Yesterday I accused the World Economic Forum of "drinking Silicon Valley Kool-Aid with phrases like 'collaborative initiatives.'" Actually, the brew that has replaced the customary water carafes is probably a headier mix of closely related bits of linguistic legerdemain, linking "initiatives" to "innovation" and "innovation" to "thinking out of the box." Lest there be any doubt of the tendency of such language to induce mind rot, it is worth while to consider Robert Weissman's blog post at Huffington Post this morning on the topic of recovery from the current financial crisis. Weissman deserves credit for not being afraid to use the "r-word" (as the mass media now seem to want to call it). It is right there in his lead, reflecting his overall good sense by the cautious way in which he summons it:
It would be nice to write off the current crisis on Wall Street and global financial markets as something that only matters to the investor class.
Unfortunately, the effects are already being felt in lower-income communities around the United States. Worst-case scenarios for what spins out from the U.S. mortgage meltdown are truly frightening -- a severe world recession is a distinct possibility.
Weissman's basic thesis is that we got into this mess (following the Neustadt-May strategy for crisis analysis and resolution) as a result of an ideological obsession with deregulation (which, as the historical record shows, has far more messes in its wake, not covered in Weissman's analysis). He supports the thesis with a list of "five distinct regulatory failures," one of which is directly related to the Kool-Aid that appears to be flowing so freely in Davos:
Regulatory Failure Number Three: Financial Deregulation and Unchecked Financial "Innovation." A key reason that mortgages were made available so widely and with such little review of recipients' qualifications was a shift in which institutions hold the mortgages. Traditionally, banks made mortgages and held them. In the new era, banks and non-bank mortgage lenders made loans, but then sold the loans to others. Investment banks packaged lots of mortgage loans into "Collateralized Debt Obligations" (CDOs) and then sold them on Wall Street, with a promise of a steady stream of revenue from interest payments. These operations were pretty much unregulated. Despite the supposed sophistication of the investors involved, no one took account of how shoddy the loans were or -- more fundamentally -- the certainty that huge numbers would go bad if and when the housing bubble popped.
Lest we forget (thus ignoring the subtitle of the book that Richard Neustadt and Ernest May wrote, Thinking in Time: The Uses of History for Decision Makers, my emphasis added), "Enron was named 'America's Most Innovative Company' by Fortune magazine for six consecutive years, from 1996 to 2001;" and in 1998 Enron CEO Jeffrey Skilling, "currently serving a 24-year, 4-month prison sentence at the Federal Correctional Institution, Waseca in Waseca, Minnesota," published the article "Competitive Corporate Cultures: Why Innovators Are Leading Their Industries" in World Energy Magazine. Deregulation is still with us, because, no matter how many times it detonates disastrous consequences in our faces, its evangelists will always find a new place to set up their tent and resume their preaching.
Therein lies the heart of the matter. As I tried to argue yesterday in my reflection on Mary Eisenhart's review of The Big Switch: Rewiring the World, From Edison to Google, by Nicholas Carr, innovations always have consequences, most of those consequences are unintended, and, by virtue of being unintended, they run "the gamut from unfortunate to downright dangerous." Enron should have taught us that, but all it left us was a monstrous legislative effort to close the barn door after the horse had been stolen. Regulation, of course, cannot prevent consequences, particularly the unintended ones; but, when properly administered, it can enhance the robustness of institutions and systems, thus attenuating down their vulnerability to the dangers of those consequences. This, of course, is the same strategy that many of the cooler heads have proposed for dealing with the threat of terrorism; but cool heads never seem to attract very much attention in a prevailing culture of fear. In that respect it is important to remember that Franklin D. Roosevelt said "that the only thing we have to fear is fear itself" in his first inaugural address when the nation was deep in the Great Depression, not when it was engaged in the Second World War.
This takes us back to the problem of drinking Kool-Aid in Davos. Kool-Aid is a useful metaphor not only because of its direct association with Jonestown but also because of the fact that the beverage does little other than induce sugar shock. Sugar shock does little for cooling heads. It inflames the mind of those who speak and inhibits the attention span of those who listen, as deadly a mix for deliberations at the World Economic Forum as the poisoned version was for the members of the Peoples Temple. Yet it is only through cool deliberation, as opposed to "collaborative initiatives" or "thinking out of the box," that we can get beyond the fear of fear itself; and it is only by getting beyond the fear of economic crisis on a global scale that we can ever hope to overcome that crisis through effective actions.