THE SQUANDER:

The Bush Economy (New York Sun Staff Editorial, January 16, 2007)

Here's one story that has had a hard time muscling past the dirge of negativism on the war that dominates the front pages these days. It turns out that the Bush Boom is gaining a new wind as the economy heads into 2007, with growth running ahead of expectations, employers expanding the payroll, tax revenues cascading in from the supply-side tax cuts, the deficit projections falling, inflation in check, and the war accounting for only a sliver of our national economy. No wonder it is the war on which the Democrats are trying to put President Bush on the defensive.

No, the remarkable economic data don't quite fit the Reid, Pelosi, Clinton, Edwards narrative. But the fact is that it is the Bush administration's pro-growth policies that have supplied the vigor to the national economy. Inflation fears prompted the Federal Reserve Board to tighten money last year, taking some steam (or more precisely, hot air) out of the housing market. But tighter money also broke gasoline prices, which are now down some 33% from last year's peak, as our David Lombino reported on page one here last week. Employment continued to rise, and retailers reaped a year-end bonanza as shoppers came out in force to do their Christmas buying. The year ended with the national economy humming at above the 3% annual growth average. As Bear Stearns economist David Malpass observes in the latest issue of Forbes, "employment, wages and profits are at record levels." The federal budget deficit is far below projected levels, on a trend-line that would bring it into balance in three years - and wouldn't that be something to see after years of left-wing maundering about the war deficit, Mr. Bush finishing his term with the deficit a mere cipher. Even inflation, which the Keynesians used to tell us was the handmaiden of growth, seems to have been contained by the Fed measures.

George W. Bush will have to answer to history for four things, two concerning decisions he made as President and two he made as a politician: (1) Why'd he wait so long to withdraw from Iraq after winning the war?; (2) Why did he operate the national security apparatuses in so much secrecy after the Cold War revealed that greater openness is more efficient? ; (3) Why didn't he reveal his DUI arrest in the 90s?; and, (4) Why did he base the '06 midterm on his unpopular war instead of his booming economy?

MORE:
Working Independently, Working Together: The Challenge of Managing National Security (Garry Emmons, 1/10/07, HBS Alumni Bulletin)

Associate Professor Jan Rivkin joined the HBS faculty in 1997 as a member of the Strategy Unit. His special area of interest is examining the interactions that occur between and across the various functional and product boundaries of the firm, which is the subject of his popular MBA elective Advanced Competitive Strategy: Integrating the Enterprise.

Rivkin's most recent case, coauthored with former HBS colleague Michael Roberto and published this year, is "Managing National Intelligence (A): Before 9/11." The case plumbs the background of what will likely be remembered as one of the most tragic organizational failings in American history: the inability of the country's government and its relevant agencies to forestall the deadliest attack ever on U.S. soil. The case is dedicated to Waleed Iskandar (MBA '93), a colleague of Rivkin's at Monitor Company, who died in the 9/11 attacks. [...]

Q: Do you think these changes are a step in the right direction?

A: It depends on how the DNI role plays out. I see three possible outcomes--two bad and one good. One possibility is that we give in to the temptation to centralize--give all the decisions to the "best and brightest" at the top. A lot of the rhetoric about the need for an "intelligence czar" points in this direction. But we've seen in the private sector that, in highly turbulent environments, overly centralized organizations get overwhelmed by the informational burdens placed on them. So while it makes good political theater to give responsibility to a strongman or strongwoman at the top, I hope the intelligence community can resist that.

A second possibility is that the DNI becomes a mere figurehead for the intelligence community and a new layer of bureaucracy. That's the last thing the community needs.

My hope is for a third outcome: The DNI becomes the centralized provider of the leadership and infrastructure that allow the community to take decentralized yet coordinated action. That's what we see in really effective private-sector firms, like what Jack Welch put in place at GE.

One concern in this process of change is that of overwhelming oversight. Oversight is clearly important, but I see some weariness among intelligence personnel who have to answer questions again and again and have been reorganized only to have the reorganizations reorganized. As one pundit put it, some overseers seem to be preparing not for the next 9/11 but for the next 9/11 Commission.

Q: It's been said that, post-9/11, the intelligence community's culture must change from "Withhold, and share by exception" to "Share, and withhold by exception." Have private-sector firms undergone similarly rapid, wholesale reinvention?

A: I would say that IBM's transformation under Lou Gerstner (MBA '65), with its shift from hardware to software and services, is an example of that. However, while IBM's situation required urgent action, it enjoyed the luxury of time, relatively speaking, to find its new identity. By contrast, the intelligence community's national-security imperative puts great pressure on it to change immediately.

Consider the challenge facing the FBI, for example. The FBI's historic mission has been to solve crimes after they occur. They are phenomenal at that, as in the way they tracked down the Lockerbie perpetrators, to cite one case. That's a very different role from preventing terrorist attacks before they occur, which is their top priority now. The FBI was pursuing both missions to some extent before, but its "product mix," unlike IBM's, changed in a single morning.

Posted by Orrin Judd at January 16, 2007 10:05 AM