The collapse of community

What we have here is an accelerating -- and alarming -- collapse of trust.

Advanced societies need a great deal of trust. Every day we place ourselves in the hands of other people, most of whom we don’t know, for our most basic needs. I had orange juice this morning. I didn’t pick the oranges off my own tree, so I need to trust that someone else grew good oranges and didn’t inject them with dangerous chemicals; that the people who pressed it into juice did it in a clean environment without contaminants; that they didn’t (as has happened with some wines) mix in antifreeze to save money. Because I believe those things, I drink store-bought orange juice and thus contribute to the support of a whole industry with many thousands of jobs. And I’m hardly awake yet.

For forty years now there has been a decline in trust across the industrial world. Polls show a marked decline in public confidence for all the “big three” social institutions at the core of the postwar period of prosperity: government, business, and unions. In the U.S. the percentage of people who believe the government is “run by a few big interests looking out only for themselves” has more than doubled since the 1960s and now stands at around 80%. About half of all adults now say that no businesses are “generally honest and trustworthy.” There has also been a marked decline in the personal trust and its foundations: Robert Putnam has traced sharp declines in everyday social interactions like bowling leagues, and polls show a steady drop in various measures of personal trust, such as the percentage who agree that “people try to be fair.”*

We know that trust decline can develop into vicious downward spirals. Anyone who has played one of the trust games common in negotiation seminars knows that people, if encouraged to act according to pure self-interest, will try to undercut each other when they get a chance, leading to cycles of mutual destructiveness. This is really just an updated version of Thomas Hobbes’ 17th-century argument that only collective constraint prevents the “war of all against all.” We also know that systems that fall into negative spirals may hit abrupt “tipping points” at which the downward trend rapidly accelerates.

There are disturbing indications that we may be close to such a tipping point. Since the 2008 recession and the election of a President who is liberal and black, significant parts of the country have withdrawn in anger from the social compact and have adopted an “every man for himself” mentality. Examples now appear every day on the front pages. Trayvon Martin was shot in Florida because a new law essentially legalizes personal vigilantism and abandons reliance on the formal system of policing. A judge in New York ruled that law students could not expect schools to give accurate data about their success in getting jobs for graduates: it was, he ruled, up to the students to check and verify the schools’ claims. Recently a house burned in Tennessee because fire department no longer put out fires unless the homeowner has paid a yearly fee. Even more extreme, Tea Party enthusiasts yelled in a campaign event that the way to treat people without health insurance is to “Let ‘em die!”

All of these recent events stem from a common mentality -- that you can’t trust anyone but yourself, you should check and verify and fight for your interests at every step of every day. That sense has been growing for a long time, but now it is becoming a guiding principle of the core institutions of the society. It’s not just that some people carry guns because they don’t trust the police; now the legislature is telling you that’s the right thing to do. It’s not just that people grumble about deadbeat neighbors; now the law says you have no obligation to help them. When banks cheat their customers, the law and regulatory agencies say that we can’t really control it and that you’d just better watch your money carefully.

We don’t really know how to predict tipping points, but this seems like a very dangerous moment. Mistrust is crossing a threshold – moving from an uncomfortable sense that things aren’t right, to a justified sense that that’s the way it is and ought to be. It is as important to pay attention to the health of relations of trust as to the health of government and economic institutions. We need to fight hard, not for ourselves, but for each other – and for the belief that, as Benjamin Franklin once put it: “We must all hang together, or assuredly we shall all hang separately.”

The Tea Party and the necessary debate about values

Those who seek to rebuild a sense of community and cooperation in the U.S. first have to understand the Tea Party.

It's easy to dismiss the Tea Party as a fringe movement when its supporters deny the science of climate change or question President Obama’s citizenship. There have of course  always been conspiracy theorists and ideological extremists at the margins of politics. But the Tea Party has tapped into something more significant -- a mood that affects considerable sections of the population and that arouses passionate engagement. It has mobilized tens of thousands of people to become active for the first time in democratic politics. It has won considerable electoral support even from many people who do not agree with their specific policy prescriptions. To ignore these views violates the first principle of community: the need to understand those we disagree with. Such a reaction closes off learning and reinforces a vicious circle of anger and contempt that is rapidly destroying the possibility of political dialogue.

Tea Party supporters are not, for the most part, ignorant or selfish. Surveys indicate that they are somewhat better educated than average. One of the movement's important characteristics is that it is built on many local self-study groups that carefully read the Constitution and theoretical works by Hayek and others, and apply them to current events. Conservatism in general has arguably a more consistent intellectual framework than liberalism, basing its claims not on individual selfishness but on a vision of the common good. Their engagement in politics is, almost pradoxically, a strong demonstration of their belief in their commitment to that good.

How, then, has the Tea Party adopted an ideology that is strongly anti-intellectual and anti-scientific? One place to start is by seeing it as a new chapter in a long history of populism going back at least to the millenarian movements of the 1500s. Though some of these movements have been seen as “conservative” and some as “radical,” they share a common perspective: a sense that elites have gone bad and the people need to retake control. These upheavals have appeared when stable societies are disrupted and the “common people” feel that their lives are getting worse. Their primary aim has been not economic redistribution but rather the restoration of communal bonds through religious and moral purity. They have defined the elites as morally corrupting forces; science, as the preserve and tool of elites, inaccessible to common folk, has often been a focus of deep suspicion. The last five centuries can be read as a continual oscillation between “progressive” movements based on the sense that things were getting better because of economic and scientific progress, and populist reactions based on the sense that they were getting worse because of moral decay.

There are at least three ways in which Tea Party views potentially enrich politics, even if you disagree wholesale -- as I do -- with its policy prescriptions. 

First, it reminds us forcibly that there is a considerable segment of the population that is feeling not only left out but humiliated by social changes. Newt Gingrich’s winning campaign speech in South Carolina said that  many Americans feel the elites “have no understanding, no care, no concern, no reliability and in fact do not represent them at all.” That apparently rings true, and it’s not good. To build the level of trust needed for a complex modern society, we must expand of the scope of a community of respect and engagement. If we have succeeded in extending inclusion to some new groups only by excluding others, we have not made real progress.

Second, Tea Party politics should force a constructive review of the technocratic tendency in postwar politics, the exaggerated penchant for solving problems with expertise -- an tendency that has characterized both conservatives and liberals, but perhaps more often the latter. It has roots in the Enlightenment vision of overcoming conflict and misery through rationality. But we should have learned by now that though rationality is important, it is not sufficient. Too often it has created monsters that we cannot control, like the atomic bomb; too often it has justified policies that in retrospect seem crazy, like McNamara’s plan for Vietnam; too often it is unable to overcome differences in point of view. Along with rational analysis there needs to be a strong element of discussion and engagement and learning.

Most importantly, the Tea Party is in effect challenging the nation to a debate about values. This may be the most controversial part of the program. One of the primary tenets of modernity has been that values should be kept private. It was the Forty Years’ war of the seventeenth century that convinced everyone of the terrible uselessness of trying to impose religious values on others. Since then most thinkers have insisted that the state should be separated from religion.

Yet this has has never been a fully satisfactory solution. Human communities need to unite around values, both as a key basis of mutual trust and as an anchor for a sense of meaning and identity. When religion was pushed from the public sphere, that impulse was transferred to a sacralization of the State; the horrors of nationalist wars were not less than those of religious wars.

Liberals are now loud in their protests that the Right is trying to bring values and religion into the national political discussion; yet in an important sense it was liberals who started this round of value conflict. They started it in the 1960s by claiming that the beliefs of most of the population were morally wrong, discriminatory and oppressive. They demanded profound changes in attitudes and behaviors in the most personal parts of life: in the relations of men to women, in what is taught to children and who they associate with, in who can join clubs, in the role of religion in communities. They demanded that people feel guilty and apologize for their past and for the actions of their country.

So it’s much too late now to argue that values should be taken out of the public and political sphere. The only way forward is to engage them -- to have a serious and respectful debate about the value of traditionalism as opposed to multiculturalism. The debate must be about what values make sense of the world in a way that builds hope, and that includes wide swaths of Americans who currently feel left out – so that it’s possible to pull together in building the future. 

Goldman Sachs: breaking culture and making culture

Greg Smith, a senior manager at Goldman Sachs, has very publicly accused the company of abandoning its customer-focused ideals and merely following short-term profit. That should not be a surprise: this shift in values is occurring throughout the financial industry, and indeed throughout American society. In fact, it is deliberately driven by a pervasive mindset that emphasizes rational individualism, laissez-faire markets, and the use of incentives through “pay for performance.” But the answer as simple as Mr. Smith suggests: going back to the old culture is probably not an option that anyone would like, either.

Thirty years ago in large corporations pay was mainly determined by organizational level rather than by short-term performance. The real rewards lay in promotion, and promotion required building a network of supporters. Indeed, the higher you rose, the more important it was to be on good terms with a range of people and to show a wide scope of achievements. Your entire history followed you and shaped your career. Thus the kind of “short-termism” that Smith decries was considerably less common.

That kind of corporate culture lasted for over half a century, into the 1980s. Why has it declined? Initially it declined because there was a serious downside: it blocked major change at a time when change became essential. The consensual approach locked in place established players and ways of doing business. This became a problem in the late 70s and 80s as the landscape of business began to change fundamentally. First there was the expansion of markets, with a raft of new global players entering many industries and sharply increasing the level of competition. Corporate profits declined markedly. Then there was an acceleration of technological innovation, driven by computing capabilities. Finally, there was a growing awareness of a deep shift in the nature of value. Success in the twentieth century depended on the ability to produce and distribute reliably on a large scale; success since the turn of the twenty-first has been increasingly dependent on the ability to apply knowledge to emerging problems. The kinds of organization and culture needed for the first don’t work in the second. The best organizations of the past were stable bureaucracies that could maintain consistency and control across a large production process; the best ones now are are fluid, team-based systems that can rapidly bring together diverse specialists around new challenges. Increasingly companies are fleeing the first because the profit margins are shrinking, and seeking the second where profits are larger.

This transformation requires breaking crockery: closing unsuccessful businesses, reorganizing, changing strategies, encouraging different skills. Long-term performance no longer seems so relevant, because what brought success in the past might not do so in the future. Thus in that period companies began to seek leaders who were “not afraid to make the tough decisions.” You can’t get such leaders through internal growth and consensus, and you can’t motivate them through the promise of long-term promotion. Thence the rise of objective numerical targets: if you raise profitability x% you will get a big reward, even if people don’t like you.

In other words, there was a deliberate and sustained effort to break the old corporate culture because it was not suited to emerging the demands of business. Short-term rewards based on objective measures make complete sense for that purpose.

The pay-for-performance mantra is further reinforced because it fits with a comprehensive ideology or world-view: the classical economic claim that rational individuals, interacting in markets, will create the greatest good for all. This powerful idea, going back at least to Adam Smith, suggests that it is not necessary for people to think of the good of others, or of the system. Things work best, in this view, when people just focus on their own concerns and don’t try to meddle in or understand those of others.  If they do that consistently, the “invisible hand” of the market will balance supply and demand, ensure that the right products are made to meet all needs, and everyone will do well. From this perspective giving people money for achieving key goals is seen as just an extension of this broad appeal to rational individualism.

There is just one major problem with this: the theory of the invisible hand, especially when applied to organizations and societies, is deeply, profoundly wrong. If everyone merely pursues rational self-interest, the result will be cynical, manipulative behavior that leads to mutual undercutting and periodic crises. This is what’s known in game theory as the “prisoner’s dilemma”: when people can trust each other, they can often find ways to achieve mutual gains; but when they have no basis for trust, they will seek short-term personal gains – and in doing, undercut each other and make things worse for everyone.

Culture is important because it makes trust possible: it is a framework that gives us reason to believe that others will act constructively, not just in their own narrow self-interest. When you destroy the web of relations and shared values that is the basis of culture, you trigger self-reinforcing cycles of mistrust. And that is exactly what is happening at Goldman Sachs, at many companies, and to a considerable extent in our entire society.

Sometimes culture needs to be broken. Culture can sustain orders that are unjust and inefficient. But if it is broken, it needs to be rebuilt. The pay for performance fad, and the exaggerated emphasis on incentives and individualism in general, are effective at breaking culture, but they are not good at making it.

I don’t know about Goldman Sachs, whether the old culture would have worked in today’s environment. I do know that at many companies cultural destruction was absolutely necessary. IBM before 1991 had a culture that was customer-focused, supportive of employees, ethical – but also slow, bureaucratic, conflict-averse, tolerant of inefficiency. It almost died of it. But rather than falling back primarily on short-term incentives, it has rebuilt with a culture that tends much more towards flexibility and responsiveness. Culture building is slow and uncertain, and neither IBM nor anyone else has entirely filled in a set of relations and values that really meet the needs of a knowledge economy, that provide both efficiency and justice; but it and companies like it are doing better than the ones that have relied on individual stars and powerful monetary incentives.

Mr. Smith, in other words, has identified a serious problem at Goldman Sachs. But it’s a bigger one than he realizes – because the solution is almost certainly not to go back to the “old” culture which he so clearly admires. The task is to define and build a new one.

Lessons of Bell Labs: why capitalism today undermines the conditions for its success

The New York Times reports on the success of Bell Labs as a center of innovation from the 1920s to the 1980s. It produced many of the inventions that underpin today’s economy, from the transistor to lasers to solar cells. The underlying reason for this remarkable success, according to Jon Gertner, who has been studying its history, is not technical but social: the Labs created a culture in which very smart people actually worked together and helped each other. This was a deliberate act of design, from the way the building was laid out – encouraging serendipitous encounters – to the way people were rewarded, encouraging long-term projects and collaboration.
Bell Labs succeeded in creating what we call a collaborative community. The essence of such a community is that people can come together from disparate specialties and groups to form trusting relations focused on tasks and projects. It is very different from traditional communities, where trust is based on long-term personal connections and stable status hierarchies. It is also very different from the vision of competitive individualism that has become so popular in recent decades. Collaborative community is increasingly needed in a world where solving our problems requires complex combinations of specialized knowledge.

But one big problem is that innovation and problem-solving are costly. Every successful invention, as Edison famously demonstrated, is based on thousands of failures; it also requires a great deal of “basic research” that is not aimed directly at economic payoff, but seeks only to understand the logic of some important issue. So in an economy focused increasingly on “competitiveness,” who will pay for the underlying foundations of innovation?

Bell Labs is no longer the center of creativity it once was. The reason is that when AT&T was broken up in the 1980s, none of the parts were willing or able to fully invest in the infrastructure of a collaborative community. The Labs formally went to Lucent, which applied more and more pressure for immediate payoffs from research and occasionally went out and bought groups of scientists in order to get their inventions in a hurry. That strategy has undermined long-term innovative capacity. But the company really had no choice: the shareholders were always on the lookout for ways to “free up” invested capital, and the threat always loomed that someone might buy the company with borrowed money and sell off the assets – the accumulated knowledge as well as the technological systems – to pay off the debts.

Essentially, the logic of capital accumulation is now in contradiction with the logic of capital creation. To create capital, the best method is to develop new knowledge. That requires building and maintaining a trusting network of specialists, like those of Bell Labs, who are willing to contribute to larger projects. To accumulate capital, however, the best way is to extract value and recirculate it in the form of debt. This was the logic of the housing bubble as well as of mergers and acquisitions since the 1980s. There’s a lot of capital sloshing around the world now, much of it “liberated” from low-value uses such as scientists sitting around trying to figure out some basic problem with no visible payoff. This process has consistently destroyed existing networks like the Labs and is increasingly penetrating into universities with demands for more “practical” research with measurable results.

Unfortunately, the solution is not as simple as going back to something we know, like the Labs. Bell Labs had, from today’s point of view, some serious limitations. It was a small group, controlled by a single company with a limited focus, dependent on profits that came from the parent’s monopoly position. Those conditions are limiting and unsustainable. The knowledge needed for sustainable innovation today cannot cannot depend on monopolistic profits, nor can it be contained by a single company: companies constantly find that they need to draw on expertise from around the globe, including so-called “developing” nations like China and India.

What we’re looking for is a way to fund and maintain broad networks of people with many activities that may not pay off, but which are the seed beds of the solutions that will nourish further growth. Open source networks of software developers are in that direction: the Firefox browser and the Unix operating system are created by thousands of people volunteering time and expertise in exchange for a combination of satisfaction and reputational benefits; and large companies such as Google and IBM are also big supporters, contributing much free employee time, because they see the value of this method of knowledge-creation. Open source is in its infancy and its principles of organization, financing, and accountability are far from sufficient for long-run success, but it may point the way to the Bell Labs of the future.