TiB 98: What McKinsey and Deng Xiaoping have in common; a simple model of Brexit and Trump; more on Organizing Genius; and more...

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What McKinsey and Deng Xiaoping have in common

We’ve discussed before the problem of slowing productivity growth. I tend to see most challenges through a talent lens: how can we incentivise the most ambitious people to focus on this? Byrne Hobart this week published a provocative post with a brilliant title - “Dengism with American characteristics” - that suggests it's already happening. In this framing, management consulting and private equity play the same role today that East Asian development institutions played in the 1970s: helping firms “catch up” to best practice management.

It’s an interesting post with some excellent lines (“Maybe the difference between MITI and McKinsey is the revenue model”). Hobart concludes on a pessimistic note: why are we pouring so much talent into “catch up” rather than innovating radically new and better ways to run firms (what my colleague Ben would call prioritising Type II over Type I progress)? 

I’d take the opposite position, though: why are we so bad are getting firms up to the efficient frontier? Blackstone and Bain may be good at what they do, but they focus on the high end of the market. There’s decent evidence that the the “long and lengthening tail” of poorly run smaller companies holds back UK productivity. We know some solutions - see, e.g., this study highlighted by Patrick Collison in his recent conversation on the topic with Mark Zuckerberg. But then we’re back to talent: what does “McKinsey for the long tail” look like and how do we make it a magnet for the best and brightest? 

A non-lazy answer to "Why did Brexit/Trump happen?"

“Why did Brexit/Trump happen?” has been asked innumerable times since 2016, but the answers are often lazy and rarely satisfying. I recently read Paul Collier’s The Future of Capitalism and think the model he lays out in chapter 3 (or available here as a more formal economic paper) is the best I’ve seen. The basic idea is that the desire for esteem and respect drives behaviour. In Collier’s model, there are two sources of esteem - your nationality and your job. Your nationality generates esteem in proportion to your country’s prestige; your job in proportion to your income.

Crucially, though, there are two “meta” sources of prestige: you decide which of these two identities (nation and job) is more important to you and get a “boost” from that source. This gives you an additional identity (and source of esteem): you’re either in the “nation tribe” or the “job tribe”. In the aftermath of WW2, the US and UK had high levels of national prestige and low levels of inequality. For most people, it was rational to identify as “nation tribe”. But as income inequality grew, this changed. Better off people, concentrated in big cities, began to identify as “job tribe”.

But identities require signalling. How to signal that you’re a member of “job tribe”? The simplest way is to denigrate the nation. This increases the relative prestige of your job - but reduces the esteem of those who identify as “nation tribe”. Brexit is “The Nation Strikes Back” - and the economic cost is irrelevant, as reducing the prestige of income is a benefit! I’m simplifying a lot (do read Collier's version!) but it’s a powerful model that I’ll return to - and has some important hints for liberals if they want to start winning again... 

Sign up: Organising Genius reading group

Last week I proposed a reading group on the topic of "Organising Genius" (based in part on this book). I was overwhelmed - and delighted - by the response, so I'm pleased to announce that this will go ahead. Arnaud Schenk will be my co-host in London and we're looking for people to host groups in other cities. You can sign up for the group here (including volunteering to lead a city group). Here's the synopsis:

Solving the grand challenges that face humanity in the 21st century is likely to require bringing together extraordinary people to solve “wicked problems”. But while extreme talent is often associated with extreme achievement, it’s easy for organisations to be less than the sum of their parts. This reading course looks at the problem of “organising genius” through the lens of organisations that, across a range of domains, have succeeded in aggregating the efforts of “outlier” individuals to achieve exceptional collective output.

The reading list is here. We've incorporated some of the (many) suggestions, but the list will likely evolve as we go - so it's not too late to provide input. We will add a section on non-Western perspectives, which we're collating now. All ideas welcome!

Logistics to be confirmed, but in London we're likely meet at Entrepreneur First fortnightly on Monday nights, likely starting Monday 3 February. Sign up here.

Quick links

Bonus: I was on Patrick O'Shaughnessy's excellent Invest Like the Best podcast this week. I think it's probably my best distillation of the Entrepreneur First / Talent Investing model so far.

1. Open to all, like The Ritz. Which countries have lowest confidence in their judicial systems?
2. Tariffs, tariffs, everywhere... The trade deal in one chart.
3. Punching below their weight? Interesting Q&A thread on which intellectuals should have had more influence.
4. Never comic book alone. Interesting study on whether creativity works better in groups, across founders, inventors and artists.
5. A long way from colourblind. The growing racial happiness gap. And just thinking about immigration lowers support for redistribution.

Your feedback

Thanks for reading - it's great to welcome lots of new readers this week! If you enjoy this, please forward it to a friend. And it's always great to get feedback: feel free to get in touch on Twitter or by hitting reply.

Until next week,

Matt