Zombies and Creative Destruction

This is a guest post by Chris Cardiff. In Chris's words he, "struggles to teach and apply MBM as a member of the Charles G. Koch Charitable Foundation MBM team."

Now here's something you don't read about every day - zombies and creative destruction in the same editorial. Unfortunately for horror fans, the article does not focus on the living dead. "Zombie" was just a metaphorical adjective for certain financial instruments and institutions that should be allowed to die but are being kept alive by government subsidies.

In "From Zombie Banks to Zombie Mortgages," financial journalist Greg Ip draws lessons for the U.S. from Japan's financial crisis of the last two decades. Japan's mistake was to prop up "zombie banks" and companies instead of letting them go under - capital was misallocated to these failing institutions and was not available for new ventures. The result: economic stagnation. He suggests the U.S. faces a similar danger in propping up "zombie mortgages" with extensive government subsidies.

Ip notes that Japan's post-WWII economic miracle was driven by emulating the best ideas of the West. It's a lot easier to play catch-up than innovate at the technological frontier. Developing new ideas requires Schumpeter's creative destruction and, compared to the U.S., Japan is not very good at that. The article includes some good measures of creative destruction: in the U.S., companies are born and die at a rate of 10-12% a year while in Japan the rate is only 4%. In Japan, it costs 10 times as much to start a business as in the U.S.

What does this look like inside an organization? Which projects, products, or processes qualify as zombies - being kept alive artificially in the hopes that their market will rebound? Or that the next marketing plan will change customers' mind? Or just from fear of admitting a mistake? Where are we misallocating resources that could be spent on more promising opportunities? And how difficult is it to get a new idea started inside your organization? Feel free to share examples in the comments!

 

Thanks to Chris for his contribution. If you'd like to submit a guest post for potential publication on this blog, please email drafts to Ann at ann.zerkle (at) cgkfoundation.org.

Comments

[David McGinnis]

Ok, first, i have to express my enthusiasm for the use of "zombie" as a description of these undead, "mindless, shambling, decaying [things] with a hunger for human flesh"... it fits, doesn't it?!?

Zombie is such a good term that I am going to replace my zombie mental model with an upgrade that includes significantly more than those horrific-yet-wonderful beings from Shaun of the Dead.

So now that I'm derailed by the awesome analogy, I will pose a question or two instead of an answer: How many times does the technique of ignoring the zombies fare well for the protagonist? How hard is it to kill zombies? the parallels are endless; thus I am excited about the future ponderings on Atlanta's public-transit-zombie (Marta) this afternoon.

[Andy Gillette]

Signs of zombies in the workplace?
-employees begin ambling slowly with head flopped to one side
-lack of challenge (or, conversely, perhaps vigorous challenge over the small stuff but no real willingness to change from the challenger or project owner)
-projects can only be killed by severing the brain from the body
-If an employee is "getting by" because s/he is "a nice guy" as opposed really creating value, and no feedback about him/her or the project is being communicated, that might be roughly equivalent to market signals not reaching 'dead' organizations.

[ccardiff]

Andy, David,

I like where you took this. It reminds me of one of Tony Woodlief's analogies, people who quit but don't bother to tell their employer. That is, they continue drawing a paycheck without contributing.

And for the true Zombie fans, there is another article about Zombies on the front page of the Wall Street Journal this morning. This one really is for horror fans - the article describes the reunion of the extras who played the zombies in the classic Night of the Living Dead, 40 years ago. Many of them are in their eighties now (the oldest is 92).