Mao and the art of management
A role model, of sorts
Books on management tend to define success in the broadest possible terms—great product, happy employees, continuous improvement, gobs of profits, crushed competitors. Even when words such as “excellence” and “success” are omitted from the title, they are often implicit. A case in point is the book which many would say defined the genre, Alfred Sloan's “My Years with General Motors”, published in 1963 when GM was still an iconic company and Sloan correctly acknowledged as the architect of the well-run, decentralised, global corporation.
But focusing on how the best produce the best has its limits. Most managers, after all, do not stitch an industrial triumph from a vast bankrupt junkyard, as Sloan did. They do not delight their customer, crush competitors and create vast wealth. They struggle. They stumble.
Where is the book for them? Who can help the under-performing, over-compensated chief executive fighting to survive intrusive journalists, independent shareholders and ambitious vice-presidents who could do a better job? Where is the role model for the manager who really needs a role model most—the one who by any objective measure of performance cannot, and should not, manage at all?
An obvious candidate is Mao. Yes, he was head of a country, not a company. But he self-consciously carried a business-like title, “chairman”, while running China from 1949 until dying in office in 1976, having jailed, killed, or psychologically crushed a succession of likely replacements and therefore created the classic business problem: a succession void. He thought of himself as, in his own words, an “indefatigable teacher” and the famous “Little Red Book” drawn from his speeches is packed with managerial advice on training, motivation and evaluation of lower-level employees (cadres); innovation (“let a hundred flowers bloom”); competition (“fear no sacrifice”); and, of course, raising the game of the complacent manager (relentless self-criticism).
Mao still has at least a symbolic hold over the Chinese economy, even though it began to blossom only after death removed his suffocating hand. His portrait is emblazoned on China's currency, on bags, shirts, pins, watches and whatever else can be sold by the innumerable entrepreneurial capitalists that he ground beneath his heel when in power. No other recent leader of a viable country (outside North Korea, in other words) is so honoured—not even ones that did a good job.
It was not a nurturing management style that won Mao this adulation. According to Jung Chang's and Jon Halliday's “Mao, the Unknown Story”, admittedly an unsympathetic portrait, he was responsible for “70m deaths, more than any other 20th-century leader”. But why stop at the 20th century? In Chinese history, only Emperor Qin Shi Huang, who started building the Great Wall (in which each brick is said to have cost a life), was competition for Mao; and since the population was much smaller then, Mao is likely to have outdone him in absolute numbers.
Botched economic policies caused most of the carnage. Deng Xiaoping, Mao's successor, turned the policies, and eventually the economy, around. Yet he does not even merit an image on a coin.
The disparity between Mao's performance and his reputation is instructive, for behind it are four key ingredients which all bad managers could profitably employ.
• A powerful, mendacious slogan
Born a modestly well-off villager, Mao lived like an emperor, carried on litters by peasants, surrounded by concubines and placated by everyone. Yet his most famous slogan was “Serve the People”. This paradox illustrates one aspect of his brilliance: his ability to justify his actions, no matter how entirely self-serving, as being done for others.
Alfred Sloan would have disapproved...Psychologists call this “cognitive dissonance”—the ability to make a compelling, heartfelt case for one thing while doing another. Being able to pull off this sort of trick is an essential skill in many professions. It allows sub-standard chief executives to rationalise huge pay packages while their underlings get peanuts (or rice).
But Mao did not just get a stamp from a compliant board and eye-rolling from employees. He convinced his countrymen of his value. That was partly because, even if his message bore no relation to his actions, it expressed precisely and succinctly what he should have been doing. Consider the truth and clarity of “serve the people” compared with the average company's mission statement, packed with a muddle of words and thoughts tied to stakeholders and CSR, that employees can barely read, let alone memorise.
Deng Xiaoping's slogan, which he used in his campaign to revive the economy, had similar virtues. “Truth from facts” is a sound-bite that Sloan would have loved and every manager should cherish, but you won't find it chiselled on a Chinese wall. It doesn't have the hypocritical idealism of Mao's version—nor was it pushed so hard.
• Ruthless media manipulation
Mao knew not just how to make a point but also how to get it out. Through posters, the “Little Red Book” and re-education circles, his message was constantly reinforced. “Where the broom does not reach”, he said, “the dust will not vanish of itself.” This process of self-aggrandisement is often dismissed as a “personality cult”, but is hard to distinguish from the modern business practice of building brand value.
Yet within China economic growth was pathetic and living conditions were wretched. So why did a vast list of Western political, military and academic leaders accept the value of Mao's brand at his own estimation? Even Stalin, no guileless observer, believed in and, to his later regret, protected Mao. The brand-building lesson is that a clear, utopian message, hammered home relentlessly, can obscure inconvenient facts. Great salesmen are born knowing this. Executives whose strategies are not delivering need to learn it.
Chief executives are not in a position to crush the media as Mao did. Nevertheless, his handling of them offers some lessons. He talked only to sycophantic journalists and his appeal in the West came mainly from hagiographies written by reporters whose careers were built on the access they had to him.
The law constrains the modern chief executive's ability to imitate Mao's PR strategy. Publicly listed companies have to publish information, rather than hand it out selectively. But many, within bounds, emulate Mao's media management; others, determined to control information about them, are delisting. Burrow beneath laudatory headlines on business and political leaders, and it becomes clear that the strategy works.
• Sacrifice of friends and colleagues
“Who are our friends? Who are our enemies? This is a question of first importance,” Mao wrote. Sloan agreed. He worried that favouritism would come at the expense of the single most valuable component of management: the objective evaluation of performance.
...but Mao's HR policies meant Happy RevolutionariesMao had a different goal: he did not want people too close to him, and therefore to power; so being Mao's friend often proved more dangerous than being his enemy. One purge followed another. Promotions and demotions were zealously monitored. Bundles of incentives were given and withdrawn. Some demotions turned out well. Deng Xiaoping's exile in a tractor factory may have helped him understand business, and thus rebuild the economy, but that was an unintended benefit.
This approach makes sense. Close colleagues may want your job, and relationships with them may distract you. Mao's abandonment of friends and even wives and children seemed to be based on a calculation of which investments were worth maintaining and which should be regarded as sunk costs. Past favours were not returned. According to Ms Chang and Mr Halliday, a doctor who saved his life was left to die on a prison floor after being falsely accused of disloyalty. Mao let it happen: he had other doctors by then.
Enemies, conversely, can be useful. Mao often blamed battlefield losses on rivals who were made to suffer for these defeats. The names of modern victims of this tactic will be visible on the list of people sacked at an investment bank after a rough quarter; the practitioners are their superiors, or those who have taken their jobs.
• Activity substituting for achievement
Mao was quite willing to avoid tedious or uncomfortable meetings, particularly when he was likely to be criticised. But maybe that helped him avoid getting bogged down. From the Anti-Rightist Movement of the late 1950s to the Great Leap Forward, a failed agricultural and industrial experiment in the early 1960s, to the Cultural Revolution in the late 1960s, Mao was never short of a plan.
Under Mao, China didn't drift, it careened. The propellant came from the top. Policies were poor, execution dreadful and leadership misdirected, but each initiative seemed to create a centripetal force, as everyone looked toward Beijing to see how to march forward (or avoid being trampled). The business equivalent of this is restructuring, the broader the better. Perhaps for the struggling executive, this is the single most important lesson: if you can't do anything right, do a lot. The more you have going on, the longer it will take for its disastrous consequences to become clear. And think very big: for all his flaws, Mao was inspiring.
In the long run, of course, the facts will find you out. But who cares? We all know what we are in the long run.
A Samurai Shield For Japan
Strategic Defense: A Japanese warship with the Aegis missile defense system shoots down a simulated North Korean missile. Meanwhile, the Defense Department announces that all 50 states are now protected. Thank you, Ronald Reagan.
The Japanese know all about surprise attacks and the devastation caused by nuclear weapons, and they are determined to be victims of neither. Our former foe is now a determined ally, and between us we are rapidly unfolding a missile defense umbrella over both countries and the ocean between.
A Japanese destroyer launches an interceptor missile.
In Greek mythology, Zeus used a shield called Aegis. Today, another shield called Aegis is in the hands of the descendants of the samurai. The latest in a stunning string of missile-defense successes took place Monday, when a Standard Missile-3 (SM-3) interceptor launched from the JS Kongo knocked out a target warhead from a ballistic missile simulating the launch of a North Korean Rodong intermediate-range missile. Pyongyang has some 200 such missiles capable of reaching targets throughout the Japanese home islands.
The target missile was launched from the U.S. Navy's Pacific Missile Test Facility on Kauai. The Kongo tracked the missile, whose warhead separated from the booster rocket, requiring the interceptor to distinguish between the two objects and target the warhead. The target warhead was destroyed three minutes after launch.
In August 2006, Japan launched its sixth Aegis destroyer, the Ashigars, appropriately enough in the southeastern Japanese port city of Nagasaki.
News of Japan's successful Aegis test could not have been well-received in Pyongyang or Beijing, which itself has 900 missiles pointed at Taiwan. A fleet of Japanese and American cruisers and destroyers armed with SM-3 missiles patrolling the Sea of Japan and the Taiwan Strait puts a serious crimp in their plans.
The U.S. and Japan accelerated their joint efforts on missile defense after North Korea's missile barrage into the Sea of Japan on July 5, 2006. It included a test of its Taepodong ICBM, like the one that straddled the Japanese home islands in 1998.
According to Cybercast News Service, the Aegis sea-based system has successfully intercepted 11 of 13 missiles in the 12 tests conducted before this one. Ground-based interceptors have been successful in five of six tests.
At present, the U.S. has seven destroyers and three cruisers armed with the Aegis system and the SM-3. They include the USS Lake Erie, which helped track the target missile in the Japanese test.
Plans include eight more Aegis destroyers added to the fleet that, according to Rick Lehner, spokesman for the Missile Defense Agency, "will be deployed wherever they are needed." They'll be part of a multilayered missile defense that will include 24 ground-based interceptors installed in silos at Fort Greeley in Alaska and Vandenberg Air Force Base in California.
The goal is to have 40 based in the U.S. plus 10 in Poland. Tracking radars in Britain, Greenland and the Czech Republic will track their targets.
"We can defend all 50 states," Lehner also said. That's something we weren't allowed to do under the ABM Treaty of 1972, which President Bush abrogated shortly after taking office. That would include defending against any missiles presently deployed or under development by North Korea or Iran.
Nearly a quarter-century has passed since Ronald Reagan was ridiculed for proposing a system to detect, track and destroy incoming ballistic missiles. Today it's a reality. Another win for the Gipper.
Hungry For Trouble
International Affairs: Now the United Nations is sounding alarms about problems in the world's food supply. Typical. These people always need a crisis to justify the expansion of their powers.
Jacques Diouf, head of the U.N.'s Food and Agriculture Organization, worries there is "a very serious risk that fewer people will be able to get food."
The International Herald Tribune reports that FAO's "food price index rose by more than 40% this year, compared with 9% the year before" — a rate, according to Diouf, "that was already unacceptable." The prices of wheat and oilseeds have reached record highs.
On the supply side of the equation, the U.N. says food is in decline. Global wheat stores have fallen 11% this year to their lowest level since 1980, while a mere eight-week supply is all that's left in corn.
Before you start putting in provisions, recall the alarms set off by Paul Ehrlich 40 years ago. In his 1968 screed "The Population Bomb," he predicted the 1970s and 1980s would be marked by the starvation of hundreds of millions as we outgrew our food supplies.
Two centuries earlier, Thomas Malthus made a similar prediction. He too was proved wrong. Today's population is six times its size in Malthus' day, yet per-person food output and consumption are far higher. So are living standards and life expectancies.
Add Diouf to the list of doomsayers whose dire predictions have gone awry. All get the attention of the media and popular culture, while the economists who've proved the Malthusians wrong have gone largely unnoticed.
Julian Simon, for one, argued that a scarcity of natural resources will be overcome by the mind of man, the ultimate resource. Development economist Peter Bauer also dismantled the dark predictions.
"Where people's abilities, motivations and social and political institutions are favorable, material progress will occur," Bauer wrote in 1972. "Where these basic determinants are unfavorable, development will not occur, even with aid."
The U.N. is perhaps the most mistake-prone organization to ever exist, but it did correctly identify one of the problems in its assessment of food supplies: The drive toward farming to produce biofuels such as ethanol has an adverse impact on prices and supplies.
Blame the Heartland's corn farmers. Their political power nets $7 million a year in government subsidies that encourage farmers to sell their crops for fuel rather than food and provides a strong incentive for farmers to plant corn instead of the unsubsidized crops they'd previously grown.
Blame environmental activists as well. Their radical opposition to fossil fuels helps drive the policy.
Regrettably, the U.N. negates its reasoned analysis about the problems created by the biofuel campaign when it claims that early stages of global warming are causing a decline in crop yields in some regions. We'd like to remind Diouf and his colleagues that global warming is a theory that hasn't been proved, but why bother?
There is also a gratuitous shot taken at prosperity, a bothersome — to the U.N. — trend that has led to people eating more meat. While that seems like progress to us, the U.N. says the world's increased carnivorous habit is diverting grain that could be eaten by humans to cattle who will be slaughtered for beef.
The United Nations is much like the arsonist who starts a fire so he can put it out and play the role of hero. But instead of lighting a fire, the U.N. is hoping to create news so unpleasant that people will beg to be saved.
Naturally, the U.N. tells us it will know exactly what to do — even if it really doesn't.
China: It's Not As Big As You Think
Competition: The common wisdom is that China's large and fast-growing economy could overtake the U.S. as soon as 2012. Not so fast. New data suggest China's not quite as big as economists once thought.
The World Bank's latest estimates for the global economy contained a stunner of a statistic: China accounts for just under 10% of the world's total output — or about 40% smaller than thought.
At $5.3 trillion based on 2005 data, China's economy is still No. 2. But it has considerably more ground to make up before passing the U.S. in absolute size — if, in fact, it should ever do so. Total world output in 2005 was $55 trillion. The U.S. produced $12.4 trillion of that — with a population only one-fourth the size of China's.
How did these new data come about? The World Bank uses what's called Purchasing Power Parities — PPP for short — to figure how big an economy is. Basically, it surveys a market basket of some 1,000 goods and services, and sees how much of each people in those countries can actually buy in their own currency.
Doing this around the world, the bank discovered that 12 economies make up more than two-thirds of the world's GDP. Seven of those are so-called high-income economies — the U.S., Japan, Germany, the U.K., France, Italy and Spain.
Five are "transitional" economies — Brazil, Russia, India and China (the so-called "BRICs") plus Mexico. Together, they make up about 20% of output.
But the one that sticks out is China. World Bank statisticians got access to real data on China for the first time ever, and came away surprised. "The previous, less reliable, methods led to estimates (of China's GDP) . . . 40% larger than the results of the new, improved methods and benchmark," the World Bank report said.
This should be a lesson for those who take international statistics at face value. Anytime you're off by 40%, it's more than a rounding error. It's a big mistake — largely China's fault, since it wouldn't let anyone accurately measure its economy before.
And this is of more than just statistical interest. It means, for instance, that there are likely more than 300 million Chinese who live below the World Bank's $1-a-day poverty line — not the 100 million previously estimated.
This helps explain why China's communist regime still cracks down hard on any manifestations of dissent — contrary to its PR of China as the land of perpetual economic boom. It knows how bad things really are in the undeveloped hinterlands.
It also calls into question China's financial ability to support a massive military buildup to challenge the U.S. Dollarwise, the country just won't have the money — at least not yet. And besides, it should be spending that money on development — not arms.
This doesn't mean China's economy isn't growing fast. It is. Nor does it mean China isn't a potential U.S. rival, both economically and militarily. Again, it is.
But to us, this smacks a bit of the CIA's faulty analysis of the Soviet threat in the 1950s and '60s. Back then, there were no good real-world data issued by the Soviets. So economics analysts fell back on the tried and true: toting up Soviet output using satellites, secret cameras and other means to count the raw number of trucks and trains leaving factories during a given month, then comparing it with the same month a year earlier. If a factory had 100 train cars leave its doors one year, and the next year it had 110, it was assumed that the plant's output expanded by at least 10%. Not a bad assumption — but a wrong one.
For while the Soviets churned out massive amounts of goods, their quality was suspect. Box cars could be filled with shoddy, virtually unusable goods intended to meet state quotas. But we pretended that output was the same as ours.
We've done something similar with China — which, intentionally or not, has deceived us for years about the true size of its economy.
Now that it has finally opened up about what its economy is truly like, we can only hope that it too will let the other shoe drop and open up its one-party political system.
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