Hartford Business Journal

www.HartfordBusiness.com • April 29, 2019 • Hartford Business Journal 25 ECONOMIST'S PERSPECTIVE Ray Dalio and the existential danger of growing inequality By Fred McKinney T he first day of April is a day when practical jokesters tell you things like, "I know the number you play and guess what, you won the lottery last night," or "I saw your car was being towed." These harmless prevarications are followed by "April fools, I got you." But during the first week of April 2019, Ray Dalio, the founder and CEO of Bridgewater Associates and Dalio Philanthropies, announced a $100 million gift to the state of Connecticut — if the state and other philanthropic organizations matched his $100 mil- lion pledge, to total $300 million. This was not an April Fools' Day joke. It was the largest private gift in state history. It was a gift based on Dalio's firm belief and rigorous economic and political analy- sis that without some significant changes in American capitalism to address growing income and wealth inequality, we are in deep trouble. The trouble Dalio refers to is both existential and theoretical. His theo- retical analysis is consistent with the work of the most famous economist of the 20th century, John Maynard Keynes, who wrote about the impact income inequality had on contributing to the Great Depression. It is also consistent with the work of the greatest 19th-century economist, Karl Marx, who argued that capitalism is inexorably driven to crisis because ever-increasing concentrations of monopoly power and wealth. The existential crisis that has the attention of Dalio, one of the nation's wealthiest men, is that if we do not ad- dress the growing wealth and income inequality, the support for democratic institutions is at risk. Any casual reading of the daily news is witness to the erosion of these institu- tions, including the questioning of wheth- er capitalism is the best way for society to organize resources. If most Americans lose faith in the American dream — of their children leading better lives than their parents — there is the angst of hopelessness that leads to despair. According to Dalio, when people have nothing to lose, desperation can turn into civil unrest on a scale not witnessed. We should all applaud the growing number of wealthy Americans who have taken the pledge suggested by bil- lionaires, Warren Buffet and Bill Gates. The "Giving Pledge" asks wealthy Americans to commit to donating at least half of their fortunes to philan- thropic causes during their lifetimes. So far, 200 people have accepted the challenge to donate over $1 trillion. This vast amount of private wealth distribution is going to admirable and important causes ranging from im- provements in health care (Mark Zuck- erberg), public education (Bill Gates), the promotion of democracy (George Soros), gun control (Michael Bloomberg) and now Dalio with his interest in reducing income and wealth inequality. In my humble opinion, there is a cause that deserves more attention than all of these if we are interested in the survival of 21st-century capitalism. And that is business and entrepreneurial formation in low-income communities. Imagine if the state's and the nation's most-troubled cities had business and innovation cash awards for current stu- dents and recent graduates. Eligibility could use Dalio's focus on the percent- age of students eligible for free lunches. What if public schools in Hartford, New Haven, Bridgeport, Chicago, Los Angeles, Houston and Washington, D.C., each had annual business plan and innovation competitions that paid prizes in the millions of dollars. Not only would this encourage entre- preneurship and innovation in inner cit- ies, it would incentivize education and engagement in ways that we have never seen before. It would create dreamers out of kids, who, if we continue to do nothing, will more likely end up incar- cerated than in a home that they own. Mr. Dalio, thank you. Perhaps some of your funds can be allocated to sup- port entrepreneurship, innovation and capitalism where it is needed most. It might be the most effective way to address growing income and wealth inequality in the long run. Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business. BIZ BOOKS How managers must act like orchestra maestros By Jim Pawlak "Bedtime Stories for Managers — Read about managing with soul, orga- nizing like a cow, growing strategies like weeds, being a keynote listener … and more" by Henry Mintzberg (Berrett-Koehler Publishers, $19.95). Based on his blog's topics, Mintzberg offers insights on management. First, let's tackle the "Myth of the Maestro." We've all read books and articles liken- ing managers to orchestra maestros. Yet, when you watch a concert, the musicians rarely look at the conductor furiously waving a baton and peri- odically stabbing it at the air. They're playing their instruments based upon the notes on their music sheets; those notes dictate when to chime in. At the end of the concert, the orchestra takes a group bow but the audience reserves most of its applause for the conductor. So, if the players aren't paying much attention to the conductor during the performance what's the real role of the conductor? It's the behind-the-scenes work. The conductor looks at the music, decides how he/she will interpret it, and se- lects the musicians to play the various instruments. Once the music starts, the conductor's role becomes more ceremonial. A manager looks at the require- ments and priorities of the tasks and selects people for various assignments based upon their skills. The manager, like a conductor, recognizes that an effective approach to doing the work requires a network of people doing their jobs collaboratively. But, un- like a conductor, the role of manager becomes more important once a task begins. He/she must make decisions about actions/reactions because plans rarely go as planned. When it comes to decision-making, the standard template relies on "thinking first": diagnose the situa- tion, identify and assess alternatives, choose and implement. Often, this re- lies on what worked before. Mintzberg believes that decision-makers should consider incorporating a "doing first" (i.e. "try some- thing in a limited way to see if it might work") ap- proach because it involves thinking "what if." "Doing first" also creates a "grassroots strategy for strategy forma- tion" because it fosters curiosity at all levels. "What if" opens the door to "what's next." People see ideas not as weeds in the garden but as ways to open opportunity's door. Example: Some see dandelions as deep-rooted intruders in their gardens and eradicate them; others see them as food and medicinal sources and culti- vate them. Whether "let's give it a try" leads to success or failure, ideas will flourish because people are learning. Mintzberg also weighs in on the "tricky task of measuring managing." "Managers are not effective; matches are effective." When a manager's style doesn't mesh with that of his/her team, productivity will decline. Some teams succeed because of the manager; oth- ers despite the manager. When judging managerial effectiveness, it's important to assess the manager's contribution to the team's results, how those results were produced and the effect on other areas of the organization. Now, let's look at "organizing like a cow." The typical organizational chart shows a hierarchy of boxes, solid and dotted lines and arrows pointing up, down and sideways. It can't recognize how the parts function together daily — or identify the most important parts. If you think of an organization as a cow, you'll see that each part has its specific function. The parts aren't interchangeable. Move/remove a part or a portion of a part and the cow no longer functions as intended. When a company reorganizes, it invariably rearranges people, without a thought of the effect of workload, how they'll work together in the new environment, or how their skills will complement each other's. Mintzberg believes that "communityship" (i.e. current working relationships) must be considered when reorganizing. Why? It takes time to build a collab- orative team. Time spent developing a new team invariably means a near- term loss of productivity. Fred McKinney Jim Pawlak Book Review

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