Saturday, January 19, 2019

You better know the direction of causal flow.

I have long argued that the naive argument that the colonial structure of the 19th century existed because of the economic benefit to colonizing nations was gravely mistaken and is an example of mistaking the flow of causation.

Some colonies at some times under some conditions can be enormously financially rewarding to the colonizing nation. The sugar islands of the Caribbean in the 1700s come to mind as does India for at least a portion of its existence. But you don't have to read much history to recognize the tension in 19th century Britain between the government and commercial and religious interests. Merchants and missionaries were all for colonies. Government ministers were not. By far the largest number of colonies were net consumers of government capital, not contributors. If you provided only the services that the colony could pay for, you were an inhuman monster. If you provided even a portion of what was needed, taxpayers revolted.

19th century colonialism was not driven by the economic benefit of the colonies. Colonies were a geopolitical positional good that could only be afforded by the most affluent nations. Nations did not acquire colonies to become rich, they had colonies because they were rich. Naive anti-colonialist studies students have the causal flow reversed.

I am seeing something similar at the moment in the corporate world. We are still working through the apparently difficult concept for the Mandarin Class, that you cannot have affirmative action for some groups (AKA diversity programs and identity marketing) without being against other groups. If you are going to promote one group identity above another group identity, then the other group identity might take exception.

Which is a separate issue from the more fundamental challenge that if you are going to choose based on identities, then you are not choosing by abilities.

One argument I hear repeatedly from among my legions of progressive friends are a litany of studies which show a correlation between a progressive fad and superior economic performance. Companies with more diverse boards have better financial performance, companies with an ethos of sustainability have better financial performance, companies who invest in team-building have better financial performance, companies wth extensive gender equity initiatives have better economic performance.

And they are not wrong. There is a correlation. That's not the question. The question is whether there is a causal relationship between the fad and the financial performance.

In most cases there is not. The company gets rich and then it invests in progressive fads. Usually to its detriment.

Under its hard-nosed CEO Jack Welch focused entirely on performance and saw a 4,000% increase in value during his tenure. His successor did not achieve anything near that performance, overseeing the substantive dismantling of GE to a small rump of its former self.

Obviously many factors came in to play but it was notable that the succeeding CEO was far more focused on social justice positioning and much less focused on internal performance. When in Silicon Valley, I met with a corporate recruiter who shared that they had the contract for filling the leadership roles of a new GE entity in the Valley into which GE was pouring money. He related just how great a challenge this was because GE was insisting that roles should be filled 50:50 men and women in an industry where men earn something like 80% of the technical degrees. On top of the fact that the labor market was sizzling, this made it nigh impossible to meet the 50:50 goal and maintain performance standards.

GE was willing to invest in a fad rather than focus on performance. And now both the subsidiary and GE are fading into the commercial sunset.

We are seeing the same thing with company after company fulfilling the adage "Get woke; go broke".

This past week it was P&G's Gillette's turn at the bat, coming out with the message to their male customer base that as males they are tainted and toxic and had better get their act together. Insulting your way to success is apparently the strategy. I am anticipating that like all other companies which have sipped at the poisoned chalice of social justice, these efforts will kill the bottom line without justice of any kind.

And now there is news that Johnny Walker is going all in on the Women's March, just as everyone else is acknowledging what classical liberals have been saying all along: The Women's March leadership is dominated by racists and anti-semites. The Women's March is too toxic for the DNC, NOW, NAACP, Greenpeace, Emily’s List, and the Southern Poverty Law Center. So of course, demonstrating its nose for the zeitgeist, Johnny Walker chooses this moment to show its progressive bona fides by coming out for progressive racism and anti-semitism.

Its one thing to micro-target consumer demographics in an affirming and positive way. It is quite another to take the stance that "I like this demographic and I reject that one." Especially when the demographic you are rejecting or insulting is the demographic that drives your cash flow. It has been a long time since I have been in MBA grad school, but I think they must be doing it wrong now.

And the more fundamental point is that only rich companies have the financial wherewithal to play with fads. It is like the old joke about faddish business ideas of all decades - How do you make a small fortune in Fad X? Start with a large one.

You had better know the direction of causal flow. They are not rich because they are doing X. They are doing X because they got rich first.

And on this theme, I did like Brad Slager's observation:
One day corporations may learn how social activism is bottom line averse.

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