Sunday, October 23, 2011

Greed Is Still Good

True confession: I used to work at Goldman Sachs. Yup, the evil empire, the scourge of the Occupy Wall Street (OWS) protesters. So, I have a bias.

So many pundits, editorials and reporters have made the obvious observations about this now national (or maybe global) movement that I find it difficult to add any new thoughts. They are righteous… they are wrongheaded… they should be marching on Washington…. Maybe they just want jobs… Or, maybe they just want to get laid. (Well, this last observation is mine. But then I am old enough to remember the anti-war demonstrations of the 60s.)

I’m in the camp that thinks they should be marching on Washington. But where specifically? The White House? The Capitol? The Fed? The Department of Treasury? Too complicated. Let’s just occupy Wall Street.

Another obvious observation: they have worked hard and played by the rules and feel screwed by the system. They need jobs.

But, here’s the problem. The jobs aren’t coming back and it has nothing to do with Wall Street. It has to do with technology and the Internet in particular.

Have you been to an airport lately? If you have, you probably checked in to your flight at a kiosk which spit out a boarding pass and directed you to your gate. Remember how many people it used to take to check you in? Do you think those people are getting their jobs back?

This is just one of the examples of “The Second Economy” identified by the McKinsey Quarterly (you can get a free copy by clicking HERE and creating a login). The Internet has disrupted a lot of old methods of doing business. Thousands, if not millions, of jobs have vanished by way of the use of RFID technology, websites that have replaced travel agents, retail stores, schools and data centers. Yes, even Info Tech professionals have been affected. Our data is moving to “the Cloud”. We don’t know where it is and, apparently, we don’t care.

What server holds your Facebook page and all your photos? Don’t know? Neither do I.

Speaking of Jobs, lots of comment about the adoration among the OWS of the recently departed billionaire, Steve Jobs. It’s easy to focus on the contradiction. After all, Apple wouldn’t exist if it weren’t for junk bonds, hedge funds, IPOs, secondary offerings, derivatives and the like.

I find it more interesting to look at Apple as a microcosm of the global economy. Think of it this way. Apple creates the product – the design, the engineering, the operating system, etc. The products, the iPod, iPhone or iPad, are manufactured primarily by Foxconn in China. In the industrial economy that started to vanish from these shores about 20 years ago, the manufacturer would be a very valuable company in stock market terms. Yet, Apple is the most valuable (or second most valuable behind Exxon Mobil) company in the world. Not Hon Hai, parent company of Foxconn, which has over 400,000 employees worldwide.

I don’t think the OWS protesters are focused on Steve Jobs the billionaire or on Apple, the company. They are just turned on – like the rest of us – by all the power that the iPhone places in the palm or our hands.

Michael Douglas as Gordon Gekko
Which brings me to Gordon Gekko and the “Greed is Good” speech from the movie Wall Street. In context, the famous Gekko speech was an interpretation of Schumpeter’s Law of Creative Destruction. Here is what Gekko said, in part:

“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.”

Here’s a quick overview of Schumpeter’s law cribbed from Wikipedia: “In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies and laborers that enjoyed some degree of monopoly power derived from previous technological, organizational, regulatory, and economic paradigms. Schumpeter also elaborated the concept, making it central to his economic theory.”

It wouldn’t make a very good movie script, would it?

But, whether you prefer Gekko’s version of it or Schumpeter’s, the fact is that email destroyed the Post Office, Netflix destroyed Blockbuster and the guys who invented that airport kiosk destroyed all those airport jobs. And, all of us are willing participants.

Oh, and by the way, if you have an iPhone, you can even skip the airport kiosk. How’s that for power in the palm of your hands?

So, here’s the real problem. To replicate the success of Apple Computer and Steve Jobs, we need to train more engineers and designers. And, we aren’t? According to a Kaufman Foundation study, more than half the students in technical masters programs are foreign. And, now they don’t have to stay here to find jobs in their field. They can go back to China, India, Korea or South Africa to find meaningful work.

So, maybe the protesters should be marching on the Department of Education.

What do you think?


  1. While I agree with what John says, it is gross oversimplification to ignore the complaints of the protesters and chalk it all up to technology. Sure, many jobs have been eliminated by technology, machines, automation. No news there, except perhaps the increasing pace of this transformation in our current economy. But the "crimes" of Wall St and the lack of any personal accountability for the banking excesses and criminal behavior are still a scandal---and not tied to technology. The high-risk investment in "packaged crap" that triggered much of the economic collapse was irresponsible greed in its purest form. We gots lots of things to fix. But entrepeneurs and technologists aren't gonna fix us, even if Steve Jobs comes back as the messiah. Greed can be good if well harnessed. (But so are electricity and nuclear power---forces that can kill and maim.) But unregulated and unaccountable greed is still a Deadly Sin.

  2. A great book on the meltdown on Wall Street, The Big Short by Michael Lewis, makes your point very well. It is clear that there has been some egregious behavior among the elite bankers and we have suffered the consequences. From a leadership perspective, it might be said that these folks adhere to the lowest possible standard, what is legal not what is ethical or moral. But, Wall Street bankers have always walked that line and always made tons of money. I continue to contend that the OWS protesters (and, indeed, all of us) should take issue with a government (the administration and Congress) that has not effectively reformed the system, leaving us vulnerable to a repeat performance.

    The issue isn't the 1% vs. the 99%. It is our failure to reach an effective consensus on financial reform, healthcare reform, education reform, electoral reform and entitlement reform.

    The solutions to those problems can't be found on Wall Street.

  3. I think I'll use this for my management class today....

    Dr. Leilani O. Baumanis
    Professor, College of Business
    Johnson & Wales University

  4. Fascinating post, John, welcome back.

    I’m going to quote from it for a post soon.


  5. Blockbuster may just have the last laugh on Netflix's since they shot themselves in the foot with their price increase and Blockbusters deal with Dish TV has possibly breathed new life into Blockbuster. We cancelled our Netflix subscription and have one with Blockbuster for half the price and we can even go to the local Blockbuster and exchange our most recent for another and then still get a new one in the mail. Plus Blockbuster does not charge extra for Blue Ray and Netflix does.
    Did you see the interview on 60 minutes with the author of Steve Job's biography? Some interesting comments about Steve and his background, truly a genius who dealt himself a bad hand by not electing early surgery for his cancer.
    Nice Blog, thanks!

    Beat Army!


  6. I love the article, as it seems that we continue to measure the economy by old standards and never think how the internet has replaced the bricks and motar of our now empty storefronts. putting the post office out of business, etc. People are making money over the net ( such as on EBAY) but how is that captured in the employment (unemployment) figures. Greed is good, it keeps us on our toes as long as it is not at the expense of others..

    Thanks for sharing,
    Margie Hogan
    GroupOne Mortgage

  7. Like the word "is," that depends upon what you mean by "greed."
    Posted by Jeffery

  8. There are 2 prime motivators of man, greed and guilt. One says "I want" the other says "I don't deserve". When the pop-psych gurus of the '60s did away with guilt, they unleashed the greed. Without society's imposed guilt there's no check on the gimme-gimme and we get what we have.
    We stopped instilling morals in school and parents stopped instilling them at home. Now there are none. Welcome to your future.

  9. This is your wake up call Bud Fox...

  10. Normally when people and businesses (not governments) spend, that' good for the economy. Spending stimulates an economy to boom.

    However, most individuals and businesses have currently overextended themselves (greed). Borrowing makes you a slave the the lender.

    So, ironically, any unnecessary spending hurts their own personal economic circumstances further by adding to their own debt, which they will never be free of (being overextended).

    If anything goes wrong, like losing their job and needing a new muffler or needing to fix their furnace or their roof, they're dead.

    The reason I ruled out governments in the first paragraph, if it isn't already obvious, is because (1) people and businesses spend their money better than governments (money is better in the hands of those who earn it, not in the hands of those who steal it through taxes - greed) and (2) people and businesses spend their own money while governments spend money that doesn't belong to them (money they might not ever be able to get).

    So, greed is never good, whether it lives in a CEO or a protester who advocates personal entitlements.

  11. This documentary explains the problem of greed as the basis for an economy and corporations as they exist today --->

  12. I'd support a march on the Department of Education. What a waste of funding. However, let's not forget that the banks were led (by Fannie) and then essentially forced (by politicians and groups like ACORN) to drop any pretense of verifying people could pay their loans back. Ergo, I say march on Washington and hold people like Chris Dodd and Barney Frank accountable.

    Posted by James

  13. We the people, sat by idly and let the special interest groups have the ear of the politicians and lead them by their noses. I am encouraged the the rising interest by Americans in what Washington is doing to our country and efforts to have our voice heard.

  14. But greed as far as nature is concerned is good. That is self-preservation, which leads to preservation of the species. Of course, HUMANS don't have to worry about THAT, but it is how we evolved. Preserve the self so as to preserve the species. That requires greed.

    Posted by Courtney

  15. I agree with John and James. The beltway symbolizes the lobbists and beltway bandits (many govt retirees) who promote and pay for their special interests. Result is the votes and desires of the 99% are meaningless in a 2 party Congress. Maybe a solution is adopt a British type govt with many parties, coalitions of compromise, non-fixed terms, and minimum campaign capability. If we go through a couple of prime ministers in 2 years, the politicians might get the idea that the vote of the 99% matters.

    Posted by Jay

  16. There is no point in having wealth and power if it is just to serve our own ego. Wealth should be spent so others benefit from it, not hoarded, for that is miserly. Power should be used to serve others, not ourselves, as true happiness is not achieved through the domination of others. Equally, poverty is of no benefit to the individual or the society they find themselves in.

    We now need to look at sustainability and balance and learn to rebuild the diversity of the world we inhabit. The ancient Egyptians had a concept they called Ma’at which was the presence of truth, order, balance and justice in the world. I believe that after a century or more of world conflicts and unrestricted exploitation, that the concept of bringing Ma’at back into the world through the deeds we undertake in our lives is a valuable one.
    Posted by Richard

  17. I'm with you Jay... I firmly believe the root of our society's economic problems lie in the costs associated with running a political campaign. In order to be successful, many millions of dollars are required to run a political campaign. Even those politicians who enter a campaign with good intentions soon face the reality that staying in their positions demands they align themselves to the Democratic or Republican political machines that help fund them. Special interests of all types play to that, whether it's Wall Street, the Health Care Industry, Energy, etc. They use this need for political campaign funding to ask for special favors... favors that often lead to Monopolistic trends and competitive advantages within their markets.

    In contrast, our Constitution is about the "inalienable rights" of Citizens as human beings. With the need to cater to well funded special interest groups, the rights and desires of our Citizens has taken a back seat to both "corporate" and "special" interests alike.

    Somehow, in my opinion, we need to get the money out of politics, and have our politicians spend more time with their constituents back home, instead of with lobbyists in Washington.
    Posted by Gary

  18. First, where do you draw the line between rational self interest and greed?

    Second, many of those who like to talk about the evils of greed just come across as envious of others' wealth. Is envy any better than greed?

    Lastly, instead of pining away for a world without greed, why not accept the fact that greed is here to stay and work towards a financial system that expects the bankers and politicians to be greedy and the regulators and bureaucrats to be incompetent? A system that can thrive under such assumptions might actually work. Or, in Richard's words, it might actually be sustainable.
    Posted by Chris

  19. There ARE ever-increasing demands on diminishing resources, but biology has
    a way of fixing that: survival of the fittest. Science has been constantly
    battling biology with vaccines, etc., but since we have gotten so much in
    the business world, a large percentage of us have gotten a large percentage
    larger. That is one way of diminishing the population, eventually.
    Science can PROLONG the life of the diabetic, but it cannot CURE diabetes
    yet. It's working on that, but eventually nature will prevail.
    Posted by Courtney

  20. We need to make an important distinction between losing jobs to technology and losing jobs to the out-sourcing of manufacturing.

    Changing technology will continue to make various jobs obsolete:

    Technology has:
    1. Reduced the need (as you mentioned) for airport check-in staff, now largely performed by unstaffed kiosks.
    2. Reduced the need for bank tellers whose jobs are often now performed by ATMS.
    3. Reduced the need for USPS employees whose mail is now delivered electronically.

    Technology has NOT reduced:
    1. The need for the manufacture of consumer electronics such as iPods and LED monitors.
    2. The need for the manufacture of toys such as Barbie Dolls or PlaysKool work benches.
    3. The need for the manufacture of household goods such as furniture, lamps, napkins, pots and pans, etc.

    Those things are STILL being manufactured - just not in the United States to any appreciable degree. Those jobs are not obsolete - they've just been out-sourced by corporations who would (logically) prefer to pay a worker 85 cents an hour and also save on lessened or non-existent vacation pay, health benefits or pensions.

    There was a time when hats were made in Connecticut, cars in Michigan, furniture in North Carolina and swimwear in California. They weren't made in these places because of cheap labor but because those areas were nearer to the raw materials or power necessary in their creation.

    What we've seen isn't so much the obsolescence of first-world manufacturing jobs but their transference to other nations whose pay scales, benefit packages, and environmental regulations are clearly third-world.

    This is an important distinction too often over-looked by the label of "free trade." This isn't free trade. We're not buying Barbie Dolls from China because they have the technological know-how, R&D savy, or avaliable resources to produce those dolls. Mattel is a U.S. company that continues to design and market Barbie and Ken - they just happen to MAKE them elsewhere where workers work 60 hours a week, lose the ocassional finger or eye due to lax or non-existent safety regulations, and earn 85 cents an hour so that ToysRus can sell a doll for $15 to under-informed parents.

    Something to keep in mind this Christmas.

    Signed: Bruce Scottow