Phin Upham | Watching the Economy

Why are dynamic capabilities supposedly of central strategic importance?

Posted on April 18, 2012 in Economics

Dynamic capabilities focuses on, according to Teece, Pisano and Shuen (1997), the firm’s ability to achieve success by being responsive to change, building organizational mechanisms to encourage rapid and flexible product innovation, as well as management’s ability to “effectively coordinate and redeploy internal and external competencies.” This focuses on how organizations renew their competencies, about the management and reconfiguration of competencies to achieve new and innovative forms of competitive advantage as it is about exploiting existing competencies. Competitive advantage, thus, lies not only in the specific assets embedded in the form but also in the managerial and organizational processes which manage these resources, by the path dependencies and market positions taken by the firms.

Specifically, Teece, Pisano and Shuen argue that the competitive advantage of a firm lies very intricately connected to its history, skills, and assets. A firm is thus path dependent in order to achieve success, not, as TCE might imply able to maximize given any industry structure. A firms advantage lies in its use of assets in evolutionary and co-evolutionary paths.

[Full article here]

Stick With What You Know?

Posted on February 22, 2012 in Business, Corporate

By author Phin Upham, via the Academic Ledger

Excerpt

In Diversification, Ricardian rents, and Tobin’s q, Cynthia A. Montgomery and Birger Wernerfelt present a study on the ability of a multimarket firm to diversify its resources (factors). Montgomery and Wernerfelt test whether a multimarket firm’s average rents decrease the further a field they transfer resources from their core business. The results of this study have an important affect for the logic of a multimarket firm which is trying to maximize profits.Further, the essay speaks eloquently to the effect of factor specificity on firm profit. The more specified the factor assets, the less valuable alternate use derived from then but the higher their rents, the less specified and the more valuable the alternate use but also the lower comparable rents in their original use.

This essay contributes to the theory of the economic literature in which it lies, but it also indirectly contributes to management literature and has some very interesting potential implications for business organization. If a firm has a core market and there is some slack or market failure for the firm’s factors in this market, the firm might do well to transfer these resources to another market. But two problems arise, both of which Montgomery and Wernerfelt describe and differentiate clearly. Firstly, the authors argue that the more the diversification the more average firm rents are expected to decrease. This is supported by the double point that 1) the wide diversification implies less specified assets which can be so diversified, and 2) the factors transferred should have some decrease in rent generating ability when transferred to a new market. The second problem with diversifying for a firm relates to the value of the factors. Montgomery and Wernerfelt make two claims about this: 1) the more distant the factor transfer form the old market (as measured by the critical factors which the new market differ from the old market) the lower the rent and 2) the more specialized the factors are to the original market both the more rent they extract and the greater loss they have in rent extraction capacity when transferred.

Full essay available here.

About the Author
Phin Upham is a New York City and San Francisco based investor and author. He has a PhD in Applied Economics from that Wharton School of the University of Pennsylvania. For more information visit his website.

How Satisfying Customer Demand Can Lead To Trouble

Posted on February 3, 2012 in Business

By Phin Upham

Recent corporate rhetoric has emphasized how “satisfying the customer” is of core importance to corporate missions. C. M. Christensen and J. L. Bower’s essay “Customer Power, Strategic Investment, and the Failure of Leading Firms” shows how this emphasis, if taken too literally, can lead to derisive consequences (in certain situations) for a firm. Christensen and Bower ask the question “why and under what circumstances financially string, customer-sensitive, technologically deep and rationally managed organizations may fail to adopt critical new technologies or enter important markets = failure to innovate which have led to the decline of once great firms” (198). In other words, why goes a good company that try’s to serve its customer and does a good job at doing this nevertheless sometimes fail (and in what circumstances will this happen)?

This essay nicely constructs a case for customer demand being potentially short sighted, and, therefore, the blind satisfying of customer demand to potentially cause firms to ignore important new innovations until too late. The irony is that this occurs in large, well managed, and competitive firms, not in badly managed ones which let their competitiveness slip. Fundamentally, this article shows yet again that there is no way around vision, no way to avoid taking risks, no way to guarantee a firm long term success. “Satisfying the customer” may seem like a cover-all strategy to success, but it is not. Some of the theoretical underpinnings of this paper helps construct the validity of the statement 1) “patterns of resource allocation heavily influence the types of innovation at which leading firms will succeed or fail.” When this thesis is bolted onto the thesis that 2) customer demand can tend to determine the allocation of resource allocations, one can see the theory behind the thesis emerging. One can add that 3) the current customers in an industry demand what works best in the present (or near future) and will not tend to demand in the short run inferior products even if the technology had potential. Lastly, we get that 4) once behind in a new technology, even a strong firm has a hard time catching up to (i.e. gaining market share from) upstarts with technological superiority and a head start. In conclusion, we get 5) a potentially breakthrough technology that is initially inferior for major customers of a firm to the status quo, and whose future potential is not clear/in doubt, may be ignored by the major incumbent firms who are focusing on satisfying their core customers, and this oversight may have serious adverse consequences to the companies long term success.

In order to construct their argument, Christensen and Bower link two historically independent streams of research, resource dependence (Pfeffer and Salancik) and internal resource allocation theory (Burgelman, Bower). Resource dependence looks outside the firm to explain how funds within the firm are allocated. According to this theory, managerial discretion is a myth and firms allocate resources according to pressures from outside players such as customers or investors. Secondly, Christensen and Bower draw from ideas on internal resource allocation introduced by Bower (1970) and elaborated by Burgelman (1983a, 1983b) which claims that strategic decisions with the firm are fundamentally shaped at the lower levels of management and by the extend that middle level managers put their weight and effort behind a project. Because middle level manager’s careers can be damaged if they support a failed idea, they tend to support ideas with built in constituencies, i.e. ideas which serve existing customers and are almost guaranteed a market when they mature. This adds a risk adverse element to R&D decisions previously hidden. Adding these two fields together, the authors built theoretical support for the arguments laid out in the previous paragraph.

A second major theoretical contribution constructed by Christensen and Bower is that of a typology of technical change. The authors divide technical changes in the disk drive industry (but this theoretical construct ought to hold in many other fields as well) into sustaining technical changes and disruptive technical changes. This distinction is important for Christensen and Bower because sustaining changes are of the sort that established firms who are listening to their customers will tend to move toward while disruptive changes are of the sort that established firms will tend to ignore and thus form the basis for the entrance of smaller players who have developed this technology. This distinction also cuts in a very different way, for example, than Tushman and Anderson’s 1986 piece which argues that firms tended to develop technologies that built on their strengths and tended to ignore technologies which did not building on their existing technologies/strengths. This distinction, like Tushman and Anderson’s, provides a rational for Schumpter’s ideas on a constantly changing firm landscape of creative destruction.

A sustaining technology is one which reinforces established trajectories in product performance improvement. If a new technology, even if it undermines current competence, offers a clear advantage to a firm’s current technology, it will likely be pursued by the firm. If, on the other hand, a technology offers no improvement (but, perhaps, has potential) it is less likely to be adapted since its success is less likely and this more risky for inside middle managers to support (since the technology is not guaranteed to be of the sort that existing users will demand). On the other hand, disruptive technologies can either be initially less efficient than traditional technologies (but be improving at a greater rate, or have the potential for a future breakthrough in performance). These technologies are not pursued on speculation of success, but often adopted by a new or small or entering company in order to capture a small group of previously undeserved customers who prefer the technology (but are not mainstream users). Such an example occurs in the 14 inch disk drives vs. the 8 inch drives, the 8 inch vs. the 5.25 inch drives, and the 5.25 inch drives as compared to the 3.5 inch drives. In each change, the new technology was not adequate for existing users but interested a niche market and then finally overtook the old standard after some time. But incumbents producing the old technology had a hard time catching up (they had often abandoned the development of the new technology years earlier.) and gaining market share. According to this analysis, the failure of leading firms to maintain their lead was not laziness, or inability to innovate (along traditional lines) it was the failure to predict the market’s movement to new technology. Thus market leaders do not fail because they get slow but because they are ‘captured” by their customers. On the other hand, this process can be seen as inevitable to even the most nimble of established companies. After all, the universe of experimenting firms and of niche players which have potential breakthroughs/future superior technologies will always be larger than an incumbents ability to pursue technologies. Thus, without prescience, established companies will always eventually miss an important trend.

Christensen and Bower’s research design is to study the disk drive industry from 1975 and 1990. This included over 1400 models and multiple data sources, primarily Disk/trend Report, the leading market research publication in the disk drive industry. The disk drive market was a good place for studying the author’s thesis because it was both self contained (historically) and quick moving (technologically). The disk drive market grew at 27 percent between these years to reach over 13 billion in size. Of the 17 firms which were in the market in 1976 one survived in 1990, so the rate of turnover of leaders way high. Over 130 firms entered the market over this period and 100 of them failed. Further, six architectural designs, all distinct, emerged over this period, leading to the potential for disruptive and sustaining technological change. The nature of the six changes is not of immediate relevance, but they involved, almost universally, a diminishing of size (the size of a disk drive shrunk from 5,400 to 8 cubic inches over this period), expense (the cost per megabyte of average drive fell from 560 to 5 (in constant 1990 dollars) over the period), storage space, speed, and thinness.

This essay nicely takes an old concept and applies new understandings to reinterpret the explanation of a phenomenon. Though the essay is about competence and the loss of it, it is quick to point out that it uses investment as the prime drives rather than technological know how. That is, it is not that new firms overtook old firms in their own field, but rather that new firms invested differently than old firms such that they developed their own competence. Further, it is important to note once again that existing firms do not need to loose their “technological edge” or “market leadership” in the existing market technology in order to lose the war for market dominance. In some industries, such as the disk drive industry, with radical shifts in technology, they merely have to miss the next big wave.

References
Christensen, C.M & Bower, J.L. (1998) Customer Power, Strategic Investment, and the Failure of Leading Firms

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Why Firms Win

Posted on January 27, 2012 in Corporate

Story via GroundReport.

By Phin Upham

There are many views in organizational theory which can explain why some firms are better at doing certain things than others, why some firms have a sustainable “competitive advantage.” One source of advantage for firms can be argued to be a form of the dynamic capabilities view. The so-called capabilities view, alone, is a very powerful group of ideas. It explains, I think, much of the successes, failures, and sources of struggle that the business world travails. The dynamic capabilities view adds some complexity – and it is especially valuable in times of uncertainly to change. But its added value is, I believe, sometimes overstated by the authors of essays on the topic. While it is important, a firm that has good capabilities and a fairly rational structure captures much of the competitive advantage that is relevant. Dynamic capabilities, which adds on the “learning to learn” piece of the puzzle, as far as it goes beyond normal firm learning (it would be unfair to say that every firm, even a normally well functioning one, has a dynamic capability to learn from itself – this would debase the term into a truism. So I limit it to well above average or explicit sorts of abilities to “learn to learn”), is a marginal improvement.

The capabilities point of view for organizations is underpinned by the work of Nelson and Winter (1982) “Organizational Capabilities and Behavior.” This view begins with the level of the individual – suggesting that in individuals, skilled behavior is a product of routine, tacit knowledge and a product of past behavior/learning. This essay relaxes some of the assumptions of classical micro-economics including inputs are homogenous, entrepreneurs are identical, firms optimize, etc.. In fact, Nelson and Winter argue, decisions in organizations may not be optimal, they may just be the descriptions that either personal experience or organizational memory imply. Organizational memory, accessed and contributed to by individuals, exists in individuals personal and organizational experience, external memory (such as files), and the physical state of the plant itself. Nelson and Winter generalize from this individual perspective (influenced by the work of Simon on organization and Kohneman and Tversky on heuristics) to apply this view of “evolutionary economics” to an organizational level. So, the theory is build up from the micro to the macro level in such a way as there is both a conceptual parallel between the micro and the macro, and that there is also a causal link between the behavior of individuals in a firm and the nature and behavior of the capabilities of that firm.

[Full story here]

About the Author
Phineas Upham is a New York City and San Francisco based investor with a PhD in Applied Economics from The Wharton Business School of the University of Pennsylvania.

The Internal Moral Agent Assumption

Posted on January 21, 2012 in Development, Featured, Phin Upham

by Phin Upham

Man is, according to Aristotle, a “social animal.” The social aspects of a man’s life are different from his interaction with inanimate objects such as flowers. We intuitively make certain ethical, or moral, assumptions about other people which we do not make towards objects: an internal life, feelings, moral agency, perhaps souls. We assume (unless we subscribe to Narcissism) that other people are much like what we are in the deepest sense. We “act unto others as we would have others act onto” us. I do not kick my computer for practical reasons; I do not kick a person for moral reasons. To actually kill a person is morally wrong; to kill a character in a video game is not. When I bring the implicit assumptions of human to human morality to bear onto the skeptic’s claim that we cannot know how external objects really are, but only how they appear, I find that whether or not one is right is of utmost importance. Even if Bouwsma is right about flowers, his argument faulters when it pertains to a moral agent in relation to another moral agent. Similarly Stroud’s claim that depriving us of knowledge of the external world would deny us “nothing we could have ordinary commerce with or interest in anyway” depends on the consistency of the external world as Stroud trucks in such examples as scientist’s laboratory evidence. Why do both Bouwsma and Shroud use human to inanimate object examples? Would anything change if their theories were applied to certain human to human interactions? Would our actions differ if the skeptic’s claim were assumed to be true?

Our implicit assumption that other people are moral agents deeply affects the way we treat then in both content and nature. If I show that not only would certain of our actions differ if the skeptic were assumed to be correct, but that the underlying basis for many of our actions human to human would change radically, I would be revealing the threatening nature of the skeptics claim. Bouwsma claims that our actions would not differ if we were to believe that the world were merely a consistent illusion corresponding to all our five senses:

‘My flower’s illusions?’ exclaims Tom, and he took up the bowl and placed it before a mirror. ‘see’ said he, ‘here are the flowers and here, in the mirror, is an illusion. There’s a difference surely. And you with my eyes, my nose, and my fingers can tell what that difference is. Pollen on your fingers touching the illusion? Send Milly the flowers in the mirror? Set a bee to suck honey out of this glass? You know all this as well as I do. I can tell flowers from illusions, and my flowers, as you can plainly see, are not illusions.’

He rejects the concept of “thick” and “thin” illusions and claims that he cares naught for the quality “cerpicio” if he cannot sense it. Bouwsma, much as the Empiricists, believes that the bundle of sensory perceptions defines an object entirely. This seems so tempting an argument. “Of course a flower that is just like a ‘real’ flower is different in no intelligible way,” we want to respond, “What possible difference could it make?” Bouwsma’s argument is compelling until we examine the content of his discussion more closely. He discusses Milly, his wife, only in his paper-world example where the differences are clear. He rejects this example and turns to flowers for his coup de foudre of indistinguishability. But would his argument still have the same convincing quality if he switched his examples? Milly would be an automaton – a flesh robot who acted and responded but had no internal emotions, no feelings, no moral agency. She would feel no pain, no love, no guilt. She would not choose or decide, she could not think, she could not sleep or be awake. She would merely act as if she were running this gamut of human actions. Could Tom accept such a wife with no trepidation? Is there no difference in this case? Tom would claim (in his ‘replication’ argument) he would not care if Milly were replaced by a robot that was in all physical ways indistinguishable from Milly. Is this really true? Let us examine the moral implications of such a claim.

Imagine that, as in Tom’s case, the entire world were replaced with identical, coherent, life- like experiences that were exactly as if they were “real.” Now let James, our counterpart to Tom, suppose that this were true (just as Tom did, except that Tom did not accept a difference). Let us examine if our actions and the reasons for our actions human to human would change. Whereas before we assumed moral agency, feelings, perhaps souls, and consciousness in other people, now we would understand that they had none of these, but they acted “as if” they did. Before continuing, let us examine the moral difference between killing someone in reality and “killing” someone in a dream. Even if one is not aware that it is a dream, nevertheless, the moral significance of a real killing is made horrendous by the fact that you have ended some other person’s actual life. You have taken away their rights, their possibilities, their being. In a dream, you may feel guilty that you chose to do such an act, but you are not morally culpable since your act did not violate another human being’s existence. Yet in both cases the people were indistinguishable. The difference is that in one case you violate the implicit ‘being’ of another whereas in the dream the being has no such implicit and assumed ‘being’ to violate. The characters in a dream are not “real” and consequential even if they act as if they were. Real and “as if” flowers, on the other hand, are harder to differentiate. Now let us apply this to our demon created world. Even if James were unaware that the world was created by Demon’s Inc. the moral import of his actions would differ (as in murder vs. attempted murder, it is not his action per se, but the impact of his actions that define his moral culpability).

Now let us consider that he is fully aware that the world is created and merely “as if.” We claimed earlier that our actions human to human implied a certain assumed being to the other person. We might have pointed out that we feel guilty that we hurt another’s feelings, or bad that another was in pain. Would we still feel this way? The people in James’s world may act as if they were in pain, but they experience no real inner qualia of pain, they only grimace. They would not be like us in an inner sense. Now, with full knowledge that the world was a consistent one created by a demon, would we therefor feel no qualms if we were to go on a killing rampage? Would it really be no different from a video game where we were gunning down mere images? No, it would be different in some ways. We would not want to be caught by the police and put in jail because this would not be desirable. We would rather be free. Would we abandon our friends, and never play baseball? No, we would understand that baseball was fun, as are friends, and still spend time with them. But the underlying reasons for our actions would have changed. In our world our implicit assumption causes us to treat our fellow humans with respect because our act is consequential to another. We do not kill because taking a life is morally wrong. In James’s world his actions are instead guided by a narrow expediency. His actions towards others maximize his benefits. And why not? He need not care about the misfortunes of others because they do not suffer, they are just generated images that moan because they are so programmed by the demon. He becomes opportunistic in the worst sense. He treats others as means, not ends. Most of his actions may not differ, but the underlying reasons and habits of mind for many of them do.

Which of James’ actions would actually differ? If we can demonstrate that his actions would differ, we can refute Bouwsma’s claim that it would make no difference. Imagine that James has the opportunity to sacrifice his own life in a painful way in order to save the lives of those who appear to be his family and friends. If he made what we may call the internal moral agent assumption (that of another’s inner being, inner feelings, perhaps inner soul), he may very well sacrifice himself so that the others could live. But if he knew he lived in an ‘as if” world, the decision to sacrifice himself would seem less plausible. He might not want them to die, but they do not “live” in the same sense that James lives. They are not moral agents. If he decides life would be no fun without them, he can simply go and kill himself in a painless way. Why save automatons? Let’s say James were walking in a dark ally and he knew for a fact that no police were anywhere near him. If he saw an “as if” old lady counting thousand dollar bills would he steal from her? With the internal moral agent assumption he would not because it would wrong her being. But in this case, the old lady would experience no pain, no anguish. And it would benefit James to steal her money since in a consistent reality he could gain utility from it. So why not? He would not get caught, and it is not wrong in the moral sense.

It seems to me that most actions human to human are influenced by the internal moral agent assumption. And that morality human to human can only arise if it is between a moral agent and a moral agent. Thus the skeptic’s claim is extremely threatening. We have irresolvable differences – each claim implies very different underlying motivations and actions. Yet if we are not sure (that is, we do not know) how external objects really are, we will assume that others are moral agents since our actions (such as killing) might be so horrific if other people were rational moral agents that we cannot risk the possibility. If others are like us it allows for a richer more consequential and significant moral existence which does not waste our faculties for such dimensions. When faced with uncertainty, the internal moral agent assumption is less risky and less wasteful. Therefore, Bouwsma’s claim that James’ world would be no different from ours is challenged. Furthermore if our actions would differ in James’ world, then Stroud’s claim that we are not interested in this level of knowledge is equally challenged. Stoud’s claims use largely misleading human to inanimate object examples:

“Nothing distressing about our ordinary position in the familiar world would have been revealed by a philosopher who simply invents or constructs something he calls ‘reality’ or ‘the external world’ and then demonstrates that we can have no access to it. That would show nothing wrong with the everyday sensory knowledge we seek and think we find in ordinary life and in scientific laboratories, nor would it show that our relation to the ordinary reality that concerns us is different from what we originally though it to be.”

Yet we have argued that the knowledge of whether the internal moral agent assumption (which is implicit in the way we see the world) is correct or not would mean a shift in our actions and in their basis. Thus knowledge of whether other people are like us or merely “as if” they were like us is something that is very important to us. If others were “as if” it would be very threatening to the way we view the world and act in the world. But if the skeptic is right, and we only know how things appear, then what justification do we have for the internal moral agent assumption which we have argued influences so many of our actions? In the state of uncertainly that the skeptic has forced us into we take the view whose violation is more intolerable and whose assertion is more agreeable and we can hope that it is correct.

About the Author

Phineas Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

On the Development of One’s Talents

Posted on January 17, 2012 in Featured, Philosophy, Phin Upham

by Phin Upham

Kant’s third example explores the implications of wanting to live for pleasure over betterment as a duty. The scenario is as follows: A young man wishes to live for pleasure only but has a great talent which could be developed into something which would help society and make him useful as a member of society. The question is whether following your desires for indulgence in this instance is a duty. Kant analyzes this on two levels. First, can this maxim be universalized without inherent contradictions? Kant claims that it can be for historical reasons, and points out the South Sea Islanders as an example (one instance is enough to show that something is possible). The second stage of his analysis is whether willing the universalization of something leads to a contradiction between what you will for others and what you will for yourself. Kant claims that this example fails under this criteria since “as a rational being, he necessarily wills that his faculties be developed, since they serve him, and have been given to him, for all sorts of possible purposes” (193). So although it is no contradiction for him to will this duty on others he cannot rationally will it upon himself.

This last stage of the argument seems to be at least partially an assertion. Is it really true that as a rational being one necessarily wills the development of ones abilities? Let us suppose that ones special talent lies in the art of assassination, theft, or murder. This is what one would be best at (thus they offer the most room for developing). Granted these examples possibly contradict the initial premise that he will be a “useful man.” But are not thieves, although harmful in many ways, useful in helping to keep a society wary, and prevent them from becoming overly comfortable and soft? At any rate, if one had a propensity towards thievery, surely one would not, indeed could not, morally will oneself to develop this skill. Surely one cannot praise Shakespeare’s Iago for willing to fulfill his natural ability for motiveless malice (a trait many of us surely lack). Even aside from such hyperbolic counterexamples, why should a man want to maximize his abilities? If he does not desire the ends they would achieve for him, how can the means be implicitly good? If a brilliant lawyer hates practicing law but loves to fix potholes (a task she is particularly bad at), wouldn’t she be justified in becoming a pot hole fixer? Her intentions are good, she desires to achieve happiness (she strongly believes that a better infrastructure is crucial and is happy through fulfilling this belief). Surely Kant cannot prove that a rational being wishes to maximize his/her potential a priori, and no deeper lever of justification is given for this assertion.

But I nevertheless find myself agreeing with Kant.

About the Author

Phin Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

The Good, The Bad, and The Ugly

Posted on January 14, 2012 in Featured, Phin Upham

by Phin Upham

One can only stare in awe at the Socratic Elenchus at work. Elegant, simple, and powerful, it simultaneously routes out inconsistency within a belief-matrix while testing the interlocutor moral content. It is the extraordinary link between knowledge and morality that is explored between 77c and 78b of the Meno. Socrates and Meno initially disagree over whether all men desire good things. Through incisive argument, careful parsing of the issues involved, and by invoking commonly accepted premises, Socrates slices through Meno’s claim, and forces him to capitulate. But we must not let Socrates’ cunning rhetorical ability blind us to the underlying validity of his argument, its logical consequences, and the profound speculations on human nature and the nature of morality that it raises. Do we still accept the premises of the argument or even agree with it? What is the link between knowledge and moral actions, and the link between moral actions and good actions? What logical implications can be generated from this passage? Do we agree with these implications? If not, what aspect of the argument might be unsound or incomplete?

In just 34 lines ( 77c to 78b) Socrates is able to route Meno’s claim that “all men desire good things” (77c). Examining the exact route he took, and the precise arguments he used, we may be able to shed more light on the conclusion. Socrates’ first step is to clearly delineate the argument he will attack. “Do you mean that [those that desire bad things] believe the things to be good, or that they know they are bad, and nevertheless desire them?” (77c) Socrates asks. He here makes clear that he is arguing that all men desire good things, not that all men always do good things. He cannot plausibly argue that no bad acts are committed, he will instead make a clear division between actively desiring a bad, and unintentionally desiring a bad through ignorance. If this distinction were not made, it would be difficult to explain differing desires and differing decisions in similar situations (say running away from the enemy in a battle or remaining to fight). We therefor disregard the ignorant wrongdoers, and focus on the claim that knowledgeable wrongdoers exist. Socrates now begins to force Meno to commit to logically necessary statements that he will be later forced to contradict. “Do you think, Meno, that anyone, knowing that bad things are bad nevertheless desires them?” (77c). This seems an innocuous extension of the original argument, and Meno accepts it.

The meat of the argument now begins to show itself. After getting Meno to agree that to desire is to want to possess for oneself, Socrates asks “Does he think that bad things benefit him who posses them, or does he know that they harm him?” (77d). Meno answers that there are both types. The use of the word “know” juxtaposed to the word “think” reveals an implicit assumption both men are accepting. This assumption will prove to be an important one, and it may be one that we choose question and explore. Socrates asserts that bad things necessarily harm. What kind of harm are we speaking of? Modern intention-theory (Moya, for example) has come to the consensus that to say “I am going to do (intend to do) X and I know it is bad for me from every point of view” is a contradiction. One must have reasons (even if they stem from ignorance) for doing an action, else one is acting irrationally. To avoid reducing Socrates to rebutting only an irrational contradiction, we might be justified in surmising that Socrates is not speaking of harm in an all-inclusive sense but rather in a narrower, moral sense. In the Akrasia Handout a distinction is made between prudential harm and moral harm. I believe that Socrates is claiming that to do a bad thing will cause moral harm, which is a reasonable premise, but he ignores pragmatic, or at least worldly, benefits. It implies that no tradeoff between the pragmatic and the moral is ever justified (else if the pragmatic gain were large enough it might be “beneficial” to do a bad thing). But it seems clear in the perspective of Socrates’ life that he believed in absolute moral principles and would not compromise them. He proved this by refusing to escape prison even in the face of death because he felt it would be morally wrong. Thus he is at least consistant in maintaining that moral considerations are paramount.

“And do you think that those who believe that bad things benefit them know they are bad?,” asks Socrates. “No…,” responds Meno (77d). Socrates then claims that those who believe that bad things are beneficial are ignorant of their bad nature, and thus desire good but lack knowledge of the good. Thus this group is not germane to Meno’s claim that there are those that desire bad things. The argument now increases in tempo. “Those whom you say desire bad things, believing that bad things harm their possessor, know that they will be harmed by them?” (77e) asks Socrates. Meno has already committed himself to agreeing and does so. We ought to remember though, that we are speaking of moral harm not prudential harm here, otherwise the statement looks to be non-sensible. “Do they not think that those who are harmed are miserable to the extent that they are harmed?” (77e) Socrates asks. This is yet another assertion, but Meno has no troubles with it. Schopenhauer, Neitzche, and Freud might invoke the Death Drive as a counter-argument here. If there is an aspect of ourselves that wants us to die or be injured this part may be happy if we are harmed. Nevertheless, this is accepted as an implicit premise to the argument and Meno, sensing his argument’s oncoming collapse agrees reluctantly. Now all Socrates must do is link misery to unhappiness, and assert that no one wants to be unhappy. If to do bad knowingly does harm to you, and doing harm to yourself makes you unhappy, and no one wants to be unhappy, then if naturally follows that no one would knowingly do bad.

Though Meno concedes he has lost, how valid was Socrates’ argument? We could question it from a few distinct angles. We could challenge the premises of the arguments. These were accepted by both men during the discussion, and if they are true the argument looks to be a strong one. These assertions include the claim that bad things necessarily harm, that no one would want bad things to happen to them or to be miserable or unhappy. The flaw in these assertions may rest in the lack of acknowledgment, or at very least the complete discounting of prudential considerations in favor of moral considerations. This violates our everyday intuitions about the way people act and the reasons people do things. We hear stories of students cheating on “Ethics” final exams, we observe the behaviors of some lawyers, and we note the way we and those around us often act in what is in our best interest pragmatically rather than morally. In life there seems to be some tradeoff between prudential and moral considerations, even if the moral considerations have a less elastic slope.

But though this distinction is a fair objection to Socrates’ argument, does it really ring true? If you look at the context of the argument and the weight that would have been put on moral virtue (at least in an intellectual arena) one can perhaps re-examine the argument and it would remain standing. Perhaps our everyday compromises, as reasonable as they seem, are, as Socrates might claim, weighing down our souls. The “bad” in Socrates’ argument seems to be a bad on our soul not a bad in the world. A moral transgression not a pragmatic one is the relevant effects of a bad action. Perhaps it is our ignorance that makes us weigh the pragmatic so heavily. But if we accept this Socrates’ argument becomes perhaps too esoteric. It strikes down so many of our actions, and carves so deeply into our way of life that it seems to be too difficult to follow in a less than perfect world. If we are to believe that Socrates did follow his own beliefs, we can see the price he paid. In many ways like St. Francis, he lives a poor life, depends on others for sustenance, rarely baths, is ridiculed and hated by the leaders of the city for revealing their ignorance, and is finally jailed and killed. His scorning of the material in life is consistent with his intellectual views. Perhaps we live in ignorance then, but even if the dialog presents a consistent set of beliefs, one could imagine our set of beliefs, including a tradeoff between the moral and the prudential, being consistent as well. Furthermore if pragmatic considerations are completely disregarded, it seems Socrates’ argument would force us to accept the logical conclusion that one is not morally responsible for one’s bad actions. One only does bad through ignorance, and one always does the good if one is aware it is good. Thus all men must be equally moral, some simply have more knowledge that others and are therefor able to do the good more effectively. All bad actions must be involuntary (due to ignorance). This does not seem to be consistent with our view of the world. Socrates will have to provide us with more than an assertion that his view of the world is the correct one if he expects us to be fully convinced of his view, no matter how compelling, especially if his view is counterintuitive(a “para-doxa” or paradox).

Ultimately Socrates won his argument with Meno. Using commonly accepted principles he was able to convince Meno that all men desire good things. Thus no man would knowingly do a bad thing. All our actions would be what we though was right. Yet there is still something troubling about the argument. Buried deep within it there lies a further assumption that draws the pieces together. Our criticisms so far have been answerable, even defeasible. What method can we use to untie this Gordean knot? I believe that this underlying assumption that provides harmony to the rest is the assumption of the intrinsic goodness of human nature. Without this assumption the argument unravels. No longer can it be said that man would not desire a bad thing. Dostevevsky’s Underground Man ought to have shocked us out of this fallacy. Even if you grant Socrates other assertions, it still seems this is the keystone that holds the rest together. Ultimately one could even deny that having a clean soul is a goal one aspires to thereby removing even the force of Socrates’ argument. One could say man enjoys some bad – one could claim that man’s nature is ugly. We could remember Thucydides’ reminder that “human nature [is] always ready to offend.”

About the Author

Phineas Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

Roman Vanity

Posted on January 13, 2012 in Featured, Phin Upham, Politics

by Phin Upham

This coin illustrates Octavian’s use personal connections, symbolism, icons, and power nodes in order to create a powerful and secure position at the head of the Roman state. He firmly connects himself with his adopted father Caesar, hits his audience over the hear with allusions to Caesar’s divine status, incorporates powerful imagery, and uses religion and tradition to reify his right to power. He accomplishes his goal (to legitimate his right to lead) in various interconnected ways which combine to provide a calculated and complete picture of how he wished to be seen.

One the front of the coin Octavian’s head is prominently displayed. His youth and piety are played up though the thin beard that appears to adorn his cheeks (though it is hard to tell if there is a beard. Caesar’s death was long gone). A beard for the ancient Romans was a sign of mourning, as Prof. Tarrant told us in class. This visual sign of youth and (perhaps) devotion to Caesar is underscored by the front inscription: “Caesar divi filius triumvir iterum rei publicae constituendae” [Caesar, son of the divine one, triumvir a second time for managing the state]. Octavian assumes the name of Julius Caesar, granted to him in Caesar’s will, and refers to Julius as “the divine one,” a reference to the deification of Caesar after death. By using Caesar’s name Octavian is underscoring his connection to the leader and thus establishing his legitimate right to rule as Caesar ruled. Then he refers to his powerful position as triumvirate, juxtaposing this with his young appearance in order to create a dynamic tension that ignites sympathy for the youth who is sacrificing in order to help “manage” the state for the people. The term “manage” is no coincidence, it clearly disavows any ownership and stresses the fact that he is making no claim to be king.

On the back side of the coin Octavian provides another set of images designed to strum on slightly more culturally embedded and long established strings. He shows “The Temple of the Divine Julius” with the inscription “to the divine Julius.” On the coin is a picture of a traditional post and lintel, pedimented, temple (even more extensively rooted in its Greek origins). A statue of Julius and a flaming cremation alter are depicted. These symbols conjure the psychological power and awe that religion and death are wont to conjure. These are loaded images that Octavian uses to establish in tradition, and conjure emotional credence for his place as leader. After all, rational goes, one Caesar is dead and buried, and now another Caesar ought to take his place. Even the “crime” of killing such a great man lurks implied in the shadows of the repeated references to divinity and death. And, to gild the Lilly, the comet which was supposed to show the divinity of Julius is in the pediment of the temple.

Octavian is using his relation to Caesar, and the sanctity and emotions that Julius’ death enflamed to solidify and justify his claim to power. He accesses such power nodes as temples, alters, and the gods to reinforce his claims. All in all he presents the audience (the owners of the coins – in other words the people of Rome) with a cohesive and compelling piece of propaganda. In Octavian’s use of such sculpted and Machiavelian propaganda to present himself in a certain light he reveals much. First he reveals that he is crafty and intelligent well beyond his years, and secondly he reveals the importance of the Roman people themselves. If he would go to such trouble over what they think of him rather than ruling by fiat, he must understand that they are the source of his power. So by recognizing and controlling his power base through free state resources (the coinage was a state mint) he maximizes his effectiveness. In fact, the very fact that this is a coin of the Roman empire further legitimizes the message crafted upon it. From the other coins viewed, it seems that Octavian realized (in both senses of the word) the influence and the importance of imagery and propaganda, at least on coinage, to an elevated and comprehensive level. He followed that dictum of life: use what you have to get what you want!

About the Author

Phin Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

On Freedom of Political Speech and the Fair Value of Political Liberties

Posted on January 3, 2012 in Featured, Phin Upham, Politics

by Phin Upham

Freedom of political speech, as a basic liberty, is of great importance for Rawls since it allows for the full use of one’s capability for a sense of justice, to the stability and health of a free democracy, and to one’s full identity as a citizen. Similarly, the fair value of one’s political liberties, that one’s political liberties are not merely formal, is essential in order to allow all members of a society to act as meaningful citizens, and to enact just legislation that will be representative of the society and do its part to maintain its vigor. Sometimes liberties must limit one another in order to maintain their meaning and fair value. Freedom of political speech and the fair value of political liberties may limit one another. What might one do if confronted with the need to violate freedom of political speech in order to maintain the fair value of political liberties? Is limiting the role of money in political procedure in order to guarantee the fair value of political liberties an infringement on the freedom of political speech? Government limits on contributions and expenditures in political campaigns may or may not be an example of such a violation depending on the reasons for respecting each side.

Free political speech is a fundamental part of your identity as a citizen. It is a basic liberty that is “essential to secure the free, full, and informed exercise of [the capacity for a sense of justice] (PL 342).” Free speech also serves as both an outlet for complaint within a society and an instrument for change. In a reasonable and well governed democracy, free speech is a crucial part of this process. Without free speech there would be a greater risk of eruptions of violence and discontent. “free speech together with the just political procedure specified by the constitution provides an alternative to revolution and the use of force which can be so destructive to the basic liberties (PL 344).” Free speech prevents such outbursts not only be providing the system with an awareness of its problems and inadequacies but by allowing for organization and change to arise due to the exercise of free speech. Such movements, especially in a democracy, are a result of the fully functioning use of free political speech, and can result in positive and dynamic change. The importance of free speech in a democracy is humorously presented in the old adage “democracy relies on the use of three boxes: soap, ballet, and ammo – to be used in that order.”

The fair value of political liberties is necessary for the democracy to work effectively and represent all its citizens. It is one thing for individuals to have basic liberties. This would mean that they have the freedom to do the actions which make them full citizens. It is quite another for them to have the ability to act meaningfully as citizens. Rawls tries to ensure that the basic liberties have some form of meaningful content by guaranteeing citizens a certain level of primary goods, thus allowing them to develop their moral powers enough to use their liberties meaningfully. If this were not ensured, not only would individuals not live full lives, but the democracy which rests upon them would be equally undermined. This holds true for the political liberties as well. But the means, the “primary goods” of these political liberties are not as clear. Before exploring the way in which to reify the content of the political liberties meaningfully for citizens, let us explore what is at stake if these political liberties are not given their fair worth. “Unless the fair value of these liberties is approximately preserved, just background institutions are unlikely to be either established or maintained (PL 328).” Fair value will allow each citizen to “a fair and roughly equal access to the use of a public facility designed to serve a specific purpose (PL 328).” After all, equal political liberties are vitally important “in order to establish just legislation and also to make sure that the fair political process specified by the constitution is open to everyone on a roughly equal basis (PL 330).”

Rawls believes that basic liberties limit each other and themselves. They limit themselves in as far as all basic liberties are equal, you must grant others the same liberties as you grant yourself. So if you desire freedom of speech and the ability to exercise this right, you must respect others rights to speak as well. This might imply that you must wait your turn to speak, or risk a free-for-all where no one is heard because all are talking at once. If all are talking, then the purpose of speech – communication – is not furthered. Thus in order to further the appropriate end of an activity you must limit it. Alternately, liberties can limit each other in a similar way. Trivially, for example, my right to move my fist ends where your nose begins.

Freedom of political speech and the fair value of political liberties can be seen to limit one another. This limiting can be seem as a violation of political speech, or, as I believe, as a deeper understanding of the meaning of political speech and its importance. The difference principle allows for disparity in wealth. This disparity in wealth is magnified in the political arena, “for the limited space of the political process has the consequence that the usefulness of our political liberties is far more subject to our social position and our place in the distribution of income and wealth than the usefulness of our other basic liberties (PL 328).” But justice is not served if, for example, a rich corporation or individual is able to unduly influence the outcome of an election or unduly pressure a political candidate to serve his/her special interest. Democracy has slipped the hands of the people as citizens and is being influenced overly by people as wealthy. But the problem arises: is limiting campaign contributions a violation of free political speech which is a basic liberty and ought not to be violated in all but the most extreme cases?

It is not clear that limiting campaign finance contributions is truly a violation of freedom of political speech on some levels. On the one level, it is not clear that a blanket and non-discriminatory, non-content oriented controlling of the means of a campaign (money) for the sake of maintaining the fair value of the political liberties is an infringement on political speech precisely. Money is related to political speech but not identical to it. “These regulations do not restrict the content of political speech and hence may be consistent with its central role (PL 358).” Money is a means to the end of speech and not speech itself. Nevertheless, money, as a means to a basic liberty, ought not to be controlled or limited unless there are extremely good reasons for it. It is necessary, Rawls argues, to control campaign finance in order for stop those with more property from “controlling the electoral process to their advantage (PL 360).” The meaningful right to vote is essential to your role as citizen and to the stability and viability of a democracy. “Other rights, even the most basic, are illusionary if the right to vote is undermined… full and effective participation by all citizens in state government requires… that each citizen [have the vote]… formal equality is not enough (PL 361).” Thus from this perspective it is the overwhelming importance of maintaining the fair values of political liberties that can justify the limiting of so basic and important an area of rights and related means to these rights as freedom of speech.

I justified freedom of political speech as important for the way it made a person a whole citizen, and for the beneficial way it furthered the best interests of the state in maintaining a stable and responsive democracy. I justified the fair value of political liberties because they allowed every citizen to act fully, and because it provided an outlet for complaints and instabilities. When I look at the limiting of campaign finance contributions I see that the ends of both these principles are best served by limiting contributions. Thus by de facto limiting the freedom of political speech in this way (or a related area) you are furthering the meaning and end of a healthy and representative democracy that is fully functional and fully representative. We allow citizens by participating meaningfully in this system, to act more wholly as citizens. Thus, as we justified limiting freedom of speech by waiting our turn, we can justify limiting the freedom of political speech. In each case you further and reinforce the meaning and ends of that right by limiting it.

The balancing of freedom of political speech and the fair value of political liberties is such a difficult question because of the enormous value we place on each of these aspects of a citizen and the importance each of these holds for a fully functional democracy. I believe that if we see this as a balancing of the liberties with a consideration of the worth of those liberties we see that Rawls intends to institute primary goods (coercively in the case of money, and thus in violation of some rights) in order to make liberties meaningful. Campaign finance contribution limitations can be seem as an extension of this. These limitations are enacted in order to ensure that political free speech is meaningful and effective. This balancing act is a difficult one, but by limiting this means to political free speech you are furthering its ends in a meaningful way. The relation between the freedom of political speech and the fair value of political liberties is thus resolved in this realm by a careful application of Rawls’ understanding of the nature and function of a democracy and the persons full and flourishing place in that democracy.

About the Author

Phin Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

Lochner’s role as foil to Griswold

Posted on December 27, 2011 in Featured, Phin Upham, Politics

How these two cases can be differentiated through close comparison

by Phin Upham

When the Supreme Court handed down their decision in Griswold v. Connecticut, critics leveled accusations of “Substantive Due Process,” “Lochnerism,” and a violation of “the right of the majority to embody their opinions into law.” Griswold v. Connecticut (1965) and Lochner v. New York (1905), a case reviled by many progressives, seem at first glance to be cut from the same cloth. Both overturn a law that a community has chosen to democratically legislate, and both seem to do so on flimsy constitutional grounds. In fact, critics claim, both cases seem to be decided more on the moral and economic preferences of the court than on textual or constitutional grounds. Were liberals being hypocritical to hate one and embrace the other? Is the only substantial difference that of policy preference? Though the cases are similar in some, especially structural, respects, they differ in other key respects. When a broad understanding of the Griswold case in historical, technological, social, and legal context is examined it becomes less and less reminiscent of Lochner. Lochner serves as a foil to Griswold, helping to reveal Griswold’s true nature through an understanding of the differences and similarities of the two cases.

Lochner, decided in 1905, overturns a law which limited the hours of work allowed in a bakery. It was instituted by the majority of citizens in a community. The court overturned this law based on the grounds that it took away the “liberty” to contract without due process of law as outlined in the 14th amendment. But, Justice Holmes argues in his famous dissent, “the word liberty is perverted when it is held to prevent the natural outcome of a dominant opinion unless… the statute proposed would infringe on fundamental principles. (SB 49)” The constitution allows for communities to experiment with, and choose for themselves, structural and societal rules and regulations within limitations. The court allowed “Sunday laws, usury laws, [lottery laws, laws requiring] vaccinations (SB 50)” and so the decision in Lochner was not merely bad jurisprudence, it was hypocrisy. Instead it seemed that the court’s real purpose might have been to “enact Herbert Spencer’s” ideas or to enforce laisse fair economics. By enforcing normative opinions into law (but hiding behind legal jargon) the Court used Substantive Due Process. Thus hypocrisy and bad jurisprudence seem to be the major crimes of the Lochner decision.

In the 20^th century many changes, most unforeseen, occurred in society that forced the justices to adjust and reexamine the constitution to find the intent of the founders. This concept of the “living constitution,” championed by Brandies, held that experience, not logic, was the life of the law. The Warren court furthered and developed this principle throughout its lifetime. Changing technology, in this case the near perfection of contraceptive devices, coupled with changing societal mores regarding sexuality, and increased urbanization (and thus closer living) had created a problem never envisioned by the founders. “This new brand of privacy… was the direct by-product of technological advance, which created a sphere of personal choice never before imagined by earlier generations of Americans. (SB 569)” The Warren court envisioned the Griswold decision as a stopgap to fill a hole in the constitution. The elaboration of the right to privacy was seen as a reification of the geist of a right that already lurked in the constitution. As Prof. Gormley demonstrates in his article “A Hundred Years of Privacy,” the understanding of the appropriate role for privacy in Society changed significantly in the early 20^th century from a weaker form he calls First Amendment Privacy to a stronger notion he calls Fundamental Decision Privacy. Unlike in Lochner, where the justification was perhaps hypocritical and without an attempt to understand deeper democratic constitutional principles, the Warren court was forging a new understanding of jurisprudence and the protection of rights. They were “search[ing] for the underlying principle of a rule before deciding to apply it to new situations. (Horowitz, 111)”

The Griswold decision, decided in 1965, dealt with a Connecticut law that “made it a crime for any person to use any drug or article to prevent contraception (SB 525).” Many opinions were given regarding the appropriate outcome, and the appropriate place in the constitution that might justify this outcome. the opinion of the court, written by Douglas, made the revolutionary claim that a “zone of privacy” is created by the convergence of various disparate parts (9th, 4th 1st, 3rd and 5th amendments, for example) of the constitution. This creates a Penumbra that gives the rights “life and substance (527).” The penumbra formed that protects against a search of the “sanctity” of the “marital bedroom” is the right to privacy. Though there is some continuity with Holmes and Brandies in their Olmstead dissents, Douglas nevertheless can be seen as “simply creating constitutional doctrine on the spot… [to] respond to what appeared to be a doctrinal impasse. (Tushnet, 76)” Whether this creation is justified is still hotly debated. Douglas explicitly rejects using the Lochner decision as a guide, distancing himself from the 14th amendment and most especially from Lochnerism. Goldberg, Warren, and Brennan choose to use the 9th amendment as a justification for overturning the CT law, while Harlan bites the bullet and uses the obvious (and dangerously reminiscent of Lochner) due process clause of the 14th amendment. Justice Black dissents, accusing the court of “using different words to claim for this court and the federal judiciary power to invalidate any legislative act which the judges find irrational, unreasonable, or offensive. (SB 535)” In short, Black accuses the court of Lochnerism.

Whether one agree or disagrees with these cases, their similarity is, when one examined closely, quite different.

About the Author

Phin Upham is an investor who lives in NYC and San Francisco. He has studied at Harvard University and Wharton Business School (UPenn) and is a term member of the Council on Foreign Relations.

How these two cases can be differentiated through close comparison

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