The Obama Transition: Missing Three Pieces

Posted December 4, 2008

Your weaknesses will slow you down, but your strengths can kill you. You know your weaknesses, and you tend to compensate. But your strengths cast shadows — blind spots that create real vulnerability.

Smart leaders know this. They build leadership teams that help check their blind spots. There is early evidence that Barrack Obama is unusually thoughtful in this respect.

The Obama transition has been almost as thrilling as the campaign. It has been a second political masterpiece that has left even Republicans mouths agape (neocon Max Boot declared himself "gobsmacked" by the appointments and Rush Limbaugh actually endorsed Hillary for State.) His appointments validate my hope that he will be a more centrist President than candidate. Overall, I like his appointments more than the ones I recommended here.

Obama’s strengths include the ability to think about large scale problems, a natural celebrity, and a remarkably gentle disposition. Which is why he now needs to think small, pop his celebrity bubble, and get ready for tough love.

THINK SMALL

In Washington, size matters. The city even prohibits any building taller than the Washington Monument so that our ten story national phallus can dominate the geometric center of our capital.

The Obama economic advisory team
reflects this preference for large institutions. It consists of two economists (Laura Tyson and
Larry Summers), both former Clinton officials from large
universities. It is mostly made up of current or former heads of large government organizations and includes the CEOs of Google, AOL, and Xerox, as well as mega-finance
icons Bob Rubin, Paul Volker, and Warren Buffett.

It’s a great group. The seven of these folks that I have encountered closely enough to have a view are highly capable and I’d bet the rest are as well.

But it is full of people from large and/or public institutions. The group contains no entrepreneurs who have started, financed, or grown small businesses. This matters less because this group will get the answers wrong than that important problems or solutions will not be on their screen.

Remember Chris Hughes. At age 24,
Hughes had already co-founded a little start up called Facebook with his college
roommate when he decided to leave his company to serve as coordinator
of online organizing for the Obama campaign. Hughes’
contribution was absolutely critical in electing Obama
President. It’s not just that traditional campaign advisers did not
understand how to use social media in a political campaign — it’s that
they did not fully grasp either the question or the opportunity.

Obama had the good sense to bring entrepreneurs into his campaign and
to get out of their way. By the same logic, his economic advisers
should include people like Sequoia Capital’s Mike Moritz, Draper Fisher’s Steve
Jurvitson, Amazon’s Jeff Bezos, or Saleforce.com founder Marc Benioff. Obama needs entrepreneurs as well as talented Mandarins on his economic advisory team. Otherwise, he will end up trying to drive from the caboose.

POP THE BUBBLE

The bubble
descends on most politicians so slowly that like, the frog in the
proverbial kettle, they gradually adjust to changes to their
environment that eventually prove toxic. Obama has felt the bubble
descend quickly. Two years ago, he could bike Lake Michigan and barely
get noticed. Now he is surrounded by supplicants and security, about to
unplug his Blackberry, and increasingly managed by events and staff.
The problem will not get better once he is in the White House. He can’t
exactly sneak into the local bar, ask for a beer, and get a quick read
on how America is doing.

Here is the solution: a monthly dinner for eight Americans with the President.
If you want to have dinner with Obama, sign up online and
indicate whether you are a community leader of some kind. Each month
four community leaders and four other citizens, selected without regard to political affiliation, income, table manners, or
ability to complete a coherent thought would be brought to Washington
for a two hour discussion with the President. (We can screen
babbling lunatics like the McCain supporter who had proof
"from the Internet" that Obama was Muslim). I’d give a slight
preference to community leaders simply because they are people who
choose to be accountable to someone for something — the local Red
Cross, the PTA, the City Council, whatever. I’d do a
different region of the country each month because you get a clearer signal to noise ratio that way.

It will be the best dinner Obama has every month, probably
for him, and surely for the country. The annual cost of the program
including airfare and hotels would be less than a White House state
dinner and the political optics are all good. He should do this.

TIME FOR TOUGH LOVE

It has been widely noted
that Obama possesses not only a first class intellect, but also a
first-class leadership temperament. This is incredibly important. The
job is ridiculously demanding and it takes a rare combination of listening deeply and deciding quickly. Obama seems to handle all of this as well as
any human in memory.

He rarely gets angry — which is why we elected him. In his case, he can’t get angry because Americans don’t like angry black men. It’s a legacy of racism, indeed it is racist — but it is unquestionably true. Jesse Jackson and Malcom X both have had their moments, but neither ever had a hope of a truly national constituency.

Obama does not need to get mad, but he needs to be exceedingly tough. Not just with our enemies — any politician worth her salt can be tough with Iran or North Korea. Heck, that’s fun. The test for Obama is how tough he can be with his friends — especially friends who voted for him.

We are about to find out thanks to the Big Three automakers. As noted here, these guys
are a pathetic sight and if millions of jobs were not at stake it would
be fun to laugh them out of town. A week ago we were treated to the
tres amigos with their multimillion compensation packages and
multibillion dollar business failures swooping into DC on private jets
to ask for a $25 billion taxpayer handout. This week they drove into
town in hybrids, cut their (irrelevant) base salaries to $1, promised
to ditch the jets — and asked for $10 billion more than they asked for
the previous week. Evidently it was a bad seven days.

Oh, and they may may need more than this and could we please send the money immediately or else they will die all over us. Reminds me of the old definition of chutzpah — a guy who murders his parents and then begs the judge for mercy because he is an orphan.

Bush will punt this crisis to Obama — as he should. Obama cannot say no – losing three million jobs in the middle of an economic meltdown is insane. And he cannot say yes to an irresponsible and unworkable request from Detroit.

In the spirit of tough love, Obama should announce two things:

1. We will float small loans on odious terms. Any CEO who wants money must resign. Shareholders are wiped out. Debtors take stock just like they would in a bankruptcy. Ford has all but said it
doesn’t really need the money and on these terms, they won’t take it. In the meantime, Chrysler and GM will
remain solvent at our expense.

2. We are naming a federal trustee to oversee a bankruptcy-like restructuring of GM and the sale or liquidation of Chrysler. As I noted here,
Jerry York would be a fine trustee. Even better would be Mitt Romney.
He is from Detroit, he is an experienced and unsentimental turnaround
guy, and his dad turned around American Motors. Obama would instruct
the trustee to follow the plan laid out this morning by Paul Ingrassia:

reduce the number of GM dealers to not exceed Toyota’s and
reduce the GM brands to Buick, Chevy, GMC, and Olds (the trustee would
sell or liquidate Saturn, Pontiac, Hummer, and Saab).

impose the NUMMI UAW contract everywhere. Quit screwing around — this is a UAW deal that is cost competitive with the Japanese because it is a deal with the Japanese. Close enough and the politics are manageable.

sell Chrysler for a dollar. Since the last owner paid
to have the thing hauled away, there is a good chance the company is
worthless. If so, it has to be liquidated or absorbed into GM if
there are assets that they can use.

take a three year exemption from fuel standards while we get a tax
on gas in place. It worked in Europe, it makes economic sense, and otherwise the
smart business move is to keep producing dumb trucks and SUVs (as even
Honda is discovering). Businesses respond blindly to
economic incentives — so get the incentives right.

take the company public again. Once the business is profitable,
sell shares and repay the Treasury. Our goal is not a state-owned
enterprise — just a crisis managed by the state because the normal
process is unlikely to work fast enough.

Will this cost jobs? Of course it
will, just not all at once and not all now. (Did you hear what the execrable GM CEO Rick
Wagoner said about giving up his private jet? Ingrassia reports that he
complained that it would be "unfortunately impacting approximately 50
hourly and salaried employees." Lousy grammar aside, this might be the
new definition of chutzpah.)

More fundamentally, will it save Detroit? Nope. Americans will design cars, advertise cars, make cars, and sell cars. We will even invest in car companies. But the companies that we work for and invest in will be based in Germany, Japan, Korea, and China. Not Sweden, not the UK, not Italy and not the US. Within a few years, China (home to some dozen auto companies and already a major exporter to the developing world) will be a major player — bet on it. Most of us have not driven a Chery, Geely, BiYaDi, Harbin, JiangXi, Dongfeng, or Brilliance — but there is a good chance we will. One of these companies may buy Chrysler (Chery took a close look and said no. Which is fine, since the name sounds too much like a Chinese "Chevy"). At base, sustaining a car industry requires a dense and competent supplier infrastructure, management talent, market access, complex design, manufacturing, logistics, legal, and marketing skills. It takes decades and a lot of effort to build and decades and a lot of effort to destroy. We did both and have forfeited our competitive advantage to countries that did a much better job than we did. The car game is over — taxpayers are now providing a bit of hospice care before the lights go out for good.

Imposing a financially intelligent, tough-love restructuring
on the auto industry will give Obama political capital to burn, even if he is just giving them a soft landing. A series of blank checks however, will burn through a large pile of public and political capital.
Obama needs to offer up tough love now — for banks as well as car
companies. Undeserved generosity is the biggest risk of all.