Creative Class

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

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. This isn’t unlike the stereotypical architect who designs a house that makes him happy rather than makes the client happy. The great corporate decision designer, like the great architect, instead would get creative about how the user needs could be integrated into a creative solution.

In addition, corporate decisions tend not to be elegant and intuitive. They tend to be abstract – “We are going to be customer-centric” or “Quality is job one.” Or they tend to be internally inconsistent – “We’re reorganizing and downsizing in order to provide better customer service.” This is yet another reason for the many implementation task forces and “buy-in” sessions. These task forces are the human equivalent of a 500-page user manual for a VCR. And “buy-in” sessions are the human equivalent of Soviet indoctrination camps.

Great designers use rapid prototyping to refine their design before locking in on a solution. Rather than work on one design, fall in love with it, and jam it down the throats of users, the great designer engages users in a collaborative process of testing and refining to help the design rapidly evolve to the point where it delights users. Involving users in prototyping can lead to a solution the designer couldn’t have otherwise contemplated.

INVALUABLE SOURCES. In corporations, most decisions are never prototyped. At most, the decision-makers float a trial balloon to see whether a firestorm will ensue. And if it does, the decision is taken back to be privately reworked and floated again later.

Users typically aren’t involved. Why? To make sure the decision process doesn’t “get out of control.” As a consequence, the decision designer cuts herself off from an invaluable source of design ideas and enhancements, and is much less likely to produce an elegant and intuitive decision design.

Finally, great designers continue to modify and enhance the design after it’s in use rather than insisting that it be cast in stone. For many, Apple’s iPod is the current poster child for perfect design – elegant, intuitive, delightful, economical, etc. However the iPod went through a lengthy period of profound design changes after its first launch to become the “instant success” that everybody thinks it is (as chronicled by former chief scientist for Alias Wavefront Bill Buxton in a book on design).

What recent products do you consider as having perfect design? Does Apple still lead the pack?

I am not an economist. I do not know the techniques, standards, and theories of behavioral economics. That said, I know that actions speak louder than words.

There has been a lot written about the ‘collapse’ of the U.S. financial system due to the current credit crisis – with pundits, economists, politicians, and others pointing fingers and claiming their ideologies and policy explain why the U.S. is ‘bankrupt’ and doomed. There has been a lot of ink and electricity spent pushing these theories.

Regardless of all the talk and prose, Warren Buffet, the greatest capitalist of all time, put down $5 billion today on the U.S. financial system when he invested in Goldman Sachs. He also has the right to put down another $5 billion over the next five years at today’s prices.

Yes, his deal is a sweetheart deal, but investors like Buffet build wealth and strengthen the economy in times like these. GS, the best brand in the financial world, is paying a big price for Buffet’s brand and knowledge, but it sends a clear signal: the smartest institutions and people are moving forward as hot air blows from Capitol Hill, newsrooms, blogs, and press conferences.

Yes, these times are difficult and there is pain to be doled out, but panics and bailouts are part and parcel of the great engine of economic and social change known as capitalism and have been a regular occurrence in the U.S. since Hamilton’s time. There will be regulatory and institutional tweaks in the coming months and years, but that is how the system functions.

The warrant portion of the Buffet-GS deal shows that the Oracle of Omaha views five years as long-term. How long do you think it will take for this mess to sort itself out? Or are you part of the ‘end of the world’ chorus?

The Wall Street Journal profiles Jason Rentfrow and company’s research on the geography of personality:

Even after controlling for variables such as race, income and education levels, a state’s dominant personality turns out to be strongly linked to certain outcomes. Amiable states, like Minnesota, tend to be lower in crime. Dutiful states – an eclectic bunch that includes New Mexico, North Carolina and Utah – produce a disproportionate share of mathematicians. States that rank high in openness to new ideas are quite creative, as measured by per-capita patent production. But they’re also high-crime and a bit aloof. Apparently, Californians don’t much like socializing, the research suggests. As for high-anxiety states, that group includes not just Type A New York and New Jersey, but also states stressed by poverty, such as West Virginia and Mississippi. As a group, these neurotic states tend to have higher rates of heart disease and lower life expectancy.

A very nice interactive map is here.

Kenichi Ohmae, the Japanese consultant and public intellectual, says the bailout will have to be global and puts the price tag at $5 trillion dollars when all is said and done.

Treasury Secretary Henry Paulson’s $700 billion plan to buy devalued assets from financial companies is “a joke” because it doesn’t go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.

Ohmae, nicknamed “Mr. Strategy” during his 23 years as a McKinsey & Co. partner, called for a $5 trillion “international facility” to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said…

One way of funding the $5 trillion facility would be through contributions from foreign exchange reserves in China, Japan, Taiwan, the Gulf states, the European Union and Russia, Ohmae said…

Ohmae compared the current financial crisis with Japan’s 15-year economic decline that began in 1989. Both started with a property bubble, which wiped out companies’ equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.

The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan’s “Viagra” economy and Australia’s “dig and deliver” boom may also fizzle as China weakens, he said.

Against the backdrop of a potential global market panic, Paulson’s plan is insufficient, said Ohmae…

“He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,” he said. “He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.”

That’s the question asked here.

[N]ow the piggy bank is empty, the cards are maxed out, the NA meetings are every night at 7 and the house is upside-down. The layoffs are coming: will you be one of them or will you just be picking up a few extra hours of work to fill in for the ones who were? The slender times have begun. How will cities fare against the suburbs now? If cities really were an efficiency, a greener solution to a worn out and wasteful suburban culture, would not they have boomed in the early 90s and the late 70s? Where will Americans ride these times out? And will we learn anything from the collective experience of the past two decades?

The post advances some interesting criticisms of my own and theorizes about cities as arenas for leisure and consumption. As I hope my work makes clear, especially WYC, my viewpoint is that cities are primarily vehicles for productivity improvement and innovation, inspired by Jane Jacobs and especially Robert Lucas who famously theorized that:

The theory of production contains nothing to hold a city together. A city is simply a collection of factors of production – capital, people and land and people – and land is always far cheaper outside the city than inside. Why don’t capital and people move outside, combining themselves with cheaper land and thereby increasing profits? Of course people like to live near shopping and shops need to be located close to their customers, but circular considerations of this kind explain only shopping centers, not cities. Cities are centered on wholesale trade and primary producers and a theory that accounts for their existence has to explain why these producers are apparently choosing high rather than low cost modes of operation… It seems to me the ‘force’ we need to postulate for the central role of cities in economic life is of exactly the same character of ‘external human capital’ I have postulated as a force in aggregate development… What can people be paying Manhattan or downtown Chicago rents for if not to be around other people?

The theory of cities is a theory of production and development. They are one in the same thing.

This graphic is from a must-read paper (via Naked Capitalism) by economists Ken Rogoff and Carmen Reinhart that examines international financial crises through history. The upshot: housing prices will have a long way to fall; stocks still have a long way to fall; the deficit is a big problem; and we are in for a long and deep recession. What is propping us up? Infusions of foreign capital. And underneath it all is a basic problem as Naked Capitalism writes:

The sorry fact is the US has consumed at an unsustainable level. We need to reduce consumption and increase savings (and reducing debt is a form of savings). Reduced consumption means a fall in GDP … Why are we unwilling to accept the inevitable?

A reader asks:

I’ve read Jane Jacobs, now I’m reading your books. After reading The Rise of the Creative Class, the question that jumps out at me is that this “Class” appears to be amoral. Is that true?

The Census American Community Survey shows a slowing of people moving to the U.S. While this is economically driven, I wonder what it means about our future? There’s no breakdown between students, entrepreneurs, laborers, etc. so it’s hard to interpret.

Does anyone know if this is happening in Canada, Europe, Australia?

From the AP story:

The wave of immigrants entering the United States slowed dramatically last year as the economy faltered and the government stepped up enforcement of immigration laws.

The nation added about a half-million immigrants in 2007, down from more than 1.8 million the year before, according to estimates being released Tuesday by the Census Bureau.

This is a watershed of sorts as Calculated Risk points out:

The current National debt is $9.727 trillion (see TreasuryDirect) as of Sept 19, 2008. …
Add in the Paulson plan, and it’s not even going to be close.

Question: geographically speaking, which places in the United States will bear the brunt of this cost?

Donald Trump has done it again, hitting new lows for sleaziness. A full page ad in today’s Oregonian pushes a scam class to “learn how you can profit from the biggest real estate cash explosion in decades.” It’s tackier than the online version here, but you can get the idea.

These scam classes show up regularly wherever there are images of unlimited money – real estate and grantwriting are two common ones. They have a few things in common:

• They promise quick, free money.
• They’re unlikely on the face (if anyone could learn this in a few hours, we’d all be millionaires).
• They start with a “Free Introductory Class” that pulls you into a class that you pay for, then often into monthly payments from your credit card for “advice.”
• They target the least able to pay and the least likely to be financially sophisticated.

Every financial crisis brings out the hucksters and this one is no different.