The financial innovation that was once the means of spreading risk is now an unmanageable source of instability.
John Sculley was chief executive of Apple from 1983 to 1993. He gave an extended account of his experiences to Fortune magazine, which posed the question: “Sculley – chump or champ?” Mr Sculley’s tenure included a period of great success – Apple’s graphical user interface brought the present computer within the capabilities of everyone; and a period of serious failure – Microsoft achieved almost complete dominance of the industry. How could one man have been both so right and so wrong?
The analysis overlooked the obvious answer – that neither Apple’s success nor its failure had much to do with Mr Sculley, an able corporate bureaucrat who rode the roller-coaster of high technology. Our desire to see history through the lives of great men blinds us to the real complexity of politics, business and finance, and leads us to find intentionality and design where there are only chance and improvisation. The philosopher, Alasdair MacIntyre, put it acerbically: “When imputed organisational skill and power are deployed and the desired effect follows, all that we have witnessed is the same kind of sequence as that to be observed when a clergyman is fortunate enough to pray for rain just before the unpredicted end of a drought!” He also said: “One key reason why the presidents of large corporations do not, as some radical critics believe, control the US is that they do not even succeed controlling their own corporations.” That was the experience of Chuck Prince, former Citigroup chief, and Stan O’Neal, former head of Merrill Lynch.
By describing Napoleon’s Russian campaign through the eyes of individual participants, Tolstoy rejected the notion of history as the lives of great men. Of the battle of Borodino, he wrote: “It was not Napoleon who directed the course of the battle, for none of his orders was carried out and during the battle he did not know what was going on.”
The hapless chief executives of big financial institutions and the world financial leaders gathered last weekend in Beijing share the experience of the French emperor. “It only seemed to Napoleon that it all took place by his will.” This mistaken inference is routinely shared by journalists and historians. “The profoundest and most excellent dispositions and orders seem very bad, and every learned militarist criticises them with looks of importance, when they relate to a battle that has been lost, and the very worst dispositions and orders seem very good and serious people fill whole volumes and demonstrate their merits, when they relate to a battle that has been won.”
What Tolstoy saw among military historians, Phil Rosenzweig in The Halo Effect sees on the business bookshelves. Enron was a model of new styles of corporate organisation when its stock price was rising and a hotbed of corporate corruption when it had gone bust. The financial innovation that was once the means of spreading risk is now an unmanageable source of instability. Realities have not changed, only the perspective from which we view them.
The survivor in any bureaucracy, private or public, is not the person who gets things right – rarely a popular figure – but the one who attaches himself to success and distances himself from failure. In the clumsy hands of Gordon Brown, UK prime minister, this behaviour is so transparent as to be almost comical. But Alan Greenspan, former chairman of the US Federal Reserve, deserved the label “maestro” for the skill with which he deployed this strategy for two decades. Like Napoleon, “he did nothing harmful to the progress of the battle, he inclined to the most reasonable opinions, he made no confusion, did not contradict himself, did not get frightened or run away from the field of battle, but with his great tact and military experience carried out his role of appearing to command, calmly and with dignity”. But, just as Napoleon’s run of victories ended at Borodino, Mr Greenspan’s ran out in the credit crunch.
There are a very few people whose talents are so exceptional that, when they find themselves in the right place at the right time, they change the course of events. Perhaps Roosevelt and Churchill or Steve Jobs of Apple. And even they, like Napoleon, tend to go on winning only until they lose.