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January 1, 2010

VALUE JUDGMENTS

Forward reviews books on business, economics and trade.

By Harold James, Ph.D.,
Harvard University Press, 2009

The Creation and Destruction of Value: The Globalization Cycle

To cut to the chase, this scholarly work by Princeton University Professor Harold James argues that it’s all Alan Greenspan’s fault. In an effort to apply the lessons of history, of economic crises passed, to the mess we’ve gotten ourselves into this time, James says, “The most obvious culprit of the credit boom is the Federal Reserve System’s policy of rapid interest rate cuts in order to deal with the recession of 2001, combined with its reluctance to begin tightening interest rates.”

A more complicated explanation from the book is hubris. At the beginning of the 20th century, we felt that we’d figured out how to stabilize money and values permanently. Then it was the gold standard. At the end of the 20th century, we again, wrongly, thought that things would be forever stable. This time, James says, “it depended on the power of the human intellect to solve a policy problem.” We thought we were smarter than a system that, in the intervening 100 years, had become dramatically more complex and stretched around the world in a way that would ensure that when the collapse came, we’d all go down together. The countries with sleepy banking systems that supposedly couldn’t innovate were, in fact, the only ones that emerged relatively unscathed.

The book is interesting but has a significant flaw. It opens with a snapshot of the G20 London Summit early last year and admits that the most powerful person in the room was Hu Jintao, the president of China, who holds “in his hands the future of globalization. But this is a profoundly Western book. The solution to this crisis, the future of the global economy does not lie with a reexamination of Western values, desirable though some believe that may be. The future lies on the other side of the world.

Perhaps James is talking about China and India without naming them when he concludes with the thought that globalization depends on trust. In a global economy, “many people make assumptions about common values.” Our assumptions are often wrong, however. We thought we had created a world of permanent monetary stability. We thought we could trust the system. We assumed incorrectly on both scores—and that does not begin to scratch the surface of what we don’t know about Asia.

 

By Steven M. Davidoff,
John Wiley & Sons, 2009

Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion

Gordon Gekko was on TV the other night. You remember Gordon, the dealmaker, at the rotten heart of Oliver Stone’s film Wall Street. “Greed is good” was his most famous line. The heavy handed Stone never missed a chance to demonstrate what real work looks like. In virtually every scene of Gekko in deal mode, there is a hard working guy in the background. One dangles outside the skyscraper office washing windows, another caulks a boat on the beach. The hero’s virtuous father is an airplane mechanic. Manual labor is apparently how real value is created.

Then comes this book, which asks the valid question, “Does deal-making create value?” Investment bankers—those masters of the universe—supposedly add value by providing pricing certainty among other things. But lawyers? Although corporations vie for the best M&A lawyers, they see them more as a cost than as creators of value.

The author, a professor of law at the University of Connecticut, obviously disagrees. “When done right, deal-making provides added value by structuring and combining assets efficiently and realizing synergies and cost savings,” he writes. The answer is better regulation, he argues. Lawyers could then protect us from deals that go beyond “the bright-line law.”

As Davidoff correctly points out, “investment bankers and lawyers are a resilient bunch.” And greed always makes a return. Our memory was short enough—Wall Street was made in 1987—that we fell for it all over again. And will in another 30 years.

 

By Nicholas A. Christakis, M.D., Ph.D., and James H. Fowler, Ph.D.,
Little, Brown and Company, 2009

Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives

We are social beings. We like hanging out together. We’ll hang out on street corners or in offices and, now that we’ve been given the chance, we’ll hang out online. Those who worry that we’ll stop talking now that we can “friend” one another on Facebook will have to join those who worried that we would stop walking once the car was invented. Connections are not a zero-sum game. We are not connected in one way or another, but in many ways at once. The Internet only gives us another way to do what we do naturally. “Social-network sites primarily reflect offline interactions,” the two frequent collaborators write. In fact, those that combine online and offline friendships have deeper and broader connections.

“The great project” of this century will, in fact, be figuring out “how the whole of humanity comes to be greater than the sum of its parts.”

It’s an interesting idea, not perhaps something that will “change your life forever,” as the cover blurb promises. But it does examine things like mass hysteria, psychosomatic illnesses that infect entire student bodies, why people attack the relative of someone who’s done them wrong when they can’t get to the real culprit, what makes a bucket brigade work and why six degrees really is the accurate measure of separation.

Each chapter starts with an anecdote, and most include charts of little bubbles connected by many lines. The anecdotes are entertaining and the charts are less confusing than you might think. My only problem is that there’s not much of a take-away. We’re connected. Some of us ride the same train to work every day and never speak; some of us stay married for 50 years. And so?