LUNCH BREAK

the deep crisis of the managerial revolution

The manager is not now a bureaucrat.

Today, the manager is not a bureaucrat. He descends from a long line of bureaucrats. They have bureaucrat blood. But as a race, the manager is distinguished today by the mentality of the owner, the techne of the capitalist, the spirit or aspiration of the entrepreneur.

Managers create value, they organize talent, they are the leading edge of progress in society.

How in the world did this come to be the case?

The managed corporation, as described previously, is certainly, certainly not the thing that it is today. It’s a common refrain among progressives in fact, that society was once more equal, that executives did not receive outsized compensation.

The First Limit of the Manager

This is the manager at the bureaucratic point in their lineage. The innovation of the managed corporation took on, increasingly over the first century of its development—leading into the Global Antifascist War—the character and functions of a bureaucracy. How could it not? After all, the creation of an autonomous life of organization is difficult.

Novelty is rare in social forms and nothing is new under the sun—this is the insight of the conservative. The managed corporation was run as a bureaucracy, where ownership was concentrated in one pole, and power spread across a ladder of rational and clear processes. The first natural end point of the division of labor for symbolic manipulation is bureaucracy.

It is also a blind alley. By the end of World War 2, each of the belligerents had mobilized under the auspices of the state a vast and powerful bureaucracy that interlocked naturally and effectively with the bureaucracies of private industry.

The process of regulatory capture—by which industry directed its connections with the government for its own ends is only half of the story. After all, business was certainly in no one’s list of most loved institutions during the 1930s.

In fact scientific management and its offshoots proved to be blind alleys. They reached their limit, simply. There’s no need to discuss how great the Trente Glorieuses were—they were! Truly, even the losers of the Second World War were possessed of vitality and spirit. The Germans say it was a WUNDER. The Japanese valorize it as a time of national pride, Scrap and Rebuild.

Even in China—success be damned—was madly enthusiastic about building the future, building it out of mud and pig iron if they had to. Alas, there were only 30 years of glory to be had, and they passed, did they not? And to end, or fail, is to evince a fundamental deficiency. Here, we argue that it was in fact the social transformation, brought on by crisis and a transformation of the role and principles guiding management inside the Third Industrial Revolution that did ‘the good years’ in.

At last, triumph over evil had come.

The evil of course being the contestation of global shipping routes and the lack of access to emerging markets. Bretton Woods and the vaunted and indomitable US Navy created a powerful system whereby global investment and global trade came under a munificent and (more or less) benign and disinterested lord, the US of A.

Read Superimperialism by Michael Hudson if you’re curious about the emergence of the Great Dollar Recycling Machine that emerged, the mechanism undergirding global finance which morphed from positive incentive to negative by 2008 with the inescapable logic of sanctions and trade war.

This is, in sum, the Third Industrial Revolution. It was a revolution in logistics. It was a revolution in production as new and increasingly computer-aided processes took over manufacturing. It was a revolution for labor and development, as international labor cost arbitrage became not just possible but best-practice. It was a revolution in economic fundamentals, as consumption became the driver of economic growth in developed economies.

It was supportedby the gold-backed dollar, the nuclear-backed Navy, and a war economy that never quite died down.

Necessity and Opportunity

Revolutions happen unevenly. They happen in fits and starts, and across different sectors, and legacy forms hold until necessity produces the opportunity for change. The Second Industrial Revolution happened in two waves as well—the technical innovations of steam power and scientific advancement gave way to social advancements—the age of Napoleon, Steel and Steam gave way to the era of the Managed Corporation, Radio, and Electricity—while both are yet part and parcel of the same social process we call the Second Industrial Revolution.

The Third Industrial Revolution’s momentum was interrupted about thirty years in when the war machine belched out a big wet shit over Indochina that it couldn’t clean up, profitability came into crisis, and the gold-backed dollar was exhausted by relentless wartime borrowing.

Remember the Land War in Asia?

Vietnam! A bureaucratized, high tech, rationalized army with professional management afforded the US total bankruptcy and defeat, the rare war where simply killing as many possible of every man, woman, and child in that and every bordering country was somehow not enough. Imagine the bizarre feeling in Washington and Langley, seeing that taking on the guise and manner of amphibious and soaring demons with infinite killing power made their country hollow, chaotic, and broken.  

Remember Stagflation?

Profitability went kaput. Marxists like to argue about the Law of the Tendency of the Rate of Profit to Fall as if prepositional phrases make something scientific and therefore ‘real.’ But it is in a sense true, superprofits come from easy pickings, profits come from improving the business process, and there’s only so much you can do before you’re old, unsexy, and just earning money. You don’t have to be a migrant worker on an orange farm to see that it’s harder to get the fruit up top.

Foreign firms had no legacy structures, comparative cost advantages, no weighty bureaucracies (or less of them) and a pressing need to succeed and the funding and relationships to do so. Competition and massive administrative overhead created a cycle of rationalized inefficiency. Worker discipline was low—30 years of glory in the US had trained generations of workers in the art of doing what they must to survive—which wasn’t all that much. Poor discipline, powerful bureaucracy, and hungry foreigners, rebuilding their homes. A planner’s worst nightmare!

Remember the Gold Window?

The dollar went kaput. No it didn’t go away, but what it was died, and something else now wears its skin. It became the greenback we know and, if you’re American, treasure as the pillar of order and stability in the world. The only, only remaining pillar. The US became a debtor nation, after 30 years of relentless, bloody, and futile profligacy towards its own merchants of death. This reverse polarization of the world left economies like France, Germany, and Japan facing a bizarre situation of objective credit superiority but only in coin that could be used to pay the Varangian Guards on these foreign military bases that sprouted up like weeds on their soil. A bizarre situation to be in—the ability, and economic right, to seize the global security, finance, and production architecture for yourself, but simply not wanting the trouble.

The Limits to Growth

The manager-as-bureaucrat, after a sordid series of compounding failures culminating in the 1970s was talking about the social responsibility of the corporation. Envisioning a crisis where, in the next century, the world’s current prosperity would end catastrophically. The climate was changing. The population was growing too fast. America had a madman president threatening war with Russia while secretly continuing a disastrous and genocidal campaign an ocean away. And China, under the influence of Maoism, threatened Taiwan.

These were in fact commonplace opinions among the educated and liberal in America in the early to mid 1970s. The crisis in the world was unprecedented, or sure felt that way. Peace and order and prosperity most of all were under dire, dire threat.

As [Irving] Kristol wrote in 1974: ‘Every day, in every way, the large corporation looks more and more like a species of dinosaur on its lumbering way to extinction’. The environment is hostile. If it does not adapt, it will die. What has changed? Mainly this: given their gigantism, and the implications of their decisions for the lives of all, big companies are no longer seen as simple private economic affairs, but as powerful institutions with a public dimension. That is why they are asked for more than economic profitability. That is also why confining oneself to answering on this basis is notoriously inadequate. Business leaders ‘have to learn to govern, not simply to execute or administer. And to govern is to think politically, as well as economically’.

Grégoire Chamayou, The Ungovernable Society

Perhaps some of this sounds hauntingly familiar—this is not to say that these fears are misplaced. No, ignoring the problems and failing to reach viable solutions was without a doubt the great failing of the Third Industrial Revolution cohort of leaders.

Inventing Responsibility

If any of Chamayou’s words resonate with you, hypothetical office drone, you may well be imagining a manager who is too good at their duties, who has done too much too fast, and now must create new job responsibilities to justify their position. This was the corporation in the 1970s.

The problem in the 1970s was in fact that the current model of management of resources had produced great, incredible wealth, splendor, and luxury at scales never before seen, spread to more than could have been imagined even 50 years prior—and now, it was out of fresh inputs. The bureaucratic system of management, with its emphasis on organizational discipline and rationalization had hit its absolute limit. They were out of things to manage. Having spent the legitimacy of bureaucratic, scientific management, a new creature to steer and organize talent and assume the role, responsibilities, and techne of the manager-as-bureaucrat was required.

Killing the Manager, Becoming the Manager

In a sense, the three crises in the 1970s all resolved themselves quite splendidly. The US left Vietnam, jailed its dissidents, broke its unions, and a wave of conservative sentiment and anti-hippie revanchism swept the nation for decades. The dollar was, and remains, the only game in town for international trade and keeping investment markets broadly aligned and capital moving with minimal friction. The backing didn’t matter that much in the end—the US still kept its tight grip on trade routes and the security of the wealthy.

Fixing the crisis of profitability required more than clever retrenchment or a slow-witted misevaluation of security and war risk.

Sadly for him, the manager-as-bureaucrat had to die. So the manager-as-owner killed him. No one, somehow, had lost more credibility than the eternal, gray, faceless bureaucrat in the 1960s. Left and right hated The Man, and little did they know they hated the very same The Man.

Who is the manager-as-owner? This is a fine distinction to make, the difference between the manager-as-owner, and the owner-as-manager. The manager-as-owner, the MAO, is distinguished from the OAM and the MAB in two key senses. Centralization and profit participation.

The MAO has stock options, but not full ownership. Instead, their interests are now not aligned to abstract conceptualizations of rationality, or improving the business, or their bonus, (which is a riggable game). They must instead make the peanut gallery of retail investors and the big boys of institutional investors, the hydra that owns everything, happy.

Now, you live like a king!

The MAO has dictatorial control, and is monarchical, rather than bureaucratic. Process is not necessarily their wont, making money is.

Shareholder value. Stakeholder theory. Neoliberalism. Different words all to describe a philosophical change in the purpose and orientation of management that lies at the root of what we call neoliberalism. The idea is that profit is the god of business, and that whoever brings the most profit has proven their divine right to rule.

What this ideal’s crudeness borrows from the now-ancient notions of classical Liberalism, the big-L kind, it makes up for in a new sophistication trained on the trellis of the managerial corporation. Kings do not rule alone. Their ministers hold power. To make them accountable, they must have stock as well. Their accountability will be their bank account.

This is the diffuse owner-manager fractal at work. Because now, ownership and management become synonymous under this concept. The goal is to eventually do a job so well that you must own part of the company to justify your big dick talents staying in one place.

This change in compensation structure the use of stock options as executive level compensation, more than any other particular factor, created structural incentives to reform corporations.

New Tycoons

Trump! Jobs! Gates! Walton! Dell! Schmidt! Milken! Welch! Gekko! Surely a few of these ring a bell as pioneering and increasingly dominant figures of industry 3.0 who emerged in the wake of shareholder value maximization, of the new figure of MAO, beholden to principles of shareholder value maximization, seeking personal fortune but working within a networked team. This is the fruit of the return to neoliberalism—(partial) owners famous for their management skills, business acumen, and incredible service to an austere and relenting idea.

Toyotism, the Japanese ‘tism

Let’s take a hard detour away from the lofty realms of executive management and control, and away from the Great Men problem that we’re running headlong into. The tycoon is a boring figure! Because now, they are managers. And it doesn’t get to the bottom-up level of the phenomenon. The phenomenon of management’s triumph wasn’t the recreation of the manager into owner, but also the changing of the worker into his own manager.

Why are workers today so managed? Why are workers today not contending with something that believes it’s a bureaucracy, but acts kind of like a bureaucracy? Answer: everyone is now asked to manage themselves.

Toyota did it. If you didn’t know why Toyota became THE car company, a globally dominant superpower on its own, it is because they innovated a powerful and liberating system for quality control and worker self-management that dramatically increased average product quality while incentivizing worker autonomy and reducing managerial overhead.

Each worker on the line in a Toyota plant had the ability to stop production on that line, completely, if they saw a fault or defect in any component of work. This problem would be addressed then at its source. The Kanban, the burndown chart—this originated as a Japanese practice. In fact, each major management trend began as a unique technique to turn employees into corporate-value-conscious members of cross-functional teams.

The Expansion

So. Toyotism. Lean manufacturing it’s also called, which was extended into the symbolic labor fields, the knowledge economy, as scrum, and team of teams, et cetera et cetera, so on and so forth. Management worked at the production level to create new structures that were less bureaucratic and cross-functional, borrowing from the now classic German trope of management—that the manager must be skilled and proficient in the subordinate’s task as well.

These new techne emerged and became fashionable across the 1980s and 90s as the Third Industrial Revolution reached their apogee, as Germany and Japan and other industrially maturing countries began eroding America’s long-held advantages in the organization of labor and productivity.

We all change

What is most exciting about these non-bureaucratic forms of management is that they align with the creation of the worker as a self-managing, autonomous entity that in the ideal world only needs the light touch. The carrot stays a carrot. The carrot, if anything, gets tastier. And the stick becomes a security camera.

The discipline of work is generated through the control of environment, experience, and product. Employees now live more autonomously, working under guidelines and self-supervision. Guidelines and performance are measurable. Tasks are discrete, and are accomplished well, or not. Data is increasingly a byproduct, objective, readable information. Praise, benefits, incentives are doled out on measurables—the hated ghoul called KPI. Eventually rules do not need to be enforced except rarely, because they are followed.

The power of Toyotism and all of the new ideas about maximizing productivity, motivation, involvement, and employee buy-in lies in its ability to fulfill the great promise of management that is oriented toward product rather than process. That promise is order without organization.

Organization creates efficiency and order, but is costly, and the costs over time become unbearable. This was the salient lesson of the Second Industrial Revolution regarding management. It relies on discipline, and degrades in terms of accountability and performance over time. It is an active and difficult process, that is not managed with any reliable feedback loop. Using systems of incentive and maximizing autonomy under a set of guidelines to control and measure output is comparatively a better arrangement. But is simply aligning incentives and belief possible using modern social techne and computing technology?

The Final Limit

This is the question faced by anyone thinking about the future of business, and therefore politics, in the wake of the Great Crash of the Third Industrial Revolution. We all remember the year 2007.