The upside of relative decline

“Being in politics is like being a football coach. You have to be smart enough to understand the game, and dumb enough to think it's important.” This piece by Simon Head on the decline of British business reminds me of these words by Eugene McCarthy.

Simon is, of course, reviving an old theme. Back in the 70s, we were obsessed with Britain’s relative economic decline – a decline summed up by the engineering boss who said: “I don’t understand why we’ve lost so much market share in the last 30 years. I mean, we’re making exactly the same products.”

There were several reasons for that decline which are still present: short-termism, a lack of good vocational training, poor employee engagement and bad management; for example Bloom and Van Reenen show (pdf) that British manufacturing bosses are on average worse than those in some other advanced nations. We might add that the US’s big home market gives it an advantage in businesses that benefit from Metcalfe’s law such as Google, Facebook and Twitter – but this can’t explain why the UK also does relatively badly in businesses faced with diseconomies of scale.

I want to suggest something else. It lies in McCarthy’s line. Successful bosses are like football coaches: they must be smart enough to understand the game but dumb enough to think it matters. Britain has a relative dearth of such people.

It used to be said that one cause of the UK’s relative decline was that our industrialists cleaved to an ideal of being a country gentleman; they aspired to become leisured aristocrats rather than tycoons. Here’s Martin Wiener (though Perry Anderson, Tom Nairn and EP Thompson said similar things):  

The consolidation of a “gentrified” bourgeois culture, particularly the rooting of pseudoaristocratic attitudes and values in upper-middle-class educated opinion, shaped an unfavourable context for economic endeavour…Industrialists themselves…gravitated towards what they saw as aristocratic values and styles of life to the detriment, more often than not, of their economic effectiveness (English Culture and the Decline of the Industrial Spirit, p10)

I suspect there’s still a lot in this. Very many of my rough contemporaries jump off the gravy train or get out of the rat race (I mix my metaphors merely to note their pejorativeness). Alienated by corporate imbecilities or the grunt-work of bureaucracy they downshift to comfier jobs, a couple of non-executive directorships or a hobby business. Those of us who are upwardly mobile and so don’t fit into the corporate upper-class are perhaps especially likely to do this.

Most of the people who are smart enough to understand business are also smart enough to get out of it. The tycoon mentality – the desire to keep making millions you can’t spend – is lacking.

Arsene Wenger says of Mesut Ozil and Alexis Sanchez that “they can raise a little bit above the financial aspect of the game because they are not poor and they have to look really on the football side.” He’s hinting at an important fact – that successful people are usually not motivated by money; the idea of “greedy bosses and bankers” is lazy leftist moralizing. Instead, they have internal, not extrinsic motivations. Often, though, these mitigate against building huge businesses: the man who loves solving engineering puzzles and inventing new products often won’t enjoy the very different challenge of expanding production and sales. So he might well sell up when the business is still small. It’s easier to find intrinsic satisfaction in being an engineer or coder or even trader than it is in being a manager.

In saying this, you might think I’m lamenting decline. Not entirely. Just ask: what does motivate a man to want to keep working once he’s made a few million? In some cases, the answer is: vanity: many very rich businessmen have monstrous egos. Perhaps, then, there’s an upside to the UK’s relative lack of successful businessmen. Sure, we have no Steve Jobs or Larry Ellison. But we also have no Donald Trump or Silvio Berlusconi.  

Comments

[Carol]

So Boris Johnson and Neil Farage are sui generis?

[Rob]

Philip Green? Robert Maxwell? Arron Banks? James Goldsmith?

Much of the UKIP-Tory rivalry of the mid-2000s was kept going by the personal rivalry of Stuart Wheeler and Peter Cruddas, who bankrolled the two parties; Cruddas is a billionaire and both are comfortably in the 'tycoon' category.

We don't have any shortage of people who have made so much money that the only thing left to buy with it is political power. The existence of the monarchy is probably the only reason we don't have a Trump or a Berlusconi - by permanently selecting one extremely rich person as head of state, the rest of them are kept from aspiring to the same.

[Antoine]

Having smart people leaving the corporate world to people with oversized ego would worry me even more.

[Dave Timoney]

Unless you believe that intelligence is unevenly distributed among the nations, we should expect to see the same dynamic (smart enough to understand business and smart enough to get out of it) in all countries, so this doesn't explain the particular record of the UK.

Also, reversing the parallel, why doesn't "football mad" England, with its many leagues and distinctive "passion", produce many more excellent coaches than other countries?

It is also surely questionable to claim that the poor performance of British industry is down to a relative dearth of the right sort of CEOs. This is perilously close to "holding out for a hero".

I've long been dubious about Wiener's theory of gentrification (i.e. that anti-commerce aristo values infected the bourgeoisie), not least because it looks like a post hoc ergo propter hoc reading. In the 70s there were plenty who claimed the success of Japanese industry was down to Bushido.

[Patrick Kirk]

According to Ben Bernanke here, the UK is at 96% of the US standard of living: https://www.brookings.edu/blog/ben-bernanke/2016/10/19/are-americans-better-off-than-they-were-a-decade-or-two-ago/

Given that the US has a bigger home market, does this not mean there is no real UK decline?

[chris]

@ Rob - yes, plenty of rich men have tried to buy political influence through bankrolling parties.But very few have sought it themselves directly: yes, Goldsmith stood for election, but that was campaigning for a cause rather than just an ego trip. (Banks, Cruddas and Wheeler have quite low public profiles).
@ FATE - my story isn't about differences in IQ. It's about sorting effects caused by cultural differences. As for our lack of good football coaches, part of the problem is the game's obsession with "passion" rather than intellect.

[Churm Rincewind]

"what does motivate a man to want to keep working once he’s made a few million?"

It's a good question.

Some years ago I fell in the girlfriend of a man worth substantially more than a few million and asked her exactly this question.

Her answer was interesting. She said he was driven by fear - the fear of losing everything.

[Boursin]

"I've long been dubious about Wiener's theory of gentrification (i.e. that anti-commerce aristo values infected the bourgeoisie), not least because it looks like a post hoc ergo propter hoc reading."

Me too. It certainly doesn't enjoy a good reputation currently in academic economic history. Some very sophisticated quantitative yardsticks have in fact been developed to measure gentrification with a view to testing Wiener's hypothesis empirically, and the evidence just isn't there. At the very time when, according to Wiener, English industrialists were at their most busy being gentrified, there were in fact hardly any gentrified super-rich in the whole of England with a background in manufacturing. Statistically, by far the most average rich person to newly buy into land in 19th-century England was in fact a London merchant or a London financier.

There are entire (and delightfully well-written) books on this, e.g.

https://www.amazon.co.uk/dp/0415037190/
https://www.amazon.co.uk/dp/0199265607/

[Igor Belanov]

As far as the myth of decline is concerned, you need to be looking at Jim Tomlinson and David Edgerton rather than Wiener.

As far as England's lack of good football coaches is concerned, the odd thing is that Scotland has produced so many with such a similar culture. Another curiosity is that England exported many coaches to the continent at one time who had little or no reputation at home. Bob Houghton who led Malmo to the 1979 European Cup Final is one of the last examples, and his one-time collaborator Mr Hodgson looked for a while to be another to add to the list....

[D]

@Churm

Well, if she's letting you just fall in her, sounds like had cause to fear losing her. Whey!

[gastro george]

Isn't is not just a failure to think long term but also a failure to think structurally or organisationally. You can see throughout our business culture that, while we create good technical products, we fail to develop them or sell them. In short we are a nation of bodgers and fixers. You can see this in our institutions, which are a miscellaneous patchwork of ideas that aren't though through or completed or abolished when obsolete. Our capitalism is beset by value extraction rather than development, an inheritance from our colonial past and their protected markets. It's always easier to make money than make things.

[chris]

@ Boursin - Thanks for your comment. I take your point. I fear I mis-phrased. I didn't intend to claim that those who choose not to try to become tycoons do so simply because they want to ape the landed gentry, merely that there are (maybe more so in the UK than US) cultural reasons why tycoon mentality is lacking.
One of these might be weaker puritan tradition: puritans believe in work as a virtue so do it when they no longer need the money, whereas others don't.
Ironically, the economic rationality pointed out by Rubinstein might also contribute here. A pure rational maximizer will choose leisure when he's rich; it takes non-economic motives (vanity, love of work, whatever) to keep working.

[Doug]

'As far as England's lack of good football coaches is concerned, the odd thing is that Scotland has produced so many with such a similar culture.'

Scotland and the north east of England have produced world-class coaches/managers until relatively recently. Looking at the social background of these men is quite suggestive - close-knit working class communities involved in coal mining, shipbuilding and heavy engineering, that valued mental toughness, hard work, solidarity, education and initiative. With the decline of these communities and jobs, the production line of great managers (and players, come to that) has tailed off markedly. Hence also the parlous state of Scottish football.

[reason]

"You have to be smart enough to understand the game, and dumb enough to think it's important.”
No you don't need to think it is important, you just have to know that you get paid well for understanding it (same with any job for that matter).

[chris]

@ Doug - I agree, and said as much here:
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2013/05/sir-alex-a-dying-culture.html
@ reason - you miss the point. I'm thinking of people who are well-off enough to no longer need to keep working; for these, a high wage in itself isn't motivation enough.

[reason]

@Chris
Yes I see that point, but there is another point as well. Why do people have passtimes? Not necessarily because people think they are important. I remember once somebody said to me, "How can you be so involved in something as unimportant as sport." And my answer was something like Nick Hornby in "Fever Pitch", "it's precisely because it is so unimportant. Anything really important is too depressing."

[Metatone]

I fear you underestimate the impacts of scale.

The large US market means you can rely (more) on Darwinian sorting to find the "fittest" companies. Because the large market provides enough opportunities for entry.

In smaller markets you simply don't get that many entrants, so the countries that do well are those that have a philosophy of improvement (Germany, S. Korea) not those relying on market entry & exit to find talented firms.

[Nanikore]

Chris the book to read on this is by David Edgerton of Kings College

"Science, Technology and the British Industrial ‘Decline’ 1870-1970 (Cambridge University Press, 1996)?

This is historically rich, model free material that builds up the story from primary material. It is therefore free of a lot of nonsense and distraction.

One thing to keep in mind is that Britain will always face relative decline; that is because developing countries are catching up. But Edgerton argues that Britain absolute decline in technology started in the 1950s, not during WWI as often popularly believed.