Creative Class

Felix Salmon, who’s been generating some of very best reporting and commentary on the ever-unfolding financial crisis:

[I]f you think that financial reporters are frazzled right now, just imagine what it’s like for the people on the front lines. Stocks are going haywire, volatility’s soaring, counterparty risk is through the roof, regulators aren’t helping matters – and the upshot is shot nerves, hasty decision-making, and generalized chaos.

The same is true, of course, at Treasury, at the New York Fed, and at any other regulatory organization you can think of. And it’s a recipe for disaster. Just remember – if you can keep your head when all about you are losing theirs, it doesn’t matter, because they’re the people in charge.

This is why the speed at which things are falling apart is so worrying. Monster deals are being done and then forgotten about within hours: last night I was at a dinner party, talking about the crisis (natch) and listening to someone say “oh yes, AIG, I forgot about that one”.

I don’t think anybody’s capable of holding in their head all the vital information needed to get a grip on things right now – not in the wake of Lehman and Merrill and AIG and the liquidity injection and the TED spread and Morgan Stanley and the money-market funds and counterparty risk in the CDS market and bans on short-selling and WaMu and negative nominal interest rates on T-bills and the oil price and the dollar and why on earth that German bank wired $300 million to a bankrupt bank and on and on and on and on. We’ve been overwhelmed by the complexity of the system, and nobody knows anything.

Frank Moulaert and Allen John Scott’s 1997 work Cities, Enterprises and Society on the Eve of the 21st Century: A State of Knowledge makes the point that there has been a general shift in the way we look at the city. We’ve moved from the notion of the city as a reproduction of the labor force to a notion of the city being a productive force of its own. While they warn us against over-simplifying that shift, they note it as an important one and so do I.

In my post on House music and Chicago, there was a comment by Felix saying that he had gone to the city to find some vestige of the music’s history but could find none, but that he “walked around listening to Mr Fingers on my headphones…that was almost enough.” He makes an interesting point. There is something to be said about that special feedback loop – listening to the products of a city in the city that produced it – that is so revealing. A city’s music is like it’s signal to the world. When we talk about a city being “put on the map” so-to-speak by an artist or a song, we’re really saying that the world responded to that signal in a way that valorizes that place. When an artist is propelled from the local to the international level, by representing their home it’s like that locality is also made international.

And so the opening lines of this review of the latest offering from Toronto artist Kardinal Offishall spoke to me, specifically as someone born and raised in the GTA, and even more specifically as someone raised in the GTA’s urban music scene. The writer captures something that I also observed in listening to the album and being from the city. As an urban music scene, we have been working toward the international level of respect and recognition for some time, but Toronto’s productive forces are so unique – from the physical geography, to the cultural demographics, to the nightlife. We permit and respect and resolve so many cultures within the city that the signal we put out can often be misunderstood as noise. Perhaps understandably so – complex productive forces wouldn’t necessarily create a product that is simple to understand. It would take time to make intelligible. After listening to that album though, I couldn’t help but smile and feel very well represented. In simple choices of diction, lyrics, collaborators, etc. Kardinal made an album that could only come from a Torontonian and one that radiates with locality at an international level. After working at it for over 10 years, it seems like he’s made something of a signal from the city’s noise. We’ll see if the world responds commercially.

Can you identify the artistic products of your city through the dull hum of the homogenization of popular culture? What is distinct about them with respect to the locality and its productive forces? What does it take to get a local scene’s signal out to the world? How do you keep it honest with respect to that locality?

And now, as always, some music.

As originally published in BusinessWeek, this is the second installment in a series about decision-making and design. Part One.

[The root cause of badly designed decision is the] fundamentally flawed design of the decision factory.

Typical decision design demonstrates few of the features of great design, which starts with deep user understanding. The designer dives well below the surface to fathom exactly how someone will use the artifact to be designed. The designer goes beyond understanding the user’s physical and functional needs to determine the user’s deeper emotional and psychological needs.

Do decisions even have “users” who need to be deeply understood? Indeed they do: anyone whose subsequent decisions and actions are shaped and constrained by a given decision is a “user.” So if a corporation decides that all divisions will cut costs by 10%, or deploy Six Sigma, or adopt a shared-services model for info tech, many divisional managers will be users of these decisions.

CREATIVE RESOLUTIONS. While it’s fair to say decisions don’t completely ignore the user, it’s rare for corporations to take their needs into account. This is why when the decision in question gets presented to the users, they often rebel, resist, drag their feet, or simply don’t understand the action required by the decision. That’s why companies wind up with massive implementation task forces and extended “buy in” efforts. Deep user understanding typically happens only in the wake of a decision and the problems it has created.

Designers, in contrast, visualize creative resolutions of tensions that balance the needs of the producer and the user rather than accepting unpleasant trade-offs. The designer aims to create a solution that’s easy to understand and intuitively obvious for users who shouldn’t need a complex manual and days of training to implement the solution.

Typically, corporate decisions don’t live up to these visualization ideals either. In part because companies are hierarchical, decision-makers tend to put the needs of the decision’s producer ahead of the needs of the decision’s users. For example, it’s handy for the corporate center to force all the divisions to use the same accounting platform, whether or not it’s helpful to the individual divisions.

Is it really possible to make blanket decisions that will satisfy all users?

“I think we are now all realizing where we are headed. We are moving into the endgame, when Congress socializes the losses after privatizing the gains.”

Tim Duy via Mark Thoma. This sounds like Marx could have written it. Duy says the likely outcome is an RTC-like vehicle to consolidate all the bad assets – and pass their cost onto the taxpayers.

With the great financial meltdown upon us, there’s been a surge in interest in the intermingling of commercial and investment banking – and, well, everything under the financial kitchen sink, including insurance. There’s a long, long history here folks. The financial collapse of the Great Depression led to the creation of the Federal National Mortgage Association (yes, that Fannie Mae) and erecting walls between different elements of the financial systems – that is between commercial banks and investment banks and savings and loans or so-called thrifts that once gave us our mortgage loans. That system has been under attack – politically and through technological and business model innovation – literally since day one.

I mentioned recently I wrote my dissertation on all of this. Here’s a short piece from way back when in 1986.

Maclean’s magazine contacted me last month to ask for my comments about a recently released mega-study of “lifelong learning.” The subject of the piece was the 2008 Composite Learning Index (CLI), from the Canadian Council on Learning.

Here’s a link to the Maclean’s article, which has some insightful quotes from CCG’s Kevin Stolarick, and some boring ones from me.

The Maclean’s article is a good overview of the ambitious CLI study, but it’s really worth a look in its raw form. Here is the home page for the Composite Learning Index, and the 2008 report itself.

Your time is valuable, so let me just give you my thoughts about the study, having done many similar ones over the last 25 years or so.

• First, it’s huge in scope - too big, in my opinion, for any valuable insight. By covering so much, it dilutes its results by including sometimes conflicting measures.
• The study attempts to quantify “learning” in large and small cities and towns across Canada, nearly communities in all. In an apparent effort to value everyone everywhere, all types of learning are included such as use of the Internet; recreation and sports participation; buying and reading printed matter; attending live performing arts; travel time to nearby museums, libraries, and business/civic associations; expenditures on social clubs; attending church; volunteering and socializing with other cultures; as well as the more common measures of high school and university graduation rates and student test scores. These are all valuable metrics, and all worthy of their own study. By mashing them all together into one index, some insights are undoubtedly lost.
• Many of the metrics are based on estimates of household expenditures for various metrics. I did not find a list of specific sources, but in my experience household expenditure data is based on a national model, and adjusted for each geographic area, usually on the basis of income. It is unlikely that individual differences between communities are revealed, except as a function of income. Rich places spend more, poor places less.
• Some measure of the quality of the resources should be attempted, not just the proximity to libraries,  schools and universities, museums and art galleries. It’s much different having access to a world-class museum with rotating exhibits, instead of a small-town one-room museum with the usual few bones, muskets, baskets, and pottery (charming though they are.) Use annual attendance figures or budgets to estimate the quality of the experience, or average entrance scores to rank universities.
• There are four major segments of the study, based on the type of learning – Knowing, Work Experience, Community, and Personal Development. These would best remain segregated. It’s appealing to combine them all into one super-score but, like mixing many colors together, insights are lost.

All in all, the CLI is a wonderfully ambitious attempt to quantify “learning” and provide a road map for the future. But a Swiss Army knife is rarely the best tool for the job, or even any job. By dividing the components of the study into more meaningful sections, better insights may be gained.

Have a look and tell me what you think. Do their rankings fit with your experience?

Best, Bert

One of reasons we believe the creative economy/society is different from the industrial and agricultural economies is that it relies on a resource (creativity), that every single human being has. The question is whether our institutions and their leaders can provide mechanisms and devices that support the individual in exercising their creativity productively.

Richard often speaks of Toyota’s long-standing practice of listening to workers on the shop floor in generating new ideas and solving problems. The results of this corporate culture (which extends and exists beyond national borders) are obvious.

WSJ writer Phred Dvorak offers a piece on Best Buy and its engagement of its employees (at all levels) in a predictive stock market game whose results are checked against management forecasts. In the online market, called TagTrade, employees can buy stock in answers to questions posed by managers. The price of the stock then reflects the thinking and creativity of Best Buy’s employees. According to the article, the market’s judgment has often performed better than management’s. Here is a snippet.

TagTrade is open to all of Best Buy’s 115,000 U.S. employees. The roughly 2,100 of them who choose to participate get $1 million in fake money to trade for a nine-month period. The top trader in the period wins a $200 gift certificate.

Jeff Severts, a 38-year-old executive who is currently chief of the company’s Geek Squad personal-computer maintenance services, spearheaded development of the market. Mr. Severts says TagTrade helps flag potential problems early.

In January, he asked both his management team and the market to predict sales of a new service package the company was offering for laptop computers. A week before the company began selling the product, the market’s guess was 33% lower than the team’s official sales forecast. It subsequently sank further.

When initial sales figures confirmed the market’s prediction, Mr. Severts ended the offer and began redesigning the service package. He listed a TagTrade stock to gauge the revised package’s chances of starting on time, in mid-September. The stock rose, and Mr. Severts says he took “great comfort from that.” On Sunday, Best Buy started offering the new package.

Best Buy isn’t the only company using prediction markets as a way to tap the knowledge of front-line employees. Web-search giant Google Inc. uses them to solicit forecasts on everything from how many users its Gmail service will attract to whether products will launch on time. Other companies that have experimented with them include General Electric Co., Intel Corp. and Microsoft Corp.

Does your company or organization offer avenues for all to provide input? What about your city or region? Are these systems creative, simple to use, and engaging? We do live in an era of cheap communications. Do they ‘invite’ people in? Companies and cities that do this will reap the benefits, while those who don’t will be battling from a position of weakness.

That is what Nouriel Roubini is calling it. He predicts widening financial contagion across the banking and financial systems, and a prolonged U-shaped recession of the US and global economies. Don’t count on deposit insurance, he says, the FDIC will go broke. Interestingly, he sees this as a signal of the demise of three other key pillars of post-war American life – the end of America’s global empire, the unravelling of the Bretton Woods global monetary system, and the decline of the suburban way of life. Martin Kenney calls for a global New Deal. I agree. It will also take a new global spatial fix which can overcome the limits of spiky globalization and provide a workable alternative to the McMansions and SUVs suburban model- not just new models for housing but for stimulating consumption in ways that bolster the creative economy.

Paris is tops; London, next; with Barcelona in third. Berlin. Amsterdam. Munich, Stockholm, Prague, Rome, and Athens round out the top 10 European city brands, according to this new ranking (via Planetizen).

What do you think?

Via the NY Times, Floyd Norris:

A.I.G. -$135.1 billion
EXXON MOBIL -$131.4 billion
GENERAL ELECTRIC -$129.9 billion
MICROSOFT -$88.2 billion
AT&T -$75.5 billion
CITIGROUP -$63.7 billion
BANK OF AMERICA -$62.1 billion
GOOGLE -$59.1 billion
MERCK -$56.4 billion
WACHOVIA -$52.1 billion
APPLE -$49.1 billion
INTEL -$47.0 billion
UNITEDHEALTH GROUP -$41.1 billion

Total Losses — -$990.6 billion

Biggest Gainer::WAL-MART +$52.1 billion