Economics & Finance

The Post-COIN Era is Here

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Learning to Eat Soup with a Spoon Again……

There has been, for years, an ongoing debate in the defense and national security community over the proper place of counterinsurgency (COIN) doctrine in the repertoire of the United States military and in our national strategy. While a sizable number of serious scholars, strategists, journalists and officers have been deeply involved, the bitter discussion characterized as “COINdinista vs. Big War crowd” debate is epitomized by the exchanges between two antagonists, both lieutenant colonels with PhD’s, John Nagl, a leading figure behind the U.S. Army/Marine Corps Counterinsurgency Field Manual and now president of the powerhouse think tank CNAS , and Gian Gentile, professor of history at West Point and COIN’s most infamous arch-critic.

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The Superstition Known as Economic Forecasting and the Trophy Wife Metric

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Deuteronomy 18:10-12 (KJV):

10. There shall not be found among you any one that maketh his son or his daughter to pass through the fire, or that useth divination, or an observer of times, or an enchanter, or a witch.

11. Or a charmer, or a consulter with familiar spirits, or a wizard, or a necromancer.

12. For all that do these things are an abomination unto the LORD: and because of these abominations the LORD thy God doth drive them out from before thee.

If an economic forecaster found himself plying his trade in ancient Israel, it wouldn’t be long before an outraged community dragged him kicking and hollering to the outskirts of the village and stoned him to death.

Especially if they followed his investment advice.

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Innovation of Institutional Cultures

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John Hagel is in a small category of thinkers who manage to routinely be thinking ahead of the curve ( he calls his blog, where he features longer but more infrequent posts than is typical, Edge Perspectives). I want to draw attention to the core conclusion of his latest:
Challenging Mindsets: From Reverse Innovation to Innovation Blowback

Innovation blowbackFive years ago, John Seely Brown and I wrote an article for the McKinsey Quarterly entitled “Innovation Blowback: Disruptive Management Practices from Asia.” In that article, we described a series of innovations emerging in Asia that were much more fundamental than isolated product or service innovations. We drew attention to a different form of innovation – institutional innovation. In arenas as diverse as motorcycles, apparel, turbine engines and consumer electronics, we detected a much more disruptive form of innovation.In these very diverse industries, we saw entrepreneurs re-thinking institutional arrangements across very large numbers of enterprises, offering all participants an opportunity to learn faster and innovate more effectively by working together. While Western companies were lured into various forms of financial leverage, these entrepreneurs were developing sophisticated approaches to capability leverage in scalable business networks that could generate not just one product innovation, but an accelerating stream of product and service innovations.

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“Protocols” and Wealth Creation

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Here’s David Brooks, writing in The New York Times:

In the 19th and 20th centuries we made stuff: corn and steel and trucks. Now, we make protocols: sets of instructions. A software program is a protocol for organizing information. A new drug is a protocol for organizing chemicals. Wal-Mart produces protocols for moving and marketing consumer goods. Even when you are buying a car, you are mostly paying for the knowledge embedded in its design, not the metal and glass. (via Isegoria)

Read the whole thing. The argument that Brooks is making here is very similar to the argument made by Rich Karlgaard of Forbes, which I critiqued in my post myths of the knowledge society.

In summary: The 19th and 20th centuries were also “knowledge economies” (in Karlgaard’s formulation) or “protocol economies” (in the Brooksian terminology). The value of a Boulton & Watt steam engine was not in the “stuff” it was made out of (which could be purchased for a far lower amount than you would pay for the steam engine itself) but rather for the design knowledge contributed by James Watt and the manufacturing process knowledge (protocol knowledge) contributed by Matthew Boulton..and for innumerable additions to that knowledge base by their employees. To take a more recent example, the early 20th century assembly line as implemented by Henry Ford, and the kinds of precise work planning and industrial engineering developed by Taylor and the Gilbreths, certainly represent “protocols” just as much as do Wal-Mart’s supply-chain management procedures.

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Paying Higher Taxes Can Be Very Profitable

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Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

PowerLine observes that during the election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.

The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

Consider, for starters, direct employment by the government. Most Americans still probably think of government work as low-paid, but this is much less true than it used to be. According to this, 19% of civil servants now make $100K or more. A significant number of federal employees are now making more than $170,000. And, of course, the more the role of government is expanded, the more such jobs will be created, and the better will be the prospects for further pay increases.

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