How the big pieces fit together: Europe’s place in the multipolar world

by Dr. John C. Hulsman

Introduction: The Lesson of the G7 train wreck

It’s official. After the calamitous G7 summit meeting in Canada, it is clear that an unbound Donald Trump is Europe’s worst nightmare. Although with typical unnecessary narcissism, he came late and left early, what Donald Trump did in his few short hours on Canadian soil will be commented on for years, as he emerged as a virtual caricature of everything Europeans hate about Americans.

Preternaturally over-confident and under-prepared, arrogant, and self-regarding, the president urged Russia be readmitted to the G7 club (despite its iron-clad control of Crimea and ruination of eastern Ukraine), doubled down on enraging European and Canadian allies alike over the brewing trade war (‘America is not a piggy bank’), and generally confirmed everyone’s worst fears that the White House actually prefers dealing with America’s authoritarian foes, such as China’s Xi Jinping, North Korea’s Kim Jong-un, and Russia’s Vladimir Putin, rather than the vexing, well-meaning, but weak democratic pygmies who populate the standard multilateral meeting. Surely, after such an odious display the rest of the democratic world must rise up in righteous indignation and…

Well, the best I can come up with is snub Trump administration appointments at formal cocktail parties. For the bleak truth lying behind Donald Trump’s appalling, wrong-headed policies and behaviour in Canada is that the rest of the democratic world is pathetically weak and bereft of agency. As such, while they seethe with disgust at having to put up with the odious president, there is nothing practically they are prepared to do to stop him. This most transactional of presidents has inadvertently but graphically illustrated how practically irrelevant America’s western allies, particularly in Europe, truly are.

Be careful what you wish for

This is all so different from the dreams of a new multipolar world that so animated European thinkers during the long days of the bipolar Cold War. Then, European policy intellectuals—particularly in France—dreamed of living in a multipolar age that would follow victory over the Soviet Union in the Cold War, a time when Europe would finally achieve the strategic flexibility to have its own independent foreign and security policy, no longer shackled to (but still vaguely allied with) the US. But this long-term strategic goal amounted to little more than emotional wish-fulfilment, predicated as it was on two unremarked upon suppositions.

The first was that the relative diminution in American global power would be meekly accepted by a US long used to running things. In other words, a series of President Obamas would shepherd the US to accept its new central, but relatively more limited, structural position in the multipolar world. To put it mildly, a President Trump—whose very campaign slogan ‘Make America Great Again’ is an overly emotional refutation of America’s relative decline—was not reckoned on.

Second, it was blithely assumed by European thinkers that their continent would undoubtedly and effortlessly emerge as the principal new force in this new world of many powers. As China rose during the latter days of the Cold War, following Deng Xiaoping’s historic opening in December 1978, European thinkers did foresee a world where a rising Asia would join America, Europe, Japan, and a diminished Russia as the main players on the global strategic scene (India was little thought of). But the notion that Europe would be by a long way the weakest of these great powers—politically divided, economically sclerotic, and militarily puny—never entered their thoughts.

As a result, while European thinkers seemed to pine for a multipolar world, in reality it was a new era where their continent was rising—as America was falling and the Soviets were non-existent—that was their real dream. Donald Trump’s petulant performance (and Europe’s anaemic non-response) at the just concluded G7 meeting glaringly illustrates that today’s world is simply not the sort of multipolarity European thinkers ever had in mind.

What Europe Should Do

Most foreign policy articles (and I have written over 500 of them) are cries in the wilderness, futile exercises where the analyst proposes outcomes that they know will never come to pass. Nevertheless, it remains the duty of every political risk analyst to try, to posit what can be practically done to retrieve strategic situations, for irretrievable decline is a choice and not a preordained destiny.

In this spirit, what can Europe do to make itself relevant as a Great Power in the real multipolar era we actually now live in? First, psychologically accept that while Trump is an extreme case, American leaders in general are transactional in nature; they will only take European concerns on board if it is viewed as a serious power capable of going its own way in terms of genuine practical policy consequences. Global politics is not a debating society; what matters are the views of the great strategic players, and the power they bring to bear—political, economic, strategic, diplomatic, and social—to further their interests. Europe must stop passively watching the world, and either master history, or history will surely master it.

Second, the Europeans have to act in a far more unitary manner in terms of foreign and security policy. Russia, an economic basket case in comparison (its economy is smaller than that of Italy), is the relevant comparison. For all that it is a corrupt, demographically decaying one-trick economic pony, a decrepit gas station utterly dependent on the spot price of oil and natural gas, Moscow punches far above its actual weight on the global scene.

The reason? President Putin can make decisive, unitary, foreign policy decisions for his country that are quickly acted on. Russia—as the Crimea episode illustrated—is still prepared to spend blood and treasure, to make real sacrifices to further the country’s foreign policy goals and interests. At present, I am not sure many in Brussels would be prepared to sacrifice a week’s holiday to do much of anything. For once and for all, Europe and its leaders have to decide if their foreign policy amounts to merely virtue signalling, or whether they are prepared to make the sacrifices to actually matter in the world.  

 To do so, an inner core of the key western European states—Germany, France, Italy, Spain, and The Netherlands—must move ahead, and actually begin to craft such a common foreign policy. Failure to do so will inevitably lead the other great powers to cherry pick Europe, to keep dividing the place precisely because it is inherently divided. It is not the fault of the outside powers, as states since time immemorial have taken advantage of their rival’s weaknesses. Rather it is the fault of a Europe that simply can’t get its act together.

Finally, as the mediocre age of Merkel subsides, endemic problems must be solved, rather than merely managed. Across the continent, Europe must free up its animal spirits and find a way to increase average growth rates to around two percent, if horrendous rates of youth unemployment and endemic economic torpor are to be righted. President Macron’s courageous and largely successful labour market reforms are a start, by more needs to be done.

With France as a nucleus, and after decades of torturous (and maddening) inaction, the major European countries must commit themselves to some level of serious defence spending, as without an army their moralistic lectures are just that, and nothing more. Finally, and again Macron is onto something here, ‘A Certain Idea of Europe,’ the idea of a strong, distinct, unique and blessed Europe, a sacred place whose interests and values are worth fighting for on the global stage, must be advanced as a unifying clarion call to action.

It is not too late for Europe to emerge as its thinkers once dreamed it would, and Trump’s odious behaviour in Canada surely serves as a call to arms. But it is one minute to the midnight of Europe’s strategic irrelevance.

Dr. John C. Hulsman is President and Managing Partner of John C. Hulsman Enterprises, a prominent global political-risk consulting firm. He is the author of To Dare More Boldly: The Audacious Story of Political Risk. He lives in Milan, Italy.

Dr. John C. Hulsman: The North Korean Summit Hiccup Belies the Greater Problem of the White House’s Failure to ‘Game Out Lunatics’

HulsmanLegend has it that at the height of the Third Crusade (1189-1192), Count Henry of Champagne spoke at length with the mysterious, charismatic “Old Man of the Mountain,” Rashid ad-Din Sinan. The story goes that the haughty Crusader claimed that he had the most powerful army in the Middle East, one that could at any moment defeat the Hashashin, the Old Man’s threadbare cohort of followers. Count Henry went on, pointing out that his force was at least ten times larger than that of Sinan’s.

Unimpressed, the Old Man calmly replied that the Count was mistaken, and that it was his unremarkable-looking rabble which constituted the greatest army in the field. To prove his point, he beckoned one of his men over to him and casually told him to jump off the top of the Masyaf mountaintop fortress in which they were holed up. Without hesitating, the man did so.

Through the many centuries that separate us from Count Henry, the myriad twists and turns on Western politics, culture, and life that come between us, there is absolutely no doubt at all that Westerners today would share his horrified reaction to what the Old Man of the Mountain had demonstrated to him.

“This guy is totally nuts.”

***

This telling historical vignette was eerily reenacted last week, in Donald Trump’s ‘break-up’ letter to Kim Jong-un, the far-out leader of seemingly indecipherable North Korea. Playing the part of Count Henry, the President not so subtlety hinted that America, as the greatest military force in the world, could wipe North Korea off the map at any moment it chose. Like Count Henry, Trump was making it clear to his rival that in essence their contest was so strategically lopsided that meek surrender—in this case with the policy end game of unilateral North Korean nuclear disarmament as the only possible outcome—really was the only possible option.

But as was true for Count Henry, that assumes your enemy is playing by the same rules that you are, and makes the same calculations. If, to our horror, we found that they do not, it is far too easy to simply say our enemies are ‘crazy,’ meaning their motives simply cannot be fathomed, letting us off the hook far too easily.

Throughout history, both decision-makers as well as geopolitical analysts have always had a very hard time getting past the wholly understandable first reaction that those with very different belief systems from ours are simply unknowable. In the Old Man in the Mountain’s case, given his effective strategy for engaging in strategic assassinations, Westerners took to calling his followers Hashashin, or “users of hashish,” as drugs became the only possible (and incorrect) rationale the Crusaders could come up with to explain their intensity, morale, and absolute personal commitment to Sinan, rather than to the Western value of the sanctity of human life. It has always been all too easy for decision-makers to write off ‘lunatics,’ lazily saying to themselves that the different and the strange simply cannot be understood.

There has been a lot of this misdiagnosis going on regarding Kim Jong-un’s totalitarian hermit kingdom; former National Security Adviser H.R. McMaster forthrightly said Kim Jong-un was ‘crazy,’ and is therefore unable to be deterred by the threat of a nuclear counter-strike, meaning that the nuclear deterrence which has kept the global peace for these past seventy-plus years does not apply to North Korea’s nuclear programme. But have Kim’s actions really proved so unknowable, just because North Korea’s politics and culture are so admittedly different from our own?

Far from it. While there is no doubt Kim Jong-un would serve as an excellent Bond villain—between very publicly poisoning his half-brother Kim Jong-nam with sarin and executing his pro-Chinese uncle and former mentor Jang Song-thaek by blowing him to pieces with artillery—there is surely method to his madness. 

While the North Korean dictator is certainly odious, he seems to have a very well-defined and rational sense of self-preservation; in fact, he killed his uncle and his brother precisely because he feared they might emerge as threats to his continued rule and also to his life. In not allowing any alternate sources of leadership to emerge within the famously closed-off North Korean regime, Kim is clearly enhancing his chances of survival in the political shark tank he calls home.

Nor is Kim’s single-minded pursuit of an advanced nuclear weapons program capable of striking the US lunacy; rather the dictator has read some recent history, as the recent spat over the Libya model—a point which led to the temporary postponement of the summit—makes eminently clear. A North Korea in possession of such weapons has a ‘get out of jail free’ card, being able to ward off the oft-stated US desire for regime change in Pyongyang. Kim would be able to definitively avoid the recent fate of Libya’s Muammar Gaddafi and Iraq’s Saddam Hussein, who relinquished their nuclear programs, only to be overthrown and brutally killed.

For National Security Adviser John Bolton and Vice President Mike Pence to bring this up, illustrates that it is they and not the ruthless North Korean dictator who are living in an illogical fantasy world. For the Libya model, given the horrendous outcome for Libyan dictator Gaddafi, would obviously seem to be the last framework of choice for Kim Jong-un to embrace, given his rational desire for survival. As ever, American hawks overrate the objective global power position of the United States, as we live in a world where America, for all that it remains the most powerful nation on earth, is simply no longer the only game in town.

By understanding neither the basic structure of the world we live in—that it is comprised of many powers—nor that Kim Jong-un might be put out by the Gaddafi comparison, senior figures in the Trump White House seem to have forgotten that any negotiation short of unconditional surrender usually involves give and take by both sides, in this case over the terms, time frame, and pace of North Korea disarmament, as well as over the security guarantees that are necessary for a surprisingly rational Kim to be given, in securing both his position and his life.

The Old Man of the Mountain must never be forgotten by modern-day decision-makers, as in the end his seemingly unfathomable against-the-odds strategy was crowned with an improbable victory in the Third Crusade. His successful career underlines the vital need to game out ‘lunatics’ such as Kim Jong-un. For not only is there almost always method to their madness. Sometimes they actually win.

Dr. John C. Hulsman is President and Managing Partner of John C. Hulsman Enterprises, a prominent global political-risk consulting firm. His new book, To Dare More Boldly: The Audacious Story of Political Risk, was published by Princeton University Press in April and is available on Amazon. He lives in Milan, Italy.

Dr. John C. Hulsman: Delphic priestesses were the world’s first political risk consultants

by Dr. John C. Hulsman

In 480 BCE, the citizens of Athens were in more trouble than it is possible for our modern minds to fathom. Xerxes, the seemingly omnipotent son of Darius the Great, had some unfinished business left to him by his father. A decade earlier, at the Battle of Marathon in August 490 BCE, the miraculous had happened: the underrated Athenian army had seen off Darius and his mighty Persian horde, saving the threatened city-state from certain destruction. Now Xerxes had invaded Greece again, to finish the work his father had started, and he’d assembled a vast army that the Greek historian Herodotus (typically exaggerating) put at 5 million, but – though modern scholars disagree on precise numbers – was likely to have been a still-overwhelming force of 360,000, on top of a gigantic armada of 750 ships. Confronted with an insurmountable foe and almost certain destruction, the hard-pressed Athenian leadership requested the services of the world’s first political risk consultant.

Already, by 480 BCE, the Pythia of Delphi was an ancient institution. Now commonly known as the Oracle of Delphi – when, in ancient Greek, the oracles were the pronouncements that the Pythia dispensed – the Pythia were the senior priestesses of the Temple of Apollo, the Greek God of Prophecy. For more than 1,100 years (until 390 CE, when radical Christians chased the last Pythia out of Parnassus), they were viewed as the most authoritative soothsayers in Greece. Pilgrims descended from all over the ancient world to the temple on the slope of Mount Parnassus to have their questions about the future answered. From the small, enclosed chamber at the base of the shrine, the Pythia (there were three priestesses on call at any time) delivered her oracles in a frenzied state – the likely result of imbibing the hallucinogenic vapours rising from the clefts in the rock of Mount Parnassus, which we now know sits atop the intersection of two tectonic plates.

The Pythia would be sitting in a perforated cauldron astride a tripod. Pilgrims reported (and Plutarch, who for a time served as high priest at Delphi, assisting the Pythia in her mission, confirmed) that as she inhaled the strange vapours her hair would stand on end, her complexion altered, and she would often begin panting, her voice assuming an otherworldly tone. In classical days it was said that the Pythia spoke in rhyme, in pentameter or hexameter. To put it in modern terms, the Pythia was clearly as high as a kite. But let’s look at the Pythia afresh, for I would argue that the Temple at Delphi was effectively the world’s first political risk-consulting firm.

Since the height of the Persian Wars, political and business leaders have looked to outsiders blessed with seemingly magical knowledge to divine both the present and the future. While the tools of divination have obviously changed, the pressing need for establishing the rules of the road for managing risk in geopolitics have not. The question for political risk analysis remains the same as it was during the heyday of the Pythia: with superior knowledge (spiritual or intellectual), can we reliably do this?

The Pythia’s prognosticating advantages, not least her outsider status, curiously track the qualities that political risk firms look for in their best analysts today. In their isolation at Mount Parnassus, the Pythia were not in danger of elite capture, and the curse of analytical groupthink that so often follows, in terms of what they predicated. This is the curse that doomed so many modern-day analysts to be so very wrong about the Brexit vote because they didn’t bother to look outside the hermetically sealed elite shell of London; or the startling advent of Donald Trump (they never left the East Coast corridor). Physical, intellectual and emotional distance have great analytical value.

Yet despite being isolated, the Pythia had limited but regular contact with the elites of the day who made the arduous trek to visit them. Over time, the priestesses at the Temple of Apollo came to understand what it was their clients wished to know, and how to provide exactly what they lacked; independent, outside, authoritative advice. It should be noted that the Pythia were chosen from a group of highly educated women, well-acquainted with the world. It is this strange and unique mix of special knowledge, education, distance from (and yet connection to) the centres of corruption and power, that describes the ideal CV for political risk analysts today.

The Pythia offered practical counsel that could shape future actions, just as political risk analysts do today – though we’d use modern jargon and call it ‘policy’ in the public sphere, and ‘corporate strategy’ in the business world. It is amazing how good a political risk record the priestesses actually had. Between 535 and 615 of the oracles have survived to the present day, and well over half of these are said to be historically correct. (I can name a goodly number of modern firms that would kill for that record.)

There has always been a market to answer basic political risk questions: can the Persians be stopped, and if so how? Will the UK vote for Brexit? Will Trump become president? Then as now, those with a reputation for getting basic political risk questions right were venerated, just as those who failed were over time discredited. Crucially, on the biggest political risk question Delphi was ever presented with – Xerxes’ invasion – the Pythia came through with flying colours. In her peculiar poetic and riddling fashion she suggested a ploy to get the Athenians off the hook. She recounted that when Athena, Greek goddess of wisdom and the patron of her namesake city, implored her father Zeus to save Athens, he told her that he would grant them ‘a wall of wood that alone should be uncaptured, a boon to you and your children’.

Naturally, the Pythia’s mysterious oracular pronouncements required interpretation by the city leaders of Athens. One of them, Themistocles, argued that a wall of wood specifically referred to the Athenian navy, and persuaded the city’s leaders to adopt a maritime-first strategy against the Persians. This policy – concocted by the Pythia – led directly to the decisive naval Battle of Salamis, the turning point that brought to an end the Persian risk to Athens’s very survival. To put it mildly, the Pythia had proven to be well worth her political-risk fee – both the direct monetary payment customarily made to her by pilgrims, and the larger donations to the gods, which secured petitioners an advanced place in the line.

To Dare More Boldly: The Audacious Story of Political Risk by John C Hulsman is out now via Princeton University Press.Aeon counter – do not remove

This article was originally published at Aeon and has been republished under Creative Commons.

Against metrics: how measuring performance by numbers backfires

by Jerry Muller

More and more companies, government agencies, educational institutions and philanthropic organisations are today in the grip of a new phenomenon. I’ve termed it ‘metric fixation’. The key components of metric fixation are the belief that it is possible – and desirable – to replace professional judgment (acquired through personal experience and talent) with numerical indicators of comparative performance based upon standardised data (metrics); and that the best way to motivate people within these organisations is by attaching rewards and penalties to their measured performance. 

The rewards can be monetary, in the form of pay for performance, say, or reputational, in the form of college rankings, hospital ratings, surgical report cards and so on. But the most dramatic negative effect of metric fixation is its propensity to incentivise gaming: that is, encouraging professionals to maximise the metrics in ways that are at odds with the larger purpose of the organisation. If the rate of major crimes in a district becomes the metric according to which police officers are promoted, then some officers will respond by simply not recording crimes or downgrading them from major offences to misdemeanours. Or take the case of surgeons. When the metrics of success and failure are made public – affecting their reputation and income – some surgeons will improve their metric scores by refusing to operate on patients with more complex problems, whose surgical outcomes are more likely to be negative. Who suffers? The patients who don’t get operated upon.

When reward is tied to measured performance, metric fixation invites just this sort of gaming. But metric fixation also leads to a variety of more subtle unintended negative consequences. These include goal displacement, which comes in many varieties: when performance is judged by a few measures, and the stakes are high (keeping one’s job, getting a pay rise or raising the stock price at the time that stock options are vested), people focus on satisfying those measures – often at the expense of other, more important organisational goals that are not measured. The best-known example is ‘teaching to the test’, a widespread phenomenon that has distorted primary and secondary education in the United States since the adoption of the No Child Left Behind Act of 2001.

Short-termism is another negative. Measured performance encourages what the US sociologist Robert K Merton in 1936 called ‘the imperious immediacy of interests … where the actor’s paramount concern with the foreseen immediate consequences excludes consideration of further or other consequences’. In short, advancing short-term goals at the expense of long-range considerations. This problem is endemic to publicly traded corporations that sacrifice long-term research and development, and the development of their staff, to the perceived imperatives of the quarterly report.

To the debit side of the ledger must also be added the transactional costs of metrics: the expenditure of employee time by those tasked with compiling and processing the metrics in the first place – not to mention the time required to actually read them. As the heterodox management consultants Yves Morieux and Peter Tollman note in Six Simple Rules (2014), employees end up working longer and harder at activities that add little to the real productiveness of their organisation, while sapping their enthusiasm. In an attempt to staunch the flow of faulty metrics through gaming, cheating and goal diversion, organisations often institute a cascade of rules, even as complying with them further slows down the institution’s functioning and diminishes its efficiency.

Contrary to commonsense belief, attempts to measure productivity through performance metrics discourage initiative, innovation and risk-taking. The intelligence analysts who ultimately located Osama bin Laden worked on the problem for years. If measured at any point, the productivity of those analysts would have been zero. Month after month, their failure rate was 100 per cent, until they achieved success. From the perspective of the superiors, allowing the analysts to work on the project for years involved a high degree of risk: the investment in time might not pan out. Yet really great achievements often depend on such risks.

The source of the trouble is that when people are judged by performance metrics they are incentivised to do what the metrics measure, and what the metrics measure will be some established goal. But that impedes innovation, which means doing something not yet established, indeed that hasn’t even been tried out. Innovation involves experimentation. And experimentation includes the possibility, perhaps probability, of failure. At the same time, rewarding individuals for measured performance diminishes a sense of common purpose, as well as the social relationships that motivate co-operation and effectiveness. Instead, such rewards promote competition.

Compelling people in an organisation to focus their efforts on a narrow range of measurable features degrades the experience of work. Subject to performance metrics, people are forced to focus on limited goals, imposed by others who might not understand the work that they do. Mental stimulation is dulled when people don’t decide the problems to be solved or how to solve them, and there is no excitement of venturing into the unknown because the unknown is beyond the measureable. The entrepreneurial element of human nature is stifled by metric fixation.

Organisations in thrall to metrics end up motivating those members of staff with greater initiative to move out of the mainstream, where the culture of accountable performance prevails. Teachers move out of public schools to private and charter schools. Engineers move out of large corporations to boutique firms. Enterprising government employees become consultants. There is a healthy element to this, of course. But surely the large-scale organisations of our society are the poorer for driving out staff most likely to innovate and initiate. The more that work becomes a matter of filling in the boxes by which performance is to be measured and rewarded, the more it will repel those who think outside the box.

Economists such as Dale Jorgenson of Harvard University, who specialise in measuring economic productivity, report that in recent years the only increase in total-factor productivity in the US economy has been in the information technology-producing industries. The question that ought to be asked next, then, is to what extent the culture of metrics – with its costs in employee time, morale and initiative, and its promotion of short-termism – has itself contributed to economic stagnation?Aeon counter – do not remove

Jerry Z. Muller is the author of many books, including The Tyranny of Metrics. His writing has appeared in the New York Times, the Wall Street Journal, the Times Literary Supplement, and Foreign Affairs, among other publications. He is professor of history at the Catholic University of America in Washington, D.C., and lives in Silver Spring, Maryland.

 

This article was originally published at Aeon and has been republished under Creative Commons.

Taxing the Rich

Taxing the RichIf you didn’t file your taxes on April 15th, you can breathe a sigh of relief. Thanks to the Emancipation Day holiday in the District of Columbia, the tax deadline was switched to April 18 this year. Already ahead of the game? While the final hours tick down, we have just the history of fiscal fairness for you.

In Taxing the Rich, Kenneth Scheve and David Stasavage analyze the history of taxes and take a look at when and why countries tax their wealthiest citizens. The authors argue that governments don’t tax the rich simply because of striking inequality—they do it when its citizens believe that such taxes compensate for the state unfairly privileging the wealthy. What matters most is society’s views on how the inequality is being generated in the first place.

The Atlantic recently wrote about the book, including quotes from Scheve and Stasavage:

Relative to the past 200 years of U.S. history, how heavily are the rich being taxed today? Kenneth Scheve and David Stasavage, professors of political science at Stanford University and New York University respectively, looked into when countries have taxed their wealthiest citizens most heavily, and what societal conditions might have produced those tax rates. In a project that took five years, the two constructed databases of tax rates and policies in 20 countries over the last two centuries in order to answer those questions. They recently published this research in a book, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.

One of their motivations for starting the project was a disconnect they noticed between rising inequality and static tax rates. “With inequality rising over the last three or four decades, why have there not been public policies that seem to address that in an important and substantive way?” says Scheve. But while it would seem intuitive that taxes would increase at the times when inequality is highest, Scheve and Stasavage found that this relationship hasn’t held true over the course of history.

You can read the full piece in The Atlantic here, and an exclusive interview with Scheve and Stasavage here.

Joel Brockner on “bad process” in the Yahoo layoffs

Many feel that upper management in some of the most prominent companies has lost touch with how to care for employees on every rung of the ladder.  In his book The Process Matters: Engaging and Equipping People for Success, Joel Brockner addresses managers who want to promote a high-quality work environment for employees. Today he writes about the problem of management manipulation in the case of Yahoo’s recent, unexpected rash of layoffs. Brockner insists that it was the method used by management rather than the action of firing the employees that lead to such an outcry.

Yahoo Lawsuits Begin Over Management Manipulation

by Joel Brockner

Process matters jacketYahoo has been going through tough times so we shouldn’t be surprised to hear, as the New York Times recently reported that, “More than one-third of the company’s work force has left voluntarily or involuntarily over the last year.” It also comes as little surprise that among the involuntarily departed, some are suing for wrongful termination. It’s tempting to chalk up the negative reactions of former employees to economic considerations. After all, when people’s livelihood is at stake, it’s understandable for them to be looking elsewhere or for giving their former employers hell to pay.

However, many studies show that it’s not simply decisions that are economically unfavorable that are causing the upset. Rather, the combination of economically tough decisions and people’s perceptions of the decisions being handled poorly are putting them over the edge. Those filing suit at Yahoo claim that the way in which the layoffs were implemented was unfair, in several respects. First, the layoffs allegedly violated both state and Federal law which requires 60 days advance notice. Furthermore, there was considerable consternation about how it was decided which employees would be laid off and which would remain. On paper, it is hard to argue with Yahoo’s method: based on their Quarterly Performance Review (QPR), those people who received the least favorable evaluations were the ones targeted for dismissal.

The problem, however, is not with making layoff decisions on the basis of (de)merit, but rather, with people’s perceptions of the way in which the QPR was done. According to the New York Times, “The Q.P.R. process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed,” the lawsuit says. “This manipulation of the Q.P.R. process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping.”

I suppose we also shouldn’t be terribly surprised to hear that the combination of a bad outcome and a bad process makes people very upset. After all, there is an expression in everyday life that captures such a state of affairs: “Adding insult to injury.” People feel injured by the bad outcome, and they are insulted by the way in which it was carried out. However, one thing we are learning from research and experience is that the expression, “adding insult to injury” doesn’t do justice to how aggrieved people feel when they find themselves in that situation. In mathematical terms, the expression, “multiplying insult times injury” is more like it. This is why I advise people in authority positions (executives, as well as teachers and parents) that whenever they have to make the tough decisions they should do whatever they can to ensure that the process for making and carrying them out is as high-quality as possible. This is not to say that that those on the receiving end will be happy; grudging acceptance comes closer to how most people will take it. But, grudging acceptance is a lot better than what authorities are likely to encounter when those on the receiving end feel like they have had the injury of an unfavorable outcome multiplied by the insult of an unfair or otherwise flawed process.

So, the Yahoos of the world who are faced with having to be the bearers of bad news have a choice. By investing in a well-handled process, they can minimize (read: not eliminate) the ire that translates into actions like lawsuits. Alternatively, by ignoring the quality of the process, they are at peril for more lawsuits or other expressions of discontent. Over and above the ethical imperative of handling the process well, there is an economic one: would you rather spend resources needed to handle the process well, or the far greater resources you are likely to need to defend yourself in a court of law?

Joel Brockner
 is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts. His most recent book is The Process Matters: Engaging and Equipping People for Success.

New Economics & Finance Catalog

Our Economics & Finance 2016 catalog is now available.

 

AkerlofShiller In Phishing for Phools, Nobel Prize-winning authors George A. Akerlof and Robert J. Shiller reveal the dark side of the free market, including the role that manipulation and deception play in it.
Gordon Robert J. Gordon explores the period of economic boom following the Civil War and the impact it had on society in The Rise and Fall of American Growth. Then, he argues that this era has now come to a close, analyzing the causes and effects of economic stagnation.
Sandbu Check out Europe’s Orphan by Martin Sandbu, a defense of the beleaguered euro and an analysis of what must be done to achieve prosperity in Europe.
Deaton Nobel prize-winning author Angus Deaton analyzes the remarkable progress that some nations have made over the course of the past 250 years and addresses what steps ought to be taken to aid those nations that have had less success in The Great Escape, now available in paperback.

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Finally, if you’re in San Francisco for the Allied Social Science Associations Meeting, visit PUP at booth #205.

The Process Matters: Joel Brockner critiques Twitter’s most recent layoff method

Process Matters coverAccording to Joel Brockner, author of The Process Matters: Engaging and Equipping People for Success, an overemphasis on “results only” in the workplace is as widespread as it is detrimental. As Brockner aims to demonstrate in his opinion piece in Fortune magazine, the process managers use to reach their goals is itself critical. He critiques Twitter’s recent decision to block employee email accounts as a way of notifying staff of layoffs, while professing the highest respect and consideration for its employees. Brockner explains:

While the generous exit package may have been well-intended, the message of utmost respect fell by the wayside because the approach Twitter took was a process disaster… Given Twitter’s professed intentions, it seems that they could have found a more dignified way to tell people that they were being let go. But Twitter isn’t alone in process dysfunction.

Brockner continues to discuss the potential reasons for such a managerial mishap: perhaps the misstep isn’t obvious, or the managers are simply unaware of its unintended consequences. Yet he maintains that executives should prioritize improving managerial-employee processes, because ultimately the company will, “pay now or pay (a lot more) later.”

Read the full opinion piece in Fortune here.

Joel Brockner is the Phillip Hettleman Professor of Business at the Columbia Business School. He is the author of A Contemporary Look at Organizational Justice: Multiplying Insult Times Injury and Self-Esteem at Work, and the coauthor of Entrapment in Escalating Conflicts.

What do these Nobel prize winning economists have in common?

Princeton Makes. Stockholm Takes.

Princeton University Press is proud to be the publisher of these Nobel Prize-winning economists


2015
Angus DeatonThe Great Escape jacket

The Great Escape: Health, Wealth, and the Origins of Inequality

Demonstrating how changes in health and living standards have transformed our lives, The Great Escape is a powerful guide to addressing the well-being of all nations.

 

The Theory of Corporate Finance jacket2014 Jean Tirole

The Theory of Corporate Finance

Tirole conveys the organizing principles that structure the analysis of today’s key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages.

2013 Lars Peter HansenRobustness jacket

Robustness

What should a decision maker do if the model cannot be trusted? This book adapts robust control techniques and applies them to economics. By using this theory to let decision makers acknowledge misspecification in economic modeling, the authors develop applications to a variety of problems in dynamic macroeconomics.

Irrational Exuberance jacket2013 Robert J. Shiller

Irrational Exuberance

In addition to diagnosing the causes of asset bubbles, Irrational Exuberance recommends urgent policy changes to lessen their likelihood and severity—and suggests ways that individuals can decrease their risk before the next bubble bursts. No one whose future depends on a retirement account, a house, or other investments can afford not to read it.

Handbook of Experimental Economics jacket2012 Alvin E. Roth

The Handbook of Experimental Economics (Edited with John H. Kagel)

This book presents a comprehensive critical survey of the results and methods of laboratory experiments in economics:public goods, coordination problems, bargaining, industrial organization, asset markets, auctions, and individual decision making.

2012 Lloyd S. Shapley

Advances in Game Theory (AM-52) (Edited with Melvin Dresher & Albert William Tucker)

Shapley considers Cooperative Game Theory when discerning various match methods that result in stable matches. In this book, Shapley defines stable matches as no two entities that would prefer one another over their counterparts and recognizes processes to achieve these matches.

2011 Thomas J. SargentConquest of American Inflation jacket

The Conquest of American Inflation

Sargent examines two broad explanations for the behavior of inflation and unemployment in this period: the natural-rate hypothesis joined to the Lucas critique and a more traditional econometric policy evaluation modified to include adaptive expectations and learning. His purpose is not only to determine which is the better account, but also to codify for the benefit of the next generation the economic forces that cause inflation.

2010 Peter DiamondBehavioral Economics and Its Applications

Behavioral Economics and Its Applications (Edited with Hannu Vartiainen)

In this volume, some of the world’s leading thinkers in behavioral economics and general economic theory make the case for a much greater use of behavioral ideas in six fields where these ideas have already proved useful but have not yet been fully incorporated–public economics, development, law and economics, health, wage determination, and organizational economics. The result is an attempt to set the agenda of an important development in economics.

Understanding Institutional Diversity jacket

2009 Elinor Ostrom

Understanding Institutional Diversity

Concentrating primarily on the rules aspect of the IAD framework, this book provides empirical evidence about the diversity of rules, the calculation process used by participants in changing rules, and the design principles that characterize robust, self-organized resource governance institutions.

Mass Flourishing jacket2006 Edmund S. Phelps

Mass Flourishing

Phelps argues that the modern values underlying the modern economy are under threat by a resurgence of traditional, corporatist values that put the community and state over the individual. The ultimate fate of modern values is now the most pressing question for the West: will Western nations recommit themselves to modernity, grassroots dynamism, indigenous innovation, and widespread personal fulfillment, or will we go on with a narrowed innovation that limits flourishing to a few?

2005 Robert J. Aumann

Values of Non-Atomic Games

This book extends the value concept to certain classes of non-atomic games, which are infinite-person games in which no individual player has significance. It is primarily a book of mathematics—a study of non-additive set functions and associated linear operators.

Anticipating Correlations jacket2003 Robert F. Engle III

Anticipating Correlations:A New Paradigm for Risk Management

Engle demonstrates the role of correlations in financial decision making, and addresses the economic underpinnings and theoretical properties of correlations and their relation to other measures of dependence.


2003
Clive W.J. Granger

Spectral Analysis of Economic Time Series (PSME-1) (with Michio Hatanaka)

Spectral Analysis of Economic Time Series expands and implements on innovative statistical methods based on Granger’s differentiating process, “cointegration”. Granger analyzes and compares short-term alterations with long-term patterns.

Identity Economics jacket2001 George A. Akerlof

Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being (with Rachel E. Kranton)

Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identities–and not just economic incentives–influence our decisions.The authors explain how our conception of who we are and who we want to be may shape our economic lives more than any other factor, affecting how hard we work, and how we learn, spend, and save.

Lectures on Public Economics jacket2001 Joseph Stiglit

Lectures on Public Economics (with Anthony B. Atkinson)

The lectures presented here examine the behavioral responses of households and firms to tax changes. The book then delves into normative questions such as the design of tax systems, optimal taxation, public sector pricing, and public goods, including local public goods.

Introducing the new video trailer for PHISHING FOR PHOOLS by Robert Shiller & George Akerlof

Phishing for Phools jacketDo you have a weakness? Of course you do. Which means, according to Nobel Prize-winning economists George Akerlof and Robert Shiller, you have probably been “phished” for a “phool.”

We tend to think of phishing as the invisible malevolence that led our grandparents to wire money to Nigeria, or inspired us to click on a Valentine’s day link that promised, “someone loves you,” and then promptly crashed our hard drive. But more generally understood, “phishing” is inseparable from the market economy of everyday life. As long as there is profit to be made, psychological weaknesses will be exploited. For example, overly optimistic information results in false conclusions and untenable purchases in houses and cars. Health clubs offer overpriced contracts to well-intentioned, but not terribly athletic athletes. Credit cards feed dramatic levels of debt. And phishing occurs in financial markets as well: Think of the legacy of mischief at work in the financial crises from accounting fraud through junk bonds and the marketing of derivatives.

Ever since Adam Smith, the central teaching of economics has been that the invisible hand of free markets provides us with material well-being. In Phishing for Phools, Akerlof and Shiller challenge this insight, arguing that markets are far from being essentially benign and don’t always create the greater good. In fact, markets are inherently filled with tricks and traps.

We are thrilled to introduce this new video trailer in which Robert Shiller talks about his new book with George Akerlof, Phishing for Phools:

 

Fragile by Design, The Limits of Partnership, and others among Bloomberg Businessweek’s favorite books of 2014

Happy new year 2014It’s nearing the end of the year and that means everyone is taking a look back at the best and worst of the past twelve months. Bloomberg Businessweek recently published a “Best Books of ’14,” list to their site, and five Princeton University Press titles were selected as some of the best of the year!

Mervyn King, former governor of the Bank of England, got things going; “Charles Calomiris and Stephen Haber’s Fragile by Design is a magnificent study of the economics and politics of banking.”fragile

Bjorn Wahlroos, Chairman of Nordea Bank AB (NDA), selected Edmund S. Phelps’s Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change and wrote, “[Phelps] redraws many political front lines and provides us with an answer to those who believe more public funding for investment and innovation is the road forward for our stagnant economies. It is a marvelous book that deserves to be read by everyone, but particularly by those entrusted with the design of the European future.”mass flourishing

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond selected both Fragile by Design: The Political Origins of Banking Crises and Scarce Credit by Calomiris and Haber and Human Capitalism: How Economic Growth has Made Us Smarter–and More Unequal by Brink Lindsey as his must reads of the year.human

“[Fragile by Design is] hands down the best single book for understanding the historical journey that laid the groundwork for the financial crisis.”

“[Lindsey] argues the case that economic inequality is more deeply intertwined with human capital accumulation and the process of economic growth than you thought.”

Dan Fuss, vice chairman of Loomis Sayles & Co., named The Limits of Partnership: U.S.-Russian Relations in the Twenty-First Century by Angela E. Stent as his choice for favorite book of 2014, while Satyajit Das, author of Traders, Guns, and Money selected The Transformation of the World: A Global History of the Nineteenth Century by Jürgen Osterhammel to round out the list of PUP titles. “Professor Jorgen Osterhammel’s fine book is anything but a linear recitation of events. Instead, it swoops, shimmies, and carves ellipses and spirals through the facts to give readers a remarkable picture of the 19th century, which has shaped much of the present world.”

angela stent world

Congratulations to all the PUP authors on the list! The rest of the article can be found, here.

 

Congratulations to Jean Tirole, recipient of 2014 Nobel Prize in Economic Science

Around this time last year the Press could not have been more excited. Why? Two of the three 2013 Nobel Prize in Economic Sciences awards went to PUP authors Lars Peter Hansen and Robert J. Shiller, authors of Robustness and Irrational Exuberance, respectively. To see just how excited we were, click here, here, or here. Amazingly enough, there was no shortage of excitement at the Press following this year’s announcement of the 2014 Nobel Prize in Economic Sciences award as Jean Tirole, author of Financial Crises, Liquidity, and the International Monetary System, The Theory of Corporate Finance, and co-author of Balancing the Banks: Global Lessons from the Financial Crisis, is the sole recipient.


“If we had more researchers like Jean Tirole it would be a very good thing for the world.”


The official Nobel Prize press release states Jean Tirole, head of economics at Toulouse University in France, won The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2014, “for his analysis of market power and regulation,” but this is just a fraction of the contribution he has made to economic theory and its real world implications. In an interview (which can be seen below) Chairman of the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel, Tore Ellingsen, praised Tirole for his tireless efforts to better understand and explain how governments could regulate industries dominated by monopolies. When asked if it was difficult to choose a winner for the award this year, Ellingsen explained, “Yes and no. It’s been clear for some time now that Jean Tirole is a worthy recipient, but the question has been for what, alone or with whom, and when?” The interview concludes with wishful thinking; “If we had more researches like Jean Tirole it would be a very good thing for the world.”

Tirole has been an active member and contributor to economic theory since the 1980’s, and although “his work is largely theoretical…it has translated easily to practical use.” As a New York Times article further notes, “[Tirole’s] work is also wide ranging. A description of his influence published by the prize committee cited more than 60 papers, an unusually large number.”

Peter J. Dougherty, Director of Princeton University Press had the following to say about Tirole’s impact on the field of economics and his much deserved recognition. “Jean Tirole’s 2006 book, The Theory of Corporate Finance, marked an important moment in economics as well as in the history of Princeton’s economics list. We extend our most heartfelt congratulations to Professor Tirole on the occasion of his Nobel prize.”

Again, on behalf of all of us at PUP, we would like to congratulate and thank Jean Tirole for keeping the Nobel Prize in Economic Sciences award in house. And who knows, maybe next year we’ll be posting about a three-peat… fingers crossed!