An econ­omy of grinds

Austin American-Statesman - - OPINION -

If you go to busi­ness con­fer­ences, you know that at lunch it is def­i­nitely bet­ter to be seated next to a prince than a grind. Princes, who can be male or fe­male, are se­nior ex­ec­u­tives at ma­jor cor­po­ra­tions.

They are al­most al­ways charm­ing, smart and im­pres­sive. They’ve read in­ter­est­ing books. They’ve got well-re­hearsed takes on the global sit­u­a­tion. They can drop im­pres­sive names as they tell you about their vis­its to the White House, Moscow or Bei­jing. If you’re hav­ing lunch or din­ner with a prince, you’re go­ing to have a good time.

Grinds, on the other hand, tend to have started their own com­pany or their own hedge fund. They’re of­ten too awk­ward to work in a large or­ga­ni­za­tion and too in­tense to work for any­body but them­selves.

Over lunch, they can be so­cially in­ert. You try to draw them out by prob­ing for one or two sub­jects of in­ter­est to them. But as of­ten as not, you find your­self play­ing con­ver­sa­tional ping­pong with a mas­ter of the mono­syl­labic re­sponse.

Ev­ery once in a while you’ll run into one who can’t help but let you know how much smarter he is than you or any­body else in the room. Sit­ting at this lunch is about as pleas­ant for him as watch­ing a cock­roach crawl up his arm. He’d much rather be back work­ing in front of his com­puter screen.

Since the princes are nicer and more im­pres­sive, it is easy to be se­duced into the be­lief that they also are more trust­wor­thy. That is false. Dur­ing the past few years, for ex­am­ple, the princes at Cit­i­group, Bear Stearns, Gold­man Sachs and Lehman Broth­ers be­haved with in­cred­i­ble stu­pid­ity while the hedge fund lon­ers of­ten be­haved with im­pres­sive re­straint.

As Se­bas­tian Mal­laby shows in his book “More Money Than God,” the smooth op­er­a­tors at the big banks were play­ing with other peo­ple’s money, so they bor­rowed up to 30 times their in­vestors’ cap­i­tal. The hedge fund guys usu­ally had their own money in their fund, so they typ­i­cally bor­rowed only one or two times their cap­i­tal.

The so­cial but­ter­flies at the banks got swept up in the pop­u­lar en­thu­si­asms. The con­trar­i­ans at the hedge funds made money bet­ting against them. The well-con­nected bankers knew they’d get bailed out if any­thing went wrong. The soli­tary hedge fund guys knew they were on their own and re­garded their trades with para­noid anx­i­ety.

In fi­nance, as in other realms of busi­ness life, so­cial pol­ish doesn’t al­ways go with cap­i­tal­ist suc­cess. Of­ten it is the most nar­row, in­tense, awk­ward peo­ple who start the best com­pa­nies, em­ploy the most peo­ple and cre­ate the most value.

Sadly, this re­cov­ery has been great for princes and hor­ri­ble for grinds. The peo­ple who work at the big cor­po­ra­tions are crit­i­cal of the Obama ad­min­is­tra­tion, but the fact is they are do­ing very well. The big com­pa­nies are post­ing ex­cel­lent earn­ings. They’re sit­ting on moun­tains of cash.

The as­pir­ing grinds, mean­while, are dead in the wa­ter. Small busi­nesses are not grow­ing. They are not hir­ing. They are strug­gling to stay alive.

Princes can thrive in a pe­riod of slow, steady growth, but grinds need a cer­tain sort of psy­cho­log­i­cal at­mos­phere. They need a wide-open econ­omy with plenty of cre­ative de­struc­tion. They need an at­mos­phere of gen­eral con­fi­dence, so bankers will feel se­cure enough to lend them money, so big com­pa­nies will feel brave enough to ac­quire their star­tups, so they them­selves will feel the time is ripe to take on their world and show their bril­liance to all of hu­man­ity.

The princes can thrive while the govern­ment in­ter­venes in the pri­vate sec­tor. They’ve got the lob­by­ists and the con­nec­tions. The grinds, need­less to say, don’t.

Over the past decade, pro­fes­sion­als — lawyers, reg­u­la­tors and leg­is­la­tors — have in­serted them­selves into more and more eco­nomic realms. The princes are per­fectly at home amid these tax breaks, low-in­ter­est loans and pub­lic-pri­vate part­ner­ships. They went to the same schools as the pro­fes­sion­als and speak the same lan­guage. The grinds try to stay far away and re­gard the in­ter­lock­ing net­work of cor­po­rate-govern­ment schmooz­ing with undis­guised con­tempt.

The up­shot is that we have an econ­omy that is inch­ing to­ward re­cov­ery but that is not cre­at­ing much in the way of new in­no­va­tions and new jobs.

It’s not that the over­all la­bor mar­kets are shrink­ing. It’s just that very few grinds are bring­ing new ideas to scale and hir­ing work­ers to en­act their us-against-the-world schemes.

For jobs to re­cover, the grinds have to re­cover, but it’s hard to see how that will hap­pen so long as house­holds are still so lever­aged, govern­ment debt is still so un­nerv­ing and the busi­ness cli­mate is still so ter­ri­ble for en­trepreneurs.

We’ve been mired in de­bates over macroe­co­nomic mod­els re­cently. But maybe the real is­sue is how we are go­ing to light a fire un­der the coun­try’s lon­ers, its con­trar­i­ans and its nar­row, am­bi­tious out­siders.

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