Dean Bruner's Blog

Tom Hagen: Your father wouldn't want to hear this, Sonny. This is business not personal.
Sonny: They shoot my father and it's business, my ass!
Tom Hagen: Even shooting your father was business not personal, Sonny!
Sonny: Well then, business is going to have to suffer. And please, do me a favor, Tom. No more advice on how to patch things up just help me win, please?

…

Sonny: You're taking this very personal. Tom, this is business and this man is taking it very, very personal.

…

Michael Corleone: [to Sonny] It's not personal, Sonny. It's strictly business.

…

Tom Hagen: Don't get personal. Keep it business.

                        The Godfather

One of the deep themes about the Godfather, a theme I’ve not seen developed elsewhere, is the boundary between “business” and “personal”.  These days, any business school dean would find such a boundary of intense interest, not least because of the recent advent of the MBA oath.    

My recent blog posting on Forbes.com argued that the effectiveness of an oath depends on four considerations: timing, consequences, the support of a community, and whether we believe business is a profession.  The notion of an MBA oath continues to garner attention—for a sampling, see the Economist.com, Financial Times, and BusinessWeek Online.  Thus, far, I think that all this discussion has missed yet another important point, which regards one of the limits of institutionalizing behavior.

A standard oath or pledge institutionalizes expectations about behavior.  The Honor System at Thomas Jefferson’s University of Virginia commits students not to lie, cheat, or steal—the pledge is made at the beginning of our MBA program.  Expectations expressed this way are the clear will of the community.  If you break the pledge, you know that you are acting out of line.  The institution has spoken.  That’s business, not personal.

But the existence of a pledge is no guarantee of future behavior.  It has to be internalized.  At some point, business must become personal.  The ranks of any profession--such as lawyers, doctors, and accountants—are mottled with the cases of individuals who broke the pledge of ethical behavior.  It is not sufficient to write an oath, or take it.  You must live it.  You must “walk the talk,” as they say.

Learning to live by an oath is a matter of leadership and culture.  It starts with a CEO who is prepared to set an example, and talk about it.  And it extends to leaders throughout the organization.  The oath is reinforced by exhortation and example.  The best organizations actually indoctrinate their members in the values behind an oath.  Business schools have a role to play here:  teaching new MBAs about best practices of virtuous leadership and culture and by giving them a medium in which to practice.

We should worry if a new generation of leaders graduates from business schools believing that it is healthy to behave one way at home and a completely different way at work.  Ultimately all business is personal.

hors de com·bat [ àwr də kawN bt]

adjective no longer able to participate: out of action and often in a seriously wounded condition  [< French, "out of the fight"]  ( from MSN Encarta Encyclopedia)

Scene 1:  I fell on some steps two weeks ago and injured a leg, joining some quarter-million victims per year of “slip and fall” accidents.  At first, I figured that the injury was just a bad muscle pull.  Anyway, I was headed into a meeting with a senior colleague elsewhere in the university, and shared the news with him.  He is a medical doctor, from whom I hoped to get some free counsel—at least, “take two aspirin and call me in the morning.”  Instead he said, “Sue ‘em!” with an elfin smile.  I explained that the steps in question were at Darden and that when all was said and done, I’d have to sue myself.  Adding insult to injury, he said, “sue the b*st*rd.”   By some standards lawyers use, I’d have a case, but the hilariously careless circumstances of this particular fall would get me thrown out of court.

Scene 2: By mid-afternoon, I could no longer ignore the growing pain in my leg.  I hobbled over to my physician, a prince of a man and a model general practitioner (GP).  He took one look at my leg and then put me in a wheel chair, personally walked me to his pickup truck, drove me to the nearby hospital, and registered me to have an X-ray taken there and then.  It revealed no broken bones.  Next, he ordered a magnetic resonance image (MRI) taken of my leg, but said that I would have to come back to the hospital the next day.  Why?  He needed the time to get approvals from the health insurer.  The insurance companies don’t allow MRI scans on a whim.  Feeling my own pain, I asked what it would cost for me simply to buy an MRI scan with my own money then and there so that we could get on with the diagnosis that evening.  My GP rolled his eyes and said that the retail price of a scan was anywhere between $500 and $2000, a range that suggested to me a rather significant market imperfection.  At that price range, I decided I could grit my teeth and wait until morning for the insurance company to pay for the scan.

Scene 3: The scan reveals a bad muscle tear—nothing that requires surgery, only about six weeks of healing.  Something has to give: my orthopedic specialist bans activities that would impair the healing process, such as air travel (carrying bags, climbing stairs, bending my knee into tight spaces).  In a stroke, I cancel business travel for the next month and start looking for digital alternatives for meeting people.  At the graduation ceremony, I’m stumping around in a leg brace and with a cane: a student says I look like Dr. House and warns me to stay off the painkillers.  I smile, planning to get through this on aspirin only and a short stay at a quiet place on the Eastern Shore of the Chesapeake. 

Connect some dots here.  Health care is costly, and not because of doctors (many of whom I suspect are under-paid) and drugs (which account for a small fraction of the overall cost of health care).  The three scenes illuminate the rest of the story: deadweight costs on the system (such as opportunistic lawsuits); inflexible insurance processes; delays in service; barriers to entry for potential service providers; and the costs of recovery, especially lower productivity needed to accommodate the recovery.  Viewed from a perspective broader than docs and drugs, heath care is phenomenally costly. 

My colleague, Bob Landel, has advised hospitals on service efficiency and estimates that as much as 80% of the cost base in health care could be waste.  To arrive at an estimate like that, he takes a particular point of view on service operations that I would characterize as “lean thinking.”  Lean thinking is derived from the research of W. Edwards Deming and the pioneering applications of his ideas by Toyota Motor Corporation.  Lean thinking operates on a number of principles such as looking at the entire system of an operation including all the steps in the value stream, focusing relentlessly on the experience of the end-user, the customer, delegating decision-making broadly through the organization and promoting transparency to eliminate waste, and relentlessly improving the operation through continuous improvement.  A book by James Womack and Daniel Jones gives a good overview.  Lean thinking gives a very wide-angle take on the cost of any operation.  From this perspective, Landel says that one of the biggest sources of cost in the system is waiting: waiting to be seen by a doctor, queuing for tests, waiting to get the results, etc.  As lean thinking spreads, it will reduce these costs.

And/or improve quality.  My colleague, Elizabeth Teisberg, and her co-author, Michael Porter, argued in their now-classic book that the point of reforming health care should not be simply to reduce costs, but rather, to create value for patients.  Their recommendations nicely complement the principles of lean thinking: let competition work at the level of patients; make information about treatments more transparent to consumers and then let them choose. 

My recent experience with the health care system prompts several reflections on higher education.  We can’t continue to raise tuition at rates in excess of inflation without demonstrable quality improvements.  Universities face few constraints like the health care providers do with insurance companies.  The Stimulus Act of 2009 provides for more plentiful student loans and tax breaks for students.  I predict that once government gets through trying to fix the health care system in the U.S., it will turn to higher education.  Universities should move first.  Leading B-schools are being pulled in this direction already by their students, many of whom come from the best companies and who are applying the lessons of lean thinking. 

The Darden School gets this.  We have several initiatives under way that will raise quality and cut waste and cost. 

• Sustainability Initiative.  Announced a year ago, our task force completed an audit of our waste stream and our carbon footprint.  We will begin to implement recommendations to cut both.
• Kindle DX Experiment.  Amazon.com engaged Darden as one of five schools to test the application of their digital reader in university settings.  This has the potential of adding flexibility to curriculum designs, accelerating the development of new teaching materials, improving convenience for students and teachers, and reducing our consumption of paper and trees.
• Program Concept Review.  This spring, we commenced a top-to-bottom review of our Full Time MBA Program that is aimed at identifying any industry best practices that we don’t already use and inventing some new ones.  Central to this review are studies of how we use the time of students, faculty, staff, and other stakeholders.  Ultimately, we want this review to culminate in recommendations for processes of continuous improvement in curriculum design.
• Lean Thinking Focus Groups.  Given the budget realities in the current recession, I’ve emphasized that we need to optimize the use of our resources in all ways.  This spring, I convened three focus groups, each of which spans the Darden Enterprise and brainstorms ways to reduce costs or raise revenues.  We’ve come up with some good ideas.  But the biggest learning is that we need to share ideas better across the complicated silos of our enterprise.

Out here on the Eastern Shore, my leg is starting to mend.  One virtue of being rendered hors de combat is that I’ve got a little more time to reflect.  I hope that whatever our lean thinking achieves, it will preserve and enlarge such time.

 “A good job requires a field of action where you can put your best capacities to work and see an effect in the world.  Academic credentials do not guarantee this.  Nor can big business or big government—those idols of the right and the left—reliably secure such work for us.  …work forms us, and deforms us, with broad public consequences.  The visceral experience of failure seems to have been edited out of the career trajectories of gifted students.”  -- Matthew B. Crawford

This has been a tough year for MBA students seeking work.  The financial crisis and recession disappointed many hopes and shattered most expectations that students brought with them to B-school.  Journalists, pundits, and bloggers are now asking whether B-school is the portal to career advancement that it used to be.  I think it still is—as long as you are totally clear on what you have to offer and on what the world needs.  In recent years, too many MBA applicants and students have been motivated by a sense of entitlement: if you put in your time, the world owes you.  But as Mark Twain said, the world doesn’t owe you anything; it was here first.  It’s time to shed the sense of entitlement and embark on finding the kind of work you enjoy and at which you can excel.

This theme is reinforced in an essay by Michael Crawford in this morning’s New York Times Magazine.  He describes an experience of getting a couple of graduate degrees, doing some knowledge-work, and then eventually quitting to start a small motorcycle repair shop.  The essay is a reflection on the satisfactions of the trades: “the immediate feedback you get from material objects and …the fact that the work is typically situated in face-to-face interactions between tradesman and customer.”  It’s a good essay and I commend it to you.  It reminded me of Robert Pirsig’s Zen and the Art of Motorcycle Maintenance, in which he argues that good work combines the rationalism (roughly, caring about the details and how things work) and the romanticism (such as the gestalt, Zen, and “being in the moment.”)  Crawford’s rejection of a career in knowledge work also reminds me of Henry David Thoreau, who wrote, “I went to the woods because I wanted to live deliberately.  I wanted to live deep and suck out all the marrow of life, to put to rout all that was not life and not when I had come to die discover that I had not lived.”  Finding a deep connection between what you do and how you live is a fundamental achievement of successful people.

One can argue with Crawford.  His personal experience with knowledge work isn’t the experience of everyone.  The notorious cubicle-office of Dilbert is hilarious because it is a stereotype and not necessarily a reflection of the world.  And trades-workers aren’t the only ones who get close to people and outcomes.  Most of the great knowledge-workers I know are deeply rooted in the experiences of customers, employees, and the world around them and care greatly about the impact their work has. 

But where Crawford and I agree is in his quotation above: good work finds a match between “best capacities” and impact—and failure is probably a necessary part of the process of finding good work.  Truly, the world doesn’t owe you a living.  You must find it.  And a process of trial-and-error is probably a necessary part of the search.  As I meet Darden alums at our annual reunions and at chapter meetings around the world, I am impressed with stories of the search and with what seems like a reasonable success rate.  Where B-School seems to help is in extending a person’s familiarity with the range of opportunities, providing some training to become a plausible interviewee, linking the student to a network of recruiters and other alums, and transforming the outlook and leadership capabilities of the student.  But as Crawford says, academic credentials won’t guarantee an outcome.  What you ultimately get is what you make of it.

[Today we celebrated the annual graduation of students from  the University of Virginia and the Darden School.  In years past, I have offered a few remarks to help set the tone of the event.  But today, a light but steady rain commenced just as the ceremony began.  We had been assured by the state meteorologist that this rainfall would be temporary.  Therefore, we decided to proceed outdoors as planned.  But I made a special concession to help accelerate the proceedings in case the conditions didn’t improve: I omitted my remarks.  As the rain was falling, I announced that we would continue with the ceremony despite the weather.  The students roared their approval; they were in very high spirits.  They also applauded after I announced how the ceremony would be abbreviated.  Sometimes, hearing less from a Dean is a good thing.  Lesson: effective communication recognizes the conditions of the time and place, and the receptiveness of the audience.    What follows are the reflections I would have offered in better weather.]

I will always carry a special memory of the MBA Class of 2009.  In all likelihood, no Darden graduating class has seen more economic change in a shorter space of time.  You took the GMAT and applied to Darden in 2006.  As you enrolled in August 2007, the world financial system was awakening to the effects of subprime debt and the aggressive use of leverage.  It took more than a year for the full implications of this to appear plainly—then the crash of several large financial institutions in September and October 2008 woke up everyone to the gravity of the crisis.  Of course, these events occurred just as your job search season was commencing.  You discovered the truth that you must make your own career; it will not be given to you.  As Mark Twain said, “Don’t go around saying the world owes you a living.  The world owes you nothing.  It was here first.”

Despite this, I note that as of last Thursday, 78 percent of the MBA-Full Time class had job offers and that 70 percent of the class had accepted an offer.  Anecdotally, I know of several late-breaking offers that would lift the percentages further.  This is a high ratio in times like these.

By now the damage of this crisis has spread to various industries (from banks and housing to autos, hospitality and entertainment, media, and semiconductors) and to the global economy.   The length and severity of these conditions illustrate the famous saying of John Maynard Keynes, that markets can remain irrational longer than you can remain solvent.

You have endured a massive shift in expectations.  This shift is the messenger, not the message, of important changes taking place in the world.  CEOs such as Jeffrey Immelt of General Electric and Steven Ballmer of Microsoft use the phrase, “economic reset” to indicate the gravity of the message.  We are not just experiencing a recession; we are experiencing a major re-boot of economic assumptions and outlook, one that is likely to prevail for years.  The elements of this “reset” are deleveraging, major changes in consumption patterns, increased government intervention in the lives of businesses and individuals, a shift in attitudes about risk-bearing, growing populism, protectionism, and doubts about institutions in society, and a major shift in geopolitical power from the developed economies and toward the most robust emerging economies such as China, India, and Brazil. 

Some of these changes have been years in the making.  But crises accelerate change. 
America and the world are at an historic inflection point. 

Business Schools will need to adapt:
• more focus on ethics and the duties of managers to create value not merely to extract value;  
• more study of incentives and of both the virtuous and perverse behavior they can induce;
• deeper consideration of risk, the ways we define it, estimate it, and fold it into decision-making;
• more focus on the interface between business and government; and finally,
• more exploration of globalization and its manifold effects on business.

You are the first class of MBAs to graduate into this new territory.  I think those who don’t merely survive but actually prosper will adapt to this reset world in four good ways:
• First, they will practice business with high integrity.  Integrity builds trust.  And as we have learned very painfully over the past two years, the absence or failure of trust is at the heart of this crisis.
• Second, they will question and listen very well.  They will never cease to learn as the world continues to morph around them. 
• Third, they will take little for granted; they will create options.  They will identify new possibilities in the face of intractable problems.  At the heart of Darden’s initiatives in ethics, diversity, sustainability and globalization is a search for new alternatives to solving persistent problems. We face a stretch of great uncertainty.  Options become very valuable in an uncertain environment.
• Finally, they will find courage to step out and do business despite all this uncertainty.  Samuel Johnson said it best: courage is the cardinal virtue because it makes all other virtues possible.

You are well-prepared to do all this.  Darden has taught you the eminent role of ethics in business, the ability to question relentlessly, the capacity to innovate and design new alternatives where none seemed possible, and finally, the courage to speak out in a crowd and challenge the conventional wisdom.  Truly, at Darden, how we teach is what we teach.  We wish you well on the life journey that lies before you.  Good luck and Godspeed.

[Epilogue: perhaps ten minutes into the ceremony, the rain stopped.  Two hours later, the sun was out, producing a wonderful Virginia spring afternoon—quite an auspicious beginning for the new graduates.]

Picture this: Peter Rodriguez, Marc Lipson, and I are taking a cab from a hotel to the airport.  It is 5:15 a.m.  Place: Singapore.  Conditions: a torrential downpour with ample amounts of thunder and lightning—a typical equatorial storm.  The cab driver is hastening along an expressway; the cab hydroplanes through flooded sections.  Suddenly the cab bumps and lurches.  The driver mutters something about snakes in the road.  This makes the three of us look up from our cell phones.  Lipson: “Did you say snakes?”  Driver (totally blasé): “Yes, pythons come up out of the swamps to the high ground on the road.  Sometimes iguanas.”  This was a new experience.  I’ve heard of armadillos on roads in Texas, bears in Yellowstone Park, and alligators in the Gulf Coast states.  But this was a major metropolitan area.  And your reticulated python of Southeast Asia can grow to 33 feet in length and 300 pounds—one of these items wouldn’t simply slow down the traffic, it would own the road.    

The issue of unexpected bumps in the road is on my mind for two reasons.  First, Darden is about to graduate its MBA Class of 2009, a group of students that applied and enrolled when the business outlook was buoyant, if not “irrationally exuberant” (to borrow a phrase from Alan Greenspan).  Over the ensuing two years, it experienced a dramatic change in expectations.  More than just a bump in the road; more like a python.

Second, I’ve just reviewed What Matters?  Ten Questions that will Shape Our Future, a special report by McKinsey and Company.  Just when you hoped conditions would settle down, the report replies, “not so fast…”  It surveys ten of the most pressing problems—pythons, so to speak—and offers commentaries on each that range from reassuring  to alarming. The wide variance in outlook underscores the remark by Niels Bohr that “Prediction is very difficult, especially if it's about the future.”   The ten pythons are these:

1. Credit crisis.  What will the lessons be from the great credit crisis of 2008?
2. Climate change.  What is the most rational way to deal with the impact of climate change?
3. Innovation.  Where will the world’s primary centers of innovation be?
4. Geopolitics.  It’s the year 2040.  What does the geopolitical landscape look like?
5. Organization.  How will business organizations change in the 21^st Century?
6. Energy.  What replaces oil, and when?
7. Internet.  In less than 20 years, the Internet has transformed the way we shop, socialize, and communicate.  What’s next?
8. Health care.  Is it possible to provide adequate health care for all?  If not, what gives?
9. Globalization.  Will the world be more tightly bound together 20 years from now, or less?
10. Biotechnology.  Biotech promises to crack the code of life.  How will those advances change the world in the years ahead?

The discussions in these ten areas are stimulating.  Plainly the new generation of managers faces a load of challenges and opportunities.  The road looks bumpy ahead.  I wish our new graduates a firm hand on the wheel.

The rest of the story: Python or not, our driver in Singapore just kept driving.  In a world of turbulence, keep focused on your destination.

I spent the past two days in Seattle, meeting with the chief innovation officers (CIOs) of a dozen major companies.  The purpose of the meeting was to share and compare best practices about innovation.  The activities and achievements of these companies were dazzling.  The whole event reinforced a nagging reflection in my own mind regarding a challenge facing management education.

The organizers of the confab asked Mike Lenox, Jeanne Liedtka, and me to give a presentation regarding the leadership of innovation in disruptive environments.  Our theme was to discuss how innovators respond to uncertainty.  Plainly this is a moment of high uncertainty.  Generally, economic crises are so damaging because we don’t anticipate them very well—if you could see them coming, you could prepare.   Nassim Nicholas Taleb calls such events “black swans,” which are rare and extremely powerful.   Humans routinely underestimate the possibility of black swans because they want to view the world as a structured and predictable place and rely excessively on the central tendency of history (small, known, probable events).   The black swan events occur with some regularity and result in mass layoffs, bankruptcies, wealth losses, and cashiered CEOs.  In this context, you would think that innovation would take its lumps too.

Not so.  Companies tend not to cut spending on research and development (R&D) in disruptive times.  But they do redirect the spending toward the “core” of their business, to enhance the value proposition to the customer.  Deferred for more buoyant times are the risky game-changing R&D projects. 

Black swans starkly separate the successful from the unsuccessful innovation leaders.  Describing some of the findings from her new book, Jeanne Liedtka said that successful leaders embrace disruptive uncertainty, develop an empathic view of customers, place many small bets quickly, and manage risk through action.  Innovation leaders who fail recoil from the heightened uncertainty, understand customers as data, manage risk through analysis, and tend to make a few big bets slowly. 

The theme of disruptive uncertainty resonated with the CIOs.  But I never had the sense that it is a showstopper for them.  Mind you, these are highly successful executives who got to where they are by prevailing in good times and bad—they tended to fit Jeanne’s profile of successful leaders.  But what made a large impression on me is the extent to which they deal with disruptive uncertainty through a reliance on collaboration: they find and use help very effectively. 

This is old news.  Successful inventors in history, such as Thomas Edison, were champions at collaboration with people of diverse expertise.  In his book How Breakthroughs Happen, Andrew Hargadon wrote, “What set Edison’s laboratory apart was not the ability to shut itself off from the rest of the world, to create something, to think outside of the box.  Exactly the opposite: it was the ability to connect that made the lab so innovative.  If Edison ignored anything, it was the belief that innovation was about the solitary pursuit of invention.  Edison was able to continuously innovate because he knew how to exploit the networked landscape of his time.”[1] What really mattered was Edison’s network of invention.  Hargadon argues that the most successful inventors are very good at technology brokering: borrowing here and there to create something new.  Furthermore, good inventors recombine what they gather; as Hargadon says, “All innovations represent some break from the past…By the same token, all innovations are built from pieces of the past”[2]—very few are truly revolutionary, radical, or discontinuous.  What matters is the inventor’s network of connectivity to the past, and to inventions in the present.

Collaboration builds the network of innovation.  Much has been written about collaborative innovation within firms.  What emerged in this conference was inventive collaboration of a higher order: collaboration among firms.  Collaborative corporate innovation (producer with customer; producer with supplier; even producer with competitor) was the consistent theme among these CIOs.  And I was also impressed that the CIOs were using this kind of collaboration to assist them in responding to the heightened uncertainty in the current environment.  Much of the share-and-compare dealt with creating promoting, and accelerating collaboration.  I heard enough success stories to persuade me that mastery of collaborative skills can put people and companies at the cutting edge of their fields.

Connect this with another dot: the rise of social media and social networking.  (One of the CIOs asserted that social networking will have a larger impact than the invention of the personal computer!)  The raging popularity of social networking among Gen Y bespeaks an extraordinary appetite for connectivity.  Can this connectivity be channeled on behalf of constructive collaboration, the kind that drives innovation even in disruptive environments?

Management education needs to rise to this challenge.  Much of the learning processes at B-schools consist of activities that are passive, solo, and detached (think: lecture).  Darden has been consistently distinctive from the herd by virtue of its use of collaborative learning processes.  We offer a great deal of team work, projects, simulations, and group analysis of business problems.  Of course, this may seem like a harder way to learn—you have to broker and recombine ideas to really discover their utility.  Based on what I heard over the past two days, I think Darden has taken the right approach and should do more.  Eventually, our peer schools will follow.  It is hard to argue against the experience of a dozen successful innovation leaders. 

The gathering of the leaders of the G20 today in London draws the hopes (and some fears) of people worldwide: the gravity of the economic crisis and its shock-waves alarms anyone who is paying attention.  One might hope that the leaders will pull from their collective sleeves the four aces hiding there, to be used in a dramatic conclusion to the crisis: game over, game won, we can all breathe a sigh of relief and go on about our lives.  This morning, British Prime Minister Gordon Brown and President Barack Obama predicted that the conference would produce a dramatic plan to fight the crisis.

A reading of the history of economic summits would prompt one to be quite cautious, for it shows a wide variance of results.  Rather than four aces, it seems just as likely that the leaders will show a weak hand.  To get a sense of the results that today’s conference might offer, consider four important forebears:

• 1910. Jekyll Island Shooting Party.  As Sean Carr and I described in our book, The Panic of 1907, the absence of a lender of last resort was a major weakness of the American financial system at the dawn of the 20^th Century—the 11 bank panics that occurred between 1815 and 1914 underscored the fragility of the financial system and the need for reliable intervention when panic struck.  After the Panic, the U.S. Congress chartered the National Monetary Commission to recommend changes in public policy.  The Commission toured the money centers of Europe and gathered evidence in favor of introducing a central bank into the U.S. financial system.  In November, 1910, Senator Nelson Aldrich of Rhode Island secretly gathered five senior bankers and an Assistant Secretary of the Treasury at the Jekyll Island Club on the Atlantic coast of Georgia—the pretense under which these men gathered was to go duck hunting.  The club offered the visitors something other than ducks: seclusion to concentrate.  The seven individuals were aligned on the urgency and need for a central bank.  They were experts and very well briefed.  And each in his own way was powerful and in a position to influence the advancement of the plan.  The result of the gathering was a proposal for a central bank to be chartered by the Federal Government and led by Governors drawn from across the country.  The resulting plan for a “National Reserve Association” was similar to a design proposed by one of the members a few years earlier.  The plan found its way into the final report of the National Monetary Commission and was substantially adopted as the Federal Reserve Act in 1913, arguably the high-water mark of the Progressive Era of U.S. politics.  The little conference at Jekyll Island arguably produced a big win.
• 1919.  The Paris Peace Conference opened on January 18, 1919 and closed a year later with the opening of the League of Nations, whose framework was established in the conference.  It was perhaps the most complex negotiation undertaken in history to date.  It failed to achieve in any lasting fashion the main goals of its architects.  The conference actually solemnized five main treaties, each of which dealt with one of the losing countries in the First World War—the most famous of these was the Versailles Treaty that dealt with Germany.  The net effect of the conference was to impose draconian terms for reparations on the vanquished.  In protest, John Maynard Keynes resigned from the British delegation to the conference and penned a brilliant critique of the terms, The Economic Consequences of the Peace.  In essence, the terms created a self-fulfilling prophecy: they impoverished Germany, depressed the economic recovery of the entire European economy, laid seeds of the Great Depression, and ultimately created a rogue state and a return to hostilities.  How did this happen? The vanquished states had no voice in the discussions.  The sheer scale of the conference created noise, complexity, and intrigue--the conference brought together 32 countries, the “Allies.”  The victors brought differing objectives to the conference and failed to gain much in the way of alignment.  The victors lacked foresight.  The U.S., brimming with revulsion at the European war, began to recede into isolationism, which the idealistic Woodrow Wilson failed to detect.  The American people mainly wanted their loans to Britain and France to be repaid.  Therefore the British and French demanded reparations sufficient to satisfy their debts to America and then added to them punitive payments.  The proud British, desiring to re-establish status as the leader in world finance returned its currency to the gold standard at its pre-war exchange rate without realizing that the pre-war rate was unsustainable in light of post-war realities.  This was a lose-lose economic conference on grand scale.
• 1933 The London Monetary and Economic Conference.  Hosted by the U.K. Prime Minister, this conference sought to address the causes of the incipient Great Depression.  The gathering drew 20 foreign ministers, 80 finance ministers and central bankers, and two heads of state—with their advisers and observers, the gathering swelled to over a thousand people.  Britain’s King George V opened the conference with call for altruism: "In the face of a crisis, which all realize and acknowledge, I appeal to you all to cooperate for the sake of the ultimate good of the whole world."   Ultimately the conference was thwarted by U.S. President Franklin D. Roosevelt who forbade the American delegation from committing to any outcome that would restrict his ability to deal with economic conditions in the U.S.  Roosevelt resisted requests from the American delegation to give them latitude to roll back American protectionism.  And shortly before the conference convened, Roosevelt took America off the former gold standard; this left the conferees to argue about currency stabilization rather than America’s gold reserves.  But Roosevelt instructed the American delegates that they were there to discuss economic recovery and not to focus on currency stabilization.  The conference sputtered toward a close after 15 days with nothing to show for its efforts.  Another lose-lose outcome.
• 1944.  The United Nations Monetary and Financial Conference (Bretton Woods).    Though the conference engaged some 44 nations and 750 delegates, intellectually and politically, it was dominated by two countries, Britain and the U.S., and by the leaders of those two delegations, John Maynard Keynes and Harry Dexter White, Assistant Secretary of the Treasury for International Affairs.  The Americans and British had negotiated much of the structure of the new financial system over two years before the conference convened—this enabled the conference to complete its work in only 22 days.  The resulting agreement structured a global monetary arrangement that bore strong similarities to the system outlined by Keynes in his critique of the WWI peace terms 20 years earlier.  Currencies would be pegged to gold, but also adjustable.  An international central bank would be established—this eventually morphed into founding the World Bank, International Monetary Fund, and Bank for International Settlements, institutions that exist today.  The core principle behind the accord was the concept of open markets and the end to economic nationalism.  This system functioned well until the early 1970s, a 30-year stretch of high economic growth.  Bretton Woods is the iconic success of economic conferences.

In short, two of these conferences succeeded; two failed.  What lessons[1] can we draw?

1. People and nations will not necessarily act collectively even when it is in their rational self-interest to do so.  It takes leaders to galvanize action and a sufficient possibility of alignment.
2. Leaders need to exercise all the instrumentalities necessary to achieve outcomes: more than inspirational communication and appeals to altruism, leaders need to put resources behind their proposals and perhaps resort to bluffing, threats, and coercion.
3. The barriers to collective action are special interests, large size, and problems of communication.  Leaders must pay attention to out-groups who can destabilize a consensus.
4. Complicated solutions to complicated problems take a great deal of time and attention to work out.  Sturdy foundations are laid over years before the conference itself.

As we understand the current positions of the G20 countries, one would have to conclude that these problems will prevail.  It is not clear that there is the strength of leadership or the will to align.  America and Britain are isolated by the accusation that this crisis stems from the excesses of Anglo-American finance.  It is not clear that the leaders will bring incentives or threats sufficient to motivate alignment. 

Most importantly, the conferees are divided among special interests.  The divisions are huge.  The not-so-distant failure of the Doha Round of trade negotiations hovers over this conference like Banquo’s ghost.  At the heart of that failed round is a contest between the haves and have-nots, the developed and emerging: this is a geopolitical, rather than economic, contest by countries such as Brazil, China, India, and Russia for greater influence over global institutions.  They want a place at the table.  Given their rapid rates of growth, they are likely to earn that place sooner rather than later. 

Unfortunately, resolving the global balance of power is beyond the scope of today’s London conference.  Gaining any meaningful collective action will take more time.  Meanwhile economic conditions aren’t improving….