Is Rubin the new McNamara?

Via Felix Salmon, Harold Meyerson has a provocative op ed in the Washington Post where he draws the parallel between the recently passed Robert McNamara and former Treasury Secretary and Citigroup chairman Robert Rubin. He rehashes McNamara's well-known flaws:

McNamara's hubris was that of a hyper-rationalist. He and his whiz kids, his systems analysts and efficiency experts, stormed into an intellectually sleepy capital determined to subject what had been the haphazard realm of policy to scientific measurement.

While some draw parallels between McNamara and the architects of the Iraq War, these are superficial, says Meyerson. Instead:

The real successors to McNamara's whiz kids are the economic geniuses, the "quants," who figured out how to build a tower of investment on a dot of assets, arbitrage everything, and hedge any risk, except, of course, the ones that plunged us into a depression.

...

If there's an analogous figure to McNamara in this mess, then, it's probably Rubin -- socially liberal, like McNamara; concerned with the world's poor, like McNamara; architect, like McNamara, of a system perfected by the best minds of his time, a system that should have worked but that failed catastrophically.

The parallel is striking - I applaud Meyerson for pointing it out. He also ends on a hopeful note:

Rubin's repentance is a private matter, but the lessons that his protégés Larry Summers and Tim Geithner derive from the failure of deregulated hypercapitalism are of the utmost public concern... If we're lucky, the image of Bob McNamara calculating the war on his slide rule, and spending the subsequent decades trying to understand where he went wrong, may bring them to their senses. It certainly should do that for us.

Let's hope that all of us can learn constructively from the mistakes that have been made, recent or not.

The new food aid paradigm

Last week, Secretary of Agriculture Tom Vilsack signaled a major shift in U.S. food aid policy from providing American-grown emergency food aid to investing in agricultural productivity in developing countries:

"It is a more comprehensive, holistic view of food security that focuses on the notion that we want to make food more available, we want to make it accessible and we want to make sure that it is properly used," Vilsack said in a speech to the Chicago Council on Global Affairs. "If we can help countries become more productive themselves then they will be in a better position to feed their own people," he said.

The World Bank was already moving in that direction. Then this week, the G8 followed suit:

The G8 countries will this week announce a “food security initiative”, committing more than $12bn for agricultural development over the next three years, in a move that signals a further shift from food aid to long-term investments in farming in the developing world.

In many ways this "teach a man to fish" approach is a welcome change (although not unprecedented - under none other than the recently much-discussed Robert McNamara, the World Bank made a major push into agriculture in the 1970s, with mixed results).

On the other hand, improved productivity alone cannot eliminate hunger - the UN Hunger Task Force estimates that only ~50% of the now more than 1 billion undernourished people in the world are smallholder farmers, with the remainder mostly rural landless or urban. Improved productivity can move the poorest smallholders from net food buyers to net sellers, but it is unlikely to have more than a marginal impact on world cereal prices, so social safety nets will remain an indispensable part of the food security equation until economic growth can raise incomes to the point where food becomes affordable to the rest.

Pat on the back

Forgive my amateur excitement, but a day after my post on Robert McNamara Philip Delves Broughton posted on the same section of his book, and then today Felix Salmon - probably my favorite finance blogger, highly recommended - excerpted the exact same quote I used.

For a brief, exhilarating moment I thought Felix had actually read my blog. Turns out not, but it is gratifying enough to know that I'm thinking along the same lines as someone I admire highly.

Their conclusions are both worth repeating. PDB:

One way of diagnosing an individual or institution suffering from the McNamara Syndrome is to observe how they respond to criticism. Do they accept it and try to make use of it? Or do they lash out contemptuously, sneering at those who dare criticize them? It’s a good test at which many businesses, individuals and even educational institutions do poorly.

And Felix:

When Wall Street quants fail to account for model risk, they can end up losing hundreds of billions of dollars. But that’s an improvement over what happened when McNamara failed to account for model risk: those losses were much worse.

The many legacies of Robert McNamara

Robert McNamara recently passed away. He's best known for being the Secretary of Defense who promoted a war of attrition in Vietnam. Tyler Cowen highlights how he shaped the World Bank into a modern technocracy. FP Passport remembers his advocacy of nuclear disarmament later in life.

In Ahead of the Curve, which I recently discussed, Philip Delves Broughton uses HBS grad McNamara as his closing example of the pitfalls of applying "modern business management" in other spheres:

The journalist David Halberstram wrote that McNamara mistrusted people who did not speak his language of statistics and hard data. If it ever came down to one person saying something "just didn't feel right" or that it "smelled wrong," McNamara would always go with his facts over their feeling. Fatally, in the case of Vietnam, the data he received were not accurate, and yet he trusted more in the illusion of reality generated by the faulty data - the clean, impersonal, objective facts - than in the messy yet accurate eyewitness reports brought home by journalists and soldiers.

Reflecting on McNamara should remind us that, for all its "scientific" appeal, data-driven management is eminently subject to the crap in, crap out principle.