The Antidote to Economic Malaise: A Culture of Collective Mindfulness

What I like about Seeking Alpha is the frank expression of differing views. Less good is the predominance of articles about what is wrong over pieces on how to fix things. For example, the excellent piece by James Quinn on how we can avoid another tragic Ponzi scheme was a cry from the heart on the iniquity of Bernie Madoff, but the misfortune of the few wealthy who trusted Madoff is not the greatest catastrophe, and this article did not actually answer the excellent question it asks.

In the UK, the Chairman of Royal Bank of Scotland (RBS.) has apologized profusely, the head of Barclay’s (BCS) is teetering on the brink of contrition and a senior banker at HSBC (HBC) (who had an alleged $1 billion exposure to Madoff) has committed suicide. I was taught, however, that it is not good enough to say you are sorry; the true meaning of repentance is making sure it does not happen again. That is what we need to be talking about now.

Muhammed Yunus, a Nobel Prize winner and a very different kind of banker, shared his thoughts on the global economy in his book "Creating a world without poverty" (2008). Muhammed Yunus lays the blame on the failure of capitalism. He argues that economic, social, and political systems, and false ideas, create poverty—not the laziness, ignorance, or moral failings of the poor.

In an interview on 13 November 2008 with Jane Wales, President and CEO, World Affairs Council (of Northern California), he talked about the global economic crisis and offered his advice for President-elect Obama. He points out that the world's three billion poor will be hardest hit by the global economic crisis. The longer it goes on, the worse will be its effect on people all over the world. Unless strong global action stops this tremor, its effects will not be limited to the economic environment; it will spill over into the political and social environment also.

He uses health care analogies to describe what we need to do. For him, it is not about treating the patient but about keeping the patient healthy. Regulators failed. Government bailout was the only means left to the whole world because there is no other agency, no other instrument you can use to address the situation. Whether you like it or not, government is the last resort.

Allowing the private sector to do anything they want, because the government will step in and bail them out when they run into trouble, should not become a habit. Now, while we are still going through the crisis, is the best time to fix the system. Once we get out of the problem, we will forget.

It is not simply about regulation. Regulation is a second order of priority. If we are going to put all our confidence in a market economy then the market itself needs to find a built-in system to correct the present anomaly that has exploded into this big crisis. We have to find a way to correct the market economy and put that system in place before we open up again for business.

The second part is regulation. Stronger regulation, which Yunus describes as stifling, is not the solution. Rather we need regulation that is more focused, specific and efficient. When a body has cancer you do not start by treating the whole body, you focus on the place where the cancer is located. The best care is not to allow this to develop - early detection - just like any disease.

We need a mechanism for early detection in the market. Thus if there is a sign of any asset getting toxic, we can hunt it down and take it out. That way the market becomes more reliable. If you leave it to the regulators to take care of everything, if regulators fail, government has to bail the market out because it is now government's failure. Regulation is only there in case your built-in system misses something.

We are all very happy about globalisation. However, if we all live in a global village we cannot have a national mechanism to take care of everything. If this is a global village, we need some kind of global overseeing mechanism, whether you call it a global central bank, whatever you call it you have to have that in position. This is not a unipolar economic system anymore; it is a multipolar economic system. You cannot rely on only simple, national-level oversight; you need a global overseeing methodology.

Technology has made this world completely different. Where we will be in ten or fifteen years is almost unthinkable at the speed the world is changing. So we had better get ready for that. When we are preparing this kind of an institution, we are not creating an institution to manage the system today but an institution to manage the system for the next fifty years. It would be very bad judgement on our part to carry on with 1940s and 1950s institutions to take care of the 21st Century world.

Coming from anyone but Yunus this could be dismissed as fanciful stuff and not very practical. But he is right, we do know a lot about early detection of the unexpected. For example, research on highly reliable organizations (such as nuclear aircraft carriers and hospital emergency departments that do risky work but remain relatively free of accidents) shows that the success of these organizations depends on a culture of collective mindfulness.

Weick and Sutcliffe, in “Managing the Unexpected: Assuring High Performance in an Age of Complexity (2001)”, observed that these organizations have five priorities.

1. They are preoccupied with the possibility of failure and so encourage error reporting, analyze near misses and resist complacency.
2. They seek a complete and nuanced picture of any difficult situation.
3. They are attentive to operations at the front line, so that they can notice anomalies early while they are still tractable and can be isolated.
4. They develop capabilities to detect, contain and bounce back from errors, creating a commitment to resilience.
5. Finally, they push decision-making authority to people with the most expertise, regardless of rank.

It alarms me to see authorities, like MIT’s normally reliable Baseline Scenario, dismiss economic bubbles as inevitable. It is always tempting to dismiss unexpected events as normal, but a mistake. High reliability organizations, in contrast, track down bad news (Warren Buffett’s “tell me the bad news, the good news will take care of itself”) and stalk the anomalous. Such organizations keep asking people if they have noticed anything out of the ordinary. They praise them for an affirmative answer, and disseminate what they have spotted. The unexpected is a solid clue that your model of the world is in error.

High reliability organizations are organizations like any others, just more aware of the harm they can do. They have a big incentive to contain the unexpected because when they fail to do so the results can be catastrophic. Lives can be lost, but so can assets, careers, reputations, legitimacy, credibility, support, trust and goodwill. Consequently, such organizations persuade all their members to be chronically worried about the unexpected and sensitive to the fact that in the face of the potential for surprise, any decision or action may be subject to faulty assumptions or errors in analysis. Above all, they work to create a climate where people feel safe to question assumptions and to report problems or failures candidly.

As to President-elect Obama, Yunus points out that the US President is de facto President of the World, he can't avoid it. When you talk about poverty it is not the poverty of one country but the poverty of the World, it is a global phenomenon. The President of the USA provides leadership for the World. Yunus's message to Obama is that we should at least try to eradicate worldwide poverty.

President-elect Obama has now severely criticized the culture of Wall Street. What, however, should take its place? Weick and Sutcliffe’s “Managing the Unexpected” goes a long way to providing the answer: a “culture of collective mindfulness” that is also Yunus’s early detection mechanism.

Disclosure: I have no positions in any stocks mentioned.

Comments

[tipalia:]

Yes indeed, like you said, telling everybody you are sorry is not enough .But they take us( the small investor and may I add naive) for
granted with the blessing of the governments, all those institutions
that are supposed to protect the small investors. But once again if they really were on our side it would be the end of capitalism (riches get richer and poors get poorer). All the fat crooks walk freely and we must work until we die.

2008 Dec 22 08:34 AM

[LilBob:]

Okay, so what your saying is that regulation isn't the answer to the failures of the economy, all we need to do is have everyone become more than human, and somehow manage to overcome the True Believer herd mentality that was an essential component of all our recent economic bubbles.

There's one major flaw with this article, if people actually had the capacity to be critical of situations and offers to the point where they could sniff out a con before it had a chance to happen, significant portions of our existing economy would falter immediately-not just the housing market and hedge funds, and many very successful sales staff members would never work again.

2008 Dec 22 08:46 AM

[Alan von Al...:]

There is so much wrong with this article, I will confine my remarks to three items. The President of the United States should be and is constitutionally charged with the duty to faithfully execute the laws enacted by Congress, as interpeted by the Supreme Court, full stop. He is not "president of the world," nor dictator. In fact, he has fewer legal rights than Joe Sixpack. That's the essence of American law. Public officials are restrained from exercising arbitrary power. They are keenly scrutinized by a free press, subject to frequent and fair election, and checked by separation of powers among the three branches of Federal government and the 50 states.

Item two, quoting Ayn Rand, what the Have Nots have not is freedom. The world's worst suffering is caused by warlords, ethnic hate, corrupt governments, and tribal whim-worship. There is nothing to be done about it, except withdraw our support for dictators like Mubarak. If you want idealism, fine. The American ideal is liberty.

Lastly, your appeal to "high reliability organizations" is ghastly. NHS is reliable only in the sense of appalling waste and gross incompetence. If you think aircraft carrier organization is preferable to a competitive free market, it amounts to praise for fascist military dictatorship.

2008 Dec 22 09:27 AM

[tipalia:]

it seems that the justicial system we have is inefficient, corrupted , at the service of the rich crooks that can afford the best teams of lawyers in our country. Can you name one CEO, CFO,CFF, members of board of directors
from all those financial institutions that rewarded themselves for their incompetence, for closing their eyes on what was going on, to fatten their bank accounts at our expenses, investors or not. You see the small investors are so impoverished now let s go after everything that is left, the taxpayers of course , the people that spend itelligently, wisely, that don t want to have anything to do with the markets. Poor suckers that we are.

2008 Dec 22 10:03 AM

[User 230341:]

Wonderful, wonderful, wonderful. Let's have more like this on Seeking Alpha.

I worked for a while in an organization that ran according to the 5 points listed. It was highly successful during that period, though it wasn't always comfortable. But we produced some breakthrough medicines that will benefit humanity for ever. Then the organization gradually lost that way of working and lost its effectiveness. I try to take that learning into organizations I help now, but it is sadly very difficult to inculcate that kind of attitude. It needs very firm and skilled leadership at the top rather than particulary skilled middle management.

I agree fully with Yunnis about our responsibility for the poor. I have been privileged to visit his amazing country, including its poorest areas and its cholera hospitals. One's attitude is changed forever when adults and children die in front of you from diseases that could be prevented if we cared enough to help on sufficient scale.

Yes it is about Mindfulness, it's about mindfulness replacing thoughtless selfishness.

2008 Dec 22 10:13 AM

[Doug Poretz:]

I agree with the need for a culture change -- in fact, I believe we are beginning the process of a culture change, whether we like it or not. But I believe the "culture of collective mindfulness" is more like a tactic than an overall strategy. I think cultures are likely to change largely as a result of an evolutionary action rather than an attempt to put fingers in the dike when the flood of revolutionary forces is already upon us.

I'd like to make two general points.

1. Try thinking of the economic situation not as an economic situation that stands by itself as if it was some sort of cyclical event that we'll work through, but as a subsegment of a more significant situation. See it in the context of a cultural event. Certainly there are cyclical factors at work, but i believe the depth and breadth of this situation goes far beyond simple cyclical economic factors. At the same time we have major economic turmoil, we also are going through the transition from a manufacturing to a knowledge economy (which, on its own merits, will give rise to new business models) ... we are now living in a truly global economy (also requiring new models) ... we are seeing major political/demographic changes, including the eroision of the quality of life for the middle class ... there is incredible volatility as to both the availability and the price of essential commodities (food and fuel) ... and we have a population that has been swamped with "buy this" messages on a very forceful and constant basis since the post WW II expansion, which over the years has transformed "The American Dream" (which is really a World Dream) FROM one based on ideological beliefs and high standards for individual responsibility and opportunism TO one based on buy more, buy newer, buy bigger, buy more expensive, buy on credit what you cannot afford. That isn't just an economic situation. And thus, it won't be changed simply by economic changes -- expect to see some major cultural shifts. I think it is too early to predict those shifts, but it isn't too early to become concerned -- because these shifts are going to occur in a world where individuals can communicate (and coalesce into communities) online 24/7/365, unrestrained by time, geography and (moften) language. How would the French Revolution be conducted in the age of the Internet? You might want to start considering that question, and see if you find some answers emerging in 2009.

2. New Models -- I have some experience here because i have co-founded and helped build a communications firm (as in PR/advertising/interac... al) that has a radical new model, starting with the way we bill: we do not keep time sheets and we do not bill by the hour -- that is a basic difference that sets us apart (our growth and margins also sets us apart). Anyhow, I've written at my blog on the specific issues of extablishing a new model (tinyurl.com/8dvk8g). The suggestion that you should have a mistake-focused culture when dealing with a new model isn't "advice" -- it is an a priori truth. That is because new models have new mistakes. And unlike old mistakes that have become recognizable and defineable over the years, along with the remedy that more or less works, NEW mistakes are not recognizeable and there vare no precedents for what works as solutions. You only see them after they have bit you. That's when you say: "what happened?" Then, it isn't simply an issue of identifying it as a mistake, but you have to define it accurately (and that usually doesn't happen on Try One), and after you define it, you have to develop a remedy (and that usually doesn't happen on Try One either). So, the cutlure of "collective mindfulness" is a great phrase and a very difficult and time-consuming reality, often setting off (by necessity) a whole bunch of new mistakes in its wake. Another thing I have learned is that as you encounter new mistakes, you have to develop new solutions consistent with the core fundamentals of the new model (that is, you cannot use old remedies for an old model to solve new problems in a new model) -- as you do that, your new solutions make your enterprise more and more unique -- so you are going to run into even more mistakes that you won't know are mistakes (again) until AFTER they have hit you. This gives rise to a cultural phenomenon that isn't very nice -- you are correct in that you have to have a culture where everyone looks for mistakes, and that can be a good thing, but it also means that people stay focused on "what's wrong" and that becomes a problem if at the same time you fail to revel in your model, despite everything that is (and will be) wrong about it.

I applaud the effort to point the finger of blame at something bigger than "lax regulation" or "greed of Wall Street," etc. -- It is much bigger yet. It is, in my opinion, cultural -- but still, much bigger than a culture that lacks collective mindfulness. I think this is going to be a much bigger "correction" (or whatever it is called) than anyone currently envisions. And that concerns me. I think, all too soon, if I am correct, that phenomenon will concern us all.

2008 Dec 22 10:14 AM

[Jason Rines...:]

Hi Doug, Jason Rines here, founder of Raging Debate.com . Myself and a few other bright minds who get it as you do have already begun the R&D phase of what you speak of. The French Revolution was funded by the middle business class. The institutions at the top always fight true change back to Liberty. The reasons for this are fairy obvious. I encourage all whom read this to contact me at founders @ raging debate.com . Don't expect instant miracles. I am leveraging my database and technical knowledge and some cash towards this effort. All of us will have to do this part time as we attempt to run our businesses. Best of luck gentlemen. Take care of your family and neighbors.


On Dec 22 10:14 AM Doug Poretz wrote:

> I agree with the need for a culture change -- in fact, I believe
> we are beginning the process of a culture change, whether we like
> it or not. But I believe the "culture of collective mindfulness"
> is more like a tactic than an overall strategy. I think cultures
> are likely to change largely as a result of an evolutionary action
> rather than an attempt to put fingers in the dike when the flood
> of revolutionary forces is already upon us.
>
> I'd like to make two general points.
>
> 1. Try thinking of the economic situation not as an economic situation
> that stands by itself as if it was some sort of cyclical event that
> we'll work through, but as a subsegment of a more significant situation.
> See it in the context of a cultural event. Certainly there are cyclical
> factors at work, but i believe the depth and breadth of this situation
> goes far beyond simple cyclical economic factors. At the same time
> we have major economic turmoil, we also are going through the transition
> from a manufacturing to a knowledge economy (which, on its own merits,
> will give rise to new business models) ... we are now living in a
> truly global economy (also requiring new models) ... we are seeing
> major political/demographic changes, including the eroision of the
> quality of life for the middle class ... there is incredible volatility
> as to both the availability and the price of essential commodities
> (food and fuel) ... and we have a population that has been swamped
> with "buy this" messages on a very forceful and constant basis since
> the post WW II expansion, which over the years has transformed "The
> American Dream" (which is really a World Dream) FROM one based on
> ideological beliefs and high standards for individual responsibility
> and opportunism TO one based on buy more, buy newer, buy bigger,
> buy more expensive, buy on credit what you cannot afford. That isn't
> just an economic situation. And thus, it won't be changed simply
> by economic changes -- expect to see some major cultural shifts.
> I think it is too early to predict those shifts, but it isn't too
> early to become concerned -- because these shifts are going to occur
> in a world where individuals can communicate (and coalesce into communities)
> online 24/7/365, unrestrained by time, geography and (moften) language.
> How would the French Revolution be conducted in the age of the Internet?
> You might want to start considering that question, and see if you
> find some answers emerging in 2009.
>
> 2. New Models -- I have some experience here because i have co-founded
> and helped build a communications firm (as in PR/advertising/interac...
> al) that has a radical new model, starting with the way we bill:
> we do not keep time sheets and we do not bill by the hour -- that
> is a basic difference that sets us apart (our growth and margins
> also sets us apart). Anyhow, I've written at my blog on the specific
> issues of extablishing a new model (tinyurl.com/8dvk8g). The
> suggestion that you should have a mistake-focused culture when dealing
> with a new model isn't "advice" -- it is an a priori truth. That
> is because new models have new mistakes. And unlike old mistakes
> that have become recognizable and defineable over the years, along
> with the remedy that more or less works, NEW mistakes are not recognizeable
> and there vare no precedents for what works as solutions. You only
> see them after they have bit you. That's when you say: "what happened?"
> Then, it isn't simply an issue of identifying it as a mistake, but
> you have to define it accurately (and that usually doesn't happen
> on Try One), and after you define it, you have to develop a remedy
> (and that usually doesn't happen on Try One either). So, the cutlure
> of "collective mindfulness" is a great phrase and a very difficult
> and time-consuming reality, often setting off (by necessity) a whole
> bunch of new mistakes in its wake. Another thing I have learned is
> that as you encounter new mistakes, you have to develop new solutions
> consistent with the core fundamentals of the new model (that is,
> you cannot use old remedies for an old model to solve new problems
> in a new model) -- as you do that, your new solutions make your enterprise
> more and more unique -- so you are going to run into even more mistakes
> that you won't know are mistakes (again) until AFTER they have hit
> you. This gives rise to a cultural phenomenon that isn't very nice
> -- you are correct in that you have to have a culture where everyone
> looks for mistakes, and that can be a good thing, but it also means
> that people stay focused on "what's wrong" and that becomes a problem
> if at the same time you fail to revel in your model, despite everything
> that is (and will be) wrong about it.
>
> I applaud the effort to point the finger of blame at something bigger
> than "lax regulation" or "greed of Wall Street," etc. -- It is much
> bigger yet. It is, in my opinion, cultural -- but still, much bigger
> than a culture that lacks collective mindfulness. I think this is
> going to be a much bigger "correction" (or whatever it is called)
> than anyone currently envisions. And that concerns me. I think, all
> too soon, if I am correct, that phenomenon will concern us all.

2008 Dec 22 11:30 AM

[Stephen Kanitz:]

We seem to have forgotten the 5 C's of Credit. IBanks lent on Collateral only. Madoff investors invested on Character, sic, and forgot the rest.

2008 Dec 22 01:24 PM

[sr9web:]

Excellent retort!


On Dec 22 09:27 AM Alan von Altendorf wrote:

> There is so much wrong with this article, I will confine my remarks
> to three items. The President of the United States should be and
> is constitutionally charged with the duty to faithfully execute the
> laws enacted by Congress, as interpeted by the Supreme Court, full
> stop. He is not "president of the world," nor dictator. In fact,
> he has fewer legal rights than Joe Sixpack. That's the essence of
> American law. Public officials are restrained from exercising arbitrary
> power. They are keenly scrutinized by a free press, subject to frequent
> and fair election, and checked by separation of powers among the
> three branches of Federal government and the 50 states.
>
> Item two, quoting Ayn Rand, what the Have Nots have not is freedom.
> The world's worst suffering is caused by warlords, ethnic hate, corrupt
> governments, and tribal whim-worship. There is nothing to be done
> about it, except withdraw our support for dictators like Mubarak.
> If you want idealism, fine. The American ideal is liberty.
>
> Lastly, your appeal to "high reliability organizations" is ghastly.
> NHS is reliable only in the sense of appalling waste and gross incompetence.
> If you think aircraft carrier organization is preferable to a competitive
> free market, it amounts to praise for fascist military dictatorship.

2008 Dec 22 01:55 PM

[carey_jim:]

I don't think it's a coincidence that Muhammed Yunus is a Muslim.

His approach is, basically religious, whatever name you give it.

Communism was a religion too, even though it was atheistic. It was a scientific religion, if you will, complete with hagiography, theology and devils and the French Revolution was its progenitor.

Islam, Hinduism, Judaism and Catholicism have all aspired to to control every aspect of life, including economic and political activity.

Social progress should move away from these failed ideolgies not back to them.

We should take the lessons of history. After all, we are only a few generations from the horrors of Stalin and Hitler who were both idealists.

2008 Dec 22 02:04 PM

[longk:]

capitalism doesnt create poverty; nature does; Poverty is the state of brute nature, and that's what you get when you are overly greedy. Societies that develop the wisdom to take care of their own, develop effective mechanisms to do just that. The best ones are local: amilies, churches and privately funded civic organizations with local oversight and accountbility.. Societies that give that responsibility to government thereby devalue the tribal and familial virtues and give that mission to the most inefficient and ineffective organization for redistributing wealth: the government.

capitalism is the most dynamic means of effectively deploying capital to meet the needs of the many by rewarding reliable risk taking. the comparison of the world markets to high reliability organizations is flawed, because the free market is not an organization, with a mission and resources; it is an unconstrained gathering place where buyers and selelrs come together. Weick an Sutcliffe's work is excellent and is a call to action for those who would improve the performance of their organizations. I teach these ideas and techniques to my management students; I think theapplication to the markets is flawed though.

the greedy wealthy who had money and didnt know how to ask questions of Maddow to protect the money got what they earned. they should have been more mindful. they should have done their due diligence. If you dont treat money properly, with respect and care, it goes away.

The President of the US is NOT the President of the world. He has no constitutional authority to address world poverty. If he tries to do that he should be impeached for exceeding his constitutional bounds. He has no authority to lead the world; The scope of his responsibilities, and they are slight, are clearly spelled out in the Constitution. If you would change the world, first change your nation, first change your state, first change your village, first change your family, first change your self. The world wwill take care of itself.

2008 Dec 22 10:08 PM

[Peter Burgess:]

Dear Colleagues

What Dr. Yunus has done over the past 30 plus years in making progress possible for millions of poor people is impressive ... and contrasts with the business model of the mainstream banking sector that has help make a few billionaires, made life wonderful for a lot of well paid traders and ruined the global economy.

While many are trying to find a focal point of blame ... I would argue that a big factor in this crisis getting out of hand has been the poor state of financial, corporate and economic metrics.

I have a problem with the idea that spending on a problem is a legitimate part of the gross economic product ... 17% of the GDP is health! This should not be in the GDP as a positive ... the RESULT ... that is good health ... should be in the product and the cost should be a deduction!

Why do modern economists ignore things like the cost of congestion? The USA must be losing $billions, if not $trillions of lost productivity every day because of road, rail and air congestion. When was major infrastructure improvement last made ... the Interstate Highway System in the 1960s perhaps? Sports stadiums ... Casinos ... etc ... have been built, but to make money and entertain ... not to improve national productivity.

The system of measurement being used is awful ... and the result is no surprise. The accounting profession has been asleep for a very long time.

Our group is trying to change the paradigm for economic measurement and the dialog around the capital markets ... just a little bit. We want to add a set of metrics based on Community Accountancy (CA) that uses the community as the reporting entity ... and embraces value as the critical product not merely the money based profit. Tools commonly used in corporate accountancy are incorporated into CA ... such as standard costs and standard values ... such as value chain analysis ... such as consolidation principles ... such as balance sheet and income statement ... etc.

Dr. Yunus observes in his book that there is a need for a better system of accountancy ... and we would agree. Maybe CA goes some way towards what Dr. Yunus was looking for!

Peter Burgess

2008 Dec 24 01:49 AM