Photograph by Josh van Gelder
Noreena Hertz had to seduce Bono. The Cambridge University economist was writing a book on the developing world, and Bono's personal saga of getting the U.S. government to cancel more than $400 million of debt was just the pop-culture bridge she needed to move her ideas beyond the wonkish corridors of academia. After all, Hertz's motive for The Debt Threat -- a deep dive into the debt trap that, she argued, would have global consequences for all -- was to juice the campaign that had been building slowly in activist ranks. The book itself would be a battle cry (a postcard inside made it easy for U.K. readers to urge the prime minister to cancel billions owed by the world's poorest countries), and its release was pegged to hit before the 2005 G8 meeting. Hertz sent Bono an email, unsure if it would find him. To her astonishment, it did: "I'm so glad you got in touch," read the rock star's reply. "I'm a real fan of your work. Bono."
Few academics have leaped from the critical fringes to the role of prophet as adroitly as Hertz. Wielding her contrarian message -- that markets need to serve the interests of people as much as they serve companies or shareholders -- Hertz has been campaigning for the past decade against the mantras of mainstream economists, urging a more ethical form of capitalism. But her message isn't some yoga-infused spiritual quest. As she explained in her 2001 European best seller, The Silent Takeover, it is about the unsustainability -- environmentally, socially, and economically -- of laissez-faire capitalism and the idea that markets are stable. If the surge of corporate power was going to leave governments relatively impotent, Hertz argued, then those corporations themselves needed to fill the void. "She moved the conversation from what corporations can do to be socially responsible to a much more profound examination of the boundaries of corporate behavior and public behavior and where they have failed," says Debora Spar, who was a dean at Harvard Business School for nearly two decades and is now president of Barnard. "She's much more radical."
Hertz -- part activist, part detective -- argues that both economics and business need to be put back into the human social context. "Over the past 30 years, economics became a narrow field completely out of touch with reality," says Hertz, 41, who sees the discipline as a jigsaw puzzle. "I don't believe you can reduce the world to a mathematical formula. I start with the world, assume it's complicated, and ask where can I get help from a whole range of disciplines." Drawing on subjects as diverse as anthropology, physics, geopolitics, and neurology, Hertz's economic vision is at once eclectic and holistic, which may explain her apparent ability to foresee dangers and opportunities others do not. It is also relentlessly pointed, serving an explicit agenda -- making corporations realize that they can no longer operate in their Adam Smith -- designed bubble. "I really believe in a globalist agenda, but globalization isn't just allowing companies to trade freely all over the world. It's about what types of rights and responsibilities come with that," Hertz says. With inequality surging, resources diminishing rapidly, and the earth's very future in question, capitalism-at-all-costs is no longer an option, she insists: "I have problems with this very extreme form of capitalism where the pendulum has swung so far in one direction, where the focus is completely on the short term, and no one is thinking about the consequences."
Few were thinking about the consequences, of course, before September of last year, when the financial system imploded. On this side of the Atlantic, Nouriel "Dr. Doom" Roubini and Robert "Irrational Exuberance" Shiller smelled the impending destruction, but many economic demigods like Alan Greenspan claimed they had no idea it was coming (Greenspan notoriously confessed his "shocked disbelief"). The Black Swan author Nassim Taleb says, with typical gusto, "The whole [economic] profession failed." The largest financial crisis since the Great Depression confirmed Hertz's long-standing conviction that there would be dire consequences if unregulated markets were rewarded for success but not penalized for failure. "Is there reason to believe that we are soon going to see more defaults on commercial debt, emblematic of a widespread financial crisis? I believe that within the next five years, yes, we will see this," Hertz wrote in 2004's The Debt Threat. "She was predicting what would happen," says Joshua Cooper Ramo, managing director of the strategic advisory firm Kissinger Associates, who first met Hertz at Davos back in 2001. "For the past five or six years, everyone had pie-in-the-sky optimism that capitalism and democracy would be triumphant. Now we're seeing all these incredible problems in the system, and she's been pointing out that these problems exist."
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Recent Comments | 7 Total
October 26, 2009 at 9:36am by Aly-Khan Satchu
I commend you on this Piece. Very Few Folk have looked at the Landscape and Architecture of the c21st Holistically. Noreena Hertz has. We continue to pump the Patient Full of a Golden Flood of Liquidity but we will need to get off the Drugs. The Administration have failed to reform the Architecture and their Purchase on the Banks' Collars has been loosened.
Interestingly, I think the c21st Marks the Moment and the Tipping Point where Large Corporates can not function effectively without being more Democratic and inclusive. To exclude, to play a solo Hand, to think the Devil can take the hindmost is a very short sighted strategy.
Aly-Khan Satchu
www.rich.co.ke
Twitter alykhansatchu
October 26, 2009 at 9:59am by Jack Shipley
I own a simple coffee shop. The issue of sustainability is clear: If the people growing coffee are not satisfied with their work and lives they will, ultimately, pursue something else. We are, of course, all thus linked. Thank you for adding to my reading list.
October 26, 2009 at 11:02am by Mel Blitzer
"If the surge of corporate power was going to leave governments relatively impotent, Hertz argued, then those corporations themselves needed to fill the void. "
I have not read the book yet, but asking corporations to "fill the void" is like asking Tigers to become vegetarians. It is not in the nature of the beast to go beyond tokens of social responsibility, and then only in order to protect profit making from too much public scrutiny. Neither are corporations likely to become democratic and inclusive anytime soon. If governments are allowed (by us) to negate their responsibilities in managing capitalism then we are into the corporate, and feudalist, state where we are more dependent on the benevolence of the CEO's and their boards for the extent of our well being, economic and otherwise. Even shareholders have very little "democratic" leverage with corporate leadership when ownership is widely held.
Yes capitalism can be a mighty engine that drives economies, but recent events show that left unattended, capitalism can take the whole economic vehicle straight into the wall.
--
Mel Blitzer
October 26, 2009 at 1:53pm by Barry Dennis
Ms. Hertz is on to something
I think any economic observer and thinker can readily see that the effect of capitalism's present short-term focus on profit opportunity (as opposed to capitalism's past focus on long-term growth of capital through Return on Investment) has caused problems of significant magnitude.
Leveraged capital forces, and uses, ever riskier investment products, ventures, and even acquisition strategies, to drive the short term focus that drives current decision making.
Leverage drives risk; risk reaches into areas that prudent capitalists might not consider.
The liquidity of risk and capital markets has moved the thinking and planning processes of prudent long-term investing and risk management into the high-risk arena of outlandish leverage applied to almost each and every financial product and transaction; to the point that almost any "imbalance," any weak link, finds magnified negative consequences.
Hertz's progress in revisiting the consequences of feckless capitalism (www.1000opinions.blog.com -"Unfettered capitalism leads to Economic Anarchy.") offers hope that balance will be encouraged between capitalism's financial market "pioneers" (the guys face down in the mud with the arrows in their backs) and it's more rational elements ("Bad Leverage! Eat your Equity! Go to your vault!") to the benefit of those who believe that Human Capital-it's development and encouragement, is the best long term outcome to allow the world to develop.
There is a need for short term capital investment markets to be sure; financial products and services in this arena, however, may not be suited to the leverage employed by some, at the risk of the marketplace as a whole.
Historically, the marketplace has used the risk of loss of capital to challenge and change bad investment behavior. Government is interfering in this process, at the risk of not allowing markets to enforce their own discipline.
It's worth noting that if a more enlightened view of risk management through increasing equity and reducing leverage had been applied, the markets would have solved this problem and moved on.
It might not have even occurred, though some other investment bubble might have surfaced.
Congratulations to Ms. Hertz for beginning the process of redefining Capitalism, it's opportunities and obligations to societies that support free markets.
Capitalism may be a risk-based process, but I wonder if redefining the either or equation in favor for Human Capital would be more beneficial in the long run.
Certainly, revising the tax and regulatory systems with an eye towards incentives that promote prudent capital management seems necessary.
October 26, 2009 at 5:18pm by David Nicholson
All hail the role of the prophet. Anything left unchecked leads to corruption.
October 29, 2009 at 4:08am by Ralf Lippold
Dear Noreena, Good to hear that there are more people seeing the whole picture, the dynamics and who articulate their voice:-)
Such predictions as you make may seem threatening to managers, politicians and people in their current world. Time is changing quickly and we should not deny that it will.
Thanks for sharing and I am glad to read from another whole picture seer as myself:-)
Best regards
Ralf
PS.: My thoughts can be found on http://leanthinkers.blogspot.com
November 27, 2009 at 1:26pm by AL WROBLEWSKI
I believe Noreena Hertz is doing a great service in reframing major structural issues. I agree with her; the lackadaisical yawn we are getting from corporate leaders in the midst of the seismic shift we are experiencing in how we do business is disheartening, to say the least.
My own concern is not so much with leaders but with regards to the continuing erosion of political/economic consciousness among the masses. Without deeper awareness among the many along with a sense of collective ownership of society, the elites rule. And while they may, from time to time, demonstrate enlightened self-interest (looking beyond their immediate self-serving interests) or restraint, for the most part they seek preservation of privileges first and foremost. Only a truly conscious populous can hold rulers in check.
I am under no illusion. Consciousness raising is a slow, tedious, thankless undertaking. And, the process is always fraught with assorted political agendas of the organizers. Nevertheless, we must strive to energize the many to become much more involved so they can demand policies and practices that exclude no one. Only the presence of such a voice will cause those who control corporate culture to broaden their vision.