Book Notes – Page 12 – Chicago Boyz

Business Stories

December 10, 2019December 8, 2019 by David Foster

We’ve talked before here about the point that most fiction seems to be about people who are lawyers, policemen, criminals, soldiers, spies, students, politicians, and noble but struggling writers. But there are indeed some works of fiction, and some vivid personal memoirs, in which business plays a central role without being portrayed simplistically or as stereotypically evil. Here are some that I like…please add your own favorites in the comments. (I posted this at Ricochet, in slightly different form, about a week ago)

The Current War, a recent movie about the late-1800s power struggle to determine which technology…AC or DC…will dominate America’s electrical distribution system. Edison, Westinghouse, and Tesla are the key characters, played by Benedict Cumberbatch, Michael Shannon, and Nicholas Hoult respectively. My review is here.

The Big Short, a 2015 film about the 2007-2008 financial crisis, based on Michael Lewis’s book. A hedge fund manager concludes that the subprime-loan market is not sustainable, and makes a billion-dollar bet against the relevant mortgage-backed securities. Based on real events. I thought it was very well done.

God is an Englishman, R F Delderfield. Following his return to England from the Crimean War, Adam Swann identifies a business opportunity: although railroads are being built throughout the country, there will always be sources and destinations of freight which are not on the tracks. Hence, the potential for a nationwide gap-filling road haulage business based on the systematic use of horse-drawn wagons. (This is the first book of a three-book series called the Swann Family Saga.) Reviewed here.

Oil for the Lamps of China, Alice Tisdale Hobart. This 1933 novel is about a young American working as a sales rep in China, focused on selling oil for his employer (unnamed, but clearly based on Standard Oil) and increasing volumes by promoting the kerosene lamp as a better alternative to traditional lighting methods. The book was the basis for a 1935 movie of the same name…the film has its moments, but overall is not worthy of the book.

Father, Son, and Company, by Thomas Watson Jr. This is the best business autobiography I’ve read. It’s about Watson Jr (the long-time CEO of IBM), his difficult relationship with his father, the company they built, and the emergence of the computing industry. It is an emotional, reflective, and self-critical book, without the kind of “here’s how brilliant I was” tone that afflicts too many executive autobiographies. I reviewed it here.

A Man in Full, by Tom Wolfe. The central character of this 1988 novel is Charlie Croker, an Atlanta real-estate developer who has gotten himself into way too much debt. Other characters include Charlie’s current and former wives, the Black mayor of Atlanta, the bankers who must deal with the debt problem, and a warehouse worker at one of the Croker enterprises. The book also casts a not-very-complimentary light on the Atlanta society/arts scene.

Trial by Fire, Stephen Buck. The adventures of a Honeywell field engineer in the early days of process-control computing. The book’s title reflects the point that the industrial processes being controlled frequently involved combustion, sometimes in scary circumstances. Much of the author’s work took place outside the US, in countries ranging from Poland to Brazil.

Anniversary: The End of the Berlin Wall

November 10, 2019 by David Foster

November 9 marked the 30th anniversary of the fall of the Berlin Wall.

Peter Robinson, who drafted President Reagan’s speech including the line Mr. Gorbachev, tear down this wall!, has some thoughts.

Bill Brandt offers some remembrances and some video clips.

Bill’s post mentioned Anna Funder’s excellent book Stasiland: Stories from Behind the Berlin Wall, which I reviewed here.

An interesting website by a former East German MIG-21 pilot.

Book Review: Red Plenty, by Francis Spufford

October 27, 2019October 27, 2019 by David Foster

Red Plenty by Francis Spufford

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The idea of centralized economic planning is a very seductive one. It just seems to make sense that such planning would lead to more efficiency…less waste…and certainly less unnecessary human suffering than an environment in which millions of decision-makers, many of them in competition with one another, are making their own separate and uncoordinated decisions, resulting in pointless product redundancy, economic cycles driving unemployment, and lots of other bad things.

Red Plenty…part novel, part nonfiction…is about the Soviet Union’s economic planning efforts as seen from the inside. The characters include factory managers, economic planners, mathematicians, computer scientists, and “fixers.” Published in 2010, Red Plenty is now quite timely in view of the current vogue for socialism in American political discussion.

Marx drew a nightmare picture of capitalism, when everything was produced only to be exchanged; when true qualities and uses dropped away, and the human power of making and doing itself became only an object to be traded. The alternative? A dance to the music of use, where every step fulfilled some real need, did some tangible good, and no matter how fast the dancers spun, they moved easily, because they moved to a human measure, intelligible to all, chosen by all.

How might this actually be accomplished? Stalin mocked the idea that planning an economy required much in the way of intellectual depth or effort. Get the chain of command right, Stalin seemed to be saying, build it on the right ideological principles, and all that was left was a few technical details, a little bit of drudgery to be carried out by the comrades at Gosplan with the adding machines. But it turned out to be a little more complicated than that.

Maksim Maksimovich Mokhov is one of the lords of the Gosplan file room, in which there are hundreds of folders, each tracking the balances and plans for a particular commodity. A good man, who takes his job seriously, Maksim has risen as high as you could go at Gosplan before the posts become purely political appointments..his was the level at which competence was known to reach its ceiling…Not just a mechanical planner, he realizes that the file folders cast only the loosest and most imperfect net over the prodigious output of the economy as the whole, and has worked to understand the stress points, the secret path dependencies of the plan. His specific responsibility is the chemical and rubber sector, and he is particularly concerned, at the time when he enters the story, about problems in the viscose subsector.

Arkhipov, Kosoy, and Mitrenko run one of the most important plants in the viscose supply chain, and they are three worried men. The plan goals aren’t being met, and they know that the path to career death is separated by only a few percentage points of plan fulfillment from the other one, the upward path, the road to glory and local fame. (A couple of decades earlier, it wouldn’t have been just career death on the table.) This plant makes two viscose-derived products, yarn and tire cord. The yarn line works fine, the tire cord line, not so much…but no problems with the machine can be found. There is no prospect of getting a replacement machine in any relevant timeframe.

Arkhipov and his associates come up with a plan to solve their problem…read the book to see what it is and how it turns out.

Nikita Khrushchev, in September 1959, told a crowd that “the dreams cherished for ages, dreams expressed in fairytales which seemed sheer fantasy, are being translated into reality by man’s own hands.” Modern technology, combined with the benefits of a planned economy would make it possible.

Because the whole system of production and distribution in the USSR was owned by the state, because all Russia was (in Lenin’s words) ‘one office, one factory’, it could be directed, as capitalism could not, to the fastest, most lavish fulfillment, of human needs.

The American exhibition in Moscow in mid-1959 (site of the “kitchen debate” between Khrushchev and Nixon) was attended by 3 million Soviets (including some of the characters in this book), and although many of them thought that the American claims of broad-based prosperity were exaggerated or worse, the experience surely helped feed the longing for a better life for the Soviet Union’s ordinary people.

Leonid Vitalevich Kantorovich pioneered the application of mathematics to the optimization of economic activities…these methods surfaced as a possible toolkit for the planning organizations circa 1960. Could these methods help achieve Khrushchev’s stated goal of broad-based prosperity?

For example, consider several factories, producing a common set of products but with different efficiency characteristics. Which products should be made by which factories in order to optimize overall efficiency? A set of equations can be constructed representing the constraints that must be observed–labor, machine utlization, etc–and the relative weighting of the variables to be optimized. Although these techniques have been used to a considerable degree in capitalist countries, they would seem tailor-made for a starring role in a planned economy. Selling the new methods in the Soviet Union, though, could be tricky: the linear-programming term “shadow prices”, for example, sounded like something that might have politically-dangerous overtones of capitalism!

One of the first applications involved potatoes, the distribution of same. The BESM (computer) is using Leonid Vitalevich’s shadow prices to do what a market in potatoes would do in a capitalist country–only better. When a market is matching supply with demand, it is the actual movement of the potatoes themselves from place to place, the actual sale of the potatoes at ever-shifting prices, which negotiates a solution, by trial and error. In the computer, the effect of a possible solution can be assessed without the wasteful real-world to-ing and fro-ing, and because the computer works at the speed of flying electrons rather than the speed of a trundling vegetable truck, it can explore the whole of the mathematical space of possible solutions, and be sure to find the very best solution there is, instead of settling for the good-enough sollution that would be all there was time for, in a working day with potatoes to deliver.

And even in the planned Soviet economy, there is still a market in potatoes, right here in Moscow, the leftover scrap of capitalism represented by the capital’s collective-farm bazaars, where individual kolkhozniks sell the product from their private plots…The market’s clock speed is laughable. It computes a the rate of a babushka in a headscare, laboriously breaking a two-rouble note for change and muttering the numbers under her breath…No wonder that Oscar Lange over in Warsaw gleefully calls the marketplace “a primitive pre-electronic calculator.”

So put the BESM to work minimizing distance that the potatoes have to travel..a proxy for efficiency and freshness: price is not a consideration, since the state selling price of potatoes has been fixed for many years. But BESM can only work with abstract potatoes: Not, of course, potatoes as they are in themselves, the actual tubers, so often frost-damaged or green with age or warty with sprouting tublices–but potatoes abstracted, potatoes considered as information, travelling into Moscow from 348 delivering units to 215 consuming organizations…The economists recognize the difficulty of getting a computer model to mirror the world truly. They distinguish between working at zadachi, ‘from the problem’, and of fotografii, ‘from the photograph’…This calculation, alas, is from the photograph. It deals with potato delivery as it has been reported to Leonid Vitalevich and his colleagues. There has been no time to visit the cold-stores, interview the managers, ride on the delivery trucks. But the program should still work.

The author notes that “the idea that the computer had conclusively resolved the socialist calculation debate in socialism’s favour was very much a commonplace of the early sixties.”

But despite all the planning paperwork, despite the attempts at computerization, people like Chekuskin remain essential to keep the Soviet economy functioning at all. He is a fixer, he works the system to ensure that his customers–factories, for the most part–can get the parts and materials they need in order to keep operating. Before the revolution, he was a salesman: now, the economic problem is not selling, but buying. Chekuskin explains what a real salesman was, back in the day:

You’re thinking of some fellow who works in a sales administration, sits by his phone all day long like a little king, licks his finger when he feels like it, and says, “You can have a litttle bit”…That’s not a salesman. You see, the world used to be the other way up, and it used to be the buyers who sat around examining their fingernails, hard enough as that is to imagine. A salesman was a poor hungry bastard with a suitcase, trying to shift something that people probably didn’t want, ’cause back in those days, people didn’t just get out the money and buy anything they could get their hands on. They had to be talked into it.”

But with Communism, the things changed. Back then, people didn’t want to buy. Now, they don’t want to sell. There’s always that resistance to get past. But the trick of it stays the same: make a connection, build a relationship.

Volodya, is a young propagandist recently assigned to the huge locomotive plant in Novocherkassk, a dismal town that also features a university. Unfortunately, it was classified by the planners as a “college town”, in need of the calorific intake required to lift pencils and wipe blackboards, but there were forty thousand people living and working in the industrial zone out by the tracks now, and between the students and the loco workers, a locust would have been hard put to it to find a spare crumb. White bread was a distant memory, milk was dispensed only at the head of enormous queues. Sausages were as rare a comets. Pea soup and porridge powered the place, usually served on half-washed plates.

Eventually, people can’t stand it anymore–and decisions by two separate planning organizations have the result that on the very same day, food prices are increased and so are the production quotas at the locomotive factory. There is a raucous mass protest, featuring signs like MEAT, BUTTER, AND PAY and CUT UP KHRUSHCHEV FOR SAUSAGES. The loco plant manager, Korochkin, does not handle the situation well, and the rage grows.

The ensuing catastrophe is vividly described as it is observed by the horrified Volodya. Troops open fire on the protestors: 26 people are killed an 87 wounded. Death sentences and long prison terms are handed down.

This was a real event: it happened in 1962. News about the events did not appear in the state-controlled press for thirty years.

The Cuban Missile Crisis, as Viewed From a Soviet Launch Facility

October 22, 2019 by David Foster

This month marks the 57th anniversary of the Cuban Missile Crisis, which brought the world dangerously close to thermonuclear war.

Several years ago, I read Rockets and People, the totally fascinating memoir of Soviet rocket developer Boris Chertok, which I reviewed here.

Chertok’s career encompassed both military and space-exploration projects, and in late October 1962 he was focused on preparations for launching a Mars probe. On the morning of Oct 27, he was awakened by “a strange uneasiness.” After a quick breakfast, he headed for the missile assembly building, known as the MIK.

At the gatehouse, there was usually a lone soldier on duty who would give my pass a cursory glance. Now suddenly I saw a group of soldiers wielding sub-machine guns, and they thoroughly scrutinized my pass. Finally they admitted me to the facility grounds and there, to my surprise, I again saw sub-machine-gun-wielding soldiers who had climbed up the fire escape to the roof of the MIK. Other groups of soldiers in full combat gear, even wearing gas masks, were running about the periphery of the secure area. When I stopped in at the MIK, I immediately saw that the “duty” R-7A combat missile, which had always been covered and standing up against the wall, which we had always ignored, was uncovered.

Chertok was greeted by his friend Colonel Kirillov, who was in charge of this launch facility. Kirollov did not greet Chertok with his usual genial smile, but with a “somber, melancholy expression.”

Without releasing my hand that I’d extended for our handshake, he quietly said: “Boris Yevseyevich, I have something of urgent importance I must tell you”…We went into his office on the second floor. Here, visibly upset, Kirillov told me: “Last night I was summoned to headquarters to see the chief of the [Tyura-Tam] firing range. The chiefs of the directorates and commanders of the troop units were gathered there. We were told that the firing range must be brought into a state of battle readiness immediately. Due to the events in Cuba, air attacks, bombardment, and even U.S. airborne assaults are possible. All Air Defense Troops assets have already been put into combat readiness. Flights of our transport airplanes are forbidden. All facilities and launch sites have been put under heightened security. Highway transport is drastically restricted. But most important—I received the order to open an envelope that has been stored in a special safe and to act in accordance with its contents. According to the order, I must immediately prepare the duty combat missile at the engineering facility and mate the warhead located in a special depot, roll the missile out to the launch site, position it, test it, fuel it, aim it, and wait for a special launch command. All of this has already been executed at Site No. 31. I have also given all the necessary commands here at Site No. 2. Therefore, the crews have been removed from the Mars shot and shifted over to preparation of the combat missile. The nosecone and warhead will be delivered here in 2 hours

Chertok, who at this point was apparently viewing the Cuban affair as a flash in the pan that would be resolved short of war, was concerned that moving the Mars rocket would cause them to miss their October 29 launch date, and suggested that the swap of the rockets be delayed for a few hours. Kirillov told him that this was impossible, and that he should go to the “Marshal’s cottage,” where some of his associates wanted to see him. Chertok’s response:

Yes, sir! You’re in charge! But, Anatoliy Semyonovich! Just between you and me do you have the courage to give the ‘Launch!’ command, knowing full well that this means not just the death of hundreds of thousands from that specific thermonuclear warhead, but perhaps the beginning of the end for everyone? You commanded a battery at the front, and when you shouted ‘Fire!’ that was quite another matter.

Kirillov:

There’s no need to torment me. I am a soldier now; I carry out an order just as I did at the front. A missile officer just like me, not a Kirillov, but some Jones or other, is standing at a periscope and waiting for the order to give the ‘Launch’ command against Moscow or our firing range. Therefore, I advise you to hurry over to the cottage.

At the cottage, four men were seated at a table playing cards while a fifth was trying to glean the latest news from a radio and Lena, the housekeeper, was in the kitchen drying wine glasses. It was suggested that since Chertok didn’t like playing cards, he should help Lena fix the drinks. This involved a watermelon and lots of cognac.

I took the enormous watermelon and two bottles of cognac out of the fridge. When everything was ready, we heard a report that U.N. Secretary General U Thant had sent personal messages to Khrushchev and Kennedy. Once again, Voskresenskiy took the initiative and proposed the first toast: “To the health of U Thant, and may God grant that this not be our last drink!” This time we all drank down our toast in silence and very solemnly, realizing how close we now were to a situation in which this cognac and this watermelon could be our last.

Still hoping to avoid the cancellation of the Mars mission, Chertok went to another cottage and, with considerable difficulty, made a forbidden call to S P Korolev, overall head of the Soviet rocket program, who was then in Moscow. Korolev told him that things were being taken care of and not to worry.

It was already dark when I returned to the Marshal’s cottage. On the road, a Gazik came to an abrupt halt. Kirillov jumped out of it, saw me, swept me up in a hug, and practically screamed: “All clear!” We burst into the cottage and demanded that they pour “not our last drink,” but alas! The bottles were empty. While everyone excitedly discussed the historic significance of the “All clear” command, Lena brought out a bottle of “three star” cognac from some secret stash. Once again the Mars rockets were waiting for us at the launch site and in the MIK.

Reflecting on the crisis many years later, Chertok wrote:

Few had been aware of the actual threat of a potential nuclear missile war at that time. In any event, one did not see the usual lines for salt, matches, and kerosene that form during the threat of war. Life continued with its usual day-to-day joys, woes, and cares. When the world really was on the verge of a nuclear catastrophe, only a very small number of people in the USSR and the United States realized it. Khrushchev and Kennedy exercised restraint and did not give in to their emotions. Moreover, the military leaders of both sides did not display any independent initiative nor did they deviate at all from the orders of their respective heads of state. Very likely, Khrushchev wasn’t just guided by the pursuit of peace “at any cost.” He knew that the U.S. nuclear arsenal was many times greater than ours. The Cubans did not know this and viewed Moscow’s order to call off missile preparation and dismantle the launch sites as a betrayal of Cuba’s interests. President Kennedy had no doubt as to the United States’ nuclear supremacy. The possibility of a single nuclear warhead striking New York kept him from starting a nuclear war. Indeed, this could have been the warhead on the R-7A missile that they didn’t roll out of the MIK to the pad at Site No. 1.

(cross-posted at Ricochet)