The revenge of the consultants

Paddy McGuinness once opined about the chasm between consultant and academic speak in the realm of economics. I think it was in the context of the battle between the mush served up by the consultants which became BCG in Australia in the late 1980s (Pappas, Carter, Koop, Telesis – apologies for any misspellings) and Garnaut’s ‘North East Asian Ascendancy’ report to the Government. Where Garnaut argued for zero tariffs with a background in economic theory, the consultants genuflected in this direction but at the same time had to do the bidding of their client which was the Australian Manufacturing Council. IIRC they argued for twenty percent tariffs on a range of industries adding all the usual kinds of justifications (let me see, um . . . let’s try ‘giving the industry time to adjust’ to ‘reinvest’, um to meet the challenges of the future and um, to build a strong base ¹ from which to export).

Anyway, the thing is that economics hasn’t had anything of great usefulness to say about what has always seemed to me to be one of the most important economic transformations of my lifetime. Just as Hayek and Mises were right to argue that modern economies were too complex to be centrally planned, innovations in the modern corporation were a sign of the same kinds of limitations within firms as existed within states. Increasing complexity put a premium on effective and creative co-operation between those involved in economic production and so, as Yochai Benkler puts it in the video above “social practices that have always been part of human life moved from the periphery to the core of economic life”. This is a very big statement. It’s also true. Any manager of a firm knows this, but it’s not very effectively engaged by economics. Benkler is an academic, but he’s a lawyer, not an economist. Likewise people like Clay Shirky has mined some of the wisdom of institutionalists like Coase in thinking about what goes on within and outside firms. He’s in academia like Benkler, but he’s a ‘public intellecutal’ to use an unfortunate phrase, more than an academic.

And today I read a great essay by a consultant with McKinsey, Shoshana Zuboff. It’s after what Don Arthur calls (perhaps he’s quoting someone else?) the conceptual scoop.  It’s got some catchy names ‘i-space’ and ‘distributed capitalism’. In comments she even has a passage specifically written to irritate me.

Smith understood that innovation in the old framework could no longer address the requirements of wealth creation in a society newly marked by industrialization and rising household consumption. Instead, he put forth a new vision of capitalism based on new essential functions such as free enterprise, entrepreneurialism, profit, and the division of labor and specialization. In other words, Adam Smith set out to challenge a dying form of capitalism that was no longer appropriate to its time, yet maintained a stranglehold on the economy and imagination of a civilization.

Well Shoshana, yes and no. But, I thought it was a really good piece and reckon you should go and read it. And I’ve highlighted the conceptual scoop for you in italics below (btw, your mind usually needs a bit of conditioning to conceptual scoops, meaning that you’ve often heard them before, anyway, it’s a good piece).

The consumption shift in Ford’s time was from the elite to the masses; today, we are moving from an era of mass consumption to one focused on the individual. Sharp increases in higher education, standards of living, social complexity, and longevity over the past century gave rise to a new desire for individual self-determination: having control over what matters, having one’s voice heard, and having social connections on one’s own terms. The leading edge of consumption is now moving from products and services to tools and relationships enabled by interactive technologies. Amazon.com, Apple, eBay, and YouTube are familiar examples of companies solving today’s premium puzzle. Lesser-known companies like CellBazaar (in emerging-market mobile commerce), TutorVista (in tutoring), and Livemocha (in language education) also abound.

1. domestic oligopoly anyone?[↩]