Article/Book Review: Capitalist Liberation

Forbes.com
Book Review

Capitalist Liberation
Carl J. Schramm
10.19.09, 12:00 PM ET


Freedom, Inc. is a subversive book, in the best meaning of that oft-misused and misunderstood phrase. It comes in a non-threatening guise--advice to managers on how to get the most out of their employees--that partially masks its revolutionary theoretical teaching. For this book is really nothing less than a manifesto for "messy capitalism," for the unplanned, unpredictable dynamism that is the root strength of every successful company and economy in history, and that is also the one force that can pull the world out of the economic crisis of our time.

Brian Carney, a business writer and editorialist, and Isaac Getz, a business professor and psychologist, draw on deep wells of learning and dozens of interviews with leading business figures and frontline employees. Their thesis is simple: Companies that painstakingly regulate every minute of worker time and dictate worker tasks down to minute levels, suffer from low morale, lost productivity and, tragically, lost opportunities--many of which are never even imagined. Worse, strict regulation sends all the wrong signals to employees: that management does not trust them, that their jobs could easily be done by robots and that they have no ideas worth listening to.

By contrast, companies that leave their employees free to do their jobs, and that listen to what workers have to say, are more likely to thrive. So why don't more adopt this approach? The authors make an amusing comparison to dieting. How many of us know that we should not have that second cookie but eat it anyway? A deeper problem is the age-old human impulse to control. Once in control, people are loath to surrender any of their power, even if they can be shown that letting go would better serve their interests. Hence, in a few discouraging passages, Carney and Getz describe how managers of top-down companies come to study what goes on at "freedom-based" companies, only to return home and change … nothing.

The key theoretical insights of this book concern innovation--which should be the most urgent priority for business leaders and economists alike right now. Carney and Getz demolish two common myths: first, that innovation is always or mostly the product of some lone genius in a lab or garage; second, that innovation necessarily means some great new scientific or technological breakthrough.

On the contrary: The authors show, in example after example, how innovation rises as often from the factory floor as it emerges from the corner office or R&D lab. They visit a quintessentially "old economy" business--a foundry that makes brass parts for plumbing and for cars--in the most unlikely of places (France) that, by freeing its employees from oppressive regulation, allowed myriad ideas to take root and transform the company. The lesson: Every worker has the potential to be an innovator, if given the chance.

Similarly, they demonstrate how Bill Gore built a $2.5 billion company by finding new uses for a product--PTFE, or "Teflon"--that had been developed but underutilized by his previous employer, DuPont. Gore began by making insulator for electrical cables, but has since applied PTFE to such varied uses as waterproofing for sportswear ("Gore-Tex") and guitar strings (Gore today controls a third of that market).

The common element of the very different companies Carney and Getz discuss is culture. This is not to say that all of these firms have identical cultures, though there are certainly similarities. Rather, it is that all of them recognize the primacy of culture, and their CEOs see their chief task as setting and maintaining an open, inclusive and innovative culture.

The best examples are, in the authors' parlance, "why" companies and not "how" companies. That is, they place at the forefront of their thinking and energies the core reasons for their existence--Why is this company here? What is it here to do?--and let frontline workers take care of the means. The limits of the "how" approach should be readily apparent from the failures of GM and Chrysler, whose byzantine work rules strangled innovation and flexibility. But lest one conclude that the authors have an ax to grind against unions, they show through their account of the turnaround of Harley Davidson how a heavily unionized company in a heavily unionized industry became a paragon of "why" company flexibility.

This book should be a sobering read for policymakers and regulators, who tend to assume that they know more than they do, and that central control can accomplish more than diffuse, unplanned exertion. Convincing them to embrace, or at least not to fear, "messy capitalism" would be a splendid legacy for this readable, insightful volume.

Alas, one should not hope for too much. It would be enough if more "old economy" managers and budding entrepreneurs were shaken in their thinking. Business is still the source of all our wealth and most of our employment. For the world economy to climb out of the current trough, individual businesses need to thrive. This book teaches them how.