Steven Pearlstein
Steven Pearlstein
Columnist

Steven Pearlstein: Leading from behind the curve

Wellfleet, Mass.

Man, what a week that was!

Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.

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Rupert Murdoch, who for decades made profit and sport running roughshod over competitors, public figures and anyone who dared to get in his way, was treated to a generous dose of his own medicine. Although the humbled press lord was able to quickly wipe from his face the cream pie hurled at him at last week’s parliamentary hearing, he won’t easily recover from the tire marks left on his back by the politicians, prosecutors and vengeful press pack. For a man who loves to rationalize the excesses of his media empire by claiming he was just giving the public what it wanted, it must have been particularly galling to see how many have shown up for a seat at his hanging.

European leaders, meanwhile, met yet again in Brussels to hammer out the latest fix for a debt crisis that has already claimed as victims the economies of Greece, Ireland, Portugal, Spain and now Italy. The challenge, as it has always been, is how to apportion the pain for excessive borrowing among banks and other bond investors, European taxpayers and the residents of overly indebted countries. This would be a difficult exercise under any circumstance, made more difficult in this case by the reality that, despite a common currency, Europe is still not anything close to a single political or economic entity.

And then there was the never-ending budget circus in Washington, with a tea-besotten House voting to write its budget-balancing fetish into the U.S. Constitution, even as Senate leaders were putting the final touches on a bipartisan sleight of hand to borrow an additional $2.5 trillion without requiring a single Republican to vote for it. Meanwhile, President Obama and Republican House Speaker John Boehner tried once again to reach a “grand bargain” that would have actually put the government on a path toward a balanced budget and once again were foiled by anti-tax jihadists in the House Republican caucus. Without some resolution, the U.S Treasury runs out of cash Aug. 2.

The common thread running through these various crises is that they were all predictable and widely predicted, which raises the vexing question of why successful, seasoned leaders failed to deal with them earlier, when the pain would have been significantly less.

Let’s start with Murdoch. Although Britain’s phone-hacking scandal dates to at least 2006, it kicked into high gear last year when London’s Guardian newspaper and the New York Times published credible evidence that editors and reporters had not come clean about their reliance on private detectives using underhanded methods.

The chief executive’s handbook is pretty clear on what to do in such circumstances: You engage the toughest white-collar lawyer you can find, give her carte blanche to run a thorough internal investigation and tell all the people who report to you, and the people who report to them, that if they destroy a single e-mail, hide a single invoice or withhold even a smidgeon of the truth, they’ll be fired on the spot and will never work in the industry again. You do this not because you are a saint — but because you want to find this stuff out before one of your many enemies does.

From a business perspective, the question for Murdoch isn’t what did he know and when did he know it — based on the big settlement checks his company was writing to victims of News of the World’s shoddy journalism, he must have suspected something was amiss. The more relevant question is why he didn’t he make it his business to find out last year whatever he suddenly discovered last week that led him to close down a profitable newspaper and fire two of his most trusted lieutenants. For that there is still no answer — and no excuse.

The latest Greek bailout plan is also a year late and a few euros short. By now there probably isn’t an economist or commentator who hadn’t warned that Greece, Ireland and Portugal were trapped in a debt spiral for which the only solution is some form of debt relief — lower rates, longer payment terms and writing off principal. At this point, lending those countries more money at market rates, while forcing them to dramatically raise taxes and reduce government spending, only serves to deepen the deficit hole by driving those economies further into recession.

And yet that was exactly the strategy pursued by European leaders, the European Central Bank and the International Monetary Fund for the past year, allowing a two-alarm financial fire to become a five-alarm disaster that threatens Spain and Italy as well. All the major features of the latest rescue — from the bond swap to the bank bailouts to the reduced interest rates on official lending — were suggested and rejected last spring. That they have now embraced them is commendable, but it may prove more than a day late and a few euro short.

Here in the United States, the urgency of the budget deficit has been apparent for five years at least. And by last December, with a newly radicalized group of Republicans taking over the House, the Senate in perpetual stalemate and a wounded center-left Democrat in the White House, it was pretty clear where the center of political gravity was to be found.

Into that breach stepped a bipartisan blue-ribbon commission with a politically and economically credible plan to right-size the Pentagon and the civilian agencies, slow the growth of entitlements and reform the tax code in a way that lowered rates while raising a modest amount of money. Budget experts agreed it was pretty much what needed to be done.

Yet the only ones willing to accept that obvious reality were a bipartisan gang of six brave senators whose efforts got a cold shoulder from the same president and House speaker who just in the past several weeks were willing to acknowledge it was the way to go. By that time, however, the momentum had been lost and positions had been allowed to harden to the point that reasonable compromise now appears impossible. Treasury can probably kiss its triple-A rating goodbye.

The explanation for these leadership failures goes beyond the usual and perfectly valid cliches about procrastination and denial.

Perhaps it is true, as one crisis manager explained to me, that these leaders have seen so many potential crises get defused without having to make the hard decisions that it was quite rational for them to try to push these off as well, in the hope they would get lucky again.

My own hunch, however, is that there’s something else going on, a blind spot that makes it difficult for them to see the world as it really is and the choices as they really are. These leaders are trapped in their own bubbles. The organizations they run are so vast and complex, the competitive pressures they face are so intense and unrelenting, that the way they have learned to cope day to day is to surround themselves with a small group of trusted, loyal and like-minded lieutenants — who instinctively reject criticism or ideas or facts that come from outside the circle and don’t square with their core objectives, beliefs and strategies.

Eventually the people trapped inside these bubbles lose the ability to distinguish the bigger, long-term threats from the smaller short-term ones. And as any good chess player will tell you, that’s when the trouble begins. For if you can’t see how the game is likely to play out several moves ahead and you’re not willing to sacrifice a pawn or a knight now to save a bishop or a queen later, its only a matter of time before you’re in big trouble.

The refusal of Murdoch and his tight circle to look under the rocks at the News of the World and take the risk of an embarrassing house-cleaning has now led to the drubbing of his share price and his reputation.

The reluctance of European politicians to accept the political fallout from a Greek debt restructuring — and with it the bank bailouts, the higher interest rates in some countries and a higher degree of financial integration — soon came to threaten the entire euro project and a much wider financial crisis.

And in Washington, the group think and paranoia now run so deep in both the Republican and Democratic cloakrooms on Capitol Hill that even the modest tax increases or benefit cuts required for politically achievable budget compromise are treated as earth-shaking political and economic calamities, totally out of proportion to their real-world impact.

Figuring out how to break out of these insular bubbles and see the world as it really is may be the central challenge of modern leadership. Which is why Jonnie Marbles, the British pie-throwing comedian, gets my nomination for Man of the Week. Marble’s triumph is that he managed to break through the corporate bubble and fling a pie in the face of a man who, metaphorically, has been flinging pies for decades.

Now if someone could only figure out how to deliver a similar reality-check to the political leaders managing the world’s debt crises . . . .

 
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