Photograph by Josh van Gelder
Hertz quickly realized there were unintended consequences in imposing American-style capitalism on a country with a completely different history. At the end of the summer of '91, she took a job with the World Bank's International Finance Corporation (IFC) to help design Russia's move from a centrally planned economy to a private one. (In the process, she ditched her dream of becoming a film producer: "History was happening and I could be part of that, or I could be a talent agent's secretary.") While living in a defunct tank factory "in the middle of nowhere," she began observing the dangers of racing toward privatization. Under the communist system, factories were responsible for each town's infrastructure; once they were privatized, schools and hospitals, for example, were no one's responsibility.
She shared her misgivings with her bosses back in Washington. "I was told, 'This isn't what you should be focusing on,' " recalls Hertz. They reassured her that the market would sort everything out. "That was when I thought, They're completely deluded."
Hertz has since devoted her career to debunking economic myths. After a year, she quit her World Bank job and spent another four years in Russia while getting her PhD in economics and business at Cambridge. Hertz published a book indicting the World Bank and the IMF for imposing American-style capitalism on Russia without contemplating the social cost. "It was never about being anti-capitalist," she says. "I realized that how an economy functions is not just about a market anonymously distributing things but also the way people relate to each other, their beliefs, the way power is distributed. All of that was being ignored." She points out that life expectancy in Russia has fallen by 15 years since the early '90s. Says punk fashion designer Vivienne Westwood, a fan of Hertz's work: "Noreena looks at economics from the other side. From the people it suppresses. This is what punk is all about."
For Hertz's punk outrage to have scalable impact, however, she needed to export her ideas beyond Cambridge, where she'd begun teaching in 1996. In The Silent Takeover, she argued that corporations were gaining power at the expense of society and democracy. "Everything just kind of went mad," says Hertz. Martin Wolf, the economics commentator for the Financial Times, wrote a lengthy, caustic review of the then-unknown author's work. "Suddenly, everyone's like, 'Who's this person who has him so riled?' " says Hertz. "He did me a huge service." (Adds Kissinger Associates' Ramo: "She famously got trashed by Martin Wolf, who is now preaching her same line.") Bigwigs including George Soros, Benazir Bhutto, Larry Summers, and adman Martin Sorrell reached out to Hertz, who found herself being courted as the new progressive voice of Europe. "The world started coming to me," she says.
The business world turned out to be Hertz's most receptive audience. Even though The Silent Takeover reads at times as if it were written by a Greenpeace activist ("A system where the corporation is king, the state its subject, its citizens consumers"), it became required reading in European business circles. Hertz was asked to speak at Davos, where a year earlier she'd been outside getting hosed down with the protesters; at the Goldman Sachs party, the very bankers she'd harpooned were introducing themselves. Salesforce.com CEO Marc Benioff hosted a book party for Hertz in Silicon Valley. "She is in many ways developing the economic theories we need to guide our new age," he says.
It was Hertz's ability to oscillate among so many different circles that made her so distinctive. "I was expecting to meet some kind of hippie woman," says Simon Franks, chairman of a private equity group in the U.K. who offered Hertz free office space after reading The Silent Takeover. "There's no event in the world where she's out of place." Hertz -- who now makes roughly $30,000 per speech -- was asked by McDonald's Europe to speak to its top management. Paloma Castro Martinez, then the company's director of government and regulatory affairs, set up a post-talk book signing for the executives. "They all ran over and queued up," she says. "Now, these are huge egos, all of them are making millions, and well -- they don't queue. It was beautiful to see. Since then, I know many have contacted her directly for advice."
And then there's Bono. After writing The Debt Threat in 2004, and helping push the G8 to cancel all the outstanding debt of 18 of the world's poorest countries, Hertz was recruited by Bono to help develop Red, his retail-driven fund-raising effort for African AIDS victims. "The Hertz brain is hardwired to the Hertz heart," Bono tells Fast Company, "but it's the unsentimental economic analysis that makes her such an effective instrument for change."
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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.