 list. 36 hadn’t existed in 2000. Bloomberg lists world’s top 20 billionaires list daily at 5:30 pm New York time - http://www.bloomberg.com/billionaires/2013-04-08/aaa

Among the victims of hyper-competition in the global business landscape are the markets themselves - that is the stick exchanges where most shares are traded and that media, politicians and the public monitor for clues about the health of overall economy. Hallowed markets such as the New York Stock exchange and the London Stock Exchange have rapidly lost ground to alternative marketplaces. Kansas-based upstart BATS (Better Alternative Trading System) runs more trading volume than any exchange other than NYSE or NASDAQ, surpassing Tokyo, London, Shanghai, Paris and all the test.

Meanwhile, Hedge funds proliferated, going from 3000 funds to 10,000 funds between 1998 and 2008. In 2012, hedge funds took part in half of US bond trading, 40% of equities trading and 80% of trading in distressed debt.

Same story goes with Roman Catholic Church. The essence of the Pentecostal and evangelical advantage lies in the ability of these churches to spring up without regard to any preexisting hierarchy. The church resembles nothing so much as a small business launched in a competitive marketplace without funding form a central source. It must succeed on the basis of the members it draws, the services it provides them and the tithes and collection revenue they can be persuaded to give. Any Pentecostal who feels dissatisfied with the offerings of the local church is free to move on to another, even to start this or her own church in a basement or garage.

Other religions such as Islam and Hinduism seem less vulnerable to the rise of the charismatic Christianity, probably for deep-seated cultural reasons. Secondly these religions are less centralized and hierarchical than the Catholic or mainline Protestant churches.

Five risks:
The decay of power generates risks than could lower social welfare and individual quality of life in the short term and prompt a backlash or even a disaster down the line.

1. Disorder: We consent to power of the state because it is supposed to guarantee the minimum level of stability and predictability we need to lead fulfilling life. Rules from business regulation, liberal laws, and ballot access to international treaties all aim to calm the unpredictability of life and ward off the risk of chaotic disorder, even anarchy. The decay of power discussed in this book threatens that promise in a way that political rivalry, business competition, conflict among nations, and even world wars in the 20th century sense did not. The implication is obvious: while few societies become and remain anarchy for long periods, it is not that hard for a society to become paralyzed by too high level of power decay.

2. The de-skilling and loss of knowledge:
Big entities (party, companies, and universities) accumulate experience, practices and knowledge within their walls; they achieve their success and inculcate habits, culture and operational routines in their employees or members. None of this transfers into a world of diffuse power without some or a lot of loss. Big parties replaced with ad-hoc movements temporary electoral coalition is appealing to the millions of voters everywhere who are fed up with the corruption, ideological stagnation and disappointing government performance of many political parties. The demagogues who seek power by exploiting the ire and frustration of the population and making appealing but terribly simplified and ultimately deceitful promises. The radical decentralization of knowledge - Wikipedia, MIT courses-is one of the most exciting trends in the dispersion of power. But ability of these new sources of knowledge to match internal R&D or preserve institutional memory in inconsistent at best.

3. The banalization of social movements:
In the Facebook & Twitter era of digital social world, joining a group or liking of a group is simply a matter of few clicks or sending small amount. That is not insignificant, but it does not constitute the kind of risk-taking activism that propelled so many of the greater social movements. The proliferation of small players and short-term initiatives brings the risk that actual, forceful, coalitions directed toward specific social goals become impossible to orchestrate.

4. Boosting impatience and shortening attention spans.
While millions of online activist may raise the social visibility of myriad issues, they also create a level of ‘noise’ and distraction that makes it very hard for any single cause to retain popular attention and support long enough to gain substantial and permanent strength. Hyper-competition can be deleterious to civic and political activism as for private companies faced with a profusion of competitors that forces each one of them into small size and limited power.

5. Alienation
Big changes with uncertain consequence often breed alienation - the estrangement or distancing of people from each other, or from what used to matter to them or in extreme-cases even a certain separation from their own sense of self, the identity them in their own eyes. The bombardment of technologies, the explosion of digital communication and online opinion, distraction, and noise; the decline of automatic acceptance of traditional authorities feed a disequilibrium with broad and poorly understood consequences.

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