Gervais / MacLeod 13: Separability, work and play

We are close. Close, that is, to having done sufficient exploration into the role and operations of economic organizations (such as the corporations or nation-states we love and hate) to start solving some of these organizational problems– to attempt to invent the future.

My role now, in analyzing the organization, is to watch for The Shark. Creative divergence is fun, but at some point, convergence becomes necessary. One needs to make a coherent whole– to solve the problems one has set forth. This can be brutally difficult to do. It’s why the sixth and seventh books of the Harry Potter series are so long and complex, and why some doubt that any person (even a clearly strong storyteller like George R. R. Martin) can handle the monstrous convergence task existing after the first 5 books of A Song of Ice and Fire. To his credit, I think Martin has the right idea– to put the continuing world exploration into a companion book, and finish the damn story in the next two books. Divergence is the fun, playful, erotic part: branching. Convergence is the difficult, thanatoptic pruning task. Writers refer to it as “killing your darlings”. Steve Jobs said it succinctly, for consumer technology: real artists ship. If you diverge for too long without tying everything back into a coherent whole, you Jump The Shark. That’s not something that happens when people are “out of ideas”, as if there were a finite pool of them. When a narrative reaches The Shark, changing writers and hiring an untapped, relief writer won’t help. Shark-jumping occurs when further new stuff (e.g. new characters, motifs, and ideas) can be added, but there’s no good place to put them without loss of clarity. After the shark is jumped, more neat stuff can be added, but the whole (degrading in quality) no longer provides its own reason to care about that stuff.

This isn’t just “meta” wankery. I wouldn’t pollute this series (already tens of thousands of words) with my own problems as a writer. Creative divergence and convergence are at the core of the topics I intend to discuss today. This is the fun topic. It’s why work can, if conditions are right, not suck. I discussed, in Part 9, the role of the organization of a computation problem for an optimization problem, while the “fitness landscape” grows increasingly complicated. In Part 12, I tackled chaos and risk. Financial risk has been commoditized and can generally be measured, sold and bought. Performance risks, at concave labor, tend to be normalized by the Central Limit Theorem when there is a large team of people. Companies want to be able to do this with all kinds of risk, but creative and chaotic risks are harder to manage. The concept involved is separability.

If I had an asset (a security) that, in one hour, would either be worth $10 million or zero based on a coin flip, I’d be inclined to sell it for a middling value. As I alluded in Part 12, this is identical to having $5 million (expected value, my financial wealth) and a zero-mean random variable: 50% chance of +5 million, 50% chance of -5 million. I’d do best to keep the former but have the latter risk off my books.

I might find a wealthy, risk-neutral person and sell him the security. Since it’s not worth it for him to buy it at its expected value, I’d probably sell around $4.99 million, the other $10,000 being a risk premium I pay to him to have that coin-flip out of my portfolio. That’s a case of separable risk. In that scenario, I have financial wealth of $5 million and pay $10,000 to cancel out a risk source threatening a sudden (and possibly catastrophic) swing in income. Here, my making the trade has no effect on the outcome of the coin flip. Risks can be moved around (and, from a cynical perspective, hidden) when they are separable.

Let’s change the game. I’m building a company, or writing a novel, or engaging in some creative effort that involves a lot of work. Let’s keep the same payoff structure, 50/50 chance, $10 million but include individual performance. If I’m diligent, it might be higher than 50%. If I’m lackadaisical, it will be less. If I’m noncompliant (don’t do it at all) then it’s zero. It would no longer be wise for someone to buy at the “expected value” of $5 million.  If I get all the risk off my books, I have no incentive to perform. I might be able to sell that “chance at $10 million” for $100,000 if I’m lucky, in which case, I’m an employee.

There’s a partial solution, which would be to sell some of my risk. I might reach an agreement with a counterparty where I take a $2 million advance and offer him 50% of my upside. He loses $2 million (paid to me, either way) if I fail, and nets $3 million if I succeed. From my perspective, I’m paying a risk premium of $500,000– hefty, but the fact that I’m selling my own performance risk (read: hedging against myself) doesn’t entitle me to the best terms. From his perspective, he’s making a winning deal so long as he believes that, even with my reduced incentive, there’s better than a 40% chance that I succeed. This seems like a win-win.

Here’s the problem: let’s say I make two deals of that sort, getting $4 million with no risk, then I don’t perform. That’s fraudulent and undesirable. I could potentially go further and make twenty such deals. I collect $40 million but am negatively exposed to my own performance (with $10 million coming in, and $100 million owed to counterparties). Not only would that leave me without incentive to perform, but I’d be unable to afford success. So I don’t perform and rob my counterparties blind (and, one hopes, end up in jail). Sold in these large, incentive-affecting blocks, my performance risk isn’t commoditizable.

Clearly, financial markets have regulations in place to prevent those types of abuses: for an obvious starter, executives can’t short-sell their own companies. With commoditized risk, the corrupt cases are few enough that laws can be written to preclude abuses. “Insider trading” can be defined and banned because the set of people who have privileged information is sparse and that set of people isn’t hard to define. Creative and chaotic risks don’t work that way; information asymmetries and incentive effects are much more brutal and fairness is impossible to define. A sane, just regime of risk commoditization is hard to put in place for chaotic risk. It’s an unsolved problem.

Why is risk commoditization so important? It keeps society and the economy fresh. Left to their own devices, economies will converge to a “power law” arrangement where a few have the bulk of the wealth and most have none. It’s not about talent, nor is it about intentional malice or greed. It’s just the result of a mixture of random drift and the feedback cycle of wealth that exists when its many forms (social status, financial capital, access to jobs) are transferrable. It becomes pathological because elites tend toward entrenchment. Then, the executive nerve center (of an organization, or a society) is characterized by complacent mediocrity. Talent desires to break through, but is increasingly far from the resources (capital) needed to put it to use. Risk commoditization is the only mechanism that will connect talent and resources, which are often far away from each other due to the tendency of both to have lopsided (non-democratic) distributions. With commoditized risk, talent (traits that confer favorable odds regarding chaotic and performance risks) and capital (put at risk for mutual benefit) can find each other.

This has always been a hard thing to get right. How is good-faith business failure separated from negligence, incompetence, or outright fraud? It’s not as easy problem to solve at scale. Additionally, talent often has no collateral. Bank loans require personal liability and some capital investment, as such deals probably require, but that limits access in a major way. One needs money to play, and can’t go into high-risk sectors. Venture capital doesn’t require personal financial liability, but views its (otherwise benighted, and somewhat illegal because of the collusion) small-town reputation economy as the machinery that keeps entrepreneurs honest. All of these mechanisms have scaling limitations. They’re only available to a small set of talented people who are in access to some resources; the financial transfer just gets them more. They can connect resources with talent but in a limited, much-to-few, way. A small number gold-stamped “worthy individuals” get the credibility and right to some risk. The rest of the talent is seen as unneeded and, therefore, not developed. Such people are consigned to implement the ideas of others with more social access and credibility. This could be tolerated in a time when most of the work that society needed to be done, and done by humans because there was no alternative, was rote, mechanical, and uninspiring. That was the case for thousands of years, and isn’t anymore. Let’s focus on the history of work– and, later, its purported opposite, play.

Some people fetishize the hunter-gatherer existence, whether they’re talking about prehistoric humans, nomads who coexisted with (or parasitized) agrarian societies, or even contemporary cultures of that kind. One good thing about such lifestyles is that the toxic separation of work and play doesn’t seem exist. People do, and the things they do to subsist don’t seem painful. They enjoy hunting, gathering fruit, teaching others how to do these things, and learning about the natural world. People in such societies seem to spend about 50 hours per week on productive or resource-gathering activity, but without the clock-punching, mind-numbing monoculture of activity, or the required unhealthy arrangements (10-hour block, ass-in-chair, constant visibility). I don’t mean to imply that the more primal lifestyle is superior. It ended for many reasons. It terms of the ability to support a large population, it’s not nearly as fit as agriculture. There’s no way the Earth could support even a tenth of its current population as hunter-gatherers. A stable hunter-gatherer world would entail control of population growth, which requires the dominance of some humans over others. Since it’s mostly subordination (and not productive activity, which humans seem to enjoy) that makes Work such a life-ruining, millennia-long, species-wide clusterfuck, I don’t see primality as any solution. The evidence is strong that Work sucks not because agriculture or technology are unnatural, but because of who we are. The dreamed-of primal utopia is quite flimsy against the same greed that ruins work.

If primal humanity can be described in moral terms, it’s sociopathic– certainly in the MacLeod sense, and often in the truer sense. Lives were nasty, brutish, and short. Positional violence among men, in order to increase social status, was common, with a per-year death rate of men in violence being comparable to those experienced by modern gang members, prisoners, and soldiers. Female sexuality was under male control, with the strongest men having exclusive sexual rights to tens of women– their consent being irrelevant– and the shut-out men angry and tempted toward positional murder. This was the state of affairs in which psychopathy conferred an individual advantage. Most modern people wouldn’t consider it desirable. Yet, there was a way in which the primal and nomadic people were, for lack of a better phrase, more alive than the sedentary, often servile, and often less healthy agricultural people. I’m going to crib the some observations from Paul Graham, in “You Weren’t Meant To Have a Boss“:

I was in Africa last year and saw a lot of animals in the wild that I’d only seen in zoos before. It was remarkable how different they seemed. Particularly lions. Lions in the wild seem about ten times more alive. They’re like different animals. I suspect that working for oneself feels better to humans in much the same way that living in the wild must feel better to a wide-ranging predator like a lion. Life in a zoo is easier, but it isn’t the life they were designed for.


Having seen that happen so many times is one of the things that convinces me that working for oneself, or at least for a small group, is the natural way for programmers to live. Founders arriving at Y Combinator often have the downtrodden air of refugees. Three months later they’re transformed: they have so much more confidence that they seem as if they’ve grown several inches taller. Strange as this sounds, they seem both more worried and happier at the same time. Which is exactly how I’d describe the way lions seem in the wild.

“More worried and happier” is a great observation. The YC founders left their corporate factory farms for the MacLeod-Sociopathic world of business formation, and found that it’s more fun out there. It’s also much harder, much higher in risk, and much more chaotic than the monoculture of bare-minimum subordinate busywork. Is it better than corporate junk work? That depends.

First, longevity is a problem. Almost no one can commit a 480-month block of time (with no departure longer than 2-3 weeks) to that kind of intense work, or even one-fifth of that amount without a break. Second, it would be unwise for most of us 99-percenter poors to bet our incomes on that kind of work, when we need fairly regular paychecks. Even people who have enough savings to last a few months need to worry about their resumes. Paul Graham’s thesis is that neither of these concerns is in force anymore. With the returns available from technology startups (rapid generators of value) being what they are, longevity isn’t an issue (cash-out, travel the world, come back fresh) and neither is the day-job economically competitive. That’s the theory.

There’s much truth in Paul Graham’s ideological commitment to the technology startup as the organization of the future. The uncertainty pertains to the timeframe and also the logistics– it would be good for society for the world’s smartest 10 million (or more) people to have implicit autonomy over their own time, but who will pay for that? It will pay for itself over time, but who takes the initial risk? An investment model (with returns enriching the backers) is obviously requisite, but how is that going to be set up at scale? VC-istan takes a much-to-few model: a lot of resources go to a small number of in-crowd-approved, people deemed actually to have the right to be founders. The advantage it gets out of a much-to-few topology is that it generates a reputation economy discouraging defection. Founders are kept in check by the investors’ ability to lock them out of ever again receiving investment (which is also used for extortion).

VC-istan, in 2013, has met congestion, as seen in the sobering market performance of the genuine concerns (e.g. Facebook) and the proliferation of batty, nonsensical operations (e.g. “Groupon for pets”). VC-istan is now a big company, bereft of real vision, as high-profile investors have congealed into one executive suite. It will be obsoleted by a fleet of smaller, long-term-oriented lifestyle businesses not focused on get-huge-or-die gambits in deep-red oceans. How this will be funded– i.e. what process will discover and enable the relevant talent, and connect it with appropriate risk and capital allocations– is a completely open question. Perhaps that is the problem of the early 21st century. It’s clear that work and money require redefinition, as machines take over the grunt work to which semi-coercive labor was originally directed.

Returning to the primal world in which the evil of institutionalized, subordinate Work had not been invented, we see that it was still sociopathic. Positional violence and warfare among men were common, for one thing. The primal state had its appeals– living under the sun, not caring whether it’s a Tuesday or a Saturday– but people had strong reasons to move away from it as they discovered agriculture (a process that, in truth, occurred gradually over thousands of years) and, later on, writing, law, and the division of labor. There was one inherent problem with this new world. Something horrible became possible: slavery.

When the idea of slavery emerged, it was probably seen as merciful and humane. A fully primal tribe, if victorious in war, would be inclined to kill off the defeated group– at least the men, and probably the women, who were also quite capable of being deadly– to avoid retribution. Primal societies couldn’t use captives as slaves, because they engaged in work activities (such as hunting) that were dangerous, as a defector could murder his masters out in the wild. Agricultural societies, however, could delegate work that was undesirable and free of risk to the superior to a class of permanent subordinates. Primal and agricultural societies both began partaking in one of the most profitable, yet morally rancid, businesses ever devised: the capture and sale of humans.

This created a stratification of work. Most slave-owning societies had multiple tiers of slave. Above them were a class of servants given the work that could only be trusted to free people, followed by financially independent yeomen, and finally the slave-owning leisure class. With productive activities being intertwined with social class– some being desirable, others being dishonorable– and therefore often divorced from intrinsic motivation, it was necessary to separate work from leisure.

As the agricultural era evolved into the industrial one, slavery fell in favor of semi-coercive wage labor. Conditions like morale mattered enough in the industrial context that such economies could not make use of enslaved people. Companies needed to provide financial risk reduction and uniformity in working conditions, setting up the MacLeod Loser trade (facilitated by the Clueless) with people who had a very limited ability to refuse. The industrial era’s sunset will see the semi-coercive model go into obsolescence, pulling society toward fully non-coercive self-executive labor. That, however, is still in the future for most.

Even for high-status people, work became a psychological monoculture (making it unhealthy and, worse yet, boring) in the agrarian and industrial eras. Slave sellers had to run auctions, keep books, and haggle. Monarchs had to hear petitions and pay attention to castle intrigue. Low-status people were subsumed in painful and rote physical labor, while high-status people found their lives devoured by a 24/7 job of social maintenance and posturing. At all levels of society, there emerged a common and unifying thought: I kinda hate this shit. So what did people do when they got away from it? Something that is often called play.

I can’t do justice to play in a few thousand words. As a game designer in addition to the other stuff I do, I know better. It’s emergent activity that is not generally oriented toward production, although there are often echoes of productive activity within it. For most of our history, the ultimate form of upper-class play was hunting– work, in a primal context; play, in one where the activity was irrelevant to the lord’s soul-destroying job of maintaining social position. Play is work-like, but helps people escape into something real that provides a genuine sense of accomplishment.

Indeed, for a lot of people, their play is more like work– open-source software, altruistic travel, amateur art– than the subordinate junk activity that they’re paid to do. Play seems frivolous and indulgent, but it actually leads somewhere. It goes into (as I defined the concept in the last essay) chaos. I mentioned in the previous essay that chaos can be viewed as a creative emptiness. In the vacuum, something new emerges. Play is the chaos that exists when extrinsic direction is removed form activity, often enabling creation that would never occur in a subordinate or mercenary context. Sometimes, that creation is much greater value than anything produced in typical “work”.

Heading into chaos is not profitable, most of the time, but when something novel and useful is discovered, the rewards are immense because so few people can navigate any specific neighborhood of chaos. In this metaphor of chaos as “like” a physical space, we can get a physical sense of the divergent and convergent aspects of the creative process. Divergent creativity (branching) is heading deep into chaos. The issue is that most paths “into chaos” don’t lead anywhere. One needs, at some point, to pop back out and explore a new path. Convergent creativity (pruning) is an anchoring process that extends order and refines the understanding of what kinds of chaos are potentially desirable. Convergence kills off the explored but useless branches, and it reminds us why “chaos” is viewed as a desolate void by most. With divergence only, one will explore limitlessly without return. But if convergence is over-emphasized, one will not go far enough into chaos to find anything that is of value.

Large organizations eventually get to a point where they view their role as keeping chaos out. Law and order are the business of business. Salaries must be paid, deliverables must be met, and work must be defined to leave as little room for variation as is possible. This might induce a psychological monoculture that is unhealthy, bizarre, and probably causative of early cognitive decline, but that’s what the money’s for. This variance reduction serves these firms well in a concave world. Reining in slackers and incompetents compensates for the management’s (counterproductive) interference with the stars, who might only be 1.25 times more productive than the average. To be competitive and functional, organizations in concave labor must drive out variance as much as they can. That means they push away chaos, and drive out play.

Divergent creativity might be called free play. That’s Calvinball. The rules don’t exist yet. Things should be explored. At some point, however, limitless divergence fails to satisfy certain needs. Players want feedback on performance and, often, direction and rules. This necessitates structure that kills off some of the less beneficial or important fruits of chaos. Convergent creativity is discipline. It directs play and makes it more beneficial and focused. The “darling killing” convergence of the novelist produces a coherent story instead of an orderless array of ideas, characters, and settings. Convergence is less “fun” than the divergent part of creativity– it’s demanding and feels more like work– but it’s equally important.

Organizations typically allocated the iota of divergently creative work that they needed done to the caste of people called executives. A very limited role in the convergence process (related to trimming away pesky human chaos, but involving no real control or creative input) went to managers. Workers got no room for risk, no play, no creative control. That model worked for more than 200 years, and it took something radical (widespread, commoditized, and extremely cheap computing) to kill it.

In the concave world, risks are separable and can be commoditized. The top executives can bicker over who gets how much risk to play with, and manage accordingly. The convex world’s risks are non-separable. Move the rewards to one party, the idea generation to another, implementation to a third, and responsibility to a fourth, and you’ll get deceit and dysfunction. If anything worthwhile is being done, there’s just too much chaotic risk that can’t be moved around. People need the right to risk, and they need to be trusted with their own time, or what they produce will be of so low value as to render the enterprise unable to compete. Convexity mandates that people become more self-executive, and that their companies let them do so. The semi-coercive wage labor of the industrial world is dying out. What’s replacing it is fully non-coercive work: disciplined play.

If disciplined play and self-executive, well-treated labor shall carry us forward, then what is the role of the organization? Given how exceedingly difficult it seems to be for a corporate organization to avoid falling into dysfunction, are they desirable in the first place? Why not have some utopian “market state” of self-executive free agents, with no need for these stodgy and often corrupt corporate employers? The answer is that it won’t work. So long as people need an income to survive– and a high one, thanks to corrupt influences on the housing market, a transportation regime that stopped improving in the 1960s, the 9/11 every 24 days that we call our healthcare system, and the expensiveness and exclusivity of the educational institutions that can still place children decently in this imploded economy– they live in a tough-culture reality. The 99%, out of panic, make disadvantageous Loser/Clueless trades that hurt not only them but, in a convex world, society by depriving the world of talent’s proper applications.

The obvious solution to that is a guaranteed basic income. One major advantage of the technological era is that autonomy with one’s own time is often enough “capital” to build something great, computing costs being minimal. But we’re about as likely to see a basic income in the U.S. as we are to change the weather with complaint. Europe’s recent economic crises also show us that, while such states have desirable features, the bigger problem remains unsolved. Europeans have a far better healthcare system and humane vacation allotments (20 days, generous by U.S. standards, is an EU minimum) but their work life isn’t exactly a self-executive paradise. The ideal of a welfare state, to me, is not that it enables people not to work, but it that liberates them to work.

Europe’s systems, with harsher personal bankruptcy laws and more resistance to business formation, haven’t achieved self-executivity much better than we have. With sweeping social reforms (such as basic income) off the table– not impossible, and certainly not unreasonable ideas, but far out of my power– we need to focus on what technocratic individuals can actually do. We can harness individual, mostly localistic, energies. We have one source in those who are starting companies and genuinely want to build great organizations: companies actually worth caring about. That may be a “selfish” motive, and it’s certainly a pragmatically localistic one, but it’s what will save us: people who (for a mix of selfish and altruistic reasons) want to build excellent businesses.

Most of VC-istan, in my mind, doesn’t qualify. These build-to-flip gambits are mostly marketing experiments designed to exploit existing technological trends. Since most of them aren’t building real technology (which requires investment) and measure their own health by “virality”, the get-big-or-die mentality is appropriate for them. We can preach the virtues of open allocation, but cultural health just isn’t important to executives of a company who plan to sell it in 3 years. We need to talk to the people building lifestyle businesses expecting to last 20 years or more. Even if the material ambitions of such firms seem lower– a steady few million per year, instead of corporate Big Swinging Dickery– it’s from a fleet of some 50,000 (plus or minus) small technology companies that we’ll probably get the first successful approach to convexity. In technology, there aren’t as many of those. No one is funding lifestyle businesses yet. One of the biggest financial questions of the 21st century is how to get money into that market. Now that securities markets have been shown to be vulnerable to manipulation, with the housing market continually exposed to execrable corruption, is there really a good reason not to find a way for a much larger pool of capital (not only venture) to connect with talent? While an individual business is certainly too risky for less sophisticated, middle-class investors (hence, the regulations pertaining to accredited investors) there should be a broad-based, relatively de-risked way for them to put money into independent talent.

Financial risk is, of course, one of the foremost problems with the concept of a “self-executive utopia”. There’s another important issue to address, however. While self-executive disciplined play can handle convexity, where does that discipline come from? When and where do people learn the skills necessary to perform convex work at a level even close to what people will pay for? A fully self-executive world still leaves unanswered the question of progress. Who pays people to learn how to become great at things?

Concave labor seems dull; convexity seems sexy and exciting. There is, however, one virtue in concavity. It favors equality. If the best people are only 1.5 times as productive as the mediocre, there’s benefit in bringing the laggards up to speed and giving the competent less attention. The contemporary Theory-Z cult of teamism makes a lot of sense. Convexity, however, seems to reward doubling down on successes and discarding failures. In the short term, that’s correct. That’s exactly what one should do, if optimizing for immediate payoff. Having the best and oldest people mentor the new and young inflicts an opportunity cost– a loss. Guild cultures (lawful good) tolerated that, expecting to be repaid in loyalty from developed talent, but self-executive cultures (chaotic good) struggle with it.

Becoming great at something requires a balance of law and chaos. For example, there’s no educational program in existence that can train someone to be at the forefront of technology. It requires a lot of independent learning (self-execution; disciplined play). Such a person needs enough fluency with law (and humility) to stand on the shoulders of giants, but enough chaotic capability to get out there into chaos where no one will tell a person to go.

There are a number of interesting subproblems that come out of this understanding of convexity. How do we get the desired productivity out of disciplined play? How do we get the right kind of play? Where does the discipline come from? Finally, from a manager’s standpoint, how do we handle convexity’s risks, given the innate non-separability that hasn’t been seen at such scale before? After 13 very long essays, it looks like we finally have the tools to solve some of these problems and, one hopes, the insights necessary to make it possible for business organizations not to suck.

Gervais / MacLeod 12: Growth, chaos, and risk

As I get further into the organizational problem– with the hope of, one day, working a way out of it– it becomes increasingly clear that there is no simple solution. There are a variety of principles that sometimes contradict. Consider bridge bidding, with various guidelines on how to send signals to one’s partner and find a winning contract, but with ambiguity and even contradiction. There are a variety of strategic concerns that must be balanced, and what makes it interesting is the fact that the right thing to do is not at all obvious. If bridge were deterministic and solved, there’d be no such thing as a good bridge player. It’s the difficulty and chaos of the game that makes it fun. Then, the more complex game of business formation will even be harder to “solve”. I expect that, when I finally am ready to “solve it”, I’ll arrive at twenty principles that should, by then, seem obvious– not one “closed-form” model. Certainly, I think the previous 11 essays have given us some insight into organizational corruption, without falling back on any prevailing pessimism (that organizations always tend toward failure). We have a good sense of why the MacLeod tiers emerge. We still need the core ideas that will help us build something different.

There are a few concepts that deserve further exploration: growth, risk, and chaos.

Growth, and how it influences behavior

Macroscopic economic growth is a fairly modern phenomenon. Before 1700, global economic growth was never faster than 0.3% per year, and generally slower. Most people who were rich had made others poor to get there. A zero-sum approach to human problems made sense. Conservative, religious institutions had a lot of power, and for understandable reasons. If large-scale material growth is not to be expected, then people need to organize themselves in a way that does the best with what is available. Religion gave people access to social plans that had been tested by time. Some of its dictates were nonsense; some were incredibly valuable. On the whole, it probably did more good than harm from a single-time perspective (its retardation of progress requiring another discussion).

A late 18th-century Anglican clergyman named Thomas Malthus is notorious for having been “wrong” in his thesis about population sustainability– he predicted a mid-19th century calamity in England. In truth, he wasn’t that wrong with most assumptions. By 1798, economic growth had accelerated to just under 1 percent per year. He asserted that exponential population gains would outpace economic growth, which he modelled as linear. On that, he was incorrect. On the conclusion– that the economy was not growing fast enough to support human population growth, and that the latter would be checked by famine, disease, or war– he was still right. Malthusian catastrophes are all over the place in history. One was to see it is that the Industrial Revolution intervened. A darker view is that the 19th-century English catastrophe was outsourced to Ireland.

Religious institutions, being conservative while expansive both in time and space, were storehouses of “big picture” knowledge about a society’s history and evolution. Typical people saw rises and falls: frenzied victories, hideous defeats, tribal and racial hatreds, and the formation and dissolution of societies and cultures. There’d be spells of peace and war, and control would pass from one set of hands to another, but global progress was rare until the 18th or 19th century. Religion– and, later, the narrative-driven nation-state– emerged to create order in an almost zero-sum world where it was inconceivable that any economy could grow at a rate comparable to the human desire to populate. It didn’t solve the problem, but it provided explanations and planning. Over time, religion’s central role was eclipsed when competent outsiders and specialists began attacking human problems. One of those specialties was economics, truly a “dismal science” in a time of sub-1 percent growth, explanatory of famine and war.

Clearly, we live in a different time. Economic growth is faster than population increases, so the average person’s standard of living is improving. We hit a phase change at some point between 1725 and 1925, the exact date of it still being debated, at which point economic growth stopped being subsumed by population increases, enabling genuine long-term improvement. The zero-sum outlook no longer makes sense. Progress and growth are now expected. So what causes economic growth? Where does it come from?

“Improvement of processes” is a common first answer. The Industrial Revolution enabled us to get better at stuff. It’s the culmination of thousands of years of progress. Writing gave us stable history. Mathematics gave us precision and mechanisms for solving problems. Empiricism and science gave us the ability to measure things. Technology made us more powerful, more productive. Each invention or innovation we kicked out pushed us forward, and the economic value of our knowledge base has been a faster-than-linear function of its size, while that knowledge base itself grows exponentially. We’ve had an ongoing story of faster-than-exponential growth going back to the advent of sexual reproduction 1.2 billion years ago due to a self-accelerating improvement of processes, but it’s still a bit vague what that means. We should find “improvement of processes” to be intensely suspect. Why aren’t processes already in the improved state?

Almost always, improvements come from outsiders, so the macroscopic change is a “creative destruction” driven by replacement. Most of China’s lasting intellectual accomplishments came from the “outside elite” of its scholarly civil-service structure, and not the upper-crust mandarins. Greek philosophical advancements are not owed to reputable clerics of that time, but to heathens, many of whom disavowed the traditional gods and were persecuted for doing so. In medieval Europe, a despised class of merchants grew richer and, eventually, more powerful than the hereditary aristocracy. Large companies are often defeated by innovative small ones run by people the conglomerate would never hire. Social substructures seem to have a “natural growth rate” that, to the extent that it evolves, decreases over time as the substructure reaches saturation or even decline. What drives the faster-than-exponential growth seen thus far is the generation of new ones with faster growth rates. Where do those come from? There is, metaphorically, a place where genuine creation occurs. Chaos. Nothing begets something because there is no nothing. The closest this world (possibly the universe, possibly any universe) has to nothing is pure chaos, which is still fundamentally creative. I’ll get back to that concept.

In 2013, most genuine growth– of the economy, of human knowledge, of technology– comes not from established entities but from new ones trying to force their way into existence as they emerge out of chaos. Large, established organizations have given up on progress, by cutting R&D funding and focusing on next-quarter profits. Progress has also given up on them. The smartest and most ambitious people, who wish to harness chaos for new creation (or, to see it more cynically, enrichment beyond the pittance judged fair by some massive organization) generally lack interest in the corporate behemoths with entrenched processes and slow growth. Don Draper, in departing from a sclerotic corporation (in which his advertising agency had become a subsidiary) to form a new one, said it best:

Who the hell is in charge, a bunch of accountants trying to make a dollar into a dollar ten? I want to work. I want to build something of my own.

Draper (a MacLeod Sociopath, without question) doesn’t want the restrained, conservative growth of a bulky corporate enterprise. He wants something more rapid, personal, and fun. So he left an existing substructure to form a new one.

That was 1963, when the first hints of a technological era just appearing. In 1863, industrial growth actually was the most exciting game in town, and people would have been thrilled at the prospect of turning “a dollar into a dollar ten”. For millennia, humanity had been in a zero-sum arrangement where being powerful meant dominating and controlling other people. From the Egyptian pyramids to the Colosseum to the aristocracy of the Southern United States was a trail of monuments that required slavery. Industry provided a way out: the possibility to turn $1.00 into $1.10 without hurting anyone. Compared to the zero-sum squabbling, that was immensely progressive. With industry catching on, nations all over the world abolished slavery in the mid-19th century. Getting rich no longer required making others poor, or unfree, or dead. The downside of this was turning work into something often too stable and boring to excite the Don Drapers of the world.

Why is it so common to call someone like Don Draper a sociopath? The state of society delivers a prevailing growth rate. For agrarian societies, it was near zero. For industrial ones, it was slow (1 to 5 percent per year). As we move into the technological era, it might become higher. Whatever that rate is, evidence strongly suggests that there will always be people who want to grow their fortune at a faster clip. One way to do this is to steal. That’s what war (ending lives to rob the dead) and slavery (stealing freedom and autonomy) were about. The other, much harder, way is through new invention and the creation of value that didn’t exist previously. It might like these are being put forward as vice and virtue, eternally separate. It’s not so. It’s a lot more complicated. Is mining for gold, diluting its financial value in the same way as counterfeiting does, a zero-sum theft of financial value that delivers nothing to the world? Or is it, since the yellow metal has some hedonic value in so far as people like to look at it, a productive activity? This is hard to answer. Additionally, how does an enlightened or altruistic industrialist (circa 1750) ensure deliverance of value when powerful forces will divert any produce to zero- or negative-sum pursuits, such as warfare? How does the engineer make sure his efforts are used to build more plowshares rather than swords? I don’t think he can. In any case, that’s not important from a macro perspective. New invention and raw theft both come from a class of rule-breakers who aren’t content to have their fortunes grow at the prevailing rate.

The problem of chaos

Often, “chaos” is used to describe squalor or malfunction, but its original meaning is closer to abyss, or the formless void from which the universe emerged. It’s not “nothingness”, because things (such as the universe) come from it. One might think of it as a pregnant silence, or a blank canvas. It’s creative emptiness.

Experientially, we know that the best way to create a chaos is to clear something away. Many meditation practices can be viewed this way. The principled and mindful attention, with a calming intent, to thought processes leads us away from the toxic, repetitive, and mostly negative thoughts that occur in conditioned life. We create a chaos into which new forms of thoughts and experience– which wouldn’t have otherwise existed– can come into being. Sensory deprivation, sleep, and dreaming are also forms of chaos, in so far as they induce experiences that seem not to be produced by the objective world.

Chaos, as a source of something, we welcome so long as we trust our ability to filter the positive from the negative. Chaos, as a state of nothing, we view negatively. We strive to differentiate ourselves from the scarcity, formlessness, and indifference of primordial chaos. It is an open question how far chaos is to be desired. It’s chaos that creates the need to build, and that gives us the tools to do it. Law, order, and structure with intent toward permanence are built by some to protect people against the pain of chaos. However, an alternative approach (more common in Eastern religions) is to embrace chaos and impermanence– to recognize that it is better to adapt to chaos than to cling to the flimsy things that we invent to protect ourselves from it.

It is reductive and useless to call chaos “good” or “bad”. It’s neither. Nor is it random. In fact, some aspects of it (such as unexplored mathematics) are quite structured. It is, however, unexplored and mostly incomprehensible. People find it discomforting, the ultimate chaos (from a human viewpoint) being death. There are, however, degrees to which people accept or avoid it. Those who engage chaos directly will be more creative, but also more volatile. Stepping back from the metaphysics, we have (in chaos) a way to understand economic progress. In pre-industrial times, a person wanting to become rich without harm to others might search for gold. The earth itself was once a chaos. The Greeks acknowledged this by assessing ownership of all material wealth to the temperamental god of the underworld: Hades.

In 2013, gold is a effectively a commodity. It is expensive per ounce, but because a large amount of human service is required to produce that ounce (reflecting the metal’s rarity). Nothing special distinguishes that service. So, those who aspire to wealth (or growth) in 2013 are not likely to dig for gold. The technocrats don’t have a special proclivity for digging the earth in search of a yellow metal. They leave that to the specialists who have the equipment. Instead, they mine chaos.

Entrepreneurs and innovators scan various chaoses with the hope of putting something together that is of value to other people. Transfer occurs from one chaos (unrealized ideas) to a painful one that there is benefit in filling (unmet human desires). It might be called “magic”. It isn’t. However, it’s unpredictable and intermittent by nature. Once that chaotic transmission is completed, the work involved is no longer inherently exciting. It’s a commodity. (Making easier the jobs of those who have to do it, on the other hand, remains potentially fruitful.) Once the chaos is taken out of the equation, what remains is dull labor.

From chaos, we can understand the nature of convexity. There are some people who have the skill to go “into” chaos (or, at least, a subchaos related to a specialty) and find something useful. To the unskilled, chaos simply looks “random” and dark. To continue the metaphor of chaos as a space, the improbability of a find is (to an unskilled person) an exponential function of how deep into chaos it lives, because more “lucky” steps are required for an unskilled person to get there, and the multiplication of low probabilities has that effect. In other words, the farther a find or job is from the well-ordered and easily understood territory, the more that personal skill and knowledge matter, it’s likely an exponential relationship. Things being valuable in proportion to their rarity, we see where convexity comes from.

The risk thing

Industrial businesses begin as chaos-mining operations, but after carving out a space of order, seek to protect it. Standardization becomes the goal. We can’t exactly quantify (or even perfectly define) chaos, but we can quantify risk. Risk and chaos are fairly related. Risk pertains to how interactions with chaos might affect an entity’s economic health. It’s not concerned with the whole of chaos, but only about what threats might come out of it. Financial risk is even measurable, to some degree, enabling portfolio managers to discuss “how much risk” the company has. We’ve now seen a mature commoditization of that kind of risk, with markets able to price assets not only based on their expected (average-case) yield but to account of risk according to what the principal players find desirable.

All else the same, risk is considered undesirable. Most people would rather have $5 million than a 50% chance at $10 million. Let’s separate the value of an asset into its mean value and a zero-mean risk variable. The first possibility is that one has $5 million. The second is that one has $5 million plus a 50% chance of winning $5 million and a 50% chance of losing $5 million. Most people would value that zero-mean risk negatively. A person with the latter portfolio might be inclined to “sell” that risk for -$10,000– that is, to pay $10,000 for someone else to take that variation and have a solid $4.99 million instead. Much of finance is about figuring out fair prices at which to transfer risk.

I’ve previously discussed law and chaos in the context of alignment. Are these connected with the chaos described above? Absolutely. Risk and chaos aren’t the same thing; the latter is an injection from chaos known to have an effect on one’s well-being. Computationally, we process risk because chaos is beyond what we can quantify. Civil alignment correlates to a person’s attraction or repulsion to chaos. Lawful people tend, in general, to have faith in the infrastructure that humans have created to hold chaos at bay. They prefer by-the-book solutions to problems because they fear the chaos of improvisation. Chaotic people, on the other hand, see chaos as potentially beneficial. They want to mine it. Measured in terms of risk, lawful people are, in general, going to be more risk averse. Chaotic people tend to be risk seekers.

This is not necessarily true, however, in terms of financial risk, on account of its commoditzation. Financial risk can be separated into an expected value and a zero-mean random variable whose variability itself can be measured. This enables the commoditization (measurement, trade) of financial risk. That’s not to say that there aren’t black swan, out-of-context, risks out there (that rarely follow Gaussian distributions) but those are often placed in a different category. Because of this commoditization, financial risk has largely been divorced from a personal law/chaos bias. Lawful people with means will pursue investment strategies with high volatility in order to get high returns; those with less means or likely to need liquidity soon might favor less volatile strategies. However, it has little to do with a person’s often visceral reaction to chaos.

If financial risk is a commodity, it can be allocated. Traders have risk allotments based on past performance and seniority that represent how much risk they can take on behalf of the firm. Such rules are necessary to resolve the conflict of interest that exists. Traders, usually paid on commission, have an upside-biased risk profile: making $40 million is twice as good as making $20 million, but losing $20 million and losing $40 million are identical– both result in getting fired, but there’s no further consequence. Without risk limits, traders would have the incentive to take on risks that the firm (absorbing wins and losses) would not want.

Typical business organizations do not have as well-formed an understanding of risk as trading desks, because financial risk has been mostly commoditized, while the performance and chaotic risks that businesses deal with cannot be. However, that mentality is still in force. The organization earns a profit because it takes on risk: otherwise, in a competitive market, there should not be profits. There is, therefore, a certain amount of risk to be expected, and little more should be tolerated. As a trading desk would distribute risk allocations among its traders, a standard business organization attempts to create a risk allocation regime for its people. The firm must allow some small set of people to take chaotic risks, because the world is lawless and volatile and a firm that ignores chaos outright will struggle to thrive. Those people are called executives. Then there are people trusted with financial and performance risks (such as assessing people to be hired and fired). Those categories of risk are seen as “less dangerous” because financial risk is easy to measure, and performance risk over concave labor, while not directly tradable, falls within a tight bell curve. Those people are called managers. Workers, in this model, should not be trusted with any risk at all. As the organization sees it, they already bring too much risk by walking in the door to have any right to ask for more.

In the optimization model put forward for the corporation, I discussed the idea that a manager’s job is to hill climb to the top of a neighborhood (gradient ascent) and find a local maximum, while executives are trusted with non-local explorations that might lead to finding better hills. Non-locality implies that the executive is going into uncharted territory, or engaging directly with chaos. He’s not, however, typically allowed to go very far in, but he has some non-zero chaotic risk allocation.

The human side

One way to view the organization’s miserly risk allocation protocol is to say that it’s inhumane and demoralizing. Engagement with chaos is part of what makes us human, is it not? Most Americans participate in activities that are more industrious and difficult– such as picking their own fruit, open-source programming, and independent writing– than their pointless, subordinate office jobs. Even risk-taking is a hobbyist activity, if sometimes a destructive one, in the form of gambling (engagement with an otherwise uninteresting chaos). “Work”, for most people, is a boring and unhealthy psychological monoculture, leading to the question: why do people tolerate it in the first place?

Risk and chaos are the forces at play. Deep into chaos is somewhere that most people don’t want to be. It’s lonely, unsettling, and weird. Without financial constraints, most people would still fall into routines over time: people, places and work that make them happy. So there is an inherent willingness for those who are more chaos-averse to enter the ordered zone of a facile subordinate position. There are psychological reasons for people to take the MacLeod Loser deal. Many people would rather have the comfort of a stable group than attempt to lead it and risk rejection or group dissolution. Organizations exist to diminish chaotic risk for themselves, but in doing so, create a realm that is highly ordered and allow the chaos-averse to make a home there.

There are also the financial aspects, and that discussion becomes a bit less humane. People make the financial Loser deal because most of them have no choice. They need a stable monthly income. That trade, both from a micro- and macroeconomic perspective, tends to get worse over time. The low savings of lifetime wage-takers forces them to continue making this risk-reducing trade, limiting their leverage, and consigning them to take deals that are increasingly risky (end of corporate loyalty) but increasingly costly to them. It’s a feedback loop that keeps “the 99%” tied in to a certain pattern where they are forced to buy risk reduction, even if it brings them down to a subsistence wage.

There are some, however, who react with a certain insubordination. They get what business corporations are about and learn quickly how to play them. Initially, they will not be allocated chaotic risk by their firms. They just take it. These are the MacLeod Sociopaths.

Convexity and chaotic acceleration

Business corporations exist to create a process that reliably generates income. Their initial architects might glance around in chaos early on to find a source of profit, but once that is accomplished, they are almost all about law. What little engagement with chaos the firm needs is handled by a nerve center containing a small set of people called “executives”. Everything else lives in, or is forced to live in, the concave, far-from-chaos world of “another day, another dollar”.

The industrial world began when scientific advances altered the labor model. I’ve discussed concavity and convexity, but what’s the labor model that has been with humanity for most of its existence, before the industrial era? A binary one, in which there are compliance and noncompliance. That’s the world of slave labor. A noncompliant person was beaten, a compliant one was not. This judgment of compliance might not have had any connection with reality, of course, and hardworking people frequently got the “noncompliant” treatment. It was about emotion and perceived loyalty. The industrial world, in which productivity was derived from systems of conditions rather than exertion alone, encouraged people to look into concerns like morale and quality of training as “hidden” force multipliers that mattered at scale, far more than individual perceptions of loyalty. It no longer matted how many compliant people one had, but how they were arranged. The concave model replaced the binary loyalty-based model of slave labor, and it became clear that coercive labor was no longer tenable. Semi-coercive wage labor, with the worker financially dependent but free enough to change bosses, won out.

Since the 1940s, the binary model of labor has returned, but in a different and benign form: computing. Given a job, properly specified, a computer will do it without complaint. Such machines are extremely good at following deterministic laws. In almost all cases, a computer program will get the right answer to a well-formed problem either 100% of the time, or 0% (a bug). Exceptions (non-deterministic “Heisenbugs”) exist and are extremely painful to deal with, but they tend to be rare in critical components, at least by human standards. Almost no human could multiply two 100-by-100 matrices without mistakes. If the labor is intrinsically binary in value, we can specify requirements and usually program to them. If it is concave, we can often specify what perfect completion (or, at least, an arbitrarily close approximation) is and program for that. Work that lives in the lawful world that human society has already explored is all being done, or will soon be done, by machines.

What’s left for us to do? Convexity, which will require us to move away from semi-coercive labor to a fully free system based on intrinsic motivation. The industrial world saw risk as a commodity that could transferred, and allocated the right to take risks to a small number of people. That works for the typical financial (or performance) risk, since it can be separated into a constant expected value and zero-mean random variable, the latter of which can be traded (often “synthetically” through derivate contracts). In the convex world this separation of risk cannot be performed. It doesn’t make sense. Workers not allowed to take creative risks won’t create. It won’t be useful to employ them, then. The three-tiered corporation ceases to be functional.

What remains, once the machines have conquered the concave world, is the chaos of an unsolved problem. Can we handle it, as humans? Sure. We always have. But how will corporations survive it? They exist to produce law but, in the technological era, the rate at which a company will need to grow to be competitive is one that is innately chaotic. Some companies claim (most, without meaning it) that they want every employee to participate in the growth process. Not so far from now, that will be reality, but that requires a dramatically different view of the organization.

Gervais / MacLeod 11: Alignment and careers.

I discussed recently the process of social competition that enables the lawful evil to succeed in large corporations. That’s one of their two main weapons. The other one (existential fear) requires a more through exposition of the career trajectories most common for each alignment. I’m going to focus on each of the nine possible alignments.


Between extremes of altruism and egoism is what most people are: localist, with concern for others being highest regarding those who are close to them and being low (to zero) at the periphery. Good people are oriented toward expensive altruism. If they’re honest, they’ll acknowledge that they are localist, too, for practical and biological reasons. However, they try to extend basic concern for others’ welfare to the universal scope: all humans, possibly all living beings. They aren’t perfectly universalist, but they try. Morally neutral people tend to favor pragmatic localism. How far can one reach, really? They tend to step away from the Golden Rule: can one really know another’s tastes? Should one really care, when there is work to be done? Therefore, moral neutrality steps away from idealistic or normative concerns and toward functional ones: does it work? Evil is militant localism such as racism, jingoism, or classism. While sadism and egoism– a locality of one– can be (and often are) components of evil, they’re not required. It wasn’t egoism but militant racism and statism (that is, belligerent localism) that motivated the totalitarian Axis powers in World War II.

While good values good, the same is not true of evil. Evil despises good, which it views as weakness, but does not hold other evil in any regard; it values strength only. Good values compassion and kindess and judges institutions based on how much good they deliver to others. Moral neutrality values competence and efficiency and assesses organizations based on how well they meet their purposes, as long as those are not evil. Evil values power, the aggrandizement of its chosen locality, and the overwhelming subordination or defeat of everything else.

Civil bias (law vs. chaos) tends to come down to two questions: an individual’s preferred means, and how he or she tends to view organizations. Lawful people tend to favor tradition and, so far as they accept change, they prefer to interpret old rulings for new circumstances. Civilly neutral favor evolutionary progress: small steps when possible, large steps when needed. Chaotic people favor revolutionary change. Lawful good people view institutions as more just and honorable than the people who comprise them, while chaotic good view them as corrupt and self-serving, even if the individual people are good. Lawful neutral people see institutions as reliable and competent machines that are more than the sum of their parts. Chaotic neutral people see them as stifling and ineffective wastes of talent. Finally, lawful evil view organizations as strong and as a means to extend one’s power. Chaotic evil see organizations as weak and disempowering.

Careers of each

1. Lawful Good

All of us is the best us.

Lawful good, in the corporate context, tends to be the “team-builder” alignment. Such people never want to fire anyone (except law-breakers). Those who are lawful good expect organizations to live up to their lofty principles, and are continually surprised and disgusted when they fail. Despite stereotype, such people are not always dogmatic rule-followers. A lawful civil bias means that one tends to favor institutions as a default; not that one continues to favor those that prove ineffective or malicious.

In fact, it’s often a lawful good person who engages in one of the most feared forms of adversity to an organization: whistle-blowing. When such a person perceives that an organization is being evil in a way that is contrary to outside law, she exposes the fact. Moral bearing is stronger than civil bias, since even the most civilly biased (lawful or chaotic) person knows there are exceptional institutions that deserve special treatment.

Lawful good people tend to be honest to a fault. They prefer public discussion over private subversion. No one should be excluded. They’re often a very predictable alignment, and this weakens them in corporate competition. They want to do the right thing, but will often take direction from power and tradition on what that is.

In rank cultures, lawful good tend toward team-serving localism. They won’t try to upset an unethical manager, but will try to do well by the people around them. They are eager to please and to perform, so they tend toward middle management (MacLeod Clueless) in such organizations. In (chaotic evil) tough cultures, they look for ways to protect people, but often leave themselves exposed and are shot down by competitors. They get flushed out. Lawful good thrive in guild cultures– the epitome of lawful good– with clear expectations and definitions of progress. In self-executive cultures, they can do well as mentors and team builders, but they tend to wish for more guidance.

Lawful Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. High |
Manager      | High    | V. High |
Executive    | Low     | Medium  |

2. Lawful Neutral

Who are we to question those who came before us?

To the organization, the lawful neutral person is an ideal middle manager. The lawful good might turn disloyal in the face of evil, while lawful evil turn treacherous on a whiff of weakness. Lawful neutral tend to be the “useful idiots” who have no strong moral compass, but a preference for order. They can be altruistic, but usually in the form of providing stability and comfort to those below and diligence to those above them. They like to participate in the upkeep of the organization.

Where lawful neutrality becomes potentially limited is in the face of multiple definitions of “law”. Most organizations want people to be lawful with regard to their own laws, and neutral with regard to those that the outside world expects the organization to obey– fluent enough to disobey them when it’s advantageous. With their strong lawful bias, lawful neutral people rarely have the fluidity to be desirable as executives, because those jobs require a willingness to depart from tradition and expectations. So they tend also to end up in middle management (MacLeod Clueless) where they can be relied upon by those above them for good or bad.

In rank cultures, lawful neutral people tend toward conformity but above-average performance. In tough cultures, they are often flustered and disgusted by the breach of rules by the most successful, but may not do anything about it. They tend to perform well in guild cultures, and to struggle in self-executive cultures. Lawful good and lawful evil find themselves without direction in self-executive culture but can make their own: lawful good will try to assist and mentor others, while lawful evil will attempt to set themselves up, informally at first, as power-holders. Lawful neutral people are left with no idea of what to do.

Lawful Neutral
Rank/Fitness | To Rise | To Keep |

Subordinate  |         | V. High |
Manager      | V. High | V. High |
Executive    | V. Low  | Medium  |

3. Lawful Evil

A place for all: the bottom for the weak, the grave for those who oppose me. 

Lawful evil is an alignment, within a corporation, that is surprisingly fit. Such people are institutionally ambitious, because they equate organizational position with strength and seek it. The other lawful alignments can find self-esteem in lower levels of an organization, and in filling a role well. Lawful evil typically has a genuine desire for the organization to be macroscopically successful, and will avoid hurting it, but views the company’s interior as ripe for plunder. Damaging it is bad; its people are fair game. Lawful evil will tolerate a subordinate position if it suits certain strategic goals, but ultimately seeks localistic dominance of some sort: either the organization’s conquest of the outside world, or personal domination of the organization. Like lawful good and neutral, lawful evil can be a team-building alignment, but only out of the need to win supporters.

Of the alignments, lawful evil comes closest to our associations with psychopathy. Neutral evil can be worse because it is more unpredictable and fluid. However, it tends to be less ambitious, leaving the lawful variety the strongest force of organizational corrosion.

We are now prepared to discuss the second organizational weapon of lawful evil, the first (covered in Part 10) being social competition, at which psychopaths excel. The second is existential fear. I’m not talking about real existential risks, so much as the social currency of existential risk. “We won’t be able to [X] unless [Y].” There are a lot of code words that come into play here. Deliver, used intransitively, is a great one. ”We won’t be able to deliver if…”. Lawful evil does not enjoy conflict; it wants its ideas to seem inevitable. Lawful evil discovers quickly what an organization perceives as its existential risks, and uses those to expand the network of feared possibilities in order to get what it wants by making the alternative seem terrifying. If lawful evil wants to set up a tough culture (that it can exploit for rank) for example, it will use a zombie invasion of “low performers” to justify a “5% must die” annual witch-hunt. Existential fearmongering is an especial problem for startups, where there are real existential risks that the company faces.

It is in the face of perceived existential risks that companies abandon their culture, ethics, and decency. We won’t be a real concern unless we hire executives. To hire executives, we must sell off employee autonomy. The problem is that businesses, especially when starting out, do have real existential issues. There are deadlines that must be met and deliverables that must be provided. The problem is that lawful evil is great at manipulating existential fear.

Lawful evil tends to excel in rank cultures, which are the epitome of that alignment. In tough cultures, lawful evil engages with and builds a network of bribes and extortions enabling it to subvert the performance assessment process, while making sure not to do anything where there’s any risk of getting caught– it deceives organizations but, being lawful, still respects them (or, at least, the power they have). Lawful evil finds guild cultures convenient but will make sure not to fulfill any guild-culture promises unless it’s individually beneficial. In self-executive cultures, lawful evil will attempt to set up social competition and create a tough culture that it can then manipulate for rank.

Lawful Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Medium  |
Manager      | High    | High    |
Executive    | High    | V. High |

4. Neutral Good

We ought to do the right thing.

Neutral good, being free of civil bias, will work with or against powerful institutions. Its civil fluidity tends to keep it from falling into institutional traps or bad trades, as there isn’t a strong loyalism to it, but also permits it to work with established players that chaotic good would find distasteful. Neutral good will tolerate an institution in accord with its conscience, but will rarely put forth above-normal effort for its upkeep except when under a belief that it’s a good organization.

Mostly, neutral good is tolerant of subordination as long as it isn’t asked to do something it considers evil. Lawful people want to rise within organizations to get the validation of an important position. Chaotic people want to change them (into something they find acceptable) or destroy them. Neutral people don’t care, any more than they expect the organization to care. They will take responsibility if it is given to them, but not seek it.

Neutral good people tend to accept rank cultures as the default and are not surprised or shocked to find out that that’s what most companies are. As long as they aren’t asked to do something evil, or in a macroscopically evil company, they’re usually okay, but they will turn disloyal if confronted with evil. They dislike tough cultures strongly. Those who leave companies conscientiously when they turn to tough culture tend to be the neutral good. Neutral good tend to see value in both the guild and self-executive culture and perceive no major difference between them, and behave the same way– altruistically and progressively, without pushing for major change– in both.

Neutral Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | High    |
Manager      | Low     | High    |
Executive    | Low     | Medium  |

5. True Neutral

Let’s get back to work.

Original D&D rules specified “true neutral” as having an almost ideological faith in the need for “natural balance” between good, evil, law, and chaos. That not what I mean here. Most people don’t have an “ideological neutrality”. They’re just neutral. They have good values, but don’t always meet them. (Moral neutrality is better modelled as “weak goodness”.) They don’t have a strong civil bias either way. This is what most people are.

The truly neutral are the most fluid, because they can succeed in any kind of organization. They can do good or evil, follow laws or break them. In the lawful-evil environment of the rank culture, they will accept lawful evil and the most successful will adopt it. They can equally well adapt to the chaotic evil tough culture or the chaotic good self-executive culture. They don’t expect there to be rules, but if they exist, they’ll assess the rules, the benefits of following them, the penalties for breaking them, and decide accordingly.

True neutral are most at-ease with the Loser trade of the MacLeod hierarchy. They’re willing to subordinate, if afforded easy jobs with steady compensation. It doesn’t take much else to please them. Lawful people want an important role, good people want to improve the organization in spite of itself and often at the expense of powerful people, chaotic people want change, and evil people want to use it for malicious purposes. Neutral people, in general, just want a paycheck and a few friends. They like to be in an “in-crowd” but they don’t expect to be rich or to make major decisions.

True neutral people, being highly adaptable to large institutions, tend not to rise not in spite of their adaptability, but because of it. They can find comfort at the bottom, being easiest for organizations to accommodate. That being the case, why would they bother to rise?

The true neutral tend to find niches in rank cultures that keep them in comfort. They tend to leave tough cultures not for an ideological reason, but because such cultures are uncomfortable, pointless, mean-spirited and inefficient. Regarding guild and self-executive cultures, they tend not to form strong opinions. They don’t perceive workplace culture when it works well and doesn’t affect them.

True Neutral
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. High |
Manager      | Medium  | High    |
Executive    | Low     | Medium  |

6. Neutral Evil

Heads, I win. Tails, you lose.

Neutral evil people are the most dangerous, without the adherence to law that restrains them, nor the chaotic impulsivity that brings them to failure before they can do great harm. A lawful evil person would rather enslave than kill, while a chaotic evil person would rather kill than enslave. Neutral evil enjoys both equally.

Lawful evil, in an organization, still wishes for the macroscopic success of the organization. Neutral evil is indifferent. I believe that I am correct in my assessment that not all evil is egoism, and that militant localism suffices, but neutral evil tends most strongly to severe selfishness and greed. It doesn’t favor or oppose localities (races, corporations, nations) so much as it just doesn’t care. What it is not– at least, not as much as lawful evil– is organizationally ambitious. It will climb if the opportunity is presented. Without that, though, it will happily indulge in mere sadism, which can be enjoyed even in a position of middling authority.

Neutral evil is rarely happy at the bottom of an organization, but can tolerate a subordinate role with access to a coveted in-crowd. Angela, in The Office, exemplifies this tendency. She’s happy to use economically meaningless forms of power, such as dominance of the “Party Planning Committee”, to exclude and cause pain to others.

Neutral evil enjoys rank cultures because they provide opportunity to dominate others, and tough cultures because they bring ruin and pain to people. Neutral evil tends to silently disdain self-executive and guild cultures, will not attempt to subvert them, but will manipulate them if it can.

Neutral Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Medium  |
Manager      | Medium  | High    |
Executive    | Medium  | High    |

7. Chaotic Good

Evil presses in. Do what you will, but I will fight. 

Chaotic good views disruption and transgression, if toward a beneficial goal, as virtuous. Both lawful and chaotic alignments exist out of a fear of entropy, but with different slants. Law fears natural entropy (corrosion) and puts faith in institutional and traditional safeguards. Chaos fears human entropy (corruption) and puts faith in continual revolution. From the chaotic perspective, anything human that is not subjected to regular revolutionary improvements will turn necrotic and dangerous. Doing the right thing is requisite, but improvisation is acceptable and expected.

Both lawful and chaotic good tend, philosophically, toward universal altruism, but lawful good tends to think in loss-reductive terms. From the lawful-good perspective, there’s a utopia or even a heaven that is achievable, and one can iteratively reduce error, or discrepancy between reality and that state, to zero. Chaotic good treat change and the creative process as having inherent hedonic value and therefore conclude that no perfect stable state can exist; we should strive, instead, for perpetual growth and improvement. While lawful good wants to minimize error in a quest for zero (concavity) the goal of chaotic good is to maximize some hedonic function that can go toward infinity (convexity).

While chaotic good is attractive in a literary sense, it’s often socially maladaptive. People like the idea of it– a will toward good that is so strong as to override the stagnation and corruption of authority, but not always the people who exemplify it. Relevant is the common quote about loving reforms and hating reformers. Most people find chaotic good individuals to be self-righteous, dangerous, and impulsive in the rejection of authority.

In general, as well, most people struggle with chaotic morality, which vexes them even more than evil, which is easier for most people to comprehend, if not accept. For an example, consider the term cynic. True cynicism is the epitome of chaotic good. It favors economic and social simplicity out of a distrust for establishment, while striving for general and contagious happiness and virtue. Modern usage of the term has discarded the ancient, philosophical ideals and focused on one trait: distrust for human law and of organizational motives. People even misuse the word cynicism, sometimes, to describe lawful evil, describing such people as “cynical manipulators”. If people use a word to mean its opposite, they really don’t understand the concept! Societies and organizations have a hard time dealing with rejection, and tend to conflate those who abandon its conscience (apostatic, chaotic) with those who have no conscience (psychopathic, evil).

Technocratic (chaotic good, chaotic neutral) leaders have a strong affinity for the chaotic good and will attempt to promote them quickly, before they get turned off or washed out by the organization’s inefficiencies. Other than that, they rarely rise through the hypercompetitive main channels (which favor the lawful) and find it difficult to keep jobs. They are averse to subordination, and are even more hostile toward typical middle management positions (where they have a limited power that they must use for ethically questionable purposes).

Chaotic good find rank cultures to be inefficient and corrupt, but as those don’t have the mean-spirited character of tough cultures, they’ll attempt to reform it (and, usually, be fired for it) rather than fighting it head-on. Tough cultures they either fight or leave on account of conscience, unless they can find a meritocratic niche that is more like a self-executive culture. Self-executive cultures are the chaotic good’s favorite, those encouraging change and transgression. Chaotic good tend to distrust guild cultures (being cynical, in the true sense of the word) but will contribute positively when in a genuine guild culture.

Chaotic Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Low     |
Manager      | Low     | V. Low  |
Executive    | Medium  | High    |

8. Chaotic Neutral

Change before you have to. 

Chaotic neutral is the “problem solver” alignment. This alignment has a reputation for being fickle, but they actually have an important organizational role. They like to solve problems and try new things because it’s fun. Chaotic good wants to advance humanity by solving difficult problems. From a chaotic neutral perspective, that creative stimulation has merit standing alone. It’s a game. Chaotic neutral want to change organizations in spite of themselves. They want to make things work.

Chaotic neutrality can be ruthless, but it’s not malicious. If people lose their jobs, that’s undesirable but acceptable. This alignment tends toward libertarianism. Institutions are distrusted and naturally impermanent. Upkeep of them, when they become inefficient, is just dishonest. Inherent in chaotic neutrality is a steadfast belief in creative destruction and a libertarian ethos. Change should be embraced; people will adapt.

Technocrats and the better kinds of MacLeod Sociopaths tend to be a mix of chaotic good and neutrality. Chaotic neutrality is somewhat less admired in the abstract, because it can be interpreted as selfish: bias toward change because one finds it personally enjoyable. For example, it’s the chaotic neutrality of most computer programmers that drives the burn-everything-old, bet-the-company-on-us rewrites that software engineers regularly engage in, largely because they’re more fun than working with mediocre legacy code. That said, chaotic neutrality is slightly more organizationally adaptive than chaotic good, in so far as moral good or evil are each sources of discrepancy with typical (morally neutral) institutions while neutrality confers the most fluency.

Chaotic neutrality finds rank cultures to be inefficient and distasteful. It views tough culture as superior to rank cultures, and necessary to purge the rank culture’s accumulated rot. It generally dislikes guild culture, which it views as meek and enabling, and would prefer the creative expression and liberty afforded by a self-executive culture.

Chaotic Neutral
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Low     |
Manager      | Medium  | Low     |
Executive    | High    | Medium  |

9. Chaotic Evil

I will burn everything! If you die, I will laugh. If I die, I will laugh. 

Chaotic evil is the evil of the madman. It tends to be maladaptive in organizations. Those who are chaotic draw attention to their moral character, while the lawful and neutral can hide it. Chaotic good are still often rejected when found out as good, but they are admired at least abstractly, and that can give them a chance. Chaotic evil shows itself as treacherous. Only in a damaged environment can chaotic evil have any advantage. Otherwise, the neutral evil, who can use chaos when they need it, are best equipped.

Chaotic evil has a literary attractiveness because it’s self-limiting and cathartic. It rises to power for a short while, burns brightly, turns to madness, and implodes. Its taste for destruction is so strong that it tends inevitably toward self-contradiction and collapse. In the corporate context, we might rarely see it. Or would we?

There are degrees of chaos is chaotic evil, and not all are like Kefka or The Joker. Ryan, in The Office, is (slightly) chaotic evil and, being an agent of technical change and improvement, delivers some needed future-awareness to the backward Scranton branch. Chaotic evil is the least organizationally adaptive of the nine alignments, but the more moderate varieties of it (as opposed to the caricature, which is insane chaotic evil) can find success. Chaotic evil people can rarely keep their impulses in check for long enough to rise to the top, but their mean-spirited ideas often linger on. The malignant, viciously political, performance review systems for which Enron, Microsoft and Google are well-known emerged from chaotic evil minds– and were retained because the lawful and neutral evil leadership decided that, hey, that kind of chaos works. 

Chaotic evil tends to fight and attempt to purge rank cultures, not because they are inefficient, but to torch the weak. Naturally, chaotic evil has the most affinity for the tough culture (that culture itself being chaotic evil) and it will actually fight, on a matter of principle, against the lawful-evil proto-managerial extortionists trying to turn it into a rank culture. Chaotic evil tends toward exploitation of guild culture, but with minimal success because such cultures are actually resilient against that type of evil. In a self-executive culture, the chaotic evil person will play for personal gain and, often, abuse the self-executive culture’s openness with information and find a way to steal from the company.

Chaotic Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. Low  |
Manager      | Medium  | Low     |
Executive    | Medium  | Low     |


We now have a sense of how alignment plays out in organizational cultures. There are a few interesting notes we can make:

  • the character of moral neutrality is generally a more adaptive variety of good. Organizations don’t especially want good or evil, both distracting people from the organizational goal, which is usually neutral. The moral flexibility of the neutral person is generally preferred. Good can be a slight advantage of the chaotic, as chaotic behavior makes one’s moral bearing public information, but chaotic good is still often maladaptive. 
  • lawful people are the most likely to become and stay middling managers. This should not be surprising to anyone.
  • lawful evil and chaotic neutral people are most likely to become executives. Following are the chaotic good, who are hampered by their moral compasses, and neutral evil, whose sadistic tastes do not require an important organizational role that a lawful evil person has more cause to desire.
  • lawful evil are the most likely to be career executives. When they get the position, they are the ones most able to keep it. Why? Because the perversion of law toward personal benefit is quite natural for them.
  • in addition to social violence, lawful evil are prone to manipulate a company’s existential fears. This might be the main advantage of the lawful evil (as neutral evil use both social and physical violence if they can get away with it). Lawful evil can best tap into the fear of organizational dissolution because it shares that fear.
  • the Technocratic impulse comes from the chaotic good and chaotic neutral. Chaotic good express altruism through creativity and revolution. Chaotic neutral join in because solving problems and inventing new things is fun.
  • chaotic evil, despite its colorful literary presence, is not a major organizational concern. We just have a lot more to worry about from the lawful and neutral kinds.
  • neither the self-executive nor guild culture is immune against evil. The evil cultures (rank and tough) can turn neutral and even good people toward evil activity, but the reverse is not true. A naive guild or self-executive culture will find itself exploited by evil, especially of the lawful kind.

The last of these points should be the most jarring. Why can’t the good cultures defend themselves against evil? Organizations are quite adept at handling law and chaos, hand-picking lawful people for management roles and a few chaotic ones for executive positions, while rejecting most of the chaotic. What is it about workplace cultures that leaves them hapless in the face of good (which they cannot pursue) and evil (against which they cannot defend)? How do we patch the best workplace cultures– the guild and self-executive ones– to make them evil-resistant?

Gervais / MacLeod 10: The pull of lawful evil


I’ve posted a lot about organizations and their corrosion (See: Part 1Part 2Part 3Part 4Part 5Part 6Part 7Part 8, Part 9). but there’s something that I realize I have not covered, and it’s one of the most important topics to address before attempting to solve the general organizational problem. What are we up against? What is it that makes organizations turn toward moral failure (tough culture) or extortive self-diminishment (rank culture)? What are the personal motivations of people who cause organizations to deteriorate? What are the natural forces that drive them? Why do they exist? What do they want?

I’ve discussed evil abstractly, but not what it looks like, or how it works. I mentioned that truly toxic people (Psychopaths) are superior at social competition without getting into what “social competition” is and why it tends to easily to evil, when other kinds of competition do not so commonly go that way. What is it about social competition that makes a certain alignment (lawful evil) so good at it? What is it that organizations do to fill their top ranks with the horrid people who give the MacLeod Sociopaths such a bad name?

Rank theory of depression

No one knows for sure, but I’ve suspected for a long time that the rank theory of depression is, at least, partially correct as an explanation of why the disorder exists. According to that hypothesis, the depression machinery (psychological “source code”) exists as a way of helping people adapt to low social status. Reduced libido and appetite, physical lethargy, and disinterest in social activity would conceivably be useful in helping a person survive low status in our evolutionary environment, in which status conflicts were a frequent cause of death among males. Of course, it would only confer an evolutionary benefit if it existed to handle transient social disadvantage. (In the long term, evolutionary fitness sees no difference between death and non-reproduction, so an organism would do better to fight permanent low status and risk death, than to accept it.) The moodiness associated with adolescence may tie into this: young men, not yet at their strongest, are presumably the most prone to the transient low status that mild depression helps a person survive.

The above being said, clinical depression– which is, to complicate things, probably a collection of diseases with similar symptoms rather than one illness–  is almost certainly a pathology of that system. Old code that is maladaptive in modern society is being called by inappropriate triggers (possibly biological malfunctions). The person might be reacting as if to low social status for no discernable social reason.

Rank theory, to me, seems to explain, for example, why exercise helps so much for mild depression. The brain takes bodily activity as a signal of a person’s social status. An active body means that one has been invited on the hunt and that tells the brain that its low-status response is inappropriate. A sedentary lifestyle means that one has fallen to low rank and is one of the less necessary and subordinate people, making semi-hibernation adaptive.

One piece of evidence weighing against rank theory is that it would predict depression to be more common in men– for whom, there was more variation in social status (for reproductive reasons) and a higher rate of positional violence– while it seems to be at least as common, if not moreso, in women. The reason I do not believe that justifies a challenge to rank theory is that I think there’s an extremely large amount of “code sharing” in the human brain between genders. If it took millions of years for that code to emerge through natural processes, one might expect nature to reuse as much as possible of the hard-to-make stuff that made humans intelligent. I don’t see any reason to believe there’s any gender-specific code. Certain pieces are called more often in men than women, and vice versa, but it seems to be all available to both. The rank-theoretic function of, at least, mild depression may have had the original purpose of keeping men alive during spells of transient low social status but, once it evolved, there was no reason it could not be triggered (especially by pathology) in women as well. We’ll get to a much more exciting case of code-sharing (from female evolutionary incentive to mostly male application) later on.

Good and evil

What are good and evil, in truth? Every religion or philosophy has a different stance on it, but one issue that it seems to get tied up with is the fact that there were two evolutionary pressures that were on our ancestors: r- and K-selection. The first, r-selection, favors rapid reproductive proliferation. This is seen in many of the lower animals, where a brood of hundreds of spawn is common, but only a few live. Parental investment is nonexistent or low. K-selection, however, favors quality: a smaller number of offspring, with each of them given high parental investment, with the hope of making them more successful.

Early in their evolution, human societies developed a tension between K-selective– monogamous, family-building, future-oriented, superego– lifestyles and r-selective– polygamous, harem-building, present-oriented, id-driven– behaviors. Among the more powerful men, there were the r-strategic “alpha” males who’d have harems and hundreds of offspring, with almost no paternal investment in any of them: lots of kids, most would fare poorly. Then there were the K-strategic “beta” males with small numbers of wives (one or two) and fewer children but who put high levels of investment in them. Finally, there were the omegas who had no wives, little or no access to sex, and a strong reproductive drive to positional violence to better their opportunities. Modern civilization began as the K-strategists took over and started laying rules to reduce positional violence: men didn’t covet others’ wives, murder was no longer acceptable, polygamy was discouraged. Monogamy encouraged paternal investment, and it also introduced stability due to the reduced rate of male positional violence, with fewer men being left sexless. It also was the first move toward gender equality. While not all women in monogamous marriages were well-treated (history tells us that a horrifying number weren’t) they were undeniably better off than in harems, where they were treated like livestock. A man who is going to have all of his children by one wife is going to have strong incentives to treat her well.

If it seems sexist that I am focusing on male status variance and polygyny only, that’s because there is, in nature, more cause for status variation in men, due to the reproductive bottleneck of the woman’s womb. Men can sire five hundred kids but women cannot. They have more reproductive upside. They also have more downside, since low-status men are judged to have nothing to offer (except unneeded sperm) and ignored or discarded by society. A woman has a womb, putting a higher floor on her reproductive value. So it was typically men who went to extremes in social status– and had evolutionary incentives for antisocial behavior.

Societies quickly learned the value of monogamy, even if no human group perfectly observed it. It reduced positional violence and, by requiring men to treat women better, led to healthier offspring. It made a world in which the most successful men took an interest in social justice and progress (to create a better world for their few children; “few”, here, meaning less than 20) rather than acquiring more wives. Much of our evolution was an arms race between the r-strategists and K-strategists within us. Religions defined the r-strategist as “evil”– irresponsible, dangerous, malicious– and the K-strategist became “good”.

Over time, we’ve developed a more mature understanding of this. Sexual activity is not the best way to assess moral decency. It was the dishonesty and violence associated with those powerful and promiscuous men that made them so toxic– not the sexual pattern only. There are good people who are sexually prolific, and evil people who are restrained or even abstinent. So it’s not especially useful, from a modern view, to overemphasize this dimension of morality over other, more important ones, like honesty, compassion, and altruism. Nonetheless, we’re aware of the fact that, for evolutionary reasons, there are two conflicting personalities that live within us. Most people have a mix of r- and K-strategic tendencies, due to the fact that both strategies played a role in our evolutionary history.

There is an adaptation that seems to shut down the K-strategic personality outright, although that person may conform to social norms (law) and observe traditionally K-strategic behaviors (monogamy, sexual restraint). Like a cancer cell, the person becomes more fit at the expense of the larger organism. We call this type of person a psychopath.

The less-severe sociopath is used to include, as well, chaotic people with conscience (good, neutral) but not the socially-induced superego. It’s also preferred in popular use because psychopath sounds like psychotic, while those categories of illness are quite dissimilar. The problem with the concept of the “sociopath” (one who is chaotic or evil) is that it lumps together types of people who could not be more different. When we finally solve “The Organizational Problem” (as if it were that easy) we’ll see that the battle between chaotic good and lawful evil (two opposite sets of people labelled “sociopaths”) is one of the most exciting conflicts.

Two kinds of psychopathy

Most people associate the word psychopath with a serial killer or common criminal living in social depravity, but those are the lower classes of psychopaths. The upper-class psychopaths are the white-collar criminals who rob companies for nine-figure sums and often get away with it. These are the people who ruin companies. To understand the latter category, we need to understand social competition and its evolutionary frame. It was born, I believe, in the harem.

A male psychopath (extreme r-strategist) in the prehistoric world had his work cut out for him– kill men, rape women, enslave children. One might expect that would should be (because of their reduced reproductive variance) K-strategists, but with code sharing, it’s quite likely that there will be females with the same impulse. How does she do it? How can a woman play the extreme r-selective game of the male psychopath? It’s biologically impossible for her to have 50 kids. In a typical pre-monogamous context, she has to do it in two generations. She needs to have a high-status, psychopathic, alpha-male son. How does she do that? It helps, but it’s not enough, for such a spawn to have an alpha father. As an r-strategist, he’s going to have a lot of progeny and most will be failures. She needs more than a high-status father, because that alpha’s throwing seed all over the place. How does she maximize her chances of her children being the ones who inherit that paternal status? She has to establish herself as the queen of the harem and the legitimate wife, so her children are heirs and the other womens’ are bastards. Within the harem is the birth of social competition.

This is a different sort of contest: a degrading and subordinate kind where the victor is chosen by an external agent. The high-status man needs to believe he is making the choice as to the favorite in his harem. From his perspective (and that of proto-Clueless women in the harem) it’s a beauty contest. He picks a favorite based on some measure of attractiveness that is presumably correlated with reproductive health. Of course, the more effective social competitors (proto-Sociopaths) know that it’s an easy contest to corrupt.

The would-be harem queen must engineer a situation in which she’s the most attractive. The psychopathic man kills rivals, but she can’t. As a means of tearing down a rival with more natural beauty (however it is defined) physical violence is out. The man views his harem as personal property and won’t accept it if one of the women in it starts harming or killing the others. He might punish her and, even if not, it won’t have the desired competitive effect. The hurt rival will then appear injured, not ugly or unhealthy. Recall what I said about depression and code-sharing: that process of adaptation to (temporary) low social status exists in both men and women. A would-be harem queen could win if she were to find a way to trigger this depression process inappropriately in her rivals. After she does so, these others (of superior natural beauty) will appear sick and weak (and therefore reproductively unfit) to the alpha male. So the aspiring harem queen would harass her rivals– especially more attractive ones– in order to inflict an invisible injury that the alpha-male judge would not see: induced depression. She’d continue until only her supporters remained. The alpha would then perceive her as the most beautiful, and choose her.

Thus emerged a second variety of psychopathy focused on social competition rather than violence. The old-style, violent sorts (chaotic evil) of psychopaths became the lower classes. They could be useful to an evil organization attempting to establish itself, but were too impulsive to be trusted to rule it. The socially competitive and dishonest ones (lawful evil) emerged. Of course, the code for socially competitive nastiness crossed genders quickly, if not immediately. Women do not have a monopoly on this sort of pernicious social competition. Men can do it, too. In the modern context, it seems to arise independent of gender. It’s just what psychopaths (male and female) do to climb social hierarchies.

The workplace

It should be obvious where I intend to go: the workplace.

The metaphor is strong. The harem queen competition is a degrading and subordinate “beauty contest” where “beauty” is assessed by an external agent– a dominant and brutal male who perceives the harem as his property. The corporate contest is a degrading and subordinate one where “performance” is assessed by external superiors called “management”. A would-be harem queen is only effective if she can trigger invisible mental injuries (depression, anxiety, motivational collapse) in her rivals that look like low reproductive fitness; otherwise, she’s found-out for being antisocial and destructive and will be punished or expelled. Analogously, a corporate social competitor is only effective if he or she can trigger invisible mental harm in rivals that looks like low performance; otherwise, he or she is found-out for being toxic and “political” and will often be terminated.

What makes corporations different is the recursive nature of the harem. At the ground level, the harem queen is the managerial favorite (“golden child” or ladyboy) and the “alpha male” is management, but that manager is often vying to be a harem queen within another harem. It’s harems all the way up to the executive suite. Who’s the “alpha male”? A pile of money. Kapital. An imaginary psychopath called “The Corporation”. This is not so far-fetched. Humans have been inventing imaginary psychopaths and using them to control other people for thousands of years.

The private-sector social climbers who claw their way to the tops of typical corporations are not “alpha males” as the Ayn Rand fantasy they have would suggest. Corporate strivers are emasculated harem queens. At least to the men among them, who are often insufferable in their machismo, it should be pointed out at every opportunity. (Minor nit: entrepreneurs aren’t “alpha” males or females in the pre-monogamous sense either. They’re beta. Why? Alphas are r-selective, present-oriented and consumptive; betas are the positive-sum, future-oriented productive people who built civilization.)

Companies often give a spiel about “accommodating depression”, but the truth is that for the bulk of companies– rank and especially tough cultures– this is impossible. Depression is a landmark feature of the “corporate ladder” competition that they use (because of a lack of vision) to evaluate their people. It’s a war of attrition, and depression is one of the most powerful agents of that. It cannot be accommodated; it would break the game. The context-specific, socially- or occupationally-induced mental illnesses– usually mild, but with paralyzing motivational consequences– that punctuate the corporate career, popularly known as “nervous breakdowns”, must exist in the corporate game. What’s the alternative? Letting everyone have a real career?

Technocrats want to change the game. They want to unleash creativity and improve processes so everyone wins. They don’t want their colleagues to become depressed and fail out to make space. True Psychopaths (social competitors) do want that. They’re made for a negative-sum war of attrition. Just as the would-be harem queen makes her more attractive rivals appear unhealthy via a campaign of harassment, corporate psychopaths turn more talented rivals into non-performers or social misfits through a campaign of discouragement, dishonesty, and sabotage.

MacLeod Losers just don’t want to have mental breakdowns– that’s understandable– so they avoid risk and discomfort. Their intentional restraint of dedication prevents them from reaching a level of emotional investment in the organization where its volatility could effect their mental health. They stay out of the worst social competition and generally avoid getting hit with anything that would ruin a career. The Clueless cope by finding or creating a “reality distortion field” that protects them from induced depression and, additionally, encourages them to want things that don’t actually matter (and thus, for which there is not much competition). Psychopaths have a natural skill at social competition; it’s natural to them. Lack of conscience and adeptness at social competition have a million-year-old genetic correlation. It’s the Technocrats, who want to end the zero-sum social competitions of yesteryear, who are most exposed.

Cultural dysfunction

Corporate macroscopic evil (Xe/Blackwater, U.S. health insurance) is notorious but rare. Very few corporations exist for evil purposes; most are macroscopically neutral on the moral scale and, while insistent on their own law, macroscopically neutral on the civil scale as well. My exposition has been all about the internal moral and civil character of organizations, that tends to emerge despite the “true neutral” macro-alignment of an organization as it relates to society. Rank cultures (MacLeod-style bureaucratic dysfunction) are lawful evil. Tough cultures (sink-or-swim, Enron-style cultures) are chaotic evil. Guild cultures (progressively conservative, with symbiotic hierarchy) are lawful good. Self-executive cultures (Valve-style open allocation) are chaotic good.

Previously, I was hand-waving with terms like “negative sum” or “egoism”, but now we have a firm understanding of what drives most internal corporate evil: social competition designed to interfere with performance. Inducing depression, anxiety, or loss of motivation in more talented rivals is one of the most powerful tools in the social warrior’s arsenal. Now we know why MacLeod organizations are so goddamn depressing: for the same reason that compost heaps are hot. The stuff is generated everywhere.

Lawful evil wants to dominate while chaotic evil likes to destroy. So the purpose of induced depression is different in a rank versus tough culture. In both cases, the means of warfare is to load someone with unnecessary, counterproductive stress until that person breaks, then rationalize that person after-the-fact as being “not a team player” (rank culture) or “a piker” (tough culture). The difference is that, in rank culture, the person need only submit and the induced-depression campaign stops. In tough culture, the attacker won’t stop until the target’s performance has dropped so low as to drive the person out of the company.

This micro-character may emerge in spite of the organizational macro-alignment. For example, while tough culture is an emergence of chaotic evil, most tough-culture executives see themselves as neutral. Like pre-monogamous alpha males, they think they’re objective and infallible judges of the beauty contest, capable of assessing and rewarding “performance”, but the beauty/performance they are able to see is the outcome of a attritive social war that has already happened; the harem queens (“top performers”) have already been determined– the people who were most ruthless in that prior social war, not those with the most actual merit.

From a macroscopic perspective, tough cultures actually perform badly. People do a lot of busy work, but the error rate becomes intolerable and the vision is lost as power shifts to the (non-strategic) people with the strongest reality distortion fields, and to the antisocial players at the top, who loot and rob the organization. The chaotic good who might stand up to a rising tide of evil in the organization are long gone by that point. It turns out that an epidemic of unnecessary depression and anxiety is not good for business; who would have guessed?

Rank cultures, into which tough cultures evolve when let to their own devices, tend to be less radical and quick in their toxicity. What happens after a while as vicious but rationally repressive systems stabilize is that the punishment (induced depression) is replaced with the threat thereof. Instead of actually creating a hostile situation that will interfere with performance and induce illness, only the capability to do so is needed. The gun is waved but never fired. Tough cultures actively induce anxiety, which becomes depression. Rank cultures are just uninspiring, from inside and without. Over time, the rank-culture organization becomes so inefficient that it’s not even good at being evil.

That internal currency that companies create called credibility plays a role. You need credibility to get anything done that involves other people and, in the contemporary Theory-Z (teamist) environment, a lone actor can’t accomplish much of anything. Because low credibility makes it impossible to get anything useful done, it’s demoralizing and humiliating. Credibility reductions are a great way to engage in the social warfare that comprises the vast majority of any company’s internal evil. If there is no credibility floor, evil is at an advantage.

Guild cultures account for future potential in assessing credibility and thus create a floor for a diligent student. One can escape from social warfare, hit the books and get better at one’s craft. It’s safe in the library. Self-executive cultures have a more fluid, market mechanic for operations but recognize markets as short-term noisy and only eventually consistent, so they assess a basic minimum credibility to individuals, even if ruthlessly killing off failed ideas. Tough cultures do not have a credibility floor. One can fall all the way to zero due to unpredictable fluctuations. A worthy player can be killed by the dice. Psychopaths love tough cultures. They figure out how the damn thing works and load the dice. Rank cultures emerge out of tough cultures because, when there is no credibility floor, most people (MacLeod Losers especially) prefer the comfort of a dictatorial, extortionate manager who can unilaterally ruin them, but won’t do so if certain easy-to-fulfill conditions are met, over a capricious market that has no rules and might kill them off “at random”. Who is it that profits most from that change? Lawful (and neutral) evil psychopaths, whose network of extortions and alliances will hamstring the chaotic evil tough culture and form the next generation’s rank culture.

Now, we’re more equipped to assess concept of good, evil, law, and chaos as we attempt to attack the MacLeod Problem. We have a much stronger sense of what evil, in this context, is. We have a better sense of what we’re up against. Now we can focus on the ultimate chaotic-good Technocrat’s problem: taking these parasitic, social-climbing harem queen bitches (that term used gender-neutrally, most of our adversaries being men) down for good.

Gervais / MacLeod 9: Convexity

Originally, I had intended the 9th part to be the one in which I solve this damn thing for good. Unfortunately, as that “9th post” crossed into 12 kiloword territory, I realized that I needed to break it up a bit. Even for me, that’s long. So I had to tear some stuff out and split this “final post” yet again. So here’s the 9th chapter in this ongoing lurid saga. (See: Part 1Part 2Part 3Part 4Part 5Part 6Part 7, Part 8). I am really trying to wrap this fucker up so I can get my life back, but I’m not going to solve it just yet… there are a few more core concepts I must address. Today’s topic, however, is convexity.

What is convexity?

Convexity pertains to the question: which is more important, the difference between excellent work and mediocre work, or that between mediocre work and noncompliance (zero)? For concave work, the latter is more important: just getting the job done is what matters, and qualitative concerns are minimal. For convex work, the difference between excellence and mediocrity is substantial and that between mediocrity and failure is small.

The theoretical basis for this is the logistic function, or “S-curve”, which is convex at its left side (looking exponential at y << 0.5) and concave on the right, as it approaches a horizontal asymptote (saturation point). Model input as a numerical variable i pertaining to resources, skill, talent, or effort. Then model task output as having a maximal yield Y, and the function Y * p(i) where p is a logistic function with range (0, 1) representing the proportion of maximum possible yield that is captured. Now, the inflection point (switch-over from convexity to concavity) is exactly where p(i) = 0.5. Taken in full, this logistic function is neither concave or convex. Yet, for most economic problems, the relevant band of the input range is narrow and is mostly on one side of the inflection point or the other. We can classify tasks as convex or concave based on what we know about the performance of the average.

To get concrete about it, consider exams in most schools. A failing student might be able to answer 60% of the questions right; an average one gets 80%, and the good ones get 90%. That’s a concave world. The questions are easy, and one needs to get almost all of them right to distinguish oneself. On the other hand, a math researcher would be thrilled to solve 50% of the (much harder) problems she confronts. With concave work, the success or completion rates tend to be high because the tasks are easy. With convex work, they’re low because the tasks are hard. What makes convex work worth doing is that, often, the potential yield is much higher. If the task is concave, it’s been commoditized, and it’ll be hard to make a profit by doing it. Even 100% completion will yield only marginal profits. If the work is convex, the most successful players can generate outsized returns. It may not be clear even what the upper limit (the definition of “100%”) is.

Convexity and management

Consider the following payoff structures for two tasks, A and B. A is concave; B is convex, and 0 to 4 represent degrees of success.

| Performance | A Payoff | B Payoff | Q dist | R dist |
| 4 (Superb)  |      125 |      500 |  20.0% |   0.0% |
| 3 (Good)    |      120 |      250 |  20.0% |  20.0% |
| 2 (Fair)    |      100 |      100 |  20.0% |  60.0% |
| 1 (Poor)    |       60 |       25 |  20.0% |  20.0% |
| 0 (Awful)   |        0 |        0 |  20.0% |   0.0% |

Further, let’s assume there are two management strategies, Q and R. Under Q, the workforce will be uniformly distributed among the five tiers of performance: 20% in each. Under R, 20% each of the workforce will fall into Good and Poor, 60% into the Fair tier, and none into the Superb or Awful tiers. R is variance-reducing managerial strategy. It brings people in toward the middle. The goal, here is to maximize bulk productivity, and we assume we have enough workers that we can use the expected payoff as a proxy for that.

For Job A, which is concave, management strategy Q produces an output-per-worker of 81, while R yields 96. The variance-reducing strategy, R, is the right one, yielding 15 points more. For example, bringing up the worst slackers (from 0 to 60) delivers more benefit than pulling down the top players (from 125 to 120).

For Job B, which is convex, strategy Q gives us an average yield of 165, while R delivers only 105– 60 points less. The variance-reducing strategy fails. We see more of a drop in pulling down the best people (from 500 to 250) than we gain in hauling the laggards (o to 25).

In short, when the work is concave, variance is your enemy and reducing it increases expected yield. When the work is convex, variance is your friend; more risk means more yield. 

The above may seem disconnected from the problems of the MacLeod organization, but it’s not. MacLeod organizations are based on variance-reduction management strategies, which have worked overwhelmingly well over the past 200 years of concave, industrial-era labor. MacLeod Losers naturally desire familiarity, uniformity, and stability. They want variance to be reduced and will give up autonomy to have that. MacLeod Clueless (middle managers) take on the job of reducing variance in conditions for the Losers below them, and reducing volatility in performance for the Sociopaths above. Their job is to homogenize and control, and they do it well. It doesn’t require vision or strategy. MacLeod Sociopaths start out as the “heroic” risk-takers (entrepreneurs) but that caste often evolves (as especially as transplant executives come in) into a cushy rent-seeking class as the organization matures (necessitating the obfuscation enabled by the Clueless and the Effort Thermocline). The Sociopath category itself becomes risk-averse, out of each established individual’s desire to protect organizational position. The result is an organization that is very good at reducing variance and stifling individuality, but incapable of innovation. How do we come back from that?

In the concave world, the failures of the MacLeod organization were tolerable. Businesses didn’t need to generate new ideas. They needed to turn existing, semi-fresh ones into repeatable processes, and motivate large groups of people to carry out difficult but mostly simple functions. Variance-reduction was desired and encouraged. Only in the past few decades, with the industrial era fading and the technological one coming on, has there been a need for business to have in-house creative capacity.

Old-style organizations: the optimization model

The convex/concave discussion above assumes one dimension of input (pertaining to how good an individual is at a job) and one of output (observed productivity). In truth, a more accurate model of an organization’s performance would have a interconnected network of such “S-curve” functions for the relationships between various variables, many of which are hidden. There’d be a few input variables (“business variables”) and the things the company cares about (profit, reputation, organizational health) would be outputs, but most of the cause-and-effect relationships are hidden. Wages affect morale, which affects performance, which affects productivity, which affects the firm’s profits, which is its performance function. With all of the dimensions that could be considered, this function might be very convoluted, and while it is held to exist “platonically” it is not known in its entirety. The actual function relating controllable business variables to performance is illegible (due to hidden variables) and certainly not perfectly concave or convex.

So how does the firm find an optimal solution for a problem it faces?

This gets into an area of math called optimization, and I’m not going to be able to do it justice, so I’ll just address it in a hand-wavy way. First, imagine a two-dimensional space (if only because it’s hard to visualize more) where each point has an associated value, creating a 3-dimensional graph surface. We want to find the “highest point”. If that surface is globally concave, like an inverted bowl, that’s very easy, because there can only be one maximum. We can start from any point and “hill climb”: assess the local gradient, step in the most favorable dimension. We’ll end up at the highest point. However, the more convoluted our surface is, the harder the optimization problem. If we pick a bad starting point on a convoluted surface, we might end up somewhere sub-optimal. Thinking of it in topographical terms, a “hill climb” from most places won’t lead to the top of Mount Everest, but to the neighborhood’s highest hill. In other words, the “starting point” matters if the surface is convoluted.

Real optimization problems usually involve more than two dimensions. It is obviously not the case that organizations perform optimizations over all possible values of all possible business variables (of which there are an infinite number). Additionally, the performance function changes over time. As a metaphor, however, for the profit-maximizing industrial corporation, it’s surprisingly useful. One part of what it must do is pick a good “starting point” for the state of the business, a question of “What should this company be?” That requires non-local insight. Another part is the iterative process of refinement and hill-climbing once that initial point is selected.

This leads to the three-tier organization. People who are needed for commodity labor but not trusted, at all, to affect business variables are mere workers. Managers perform the iterative hill-climb and find the highest point in the neighborhood. In startup terms, they “iterate”. Executives, whose job is to choose starting points, also have the right to make non-local “jumps” in business state if needed. In startup terminology, they “pivot”.

The MacLeod organization gets along well with this computational model of the organization. MacLeod Losers are mediocre in dedication, but that’s fine. That aspect of them is treated as a hidden variable that can be modulated via compensation (carrots) or managerial attention (sticks). In the optimization model, they’re just infrastructure– human resources in the true sense of the word. The fault of MacLeod Clueless is that they aren’t strategic, but they don’t need to be. Since their job is just to climb a hill, they don’t need to worry about non-local “vision” concerns such as whether they’re climbing the right hill. That’s for someone else to worry about. They just assess the local gradient and move in the steepest upward direction. Finally, there are the MacLeod Sociopaths, whose goal is to be strategic and have non-local insight. Being successful at that usually requires a high quality of information, and people don’t get that stuff by following the rules. The source could be illegal (industrial espionage) or chaotic (experimental approaches to social interaction) or merely insubordinate (a programmer learning new technologies on “company time”) but it’s almost always transgressive. The MacLeod Sociopath’s ability to get information confers more benefit, in an executive position, than the negatives associated with that category.

Why the optimization model breaks down

In the model above, there is some finite and well-specified set of business variables. The real world is much more unruly. In truth, there are an infinite number of dimensions. Two things make this more tractable. The first is sparsity. Most dimensions don’t matter. For example, model “product concern” as a vector representing the products that a company might make (1.0 meaning “it’s the only thing we care about”, 0 meaning “not interested at all”). Assume there are 387 trillion possible conceivable products that a firm could create. That’s 387 trillion business variables; 386.99999…+ trillion of those entries are always going to be zero (excepting a major pivot) and can be thrown out of the analysis. Second is aggregation. For personnel, one could have a variable for each of the world’s 7.1 billion people (again, most being zero for ‘not working here’) but most companies just care about a few things, like how many people they employ and how much they cost. Headcount and budget are the important business variables. Whether John A. Smith, 35, of Flint, Michigan is employed at the company (i.e. one of those 7.1 billion personal variables) isn’t that relevant for most values of John A. Smith, so executives need not concern themselves with it.

Even still, modern companies have thousands to millions of business variables that matter to them. That’s more information than a single person can process. Then there is the matter of what variables might matter (unknown unknowns). If the optimization problem were simple, the company would only need one executive to call out starting points, but these information issues mandate a larger team. The computation that the organization exists to perform must be distributed. It can’t fit on one “node” (i.e. one person’s head). That also mandates that this massively high-dimensional optimization problem be broken down as well. (I’m ignoring the reality, which is that most people in business don’t “compute” at all, and that many decisions are made on hunches rather than data.)

As far as many dimensions are separable (that is, they aren’t expected to interact, so the best values for each can be found in separation) the problem can be decomposed by splitting it into subproblems and solving each in isolation. Executives take the most important business variables where it is most likely that non-local jumps will be needed, such as whether to lay off 15% of the workforce. The less important ones (like whether to fire John A. Smith) are tackled by managers. Workers don’t participate in the problem-solving; they’re just machines.

This evolves from an optimization model where business variables and performance functions are presumed to exist platonically, to a distributed agent-based model operated by local problem-solving agents. This is a more accurate model of what actually happens in the corporation, made further amusing by the fact that the agents often have diverging personal objective functions. Centralized computation is no longer the most important force in the company; it’s communication between the nodes (people).

Here’s where MacLeod comes in to the agent-based model. MacLeod Losers consume information and turn it into work. That’s all they’re expected to do, and ideally the only thing that should be coming back is one word: done. MacLeod Clueless furnish information up and down the food chain, non-editorially because they aren’t strategic enough to turn it into power. They tell the Losers what to do, and the Sociopaths what was done, and they aren’t much of a filter. The only information they take in, in general, is what information others want from them. The MacLeod Sociopaths are strategic givers and takers of information, and (having their own agendas) they are selective in what they transmit. Organizations actually need such people in order to protect the top decision-makers from “information overload”. It’s largely the bottom-tier Sociopaths who participate in dimensionality reduction and aggregation, so they’re absolutely vital; however, they make sure to use whatever editorial sway they have toward their own benefit.

Optimization and convexity

The actual performance function of a company, in terms of its business variables, is quite convoluted. It’s generally concave in a neighborhood (enabling managers to find the “local hill”) but its global structure is not, necessitating the non-local jumping afforded to executives. The underlying structure, as I said earlier, is driven by an inordinate number of hidden variables. It might be best thought of as a neural network of S-curve functions (“perceptrons”) wherein there are elements of concavity and convexity, often interacting in strange ways. It’s not possible for anyone to ascertain what a specific organization’s underlying network looks like exactly. The overall relationship between business variables (inputs) and performance (output) is not going to be purely concave or convex. The best one can hope for is a well-chosen initial point in which the neighborhood is concave.

For typical organizations and most people in them, concavity has a lot of nice properties. For one thing, it tends toward fairness. Allocation of resources to varying parties, if the input/output relationships are concave, is likely to favor an “interior” solution– everyone gets some– because marginal returns diminish as the resource is allocated to richer people. If the input/output relationship is convex, resource allocation can favor an “edge” solution where one party gets everything and the rest get none, which tends to exacerbate the “power law” distributions associated with social inequalities: a few (who seem the most capable of turning those resources into value) get much, most get little or nothing. Another benefit of concavity is that performance relative to a standard can be measured. At concave work, the maximum sustainable output is typically well-studied and known, and acceptable error rates can be defined. With convex work, no one knows what’s possible. Once a maximum is established and can be reliably attained, the task is likely to become concave (as people develop the skills to perform it successfully more than 50% of the time). Research is inherently convex: most things explored don’t pan out, but those that do deliver major benefit. When those explorations lead to repeatable processes that can be carried out by people of average motivation and talent, that’s concave, commodity work.

MacLeod organizations exist as a risk trade between those who want to be protected from the vagaries of the market, so creating islands of concavity and easiness is kind of what they do. The Big World Out There is a place with many pockets of convexity, plenty of bad local maxima, and a difficult and mostly unexplored landscape. The MacLeod organization provides its lower-level workers with access to an already-explored and safe concave hill neighborhood. Executives read maps and find start points. Managers just follow the steepest gradient up to the top, and workers just have to follow and carry the manager’s stuff.

Technology and change

There’s a problem with concave work. It tends to be commoditized, making it hard to get substantial profits on it. If “100% performance” can truly be defined and specified, then it can also be achieved mechanically. Not only are the margins low, but machines are just better at it than humans: they’re cheaper, don’t need breaks, and don’t make as many mistakes. Robots are taking over the concave work, leaving us with convexity.

We cannot compete with robots on concave work. We’ll need to let them have it.

Software engineering is notoriously convex. First of all, excellent software engineers are 5 to 100 times more productive than average ones, a phenomenon known as the “10X engineer”. As is typical of convex projects, most software projects fail– probably over 80 percent deliver negative net value– but the payoffs of the successes are massive. This is even more the case in the VC-funded startup ecosystem, where companies that seem to show potential for runaway success are sped along, the laggards being shot and killed. In a convex world, that’s how you allocate resources and attention: focus on the winners, starve the losers.

Convexity actually makes for a very frustrating ecosystem. While convex work is a lot more “fun” because of the upside potential and the challenge, it’s not a great way to make a living. Most software engineers get to age 30 with no successful projects (most of this being not their fault) under their belt, no credibility on account of that series of ill-fated projects, and mediocre financial results (even if they had successes). Managing convex work, and compensating it fairly, are not things that we have a society have figured out how to do. For the past 200 years– the industrial era, as opposed to the technological one that is coming on– we haven’t needed to do it. Almost all human labor was concave. What little convex work existed was generally oriented toward standardizing processes so as to make 99.9% of the organization’s labor pool concave. We are now moving toward an economy where enormous amounts of work are done by machines, practically for free, leaving only convex, creatively taxing work.

The fate of the MacLeod organization

MacLeod organizations, over the past 200 years, could perform well. They weren’t great at innovation; they didn’t need it. They got the job done. One of the virtues of the corporation was its ability to function as a machine made out of people. It would render services and products not only at more scale, but much more reliably, than individual people could do. The industrial corporation co-evolved with the failings of each tier of the MacLeod organization, hence converging on the “optimization model” above that uses the traits of each to its benefit. Of course, I do not mean to suggest that these “computations” are performed in reality, but the metaphor works quite well. 

The modern technological economy has created problems for that style of organization, however. Microeconomic models tend to focus on a small number of business variables– price points, quantity produced, wages. Current-day challenges require thousands, often ill-defined. What product is one going to build? What kind of people should be hired? What kind of culture should the company strive toward, and how will it enforce those ideals? Those things matter a lot more in the technological economy. Hidden variables that could once be ignored are now crucial, and industrial-era management is falling flat. Combine this with the convexity of input/output relationships regarding individual talent, effort, and motivation, and we have a dramatically different world.

The islands of concavity that MacLeod organizations can create for their Losers and Clueless are getting smaller by the year. The ability to protect the risk-averse from the Big World Out There is diminishing. MacLeod Sociopaths were never especially scrupulous about keeping that implicit promise, but now they can’t.

Even individuals now have to make non-local (formerly executive-level) decisions. For a concrete example, consider education. The generalist education implicitly assumes that most people will have a concave relationship between their amount of knowledge in an area and utility they get from it. It’s vitally important, as most educational institutions see it, for one to first get a mediocre amount of knowledge about a lot of subjects. (I agree, for non-economic reasons. How can a person know what is interesting without having a wide survey of knowledge? A mediocre knowledge gives you enough to determine if you want to know more; with no knowledge, you have no clue.) However, there’s no such thing as a Generalist job description. The market doesn’t reward a breadth of mediocre knowledge. People need to specialize. In 1950, having a college degree bought a person credibility as someone capable of learning quickly, thus entry into the managerial, professional, or academic ranks. (Specialization could begin on the job.) By 1985, one needed a marketable major: preferably, math, CS, or a physical science. In 2013, what classes a person took (compilers? machine learning?) is highly relevant. The convex valuation of a knowledge base makes deep knowledge in one area more valuable than a broader, shallower knowledge. Choosing and changing specialties is also a non-local process. A well-rounded generalist can move about the interior by gradually shifting attention. The changing specialist must jump from one “pointy” position to another– and hope it’s a good place to be.

In technology especially, we’re seeing an explosion of dimensionality. General competence doesn’t cut it anymore. Firms aren’t willing to hire “overall good” people who might take 6 months to learn their technology stacks, and the most credible job candidates don’t want to pin their careers on companies that don’t strongly correspond with their (sometimes idiosyncratic) preferences. When there’s a bilateral matching problem (e.g. dating) it usually has something to do with dimensionality. Both sides of the market are “purple squirrel hunting”.

This proliferation of dimensionality isn’t sustainable, of course. One thing I’ve come to believe is that it has an onerous effect on real estate prices. That might seem bizarre, but the “star cities” are the only places that tolerate purple squirrel hunting. If you’re a startup that wants a Python/Scala/C++ expert with production experience in 4 NoSQL products and two PhDs, you can find her in the Bay Area. For some price, she’s out there. That’s not because the people in the Bay Area are better; it’s that, with more of them, you get a continuous (it’s available at some price) rather than discrete (you might wait intolerably long and not find it) market for talent– and also for jobs, from a candidate’s perspective– even if you’re trying to fill some ridiculous purple squirrel specification. That’s what makes “tech hubs” (e.g. Bay Area, New York, Boston) so attractive– to candidates and companies both– and a major part of what keeps them so expensive. The continuous markets make high-risk business and job-hopping careers– that aren’t viable in smaller cities unless one wants to move or tolerate remote work– possible. Since real estate in these areas is reaching the point of being unaffordable for technology workers, I think it’s a fair call to say that this dimensionality explosion in technology won’t continue forever. However, convexity and high dimensionality in general are here to stay, and about to become the norm for the greater economy. The convexity introduced by an economic arrangement where an increasing bulk of commodity labor is dumped directly on machines has incredible upsides, and is very attractive. Now, in the late-industrial era, global economic growth is about 4-5 percent per year. In the thick of the technological era– a few decades from now– it could be over 10% per year.

If MacLeod rank cultures are going to become obsolete, what will replace them? That I do not know for sure, but I have some thoughts. The “optimization model” paints a world where the relevant business variables are known. Executives call out initial values (based on non-local knowledge) for a gradient ascent performed by managers. As the business world becomes high-dimensional– too many dimensions for any one person to handle them all– it begins to break down the problem and distribute the “computation” (again, solely in metaphor). High-ranking executives handle important dimensions (sub-problems) where tricky non-local jumps might be in order. Managers handle less-important ones where continuous modulation will do. Getting the communication topology right is tricky. Often the conceptual hierarchy that is created will look suspiciously like the organizational hierarchy (Conway’s Law?) This leads to an interesting question: is this hierarchy of people– which will limit the firm’s capacity to form proper conceptual hierarchies and solve its own problems– even necessary? Or is it better to have all eyes open on non-local, “visionary” questions? Is that a good idea? Organizations claim to want their employees to “act like owners”. Is that really true? With the immense complexity of the technological economy, and the increasing inability of centralized management to tackle convexity (one cannot force creative excellence or innovation by managerial fiat) it might have to be true.

Enter the self-executive. Self-executive people don’t think of themselves as subordinate employees, but as free agents. They don’t want to be told what to do. They want to excel. A manager who will guide one (mentorship) gets loyalty. However, typical exploitative managers get ignored, sabotaged, or humiliated. Self-executive employees are the ones who can handle convexity, and enjoy the risk and challenge of hard problems. They strongly toward chaos on the civil alignment spectrum. These are the people one will need in order to navigate a convex technological economy, and the self-executive culture is the one that will unleash their capabilities.

That said, the guild culture has a lot to add as well and should not be ignored. There’s a lot of lost work in exploration that can be eliminated by advice from a wise mentor (although if things change, as they do more rapidly these days, that “don’t go there” advice might sometimes be best discarded). The valuation of knowledge and skill are so strongly convex that there’s immense value generation in teaching. Not only should that not be ignored, but it’s going to become a critical component of the working culture. Companies that want loyalty are going to have to start teaching people again. Self-executives don’t work hard unless they believe they’re learning more on the work given to them than they would on their own– and these people tend to be fiercely autodidactic.

This brings us to the old quip. A VP tells his CEO that the company should invest more in its people, and he says, “What if we spend all that money training them and they leave?” The VP’s response: “what happens if we don’t and they stay?” That ends up looking like MacLeod rank culture over time. There’s a lot to be learned from guild culture, and when I finally Solve This Fucking Thing (Part 11? 12? 5764+23i?) I won’t be able to afford to overlook it.

Gervais / MacLeod 8: Human Nature, Theories X, Y, Z, and A.

Well, this is yet another “second-to-last post” in the Gervais/MacLeod series (See: Part 1Part 2Part 3Part 4Part 5Part 6, Part 7) as I’ve realized that I need to cover one more topic: human nature, especially in the context of the corporate organization (e.g. Theories X and Y). What is it? Is it inherently good, or evil? Is it natural for people to be altruistic, or selfish? I addressed the morality and civility spectra and it should be obvious that I am neither committed to the idea of an inherently bad or good human nature. Mostly, I think people are localistic. We are altruistic to people we consider near to us in genetic, tribal, cultural, or emotional terms. We’re generally indifferent to those we regard at the periphery, favoring the needs of our tribe. Good and evil don’t escape from this localism; they just handle it differently. Good attempts to transcend this localism and (perhaps cautiously) grow the neighborhood of concern: expanding it to all citizens of a polity, then all humans, then all living beings. Evil, not always being egoistic, turns this localism into militancy. Both involve an outside-the-system comprehension of localism that is somewhat rare, leaving most people in an alignment considered neutral. Morally neutral people are best described as weakly good. Assuming they have a strong sense of what good and evil are, they’d prefer to be good, but this preference is not strong and they do not have a burning desire to seek good at personal or localistic risk.

The civility spectrum, between law and chaos, reflects peoples’ biases toward organizations and those who lead them. While lawful good people will oppose an evil society and chaotic good will support a good one, the truth about most societies and organizations is that they are themselves morally neutral, so a person’s civility (bias in favor or against establishment) will influence her tendency to oppose or support power more than the sign-comparison of her and its moral alignments. Lawful people think organizations tend to be better than the people who comprise them; chaotic people think they tend to be worse than the people who make them up. For my part, I’m chaotic, but just slightly. I think that individual people average a C+ on the moral scale (A being good, F being evil) and organizations tend to average a C-. Chaotic bias makes it natural to see corporations as “evil”; in reality, most of them are indifferent profit maximizers.

Interesting enough, software engineering is intrinsically chaotic. Because software requires exact precision, while human communication is inherently ambiguous, large software teams do not perform well. The per-person productivity of a large development team is substantially lower than that of an individual engineer. A team of 10 might be 2-2.5 times as productive as a single engineer. This leads us, as technologists, toward the (chaotic, possibly faulty) assumption that organizations are inherently less than the sum of their parts, because that is clearly true of software engineering teams.

Management theorists have questioned human nature, generating two opposite sets of assumptions about the typical employee of a corporation.

Theory X (presumed egoism): employees are intrinsically lazy, selfish, and amoral. If they are not watched, they will steal. If they are not prodded, they will slack. They are not to be trusted. The manager’s job is to intimidate people into getting their work done and not doing things that hurt the company.

Theory Y (presumed altruism): employees are intrinsically motivated and inclined to help the organization. If they are given appropriate work, they’ll do well. The manager’s job is to nurture talent and then get out of people’s way, so they can get work done.

Theory X is socially unacceptable, but a better representative than Y of how business executives actually think. Theory Y is how executives and organizations present their mentality, because it’s more socially acceptable. So which is right? Neither entirely. Theory X is ugly, but it has some virtues. First, it can be, perversely, more egalitarian than Theory Y. Theory X distrusts everyone, including the most talented and best positioned. Executives are no better than worker bees; everyone must be monitored and a bit scared. Theory Y, which is focused on talent and development, requires (non-egalitarian) decisions about whom to develop. Second, Theory X is more tolerant of scaling, because large-scale societies run (by necessity) on X-ish assumptions. To keep a Theory-Y organization intact, you cannot hire before you trust. Only in the technological era (where small groups can deliver massive returns) has it been possible for growth-oriented organizations to hire so selectively as to make Theory-Y organizational policies tenable.

My ideology (e.g. open allocation) might be seen as “extreme Theory Y”, but that’s not because I believe Theory Y is inerrant. It’s not. Reality is somewhere between X and Y. I believe that organizations ought to take the Y-ward direction largely (on this spectrum) for the same reason that archers aim slightly above their targets. With the actual leadership of most organizations tending toward egoism and X-ness, an organization that doesn’t set inflexible, constitutional Theory-Y pillars (for some concerns) is going to suffer a severe X-ward bias. X-ism is tolerable for concave industrial work, but in the convex world, organizations need to be somewhat Theory Y. How X (or Y) should an organization be? There’s actually a very simple and absolutely correct answer here: trust employees with their own time and energy, distrust those who want to control others’. It really is that simple– a rarity in human affairs– and to continue with anything else is moronic. Employees who volunteer to use their own energies toward something they believe will benefit the organization should be trusted to do so; those who exhibit a desire for dominance over others should be deeply distrusted.

There’s one thing I haven’t addressed, which is which Theory is actually more in force. Theory X was the industrial norm from antiquity to about 1925, when Henry Ford discovered that being a jerk (which almost all industrialists at the time were) was bad for business. High wages for employees meant a strong consumer base. Eight-hour work days were just as productive as longer ones, with fewer accidents. While there were some severe bumps in the road (Great Depression, World War II) the following 50 years saw the emergence of a large middle class, and a changing workforce. Theory Y, at least in aspiration, set in, along with the growth of positive psychology and even the 1950s-70s countercultures, which were more of a reaction against perceived hypocrisy (in organizations claiming to be Theory Y) .

With Theory-Y organizations– especially in research and development– we cracked the German Enigma, sent people to the moon, advanced science more in one half-century than had ever been thought possible, invented the Internet, and grew the global economy at an astounding 5.7 percent per year. Theory Y was the dominant organizational culture from 1925 to about 1975. Then something happened in the counterculture. The 1950s counterculture was mild, liberal, and cautious about the potential for organizational overreach, but tame by modern standards. The 1960s took these seeds of dissent to their logical (civil rights, Great Society) and illogical (Tim Leary, Weathermen) conclusions. The 1970s counterculture was transitional, meek, and reactive to the failed aspirations of the 1960s. In the 1980s, the counterculture was: Let’s Be Dickheads Again. Thus emerged the golden age of private equity, rampant cocaine use (exacerbating its already-present tendency toward context-free arrogance and vacuous superiority) among the upper class, and pro-corporate “greed is good” mentalities. The yuppie generation disgusted their (cautiously liberal, as befit the 1940s-60s) parents with how illiberal and materialistic they were.

Theory Y failed in the 1980s. If your employees are coming into work looking to steal your secrets and launch their private equity careers, you actually can’t trust them. This decade of betrayal, greed, and organizational dissolution proved Theory Y inadequate. Bad people exist at all levels. Some people will try to steal from their employers, employees, and colleagues.

If the Gilded Age nightmare of Pinkertons and company towns was the height of Theory X, and the mid-20th century United States was that of Theory Y, what came after? The chaos of the 1980s settled down, and I think what emerged in its wake can be called Theory Z. By 1995, corporations had been looted at bottom and top (mostly, at the top) and had ceased to inspire. Technology startups were taking on corporate behemoths of much greater size. People at the bottoms of corporations (MacLeod Losers) were beginning to recognize that presumed upward mobility could no longer be believed in. The arrogant egoism of the coked-up 1980s ubermenschen had faded somewhat, but the bilateral altruism existing between the paternalistic corporation and employee was forever gone as well. People returned to localism in personal alignment: trying to do right by the people they care about, and the people near them.

Theory Z (prevailing localism): a few employees will be unusually egoistic or altruistic, but most are going to be localist. Interpersonal loyalty will bind them together, and growing affinity within the group will encourage “pro-social” behavior. People who feel excluded by the group will defect; those who feel included will cooperate. The manager’s job is to build a great team– to use an intuition for human localism to direct that tendency toward pro-organizational behaviors– and to marginalize or separate from (i.e. fire) those whom it excludes.

Theory Z is the most accurate of the 3 “human nature” calculi put forward thus far, insofar as it covers most of an organization. One might also note that these 3 theories correspond neatly to the MacLeod hierarchy. The executive suite (MacLeod Sociopaths) tends to be dominated by Theory-X mentality. These people know that they shouldn’t be trusted, so they aren’t inclined to trust anyone else. Clueless middle-managers tend to overestimate human nature and have a Y-ish bias. MacLeod Losers want to be socially acceptable and get along well with the group. The Loser world, driven by interpersonal and team affinity, is a Theory-Z one. They want to get along, and will manage their effort level to the exact point that keeps in the best social standing– the Socially Acceptable Middling Effort (SAME).

Theory Z may be the most accurate model of the MacLeod Loser class that does most of the work in an organization. This said, Theory Z also has some severe defects, having generated a cargo cult of teamism. Organizations waste time and money on pointless “team-building” paraphernalia: “mandatory fun” retreats that no one enjoys, in-office perks that adolescentize the workforce but detract from actually getting stuff done. A person is judged not on her individual merits, but based on (a) the social status, outside of her control, of the team on which she has landed and (b) as a tiebreaker, her performance on that team. The top people in the organization (rather disgustingly) call themselves “the leadership team”. Teamism also creates closed allocation, of which I’m not a fan. People who attempt to serve the organization directly by moving to more appropriate teams (which their native teams and managers view negatively as attempts to swing to higher-status teams) are viewed as “not team players” and, instead of being allowed transfer, are discarded. Teamism is especially defective in software, where large teams are almost never productive. Theory Z conformity actually solves the industrial problem: what’s the best way to manage concave work? Concave work is that in which the difference between mediocrity and excellence is minimal in comparison to that between mediocrity and noncompliance (zero) and variance reduction (at which management excels) is desirable. It doesn’t solve the technological problem that emerges when we confront convex work, in which the difference between excellence and mediocrity is critical and that between mediocrity and nonperformance is negligible.

The industrial paradigm is heavily oriented toward concave work. To see that, consider educational testing. Students are given very easy problems (most of the difficulty being in artificial resource limits– timed, closed-book exams) so that an average performer will get 85 percent right. The pass/fail line is then set at 70%– in other words, no more than twice the defect rate of the average. If we wanted to re-orient exams toward a convex world, we’d give students very hard problems so that average performers only get 20% (the pass rate might be 10-15%) and call excellence 40%. I’m not actually saying that’s a good idea– I’m out of my depth on these sorts of educational issues– but this is just one way in which in the presumed concavity of industrial work is visible in the pedagogical training people get before entering it.

Why did Theories X, Y, and Z exist? What will replace them? To answer this, it’s useful to look at humanity in several stages– agrarian, industrial, and technological– based on the prevailing rate of economic growth. In the agrarian era, from 10000 BC to about 1750, economic growth was slow (0.01 to 1.0 percent per year) and generally imperceptible in a human lifetime, especially in comparison to the local rises and falls of empires. Most people who wanted to get rich had to steal or kill. Mercantilism was the predominant economic theory, slavery was he most common form of organizational labor, and Malthus was right– not in his modeling of food production growth as linear, it being a slow-growing exponential function; but in his assumption that human population growth exceeded agrarian economic growth. (England didn’t have a Malthusian catastrophe, the Industrial Revolution intervening, but an overwhelming number of societies have had them. Some have argued that England, in the 19th century, outsourced its Malthusian problem to Ireland.) Economics in the agrarian era could be approximated as zero-sum; with population growing as fast the economy did, the average human’s standard of living didn’t improve much. Machiavelli probably wrote The Prince as satire, but it was apropos of the political climate of the time, and any time before or up to about 250 years after that.

The industrial world came into being gradually, with the advent of science and, later, rational government. It started in the late 17th century, and by the 18th, progress was (while slow) visible. Malthus, despite his pessimistic projections, acknowledged that growth existed: it just wasn’t happening very fast in 1798– about 0.9% per year. This rate being too slow to sustain human population growth, economics truly earned its name of “the dismal science”. Personally, I define the industrial threshold (very arbitrarily) as the point (early 19th-century) at which global economic growth reached 1.0% per year. Since I define the technological threshold at 10% per year, we haven’t gotten there yet. (More on this here.) But the most interesting companies (technology firms oriented toward convex work) have that capability.

The architects of the industrial world were quick to realize that coercive labor wouldn’t suit their needs: the jobs were too complex and variable to leave to people who’d been deprived of all autonomy (slaves). This had to be replaced with a semi-coercive model in which employees had some freedom: they’d need to have a boss to survive, but they could choose which one. Industrialists studied sailors (pirates, privateers, explorers and merchants– all different in how ships were run) to learn about group sociology apart from the agrarian state. They studied militaries, large organizations which had left important duties to non-coercive labor (and less important ones to semi-coercive conscripted labor) for centuries. They looked at prisons to see how free people handled the temporary loss of liberty that would be similar to a merchant’s conscription into a middle-management office role. (Slaves were rarely put into prisons, but beaten or killed.) As most complex organizations of the time were semi-coercive, vicious, and prone to violence (that was often a part of the business) this naturally led into a Theory-X mindset: bring ‘em in, and don’t beat ‘em so hard they can’t work, but don’t trust ‘em either.

The zero-sum world of agrarian humanity suffered a major blow in the mid-19th century when the industrialized nations began abolishing slavery, but human behavior is slow to change. Progressive mentalities began to form within nation states, but the old ways of interaction still existed between them, and also between advanced nations and the colonized people. That blew up spectacularly in the World Wars. By 1945, it was evident that being a jerk was not going to work anymore. Racism, for one example, lost all intellectual respectability after what Hitler did. Militant localism (jingoism) had to be replaced by a climate of prevailing respect and positive-sum thinking. The U.S. rebuilt the economies of nations it had defeated at war, instead of inflicting further economic penalty as occurred after World War I. The corporate analogue of these changes came out of positive psychology and political progressivism: Theory Y.

Unfortunately, while Theory Y built good organizations, it left them unable to defend themselves against bad people, as the 1980s showed us. Academia and basic research, in the U.S., still haven’t recovered from the barbarian attacks. Rather, it’s ongoing. Global economic growth dropped– from 5.7% per year to about 3.5– due to society’s disinvestment in progress and science. (It has recovered somewhat, to 4.8%, largely because of the declining relevance of the gutted U.S.) The chaos of the 1980s left working Americans bereft of faith in institutions and in the people they worked with. This led to the more cautious and accurate Theory Z, which correctly models human localism but prescribes a managerial style based on conformity and mediocrity– solving the concave/industrial problems, but failing at the convex/technological ones.

So, what is human nature? Are people inherently altruistic, egoistic, or localistic? We’ve seen a tendency toward localism– somewhere between altruism and egoism– as a default. Does this mean that “human nature is localistic”? Can we say that human nature is morally neutral (rather than good or evil, as some philosophers have suggested)? For my part, I don’t. I’m not convinced that it’s anything, because I don’t hold strong beliefs in human nature. I’m not sure that there’s a there there. We can understand biophysics mathematically, observe sociality, and experience spirituality, but a complete understanding of ourselves eludes us. “Human nature” is a “God of the gaps”.

Personally, my philosophical and religious beliefs are most in line with Zen Buddhism. It would be un-Zen to say that I am or am not a Buddhist, so I won’t, but I believe that the Zen approach to reality is among the most accurate. Most phenomena are empty. People tend weakly toward moral good, but circumstances can easily steer normal people toward lawful evil (Milgram Experiment) or even the chaotic kind (Stanford Prison Experiment). Theory X presumes a hostile human nature, as a slaveowner might. Theory Y presumes an altruistic one, leaving organizations unable to defend themselves against bad actors. Theory Z correctly concludes the human default to be localism  but settles prematurely for mediocrity and cargo-cult teamism. None of these are well-equipped to tackle the needs of the technological era, in which the fast rate of growth and change necessitate unlocking creative energies, while a certain caution is needed regarding those who might wish to subvert the organization, or gain inappropriate dominance over it.

Theory Z gets what Y did not– that there are “toxic” bad actors out there that the organization must reject– but takes a stupidly teamist approach. People aren’t fired from Theory-Z organizations because they’re harmful, bad people, but because they’re “not a team player”. The effort is almost never exerted to assess alternative possibilities to individual defect, such as (a) a defective or poorly-configured team, (b) bad management, or (c) no-fault lack-of-fit. All of these are more common than the extremely damaging but rare toxic individual.

In the convex world, creative output isn’t going to come from “teams”, at least not in the managerial sense where the teammates have little control over membership and organization, and in which “team” is conflated with “career goals of the manager”. (Note: a manager who says “not a team player” is actually saying, “not a me player”.)  Theory-Z management tries to control human localism, corralling people together and saying, “Be a team, now!” That doesn’t work very well. Rather, the creative energies that can produce technological-era progress come from individuals who sometimes choose to form teams, and sometimes to work alone.

Why is Theory Z just as foolish as X and Y? X and Y inaccurately claim “human nature” to have a strong directional bias toward self-serving egoism or pro-organizational altruism. It does not. Theory Z maintains a belief in “human nature” and assumes it to be inflexibly localist, because that’s an observed default. I maintain that “human nature” is pretty damn empty. People are mutable. Don’t settle for bland localism; you’ll get pointless institutions that way. People can be very good; try to make it happen. They can also be very evil; try not to have that happen. They will sometimes form teams; that is fine. They will sometimes work alone; that is also fine. Judge people on their actions and not assumptions about some “nature” that is illegible at best and nonexistent at worst.

How does one convert this into an actionable management style? Lord Acton said it very well:

Judge talent at its best and character at its worst.

Theory X fails because it allows no room for excellence (talent at its best). Theory Y fails to account for bad actors (character at its worst). Theory Z throws its hands up in the air and mediocritizes: let’s all just get along and be a team. How do we assess talent or character? The truth is that we can’t; we can only look at peoples’ actions. In practice, this usually gives us enough data. If people show even the potential for excellence, that should be explored and encouraged. On the other hand, it should be very rare (if ever?) that a person is presumed to have good character and given more power over others than is absolutely necessary. So I actually nailed it, already, above. Here is an upgrade of Theory Y that is more robust against problematic people:

Theory A: trust employees with their own time and energy; distrust those who want to control others’.

That is where I’ll stop for today.

Gervais / MacLeod 7: Defining organizational health, the Mike Test, and VC-istan’s fate.

Over the past couple weeks, I’ve delved into organizational health and the processes that compromise it. (See: Part 1Part 2Part 3Part 4Part 5, Part 6.) Typically, organizations tend toward a MacLeod hierarchy with three tiers: the Sociopaths, the Clueless, and the Losers, in that order from top to bottom. Sociopaths, who take an up-or-out strategy and either end up at the top or fired, are strategic and dedicated but not subordinate. They’ll never sacrifice their individual career goals for the benefit of the organization, although they may work to improve the company if there is gain for them. These aren’t always bad people. Of the three personalities, I have most in common with the Sociopaths, but I’m not a bad (much less psychopathic) person. Clueless, on the other hand, are dedicated and subordinate but not strategic. They’ll work hard, and take orders, but they don’t have a good intuition for what is worth working on. They’ll eagerly follow or lead pointless, “death march”, projects. They tend to be shunted into middle management where their dedication and eagerness are an asset but their lack of strategy does minimal damage. Losers are subordinate and strategic but not dedicated. They know what’s worth working on and what not, and will follow orders– they’re subordinate because it makes their lives easier– but rarely put forth more effort than is required of them. (As already said, they’re not actually “losers”. More on that, later.) They’re discomfort-minimizers, while the equally strategic Sociopaths are yield-maximizers.

The MacLeod process exists because most organizations make it inconsistent for a strategic person to also be subordinate and dedicated, meaning that the confluence of these three traits won’t occur. Strategic people tend to be rational and selective with their efforts. Some will aim to minimize change and discomfort, willing to sacrifice compensation and career progress in exchange for an easy job where they won’t get fired. That favors subordinacy: make the boss happy, get away with more and reduce risk. If such a person can leave work at 3:00 and collect the same salary, he will. (Why not? If the firm remains happy with his work ethic, is it unethical?) These are the Losers. It’s important to note that they’re not losers in the sense of being disliked, undesirable, or defective. They only “lose” in the first-order economic sense, since their position is one in which they receive less (usually, a steady pittance) from the organization than they put forth. They trade expectancy (long-term average compensation) for the risk-reduction offered by a large, stable company in which they can retain good standing by appeasing a small number of important people. There’s another crowd who are also strategic, but who have more of an appetite for risk and want to capture some of the surplus value generated by the Losers’ trade (of expected value for risk reduction). They make the equally rational decision to put forth a lot of effort, and to take on a lot of risk, in exchange for rapid career growth. They tend to be dedicated, hard workers, but they’re not subordinate. This doesn’t mean that they’re ideologically or obnoxiously insubordinate, but they’ll never buy into the fiction that people must put company goals above their own career needs. Ultimately, such a person will gladly work a 50 or 70-hour week for the right price, but will never sacrifice her own career goals for the company or “the team”. Such people can’t stay in one place for very long. It’s not that they make themselves disliked, but there is a certain “offness” about them. They’re ambitious. They have “an agenda” (as if that were a bad thing). They’re only loyal to companies that treat them well and give their career needs a special value that can’t be given to all. They’re mercenary. It’s up-or-out for them. Companies promote as many of these as they have room for, but must discard the rest. This is actually an impersonal and necessary process– when you have more ambitious people than there is room at the top, you must make a way out for some, even if they are good people that you personal like. However, companies often have a psychological need to create a mythology for hard decisions, and this leads into the “not a team player” epithet that exists to justify this process (that, in my opinion, companies are not required to justify, because it’s not immoral to fire people; it’s just the way human organizations work). These strategic, ambitious people are the Sociopaths. Finally, the non-strategic who are dedicated and subordinate must, almost by definition, be Clueless. Those are the “true believers” who give to the company without expecting much in return.

The MacLeod organization is very stable according to its own internal metric. The Clueless provide a barrier between Losers and Sociopaths on the rank spectrum, while Losers (who give little, and get little) provide one between (value-capturing) Sociopaths and Clueless (who give a lot, and get little) on the hedonic spectrum. The effort thermocline and differential social status hold everything together. It’s an envy-reducing structure. Clueless are oblivious to the effort thermocline and don’t want the jobs immediately above them. Losers don’t want to become Clueless middle-managers– with only token power and slight improvements to compensation, but substantial increases in responsibility and discomfort. Thus, very few people want the jobs immediately above them, and those who clearly do want to ascend (Sociopaths) are fast-tracked either up or out. The MacLeod organization is, on its own terms, fairly peaceful. On the external market, however, such organizations are not always able to compete. MacLeod hierarchies keep peace within the firm, but often make the organization slow to adapt to the world outside.

The problem with the MacLeod organization is that it’s driven by three tiers for which each has a critical defect. Insubordinacy (of the Sociopaths) is not always bad, but it is a defect from an organization’s point of view, and with no one to audit the Sociopath tier here is no way to exert control over the moral character of the leadership. If “good Sociopaths” (Technocrats) are in charge, it will be a good organization. If bad people get into power, they will drive out the good. The problem isn’t that such ambitious people are uniformly or even often bad, but that organizations can almost never self-regulate in such a way as to audit or change the moral character of their leadership– and once an organization goes bad, it will rarely revert, because bad people have an innate competitive advantage; true psychopaths are more agile in social competition than the irreverent-but-decent “good Sociopaths”. In short, MacLeod Sociopaths are not necessarily bad people, but they’re impossible for an organization to control. The Clueless, lacking strategy, are unable to function without good people above and below them. They produce most of the tactical effort, but require management from above and below in order to retain focus on useful stuff. This dependence on others is their shortcoming. Finally, there are the Losers, who do most of the work and will directly affect the company’s ability to execute as well as its reputation for quality of service but who are, rationally, only dedicated enough to remain in good social standing. It’s not true that they “do the minimum not to get fired” (that’s a common misunderstanding of Loser-ism) so much as they manage their performance to the Socially Acceptable Middling Effort (SAME). They want neither the reputation for being a slacker, nor that for working too hard. They aim for the middle. While less important than the strategic competency of the leadership, the SAME level is a major cultural factor in a company’s macroscopic performance.

The organizational issue with the SAME is that it drifts over time. A high SAME will keep the working people of the company, who are often very competent despite their lack of ambition, highly productive. On the other hand, when the SAME falls to zero, the company ends up with a lot of deadwood; Losers stop working, because there’s no reason to do so. In this light, we can understand Marissa Mayer’s recent decision to crack down on work-from-home employees. This effort is about raising the SAME, which is hard to manage in a distributed setting. The problem isn’t that WFH employees are likely to be lazy. That’s often not the case. In fact, the best WFH-ers are far more productive than any in-office employee. The issue is that the good WFH-ers have no effect on the SAME– they get a lot done, but the rest of the office doesn’t see them working hard– and the bad WFH-ers have fallen to zero. An in-office policy will, at least at first, reduce bulk productivity (by hurting the good WFH-ers more than it brings up the bad ones, most of the latter being incorrigible people who will need to be fired) but the expected second-order effect is to raise the SAME. Mayer’s changes may kick Yahoo into the ugly state of a tough culture, but that’s likely to be less dysfunctional than the stodgy rank culture into which MacLeod corporations devolve. In rank culture, getting along well with management is more important than effort itself, which pushes the SAME down as obedient non-performers get a pass and weak managers become entrenched.

If each of the 3 MacLeod tiers is defective in one of these three desired organizational traits, we must ask the question. Can people be strategic, subordinate, and dedicated? It only happens in the context of a mentor/protege relationship. In truth, people who are truly strategic are never fully subordinate or insubordinate. While I originally approached the MacLeod hierarchy and this three-trait decomposition, I assumed the existence of all three traits to be impossible. In reality, those who are strategic are subordinate or insubordinate based on context. Strategic and dedicated people will subordinate, in the short term, if the leadership (management, advisors, investors) shows a long-term interest in their careers. True loyalty is not incompatible with the insubordinate tendency of the highly capable mind. There’s a pay-it-forward mentality and a personal affinity that enables such people to live in harmony with the organization. This is observed in the rarest of the four work cultures: the guild culture, which creates balance in the relative importance of dedication, subordination, and strategy. The other cultures tend focus on one of the 3 traits at the expense of the others: rank culture, on subordinacy; tough culture, on dedication and sacrifice; self-executive culture, on being strategic. Guild cultures encourage balance. Why, then, are guild cultures rare (and dying)? The answer is two-fold. First, they’re hard to maintain, because the leadership must continually refresh its skill base in order to mentor new people, which means that the teachers must “moonlight” as students and study new methods as well as the external market. Second, guild cultures cannot grow fast. If they take on too many new people at subordinate ranks, it becomes clear that the not all of their careers will succeed (there isn’t enough room higher on the ladder) and the whole thing falls to pieces. While guild culture may be “good”, it is not fit (as an evolutionary term) insofar as it does not allow fast growth of its organizations.

A guild culture that collapsed recently is that of large-firm law (“biglaw”). Originally, it was difficult to get an associate position at a “white-shoe” law firm, but one who had one stood a very high chance of making partner. Not making partner (after seven to ten years) was the exception reserved for bottom-5% performers. In the 1980s, this changed, due to the increased workload generated by the private equity boom. The firms began taking on large numbers of associates without allowing the partnership ranks to grow in tandem, the result being that making partner is now the rarity. Now, it’s about 5 percent who get partnership, rather than 5 percent being denied it. The guild culture died horribly, being replaced by a catastrophic tough culture where 70-hour work weeks and “4:30 work drops” (late-day assignments with next-morning deadlines) are the norm. New York attorneys frequently describe the state of their (ex-)profession as “banking without the upside”.

So what defines a healthy working culture? We now have the vocabulary to address this. I’m going to elaborate six statements about a healthy workplace culture, and then arrive at a 7th (The Mike Test) which is the most important of all. I derive these six assertions from the three workplace traits– strategy, subordination, and dedication– in addition to the need for moderation in each.

  1. (Dedication, or DED) People can be relied upon to do their jobs well, and to treat their work as important. Ideally, this trust and reliability should exist at all levels of the organization. The company functions best if everyone is willing to do the hard jobs. 
  2. (Moderation in dedication, or M-DED) People do not engage in unnecessary sacrifice for social or subordinate reasons. Pain does not become a measure of a person’s work or value.
  3. (Subordinacy, or SUB) People take a “pay-it-forward” attitude toward their colleagues and the company. Junior employees take direction from mentors; seniors invest in their reports for the long term. People invest in their relationships with the company, because it is worthwhile to do so. 
  4. (Moderation in subordinacy, or M-SUB) Doing the right thing is more important, to employees and the company, than following orders. This requires a culture that enables people to speak up without fear of retribution.
  5. (Strategy, or STR) Individual employees take ownership of their own work and have the autonomy to place their efforts where they perceive the most value. There’s no need to ask permission or “apply for transfer” to work on something that appears important. This is where open allocation shines.
  6. (Moderation in strategy, or M-STR) Allowance is made for exploratory work that might pay off only in the long-term. Work need not deliver short-term dividends to be acceptable. People are allowed, at all ranks, to invest at least some of their time into R&D that is abstractly beneficial to the organization, even if it doesn’t produce an immediate benefit.

If I were to grade each of the four cultures (0 to 8, 8 best) for its typical level of success on each of these traits, here’s how I would assign them (based on their observed performance, not on their purported values).

Trait Rank Tough Guild Self-exec.
DED     2    6     5      8
M-DED   3    0     5      6
SUB     4    1     8      4
M-SUB   0    2     5      7
STR     1    4     4      8
M-STR   2    0     5      3
Avg.   2.0  2.2   5.3    6.0

Rank cultures are across-the-board weak. They excel in superficial subordinacy, but the lack of true loyalty earns them only a ’4′ grade for that trait (SUB). The only good thing about them is their internal stability, which is why they are the eventual state of a hierarchical (MacLeod) organization. Still, they tend increasingly toward macroscopic underperformance due to their corrosive mediocrity. When the only thing that will prevent laziness is aggressive management, effective managers leave (wanting better reports) and the company ends up getting stuck with lazy managers who tolerate crappy employees. Tough cultures are slightly better– people actually give a shit, if only for selfish reasons such as aggressive performance reviews– but still fail in most critical areas, and behavior tends toward moral degradation. In tough cultures, people are as subordinate as they need to be to survive, but deeply disloyal. Two examples of tough-culture degradation are Enron and Google after the introduction of “calibration scores”, but the tracks of the organizations are different. Enron maintained its tough culture by executive fiat and experienced top-to-bottom ethical corrosion. Google’s tough culture (introduced by a play-for-play copy of Enron’s performance review system) reverted quickly to a rank culture, because many managers had no desire to enforce it and began agreeing to “peg” calibration scores in return for loyalty. (Google is an unusual example, having a healthy self-executive culture above the Real Googler Line– enabling it to maintain strong macroscopic performance– and a necrotic tough-turned-rank culture below the RGL.) The latter path is more common. Tough cultures usually return to rank cultures; those who have the power to protect people from the harsh review system become the new holders of rank.

Let’s examine the healthy cultures, in the light of the grades above. Note that self-executive cultures get top marks for dedication and moderation in dedication. When people are trusted to direct their own efforts, and rewarded for good work, they tend to put their effort levels at the right level. They also excel at moderation in subordinacy and (of course) strategy. What self-executive cultures tend to be bad at is rewarding long-term investment, including mentoring new hires. Guild cultures, although not especially fit due to their intolerance of fast growth, are well-rounded and healthy. When they work well, they excel in terms of a “pay-it-forward” attitude that replaces subordinacy (or insubordinacy) with genuine altruism. They’re also, perhaps surprisingly, the most prone to long-term investment (moderation in strategy). The central planning inherent in guild culture can be a weakness, but it can also allow the firm to “future-proof” itself consciously– if its leadership wants to do this.

Both cultures struggle when it comes to growth, but in different ways. Guild cultures can grow vertically– bringing in people of lower or higher skill levels– because they have the machinery for assimilating them into mentor/student relationships, but tend to fail at horizontal growth, because guild cultures require a carefully managed balance of work quality, skill level, and rewards. If that gets out of whack due to rapid growth, some form of scarcity (e.g.,of good reports, of high-quality work, or of room at the top) will turn the firm into a zero-sum slugfest that destroys the mutual trust of the guild culture. (It becomes a tough or rank culture.) On the other hand, self-executive cultures can grow horizontally– taking on more people at the same skill level– but tend to be incapable of assimilating people of superior or inferior skill levels to those who are already there, because self-executive cultures rarely provide the incentives for managed growth (as opposed to going out and putting forth work that brings immediate results). An example is Valve, an ideologically self-executive culture that simply does not hire junior-level people– it has enough self-awareness to know that it can’t maintain its self-executive culture in the face of the skill inequality that vertical growth creates.

In truth, self-executive cultures tend to downplay differences in skill– everyone has basic autonomy, there are no real “bosses”– and can’t hire below the prevailing skill level and maintain their culture. They could hire above the prevailing skill level and survive– that would be desirable– but have a hard time getting such people to work for them without offering some authority to them. People who are used to be entitled leaders (executives) do not usually want to work on equal terms with people they consider of inferior skill. Thus, self-executive cultures can only hire near the prevailing level and, since they only succeed if the prevailing skill level is fairly high, the scarcity of such talent means they cannot grow fast even if they would want to.

Tough and rank cultures, on the other hand, grow much faster. Why is this so? Tough cultures do not focus on growth so much as churn. They hire a lot of people, fire a lot of people, and are responsive to market conditions but generally agnostic on the direction of headcount numbers. Tough culture, being the absence of a work culture, has no growth management. A tough culture can hire a person of low market value, accepting the very high chance (in some cases, over 50% per year) that it will have to fire him. What causes directional growth (i.e. more hires than fires) in tough cultures is the long-term tendency toward inefficiency (necessitating greater headcount) and the emergence of pockets of rank culture as the tough culture decays. Tough cultures tend to grow in spite of themselves, because the cultural corrosion reduces individual performance despite the culture’s intent of doing the opposite. Rank cultures, for their part, actively encourage headcount growth. Hiring binges mean that there are more subordinates to go around, which makes managerial decision-makers happy.

In other words, neither of the desirable cultures (self-executive, guild) excels at horizontal growth and vertical growth. This makes them less fit, at least in terms of the ability to subsume people, than the pathological rank or tough cultures of typical organizations. There might be as many of these desirable cultures (self-executive and guild) as there are pathological cultures, but the latter house more people. It may be that most businesses have good cultures, but most employees work in dysfunctional businesses, if only because the dysfunctional work cultures are most able to grow quickly.

This conclusion is depressing: most people will work in dysfunctional cultures. Can we change that? If we want to do so, we need to answer some questions? What is the best workplace culture? Should one aim for the guild culture, or the self-executive one? I think the answer is obvious: one needs a hybrid, with ideas from both. I would say that one should aim for a culture that is mostly self-executive, and especially so for senior hires, but that creates an internal market for mentoring new employees, and for long-term investments, in which those efforts are equally valued. In doing so, it would manage to capture some of the assets of the older guild cultures, thus enabling some degree of vertical growth.

On the topic of growth: in addition to the six cultural evaluations above, I’ll add a 7th that is, above all, most important. The other six pertain to the present-time cultural health, but this 7th determines whether an organization will improve or decay over time. It’s The Mike Test. It has one criterion. The Mike Test is…

…would you, if no one would know or give you credit for doing so, want to hire someone better than you? Would it be rational to do so?

Assume that there’s no hiring bonus, and she’s not your best friend. You won’t get credit, in any form, for a great hire, and she won’t feel preternaturally loyal to you if she rises fast. The only benefit you get from hiring this great person is that you improve the company. The risk you take on is that your relative status in that company will decline. In a large company, the risk is low– you’re unlikely to compete directly with her– but so is the reward, making the balance zero. (It’s not worth it to hire her even in the large firm, not because there’s a risk of competition, but because you could spend time on other things.) I would argue that most companies fail The Mike Test. In the vast majority of companies, it is not rational to hire a person of superior ability.

This hits on the (slightly altered) Jack Welchism that “A players hire A+ players; B players hire C players”. In my use, however, “A” and “B” orientation pertain to context and security rather than innate competence. A players are secure enough that their interests (at least, in hiring) align with the company’s. They want to work with great people, and it has nothing to do with coarse personal benefits (hiring bonuses, “finder’s” credit). They make their companies better. B players, who are insecure because they are unremarkable, want to be safe and manage themselves to the middle. Hiring incompetents minimizes their risk of drifting out of the middle (and into the bottom). Good cultures discourage this kind of B-ness. They make sure that competent people are secure, and they rid themselves swiftly and fairly (preferably with severance; it reduces drama) of incompetents. Sadly, that’s rare. Most companies fail the Mike Test, and MacLeod hierarchies form because of organizations’ tendencies to hire people inferior to the (semi-insecure) real decision makers and, when superior people are brought in, to try to make them inferior using their control over the division of labor. Those tiers emerge because people in an insecure context have the incentive to hire only inferior copies of themselves.

Let’s discuss each of the four cultures in the context of the Mike Test.

Tough cultures fail the Mike Test in the worst way. In a tough culture, no one is secure– that’s the whole point of tough culture– so everyone is a contextual B-player (i.e. incentivized to hire mediocrities and make oneself look better). No rational person living in a tough culture would hire someone of superior skill– that person becomes an immediate threat. Rank cultures don’t fare much better. In a rank culture, one tends to have one of two kinds of managers. The first is the checked-out (i.e., also lazy and mediocre, as befits rank culture) boss who just doesn’t care. There isn’t a major loss inherent in hiring strong people, but it’s not a worthy use of time. The second is the hard-ass, careerist boss who creates a pocket of tough culture under him. (The company might still have a rank culture, but this boss holds high expectations.) That type of boss only cares about hiring insofar as it builds his team, and the tough-culture rules (don’t hire someone better than you, lest you be thrown under the bus) apply. Bosses in rank cultures might want to hire people of superior skill, but only if they could lock in permanent rank superiority. Rank cultures especially stigmatize reporting inversion (i.e. having a younger, less senior, or less educated boss) to the point that it can be career-ending to be at the butt of one. The benefits of having a strong subordinate are offset, in a rank culture, by the risk of reporting inversion. Therefore, both of the dysfunctional cultures (rank and tough) fail the Mike Test, explaining why they hire worse people with each generation of growth.

Guild cultures pass The Mike Test. If you hire someone better than you are, he might end up in a higher place, but that’s okay. You get a mentor, not a threat. A well-managed guild culture can assimilate someone at a higher skill level without eroding the well-being of the rest of the organization. This is the symbiotic nature of the guild culture. Self-executive cultures also pass, because their “bossless” nature means that the prospective hire’s superiority of skill is not a major concern. It’s a good thing to hire a better person, because you’ll have a strong colleague.

To summarize this briefly for each culture:

  • Tough cultures fail the Mike Test catastrophically. You endanger yourself directly if you hire someone better than you are.
  • Rank cultures fail the Mike Test by apathy. People only hire strong people if they can guarantee that person’s subordinate status. Rank cultures tend toward inferior hiring– strong people are less likely to be subordinate– but not as fast as tough cultures.
  • Self-executive cultures pass the Mike Test, as most people would prefer stronger colleagues, but the equality inherent to a self-executive company is a hard sell to one who might expect (because of a higher skill level) a leadership role.
  • Guild cultures pass the Mike Test, if they can convince the superior to take the role of a mentor rather than a manager.

Perhaps surprisingly, most VC-funded startups fail the Mike Test. They pass it for founders and real owners, who will have a more successful company, but they fail for engineers. Founders and investors control the dilution process and, even if they lose relative share, they’ll only make deals that are beneficial to them (50 percent of something is better than 100 percent of nothing.) If you own 20 percent of the company, you’re ecstatic if you just hired someone better than you are. What about engineers, however? What are their incentives?

Let’s consider a typical software engineer at a 50-person technology startup with 25 software engineers. His compensation is $25,000 per year lower than the market level, offset by equity equal to 0.05 percent of the company, vesting over 4 years. (In practice, he’d more likely have options at a low strike price, but I’m going to simplify here.) Salary raises are rare in startups, and equity improvements (without a promotion) are almost unheard-of. When things are going badly, that’s not a time to ask for anything; when they’re going well, the appreciation of equity is the raise. In addition to the $100,000 lost over four years at a low salary, let’s value the lost salary growth at $50,000 over 4 years, plus another $50,000 to account for future income lost to being at a low salary level when he exits. So he’s paying $200,000 for 0.05% of the company, implying a valuation of $400 million. This is, most likely, much higher a valuation than the one at which investors would buy into it. However, I can make a strong case that the engineer’s valuation should be lower than that given by investors, especially in a VC-feeding frenzy. When risk, liquidation preferences, cliffs and the lack of control are included, an engineer doesn’t do well to accept this typical startup offer ($25,000 salary drop, no raises; 0.05% equity) unless he can realistically value the company at approximately $1 billion. With the shoddy IPO climate, not many startups deserve that kind of valuation. (In fact, the companies that do are no longer really startups.) So, the equity offered by a startup is not, for most mere engineers, a good reason to be there.

So why do software engineers work for these VC-funded startups? There are many Clueless in the mix who massively overvalue their equity consideration, but most engineers believe their initial grants to be “teasers”. They know that their starting allocations are low, but expect that they’ll get something closer to a “fair” share when they grab those “inevitable” executive positions at which real equity allotments (0.25 to 0.5 percent for Directors, 0.5 to 1.0 percent for VPs, 2.0 for C-level, 3.0 for CTO/COO and 5.0 for CEO) are common. That is what keeps engineers in VC-istan motivated; the implicit (and often broken) promise of a higher-ranking role (with investor contact, and real equity) as the company grows. The real concern, when engineers participate in hiring decisions, isn’t about equity dilution associated with strong hires. They just don’t have enough equity for that issue to really matter. Their fear is that, if they hire people stronger than them, they’ll lose out on the executive positions implicitly promised to them as early hires at their startups. If they hire engineers better than they are, they’re doomed to languish in a company that has begun hiring above them. One note about typical startup sociology: once your startup hires someone from outside directly above you, it’s over. It will continue doing so, and your career has stalled out. You’re not a real player in the firm.

There’s an inherent conflict of interest in this style of VC-funded startup. The real owners (investors, founders, top management) get a social-climbing mentality and seek to hire stronger technical talent (even if they don’t need it!) for the sake of “scaling”. Engineers, on the other hand, would do well to subvert this. They don’t actually want to hire bad people (terrible software engineers reduce the productivity of the team) so much as they want to hire just-slightly-inferior people who aren’t so bad as to poison the team, but won’t challenge their chances of getting an executive position. This is more of a case of B players hiring B- players than one of them hiring C players. 

However, two to five generations of “just slightly inferior” will turn to bad, and the rapid churn of VC-funded startups means that it doesn’t take that long. VC-istan startups degrade severely and predictably once hiring decisions are made by people with small equity slices, whose concern is not the health of the company (ownership) but the protection of their own inside track to executive positions. Such startups fail the Mike Test, and it doesn’t take long for it to show.

What is VC-istan’s place in the 4-culture taxonomy?

What is the culture of a typical VC-istan startup? Within VC-istan, there are efforts (e.g. Y Combinator) to generate a pay-it-forward guild culture. This is actually quite interesting– entrepreneurship is supposed to be market-oriented, but the most healthy subsector of VC-istan is guild culture– the healthy variety of a command culture. On the other hand, the healthy market culture (self-executive) is shockingly rare. This suggests that VC-istan has become somewhat of a command (not market) culture, and it seems that it would be more of a rank culture than anything else. I tend to believe that this is probably true. VCs talk to each other. They decide as a group who is hot and who is not, and this extortionate power makes them the true holders of rank. VC-istan, a postmodern corporation that manages to transcend mere companies– in VC-istan, companies are disposable– is so amorphous and complex that it cannot be tagged as “only” belonging to one culture, but rank culture is increasingly the dominant force. Unfortunately, I don’t see a solution for this. One possibility would be for the government to interfere with communication among VCs in order to kill off the collusion, herd mentality, and “accept this term sheet or I’ll pick up a phone and no one will fund you” extortions, but a government step-in would probably cause more problems than it would solve.

VC-istan itself may be a rank culture, but an imperfectly formed one. VC-istan exists because a web of socially connected people– reputable investors, and those with welfare-check (err, I mean “acq-hire”) writing ability at large companies– have created a controlled-market zone. Outside of that is regular ol’ business formation: an actual market. By the way, what are free markets? They are like self-executive cultures at best, but tough in their own way. Corporate tough cultures are mean-spirited and driven by intentional human malice (stack ranking, “calibration scores”, transfer blocks). Free markets are tough only because they are indifferent, but self-executive for those who’ve managed to develop a pattern of success. So the “greater world of business” formation is one that contains the market’s mix of self-executive and tough features at its periphery, and becomes more rank-culture-like as one grows closer to the VC-istan power players.

Startups are a reaction against the dysfunctional rank cultures, and would prefer to set themselves up as self-executive enterprises.However, as the company grows, power shifts to the rank culture of the world without (investors, acquirers). Full-on rank culture is usually in force shortly after liquidity, but the phase most typically associated with VC-darling “startups” is a transitional spell of (unplanned) tough culture. 

Startups tend to remain “flat” for a long time, but this is usually not out of executive altruism. Self-executive cultures are naturally flat, but so are tough cultures. Tough cultures want everyone in competition with everyone else and use a (pathological) flat model to maximize internal competition. The self-executive model of the VC-istan startup dies as soon as the company stops handing out real equity slices (often immediately after the Series A). At this point, the “colony” mentality (live or die as a group) ends and the true goal of the new hires is to get into the executive positions that make real equity slices possible. The internal competition that emerges causes alliances to form and break, influence to be peddled, and informal management (people who manage to win credibility through illicit trades and manufacture the appearance of high performance) will emerge. The tough culture’s informal management is actually substantially worse than the rank culture’s rigid system, because the former encourages more influential people (managers in practice, if not in title) to compete with their (again, informal) inferiors. Rank cultures, at least, are rendered stable by the absence of competition between managers and subordinates– leading, over time, to the Gervais hierarchy. Tough cultures are just amoral, vicious messes.

When a startup first gets funding, the cultural neighborhood of the founders switches from the tough one of an indifferent market to a more self-executive one. They now have some autonomy, measured numerically in “runway” (how long they can survive with current capital). Unfortunately, this self-executive culture cannot survive the rapid growth typically expected by investors (especially VCs). Self-executive cultures can only hire near the prevailing skill level. VCs, on the other hand, want the company to indulge in social climbing (hiring above that level, which involves enticing people with executive positions that reduce the autonomy of those within) and rapid growth (which mandates hiring below the prevailing skill level to tackle the grunt work generated by sloppy, fast growth). Guild culture is clearly not an option, because tight deadlines leave no time for mentoring. Nor is rank culture, because it tends rapidly toward the underperformance of the MegaCorps that startups exist to destroy. Thus, VC-funded startups tend to degrade into a tough culture by default. This should explain the churn-and-burn behavior for which they are so infamous.

So, what culture is VC-istan? It depends. If you’re lucky enough to win the attention and mentorship of the (extremely rare) well-connected person who’s not an asshole, it’s a guild culture. If you’re a founder who just got funding, or a very early hire guaranteed a strong position, it’s self-executive. For founders and executives fighting mostly external battles (with acquirers, investors, and others with a million times more in the way of connections) it’s a rank culture, but one that does not (at that point) seep into the organization. For typical engineers facing internal battles (for scarce future executive positions that come with real equity) it’s a tough culture of long hours, harsh deadlines, vicious politics, and fast firing.

In other words, startups go through four cultural phases. Before funding, they live in the prevailing, indifferent tough culture of the market. Once they get their initial funding and have some autonomy, they turn self-executive (second phase). The romance of the “startup ideal” is derived from this phase of organizational life. As they grow (often sloppily) and take on more people than they can really provide startup perks (real equity, autonomy, leadership) for, they turn into tough cultures (third phase). Most VC darlings have tough cultures. By the time the company is getting that much attention, the self-executive era has ended. Finally, once the startup reaches liquidity and is a full-fledged corporation, it tends toward typical rank culture (fourth phase).

Mike Testing VC-istan to predict its future

Let’s see if we can apply the Mike Test to VC-istan, noting that Silicon Valley emerged as a reaction to the stodgy rank cultures associated (at the time) with East Coast corporations. The Mike Test tells us that self-executive and guild cultures can improve as they grow, although these low-entropy work cultures are hard to grow fast. Rank cultures, on the other hand, tend to stagnate, and tough cultures actively devolve, as headcount grows. What is the future, then, of VC-istan?

Most VC-istan companies are in active cultural devolution, being tough cultures where people are prone to hire inferior versions of themselves. In software engineering, this process is slowed somewhat by the (genuine) desire not to hire outright incompetents. Software is structurally cooperative enough that the pain (bugs, bad designs, low code quality) associated with hiring an incompetent does not offset the gain in relative position. As I said, this software-specific trait means that B players don’t try to hire C players, but B- players, which slows the Mike-Test decay normally associated with tough cultures. All of this is, in fact, not a major problem for VC-istan. Companies are disposable! The thing should be sold before it falls that far. VC-istan can tolerate the corrosion of the tough corporate cultures it generates, since these companies are just going to be sold to rank-culture corporate behemoths. VC-istan is not designed to build free-standing companies. They exist to be bought or to die.

The tough cultures of VC darlings will bring incompetents into those companies, but not a rate that is fast enough to matter to the corporations themselves. They’re build-to-flips that have no reason to care about slow cultural corrosion. There might be a “littering effect”, if these tough cultures are (a) bringing undesirable people from outside of VC-istan, and (b) leaving them in the VC-istan ecosystem after the company fails or is bought. If both (a) and (b) are true, then we can hold these cultures responsible for lowering the overall quality of people in it. I don’t know if that’s the case. That subject needs further study. Since the most egregious incompetents in VC-istan are not low-level engineers but the supernumerary, non-technical, executives, I tend to doubt that any engineering-specific littering effect is a problem, either in the short or long term. The executive-specific one is well-documented; VC-istan does have a way of turning shitty, failed bankers into even shittier non-technical startup “executives”.

In other words, I don’t know if the tough culture that typifies the standard VC darling is going to fill VC-istan with incompetents. The company itself will take on undesirable people, but those companies aren’t built to last very long. That tough cultures are so common is a symptom of something pathological, but that’s a topic for another essay. Instead, to project the future of VC-istan, we need to look not at the culture of the typical VC-funded company, but at the culture of VC-istan itself: the postmodern corporation in which the VCs are executives, so-called “CEOs” are glorified project managers, and engineers are clueless chumps who don’t realize they work for a big company. What we see is a very typical rank culture, with VCs and well-connected “serial entrepreneurs” (read: people whose connections entitle them to continued funding no matter what happens) in the Sociopath tier and a swollen Clueless tier. It’s a very effective, internally stable MacLeod rank culture.

As I discussed earlier, the stability of the MacLeod organization comes from the lack of envy between Losers and Clueless; and between Clueless and Sociopaths. Differential social status (DSS) and the effort thermocline (the level at which jobs become easier, rather than harder, as one ascends) ensure this stability. Losers prefer things of genuine value over the non-transferrable DSS coveted by the Clueless. Clueless are oblivious to the effort thermocline and consider the Sociopaths above them to be harder working and more capable than they are. Losers who want to become Sociopaths are fast-tracked up or out of the organization. How does this work out in VC-istan? The effort thermocline is blindingly obvious: it’s the distinction between startup employees and powerful investors. Above the thermocline are the reputable VC partners, whose social connections entitle them to an easy life; below it are founders and the people they hire. The founders are the upper-tier Clueless who (just as in a MacLeod organization) don’t want the jobs above them, on the assumption that the Sociopaths “just shake hands and push paper around; we do the real work”. Differential social status, in VC-istan, is access to funding and publicity– something that a generation of idealistic idiots has spent decades of hard work to get, while their peers “sold out” and made actual money that could be used to buy actual houses and vacations.

For all this, I used to think that VC-istan didn’t have MacLeod Losers (with the losses borne by the swollen Clueless tier) but I realized that I wasn’t looking hard enough. Clueless are true believers, while Losers are rationally disengaged people who work hard, but minimize discomfort. (Again, they aren’t actually losers per se. Unlike the Clueless, they know the trade they make.) In VC-istan, MacLeod Losers tend to be consultants and freelancers. They cherry-pick the work that’s interesting to them, can lead quite a nice lifestyle if they’re good, and never work for equity. Since these people can often command $250 per hour or more, it’s hard to call them Losers! What they are is checked out of the Clueless game of VC-istan. They will never get rich– it’s hard to get more than 800 hours of work per year, with a decent rate, as a freelancer– but they will never lose a vacation or a relationship to a get-big-or-die company either. They sell tools and water to the idiots who dig for gold in the 120-degree heat. The MacLeod Losers of VC-istan are the mercenary consultants who manage to get by, contribute some work, but never hitch their fortunes or make undue sacrifices for a specific company.

If VC-istan is a MacLeod organization, then what is its future? MacLeod rank cultures decline, but they do it slowly. That is also what will happen to VC-istan. I couldn’t possibly say whether it will happen over the next 2 years or the next 20, but VC-istan is already in a MacLeod state and, while its decline is likely to be gradual, it’s also inexorable. I’ve started calling many of these companies “ad-banking”; VC-istan is what investment banking was in 1995. That is far from “death”. It does not even mean that it will become impossible to get good people; investment banks are able to get good people even now, but they pay dearly. It only means that good people will become more expensive over time. Only when compensation ceases to grow exponentially (in banking, circa 2009) will the best people start to trickle out and look for something new. VC-istan engineer compensation has quite a few years of 10-20% annual growth before reaching the unsustainable level, so I don’t see its “death” setting in until about 2025. Until then, there’ll be a lot of money to be made by mercenary engineers, so long as they know the market well enough to play it.

What will make VC-istan’s unwinding process interesting is its generation of alternatives. As investment banking grew stodgy, boring, and difficult, banks raised compensation (for genuine talent) into the stratosphere. No one would spend 15 years in New York investment banking for less than $400,000 per year at the end of it. This transfer of wealth generated early retirees and a few hedge funds, but not rival investment banks. People did not take their $6-million nest eggs and launch rivals to Goldman Sachs. VC-istan’s story will be different. As talented engineers wake up to the scam, wages may rise to the same levels that bankers commanded, generating a transfer of wealth toward a set of people not typically associated with richness: hard-working computer programmers. Those among them who have a mind for business will want to participate in investment, and to build something different from VC-istan. Something better. I don’t think anyone knows– yet– what will be built.

So what should be built? At 7.7 kilowords, I can’t hack that now. That’ll be covered in a future essay.

Gervais / MacLeod 6: Morality, civility, and chaos.

This is probably the second-to-last item in my series on MacLeod’s organizational hierarchy and the Gervais Principle. (See: Part 1Part 2Part 3Part 4, Part 5.) I’m leaving the country for a little over a week, and intended my “tie it all together and solve it” post for today, but that will have to wait until later in the month. I’ve decided to take a detour into certain unanswered moral questions associated with the MacLeod hierarchy. What does it mean, morally, to be a MacLeod Sociopath? Is it necessarily harmful? (Answer: no.) What about Losers and Clueless? Are there not psychopathic Clueless out there? (Answer: there are.)

The Alignment model

As it were, the most useful classification I can come up with, in order to assess the MacLeod organization’s moral bearings, is the two-dimensional alignment system of many role-playing games, such as Dungeons and Dragons. These present a moral spectrum (good vs. evil) and a civil spectrum (law vs. chaos). These are independent of each other: one can be lawful and evil, or chaotic and good, for example. I’ll use that system to analyze the moral correlates of the MacLeod hierarchy.

The Moral Spectrum: good vs. evil

How do we define good and evil? It’s not an exact science, of course, but I think that most peoples’ definitions of “good” come from the so-called Golden Rule: do unto others as you would have them do unto you. As a general ethical guideline, this is a good one, and it’s the spine of almost all major religions. However, it’s simplistic and flawed, as I’ll address later on. Evil is miltant disobedience of that ethical principle, in favor of a “power does as it can” world where the winners gloat and the losers suffer. Most people, of course, are in between. They buy into the values of good, but sometimes indulge in evil behaviors as well. About 80 percent of people’s actual behaviors are in the “neutral” midsection of the spectrum, with 10% on each side being good and evil.

There’s a problem with the Golden Rule, which is that it fails to account for asymmetry, and that it can be warped to justify actions most people would consider evil. Perversions of the Golden Rule could be used to justify rape (asymmetry in sexual desire) and the rule has been (ab)used to justify religious persecution, it being better for people to suffer in this life than in the hereafter.

Trade, on the other hand, is all about asymmetry: comparative advantages, differences in value. It’s an action that seems, on some level, to oppose the Golden Rule, in that the two parties have exactly opposite financial outcomes. What makes trade “good” (not a violation of the Golden Rule) is the unequal value of the traded items for each party. As long as both gain, according to a difficult-to-define pseudo-quantity called “utility”, the trade is good.

At scale, there are very few actions that are good for everyone, resulting in debates over justice and politics, and attempts to resolve massively multilateral disputes through aggregation (voting, markets) that will drive general improvement, although it is impossible to make everyone happy. Ultimately, the Golden Rule falls in favor of the Silver Rule: do less harm to others than you do good. This represents the evolution from an inflexible but absolute good to a more flexible, pragmatic sense of “good”. Societies must favor the Silver Rule over the Golden one, in practice. Murderers must be jailed, and roads must be built.

The Silver Rule, however, is also flawed for computational reasons. How are good and harm measured? Gathering and processing information is an activity that itself imposes a cost (to others, but especially to oneself) which means that at some point, decision makers have to stop hearing all sides and just decide. This leads naturally to the Bronze Rule, which is: do your best, with the information and resources you can reasonably get, to do more good than harm to those you can credibly affect. This tends toward a more local sort of altruism that (inadvertently or intentionally) favors the well-connected. We’ve left the realm of the good and are now in the neutral-aligned territory.

The issue with the Bronze Rule and its tolerance of localism is that it enables selective goodness, because people can modulate how much weight they put into others’ concerns and how much effort they put into discovering what they need, and this leads people to favor those who are close (genetically, culturally, religiously, and geographically) to them.

The natural tendency of most humans is not to be egotistical or to be altruistic, but to be local. People want to confer benefit on those with whom they have personal affinity or similarity. Egoism and altruism are extreme points on a spectrum based on how people define their moral neighborhood. The extreme egoist defines it to contain only him, and the extreme altruist inclues all humans (or, perhaps, all living beings). Yet almost all of us are localist when it comes down to our day-to-day interactions with other people. It’s how we work.

Cognitively, most people know that inflexible or militant localism (which can tend toward racism, elitism, or jingoism) is wrong, but are not unusually energetic in pursuing the right. They give it a try, but it’s not crucial to them. They’re selective in how much effort they’ll put forth in the pursuit of good, depending on the affinity they have for the beneficiaries. That’s how the neutral alignment works. Good and neutral are localistic in practice; the difference seems to be in aspiration and energy. Good people will make serious sacrifices for others’ benefit; neutral will generally not.

If the Golden Rule is the archaic and idealized good, the Silver Rule is the practical good that accounts for asymmetry and massively multilateral decision-making. The Bronze Rule is the constrained, more austere spin that accounts for informational surface areas and human exhaustion, and generates the neutral alignment.

Finally, we have one more metallic ethical rule, the Iron Rule: take whatever you can get. This is the militant or even psychopathic egoism most commonly associated with “evil”. Actually, Iron-Rule psychopathy isn’t actually the extremity of evil. Beyond it are sadistic reaches that I don’t care to explore: people who actively seek harm to others, rather than merely tolerating it in the pursuit of their own needs. For this purpose, the sadists (as a class apart from psychopaths) aren’t important.

The Bronze Rule, I would contend, describes the state of nature. We are not naturally evil, egoistic, or psychopathic. Nor are we naturally good, universalist, or empathetic toward all. We made decisions (most, with an earnest desire to make the right ones) under extreme scarcity of information and with heavy influence (some of which is intractable) from the biological evolution that made us, and that makes us naturally localist. What generates the moral spectrum is where people try to go. The good aim for the Golden and Silver rules in their interaction with other people. The neutral tend toward Bronze Rule localism. The evil celebrate Iron Rule egoism or, worse yet, tend toward sadism.

The Civil Spectrum: law vs. chaos

The second dimension of the alignment system is the civil spectrum, which pertains to one’s approach toward authority and social stability. As with the moral spectrum, about 80 percent of people would be classified as neutral, with 10% on each side being lawful or chaotic.

Good and evil describe the direction that people, personally, try to take from our Bronze Rule state of nature. Of course, there’s another dimension, which is a person’s willingness to cooperate with authority. While good people will ultimately oppose an evil society, the reverse also being true, an overwhelming majority of complex societies are neutral, regressing to the mean as they get large. Thus, most peoples’ attitudes toward authority will often be more of a function of their personal biases toward law or chaos than of the character of the society, predominantly because large societies are not that different from one another in any morally meaningful way.

For personal ethics, the Silver Rule is to do more good than harm to others, with the tacit intent to take in as much information as one can absorb. Lawful people believe in analogous Silver Rule with regard to society, which is that authority will best aggregate the available information and do the right thing. (However, a lawful evil’s person’s definition of “the right thing” may be harmful to those judged not to matter. Lawful evil people place faith in society’s ability to decide who matters.) Lawful people do not believe necessarily that societies or organizations are infallible, but only that they perform far better than individual judgment.

Civilly neutral people believe that societies implement the localist Bronze Rule. Organizations and those who hold authority may try to do their best, but are limited by their informational surface area and limited time and energy. Ultimately, those who are close to those in power enjoy an advantage, also known as corruption. It’s not that organizations tend toward self-serving pathology or even intentional elitism, but that a certain degree of localism is inevitable and mostly tolerable. Civilly neutral people believe that societies tend to be no better or worse than individuals.

Chaotic people believe that those in power, in most societies, will follow the Iron Rule. They distrust authority, believing that power will almost invariably be used toward bad ends, and that those who are in control will take whatever they can get. Neutral people admit that civil authority can tend toward localist corruption, but chaotic people believe that organizations tend toward defectiveness. Chaotic good people believe that authority will, over time, lead to evil. Chaotic evil people view those in civil power as contemptibly incompetent.

Social acceptability

Lawful good represents what people are “supposed to” be, ideally, while the central “true neutral” alignment is what they actually are. Actually, I would argue that neutral may be the wrong term, since people seem to be, by default, weakly good and weakly lawful. Anyway, what all of this means is that people who are lawful or neutral on the civil spectrum, and good or neutral on the moral spectrum, fall into a category that people are familiar and comfortable with. This 81 percent of the population will generally have no difficulty following social norms.

What remains is an L-shaped region (19%) that contains the chaotic or evil. Chaotic people face above-normal rates of social rejection. Evil people are punished and despised– if they are caught. Chaotic evil are the pinnacle of dysfunction, and only succeed amid severe environmental disorder. One example (from Final Fantasy VI) is Kefka. His chaotic evil (as opposed to Emperor Gestahl’s lawful evil) renders him an incompetent nincompoop in the (ordered) World of Balance, but he becomes a demigod in the (disordered) World of Ruin.

In general, the utter social dysfunction of chaotic evil (1%) divides the “L of social unacceptability” into two separate islands, each of which can be socially functional under some circumstances. One contains those who are evil but lawful or civilly neutral (not chaotic). These people can succeed socially as long as they can move faster than the consequences of their actions catch up with them. The other contains those who are chaotic but good or morally neutral (not evil). They can succeed socially as long as they are in environments that recognize the benefits of disruption and that value creativity over uniformity.

I describe the chaotic crowd as “those who wear hats”, using the hacker terminology where good guys wear “white hats”, the neutral wear “gray hats”, and the bad guys wear “black hats”. Wearing a hat (of any color) indoors is, at least traditionally, socially unacceptable. The lawful and neutral take them off. An environment that tolerates hat-wearing is one in which the chaotic can thrive.

This explains my desire to split the MacLeod Sociopath category into two. People use “sociopath” to describe those who live in this “L of social unacceptability”, the chaotic good radicals being “good sociopaths” (after they are recognized as good, the reality being that most people cannot parse chaotic morality in its own time). In my view, this deserves further exploration.

Psychopaths are, as I’ve defined the moral spectrum, evil. That doesn’t mean they participate in evil’s most brutal manifestations, but they devalue others’ needs, gains, and losses outright. Technocrats are chaotic by nature. Rather than gaining power through typical social means (dues paying, credibility, deal-making) they attempt to create radical and new forms of power. The goal is to take superior craftsmanship, art, science, and knowledge (techne) and turn that into influence, wealth, or power (kratos). That is innately disruptive to those who are vested in the old forms of power.

This does not exclude the possibility of “black hat” Technocrats forming an organizational presence, but my experience is that chaotic evil people very rarely move into positions of power or importance. They are just too socially dysfunctional. Complex societies will form subcultures that give chaotic good and chaotic neutral people second chances… but chaotic evil people only seem to acquire power in damaged environments.

The MacLeod pyramid

With this understanding of alignment, it’s possible to approach the MacLeod pyramid in the context of the moral and civil spectra. Perhaps not surprisingly, the civil spectrum is more correlated to it than the moral one.

MacLeod Losers, at the base of the pyramid, tend to be civilly neutral. Whether they are morally good, evil, or neutral doesn’t matter much to the health of the organization, because they have very little power. Since they view the organization as a Bronze Rule localist organization (not a Silver Rule, omnibenevolent meritocracy) they have a take-it-or-leave-it attitude and will show loyalty so far as they’re accorded social status, stability, and comfort. The Clueless, predictably, tend toward lawful alignments, but can be anywhere on the moral spectrum. Organizations actively try to make it this way. They don’t especially care about good versus evil in grunts or middle managers, but they want rules to be blindly enforced when necessary and blindly broken when authority requests it. 

If corporations could consciously choose leaders, they’d generally want people who are morally and civilly neutral, because that’s what most organizations are. Neither an overbearing lawful, chaotic, good or evil bias is beneficial to the organization’s objectives, and all can be harmful. Additionally, 64 percent of the population falls into that “true neutral” category. So it seems like the desirable set is a large one. However, rapid organizational ascendancy is abnormal. It breaks the rules of the on-paper pseudo-meritocracy, and it favors the stand-outs, who tend to fall into one (or two) of four categories:

  • those who exert above-normal energy for the benefit of others, the organization, and the world (good).
  • those who exhibit an unusual ability to conform and subordinate (law).
  • those who will do anything, even harm others, in order to acquire power (evil).
  • those who pursue disruptive and possibly anti-authoritarian avenues toward creativity (chaos).

In general, stand-out good people don’t get promoted. They get more responsibility, but not power. Stand-out lawful do, but at a plodding pace through “front door” avenues, and rarely past the effort thermocline. This leaves the evil and the chaotic, who tend toward variability because organizations just don’t know what to do with them. They exhibit an “up-or-out” distribution of organizational success. They’re either promoted or fired. (Sometimes it’s both.) They are the only ones who can pass through the effort thermocline.

A fully self-conscious organization desires neither evil nor chaos, so people judged to exemplify either are usually expelled from it (fired). the only forms of these that survive are those that manage to “trick” the organization enough to go undetected. Of course, this only reinforces the bias toward the promotion of evil or chaos, since deception is usually motivated by one or the other.

The surprising (sociopathic?) result is that the most successful people will come from the “L of social unacceptability”. Organizations, to the extent that they are conscious, try to exclude them. The result is an arms race between such people (as they fight to get as much out of organizations to survive or coexist) and the organizations, as they strive to improve their detection of law, chaos, good and evil. The winners become leaders; the losers get fired.

Eligibility pools

People who are lawful or civilly neutral (90 percent) are eligible for Loser-level roles in organization. Those who are lawful (10 percent) are eligible for Clueless middle-management positions. These numbers correspond roughly with a typical organization’s needs at each level. At the upper-tier, executive level, there’s a surplus. The “L of social unacceptability” (19 percent) is much larger than the organization’s needs for executives, so it can be selective. It can favor chaotic good, chaos, evil, lawful evil, or even chaotic evil. It gets to pick. In theory. In practice, almost no organizations exhibit anything like conscious, rational “thought”, so the selection is likely to be subconscious and by default.

Evil, I would say, is almost never desirable. Even if we were to judge evil to be necessary (with which I don’t agree) the darker shades of the moral neutrality can usually be coerced into it, especially if they have a civil bias. Lawful neutrality will support evil laws, and chaotic neutrality will oppose good rulers. Although many corporations devolve into macroscopic evil behavior and internal strife, and plenty of them are used for evil purposes, I still contend that even the most evil owner or executive would prefer not to have evil lieutenants. (Lawful neutrality is more desirable in a subordinate.)

The forward-thinking leaders that companies (if they are to remain adaptable in a chaotic world) should want, then, are the chaotic good and chaotic neutral– the Technocrats– with a hand-over to civilly neutral people as the organization grows. What remains an open question is which of these two alignments is to be preferred. That one, I would have a hard time to answer. I am (for obvious reasons) in favor of chaotic good, but I tend to think that chaotic neutrality may be more adaptive. In the rare case where a chaotic individual obtains power, the chaotic good person will limit her own power and create a system of checks and balances, creating a tougher job for the next generation of power holder in that institution. Chaotic evil people will abuse power so flagrantly that others will rush in to halt them. So chaotic good and evil both lead toward the reduction of power. It may be that chaotic neutral people (who just don’t know what to do with power) are the best ones for an organization to have hold it, because they are more likely to transmit it untouched to the next generation.


It seems that the worst pathologies of the MacLeod hierarchy come from the tendency to favor psychopathy at the top layer– the one called MacLeod Sociopaths. It is psychopaths who continue the dishonesty that deludes the middle layers (MacLeod Clueless) and the poverty that depletes the workers (MacLeod Losers). However, organizations create such bureaucratic walls that only stand-outs, rule-breakers, and tricksters can get through them. That favors evil or chaos (with those who exemplify both often being too pathological to succeed). It seems that organizations are doomed to have one or the other become prominent within its leadership. Therefore, the best antidote toward psychopathy (evil) might just be an increased tolerance of chaos.

Gervais / MacLeod 5: Interfaces, meritocracy, the effort thermocline, and a solution.

Today, I continue my analysis of the MacLeod hierarchy and the Gervais Principle. (See: Part 1, Part 2, Part 3, Part 4.) I’m going to analyze the interfaces between the three MacLeod tiers in order to tease out the magic that makes it all work. How do three disparate types of people get along seamlessly? What prevents the existence of the Sociopaths and Losers from “cluing in” the Clueless?

In doing this, I’ll also analyze the concept of “meritocracy” in the corporate world. Every company seems to think its internal mechanics are meritocratic. VC-istan sees itself (despite the heavily manipulated market) as the ultimate in meritocracy. Is there truth in this? That I’ll address.

The Loser/Clueless interface: differential social status

The separation between the Loser and Clueless tiers comes down to differential social status (DSS). Here, “social status” includes not only in-crowd membership and popularity, but also the hard currencies: job titles, division of labor and compensation. Based on work experience, education, and negotiation skills, people have certain “market levels” of social status that they can expect to get in a new company. The difference between what a person has at a current job and what she can get on the market in a new job is DSS.

It’s not uncommon for a person’s DSS to become negative, when she improves faster than her company allows her career to advance. She can improve her standing by finding another job. In fact, in slow-to-promote organizations, negative DSS becomes common over time. “Familiarity breeds contempt.” This may explain why most organizations do a poor job of promoting from within– they have a systematic tendency to downgrade their own people relative to outsiders, the latter being untarnished by years of political fighting. People who grow “too fast” for most companies become used to negative DSS and underestimation, and end up with a “job hopping” trajectory.

That said, most people will have DSS close to zero. Relative to the noise factor inherent in taking a new job and the tendency of social status toward illegibility, whatever they have effectively a rounding error. For our purposes, we will say people with such close-to-zero DSS have “zero DSS”. Losers, when they play social games, tend to form in-crowds that don’t matter, such as the “Finer Things Club” and the “Party Planning Committee” on The Office, but these have no effect on compensation or division of labor. They’re diversions, and they don’t generate meaningful DSS.

There are three common things that will create a non-zero DSS. The first is for management to recognize someone formally with a job title or promotion, which creates positive DSS if management takes the accolade more seriously than the external market would. The second, which generates negative DSS, is for a person to be embarrassed or develop a negative reputation among colleagues. (If that person gets a negative reputation with management, she usually just gets fired.) The third source of DSS, probably most painfully common to my readers, is for a person to improve without it being recognized. This person’s DSS goes negative not because of organizational adversity, but because the organization refuses to allow someone to advance at the rate at which she actually improves, leaving her in a role and on work that’s below her frontier of ability.

Most corporate denizens aren’t noticed in any special way by management or their colleagues at large, nor do they improve fast enough to generate the third category of DSS. The result is that it’s most common for a person’s DSS to be close to zero.

Organizations have a love/hate relationship with DSS. On one hand, it’s a means of self-definition for the organization, and a way to motivate people. Those with positive DSS are going to behave like owners, because they’ll experience a drop in working conditions, compensation, and quality of work if they lose their jobs. Those with negative DSS serve a pariah or “omega” function: a way for an organization to state what it dislikes. DSS gives organizations a banner and a way to proclaim their values by promoting those who exemplify them. On the other hand, DSS is unstable. People with negative DSS will leave, of course. Regarding positive DSS, Sociopaths and Losers, when they find themselves with it, will usually try to parlay that into persistent, outside-of-firm social status and improve their long-term career prospects. If you’re strategic and have positive DSS, this is what you want to do with it: convert it into something that’s not contingent upon one organizational role. This improvement of their external alternatives reduces that positive DSS.

With the concept of differential social status well-understood, we can approach the Loser/Clueless interface. Losers have DSS right around zero, like most people. They could get other, equivalent jobs. What keeps them loyal and in-place isn’t the economic superiority of what they have, but the fact that they prioritize comfort and stability over the potential for gain. Additionally, when Losers get positive DSS they will, because they are strategic, convert it into genuine improvement of their overall career standing. One of the most incredible moments in The Office is when Pam, a receptionist converted into an unsuccessful saleswoman, uses the organizational “fog of war” following a management takeover to invent a new job for herself– a salaried Office Manager role. Pam is a MacLeod Loser, but a smart and very strategic one who uses her positive DSS (being married to “rising star” Jim, and having been with the company for much longer than the new management) to get improvements that actually matter: a better job title and more pay. The result of this is that Losers don’t tend to build up a bankroll of DSS. They convert it into forms that are more persistent and useful. If they can rise to a higher level in the organization, they do so and become Losers there (which is better than being a Loser at a lower level.) Clueless, on the other hand, will build DSS because they never cash it in.

It’s the Clueless who climb ladders, pay dues, and take on additional responsibilities in order to develop positive DSS, which they perceive as a two-sided loyalty. Venkat Rao argued The Office to be the first American workplace drama to peer into the world of the Clueless. I disagree. Willy Loman, in The Death of a Salesman, is the archetypal literary Clueless. Loman is a true believer in the importance of being well-liked. He builds up a bunch of relationships that, in the end, don’t matter and won’t save him. The loyalty is not reciprocated. He fails to convert his transient DSS into something more stable and, as he ages, it goes away.

So, how shall we separate the Loser and Clueless tiers? Losers, in general, do not exert themselves to build up positive DSS. When they get it, they attempt to convert it into something less contingent and more permanent. Sociopaths pursue DSS but only as a mechanism to rise to the top of the organization, which means they cash it in likewise. Clueless, apart from Losers, are those who sit on a fat bankroll of untapped and local social capital. They keep their DSS as it is, being true believers and wanting to show personal investment in the company. So what differentiates Losers from Clueless is a persistent pattern of nonzero DSS.

The Clueless/Sociopath interface: the effort thermocline

More interesting than the Loser/Clueless interface is the one that separates the Clueless and Sociopath tiers: the effort thermocline. Low in the organization, jobs get harder and more demanding as one rises the ranks. Salaried office workers work harder than hourly employees. Middle managers often work harder than the people they supervise, having more to lose. In the Loser and Clueless tiers, each promotion means higher standards, longer hours, and less job security.

There’s a level at which the jobs stop getting harder with each step up, and start getting easier at a rapid rate. Middle managers, in most organizations, are glorified grunts with front-man responsibility for meeting deadlines and deliverables, but no authority to define them or set priorities. However, there’s a level in each organization where the perks of the job include autonomous control over the division of labor and an extremely lenient performance evaluation process. It’s the “good old boy” club of upper management. It’s the level at which the top brass say, “Welcome, you can breathe now.” This group can be clubby and petty like any gossip-ridden small town, and this can make life within it very stressful, but judgment based on effort and sacrifice end.

The separation between these two worlds is the effort thermocline. That thermocline is the highest that a typical organization will allow someone to rise by working hard. It’s the top of the Clueless tier, the bottom of the Sociopath capstone, and if it’s serving its purpose well, it’s a one-way mirror: opaque from below, transparent from above. Executive Sociopaths, from the other side of the thermocline, appear (from below) to be working hard. Because they control not only the division of labor but the physical space, they can manufacture the image of high effort and investment while they enjoy the comfort of a private office and take the “fun work” for themselves. Losers, to some extent, know what’s up, but they’re so far from that theatre that they don’t really care about it on a day-to-day basis. The veil is for the Clueless, who must be tricked into seeing superior Cluelessness when they look up.

The purpose of the effort thermocline is to create an image of effort-based meritocracy at the bottom. This ruse makes people work hard, and it also creates social stability because people aren’t too eager to rise. Most Losers genuinely don’t want their boss’s jobs, because they realize they’ll be expected to put forth 50-200 percent more effort in exchange for about a 20-percent pay raise. Most Clueless see their bosses as superior– more talented, more experienced– and consider themselves ineligible (at least, at the time) for the roles above them. The only people who expect to rise rapidly (skipping the demanding middle ranks if possible) are the Sociopaths. As soon as they have something to trade, they look for a market.

Above the effort thermocline, being seen as hard-working isn’t especially important. In fact, it can be detrimental. If you have to work 12 hours per day, you’re probably inefficient. Sociopaths see the sacrificial lambs in the Clueless tier as chumps. Sociopaths actually “get” organizational politics. They understand that their progress within the organization will be based not on how much of themselves they put into an impersonal, organizational meritocracy (that doesn’t exist) but on how well they trade assets with important individuals. Effort is just one asset; credibility, relationships and information are often more important, and often easier to attain.

This enables us, as well, to look at some differences between the true Psychopath and the Technocrat (“good Sociopath”). The most successful Clueless have an unconditional work ethic, while Psychopaths and Technocrats are all about working smart. They define that a bit differently, however. Psychopaths like to manipulate people; Technocrats aim for improvements and genuine efficiency. They’re both hackers, but they enjoy different kinds of hacks.

Organizations that are going to generate MacLeod classes (and I will argue, later, that they need not necessarily do so) rely heavily on the effort thermocline. It’s the spine of the organization. Just above it are the lowest-tier Sociopaths who get direct information from the base of the company. As the executive suite’s filter, they have an enormous influence over what information is presented, when, and how. Top-tier Clueless could have this power if they wanted it, but their earnestness prevents them from seeing or exploiting the editorial control they could exert. To them, furnishing information is a duty, not something to be selectively performed. Thus, the information flow into the upper ranks of the company will generally come from the Sociopaths just above that thermocline, who perform the first filter.

Top-tier Clueless provide an obvious benefit as well, which is that they set the pace for the world below them. The most dedicated, productive Clueless are held up (at least superficially) as role models for the organization. Additionally, they take final responsibility for operational issues. Low-level Losers can blame circumstances for failures, nonproductivity, and mistakes. If the Loser’s computer breaks, he can sit tight and wait for IT to fix it. The perk of being a Loser is that the organization is tacitly responsible for maintaining your work conditions. Sociopaths cleverly define their jobs so as to have no hard responsibilities or deliverables. It ends up being the Clueless who are held responsible for keeping the lights on, resolving communication difficulties, and doing the ugliest work.

Technology, VC-istan, and meritocracy…

In my last post, I discussed the pseudo-meritocracy of VC-istan. What makes VC-istan successful is that it generates a context in which highly intelligent people can be rendered Clueless. When the ruse is new, peoples’ psychological immune systems haven’t formed yet and the smartest people, who would converge to MacLeod Loserism or Sociopathy in a normal corporation, can buy into it. Free markets are, on their own terms, meritocratic. The heavily manipulated market (by VCs and acquirers) looks like such. What makes VC-istan so brilliant is that the effort thermocline is extra-organizational. It’s not an organizational promotion that launches a person beyond the veil. It requires getting an entirely different job description.

For hard technological work, the MacLeod hierarchy is clearly dysfunctional. Losers are good at delivering grunt work reliably, but it tends to require a large number of them to do a major project. In technology, the result of this is intolerable communication overhead. Clueless tend to solve the wrong problems, unless micromanaged. Sociopaths, if they turn “black hat”, are outright dangerous. Whatever it is that causes the MacLeod hierarchy to emerge, the technological world would do well to eliminate that.

VC-istan’s pretense is that it has eliminated or obsoleted the MacLeod hierarchy, which is clearly dysfunctional. That’s actually not the case. The hierarchy has re-emerged. The solution is disposable companies. Sociopaths, as anywhere, find ways to trade social assets at a profit and become the major players. Many are not investors or “tech press”; in fact, I would guess that most of the Sociopaths are executives who’ve cultivated relationships with investors and can get themselves plugged into de-risked companies with absurdly high compensation. Clueless are the ones who suffer all the pain and risk. Losers are unemployable. Over time, this Loserlessness (despite the fact there’s a lot of losing going on) bifurcates the Clueless caste into Clueless-Losers and Clueless-Sociopaths. These mid-grade classes exist as Clueless rapidly become clueful, but are generally transient states. Clueless-Sociopaths are the ones who will readily screw their colleagues over but still believe that “delivering” is more important than acquiring credibility and trading social assets. Clueless-Losers are the ones who keep faith in the lofty “vision” (read: marketing) of their companies but have learned to tolerate subordination and are gradually realizing that their future and their firm’s (or VC-istan’s) will diverge.

With all this, the MacLeod hierarchy seems to fly in the face of the high-minded concept of meritocracy. In fact, MacLeod organizations are meritocratic not only on their own terms, but on multiple sets of terms. Losers, in general, don’t care either way whether their organizations are meritocratic. They can see the lie, but it doesn’t upset or anger them, because they don’t care to play in the higher leagues where the lie is in force. However, the differential social status of the Clueless, in addition to the opacity of the effort thermocline, create the appearance of a meritocracy from a Clueless position. That keeps these “useful idiots” happy and striving. For their part, Sociopaths also perceive a meritocracy, if only because they define merit as “what you can get”. To a Sociopath, the idea that there would be any definition of merit other than raw power, status, or money is laughable.

This leads me to a brief exploration of what I call localism and globalism. I borrowed it from machine learning and mathematical modeling. A global model is one that imposes underlying structure and uses that for prediction, while a local one uses nearby data and discounts distant observations. For example, if one were to predict average annual temperatures of geographic locations, the tendency for polar locations to be colder than equatorial ones is a very strong global feature. If you were to predict temperatures based on only one variable, latitude is what you’d use, and it would serve well for the majority of places, but not all. On the other hand, local data has value insofar as it can capture variations (altitude, ocean currents) that are specific to small regions. Rome is very warm for its latitude because of the Mediterranean Sea and the Gulf Stream; Lhasa, quite cold because of its altitude and continental location. Ultimately, the solution to most complex problems is going to require a mix of local and global approaches.

The age-old debate between planned and market economies is related to this. Socialism is an approach that sets social-justice standards (“no one should be without appropriate health care”) and expects to apply them globally. Central planning imposes globally-oriented solutions on a diverse world. (This is one of the reasons why Marx believed communism needed to be worldwide.) Capitalism allows individuals to exploit local information for personal profit, with the desire, because such exploitation will require trade, that some of the surplus will be dissipated into society in the process. Neither of these two approaches, standing alone, is adequate. Societies, it turns out, need both. Laissez-faire capitalism tends to diverge into undesirable states when power disparities reach a certain critical level of self-perpetuation. Without some wealth transfer back into the poor, absolute libertarian capitalism devolves into oligarchy and, as it perpetuates itself across generations, aristocracy. On the other hand, outright command economies cannot make use of the wealth of distant, local information out there and stagnate, in addition to becoming extremely corrupt. In either case, the elite becomes a locality that is both incapable of solving global problems or serving other localities, and disinterested in doing so.

Corporate organizations are an interesting beast, in this light, and it’s useful to assess how the MacLeod Clueless and Sociopaths approach them. Ultimately, the corporation’s purpose is to provide some of the security of socialism while serving a capitalist purpose on the external market. Policies are set to impose fairness constraints that are held to be global up to the extent of the organization. The corporation takes on the hard, dirty work of competing on a tooth-and-claw market, but internally, it’s supposed to provide its employees with the comfort of a well-run, stable command economy in which the demands on them and their compensation will be regular and reasonable. This is the risk transfer that Losers tolerate, which is why they can’t be considered actual “losers”. Their low compensation (from an expected-value perspective) is due to the premium they pay for this comfort and abstraction. What corporations create is a story of internal globality. Most importantly, employees get a guaranteed minimum income based on the value of their skills.

The World is big and unwieldy and heterogeneous and scary. It’s a chaotic mess. Corporations intend to create order within the mess, and leave interaction with the scary Without to an exalted caste (in truth, comprised mostly of rent-seeking Sociopaths) called “executives”. They’ll handle that stuff. Employees can live in comfort and stability.

An analogy for this might be a cruise ship, which provides the comforts of a hotel in an environment where most people lack the skills necessary to survive. Losers are happy to remain above-decks. They enjoy the abstraction. Clueless, on the other hand, want to graduate from passengers to drivers. They’re willing to deal with bilge pumps and engine rooms. They want to “learn the ropes”, as if such objective principles existed. Although they are the actual (unwitting) muscle of the company, Clueless have a childlike eagerness to become “adults”, failing to recognize what Sociopaths already know: there are no adults. In the corporate world, there is no “God”. You get what you can get.

It’s the Clueless who believe in objective corporate policies, enforce written rules because they are rules, and sustain the fiction of a globalist meritocracy where talent within the organization will always be allocated toward its best use. Sociopaths, on the other hand, tend to be aggressive localist players who already comprehend that the best way to “get ahead” is the old-fashioned, localist, way: trading favors, peddling influence, and leveraging information. Clueless believe in a paternalistic, globalist system that will take care of everyone, and intend to gradually grow into a “leadership” role. Sociopaths focus on the local problem: moving themselves forward by exploiting features and people that are close to them.

Neither localism nor globalism is innately superior but, strategically, the localist approach is bound to be more successful within the modern corporate organization. Sociopaths can be either localist or globalist in orientation but, in the workplace, they take the more effective localist approach. Sociopaths win because, ultimately, the “global-within-local” concept is, in most corporate organizations, fictional. The people running these companies have no real stake in the globalist fairness constraints put forward as the organization’s values. The real dominating behavior is localism.

For one example of the ruse, let’s consider the legal obligation of corporate executives to represent the immediate financial interests of shareholders, even if the action taken is socially irresponsible. That “obligation” doesn’t exist. It’s a fiction, designed to give what these Sociopathic executives want (aggressive, self-promoting localism) a globalist spin: it’s just the law. The Clueless buy into it, and believe that “the company” is doing all these bad things because it has no choice. What is actually happening here is that executives have figured out that there’s profit to be made in taking a localist approach, and they want in. Executives are supposed to be the fair stewards of a fairness-and-process-oriented (i.e. globalist) organization dedicated toward capitalist purposes, but they become localists within them. Managers and the more adept employees have caught on to localism as well and taken up a strategy of careerist job-hopping instead of loyalist dues-paying. Good for them, too. They get it. The result of this, on the large scale, is the breakdown of the Clueless-o-polis of the paternal organization.

Transcending the MacLeod hierarchy

The MacLeod hierarchy emerges because of a tension between globalism and localism, and the tendency for globalism to be implemented half-heartedly. People who are rich– here, I’m not talking about financial wealth so much as risk tolerance and the ability to withstand intermittent, short-term failures– want the localist right to exploit information (opportunities for profit) as soon as they discover it. Among the rich, there are those who intend to take the high road (Technocrats) and make the world genuinely better, and the degenerates (Psychopaths) who will exploit anything, even if it’s a negative- or zero-sum cost externalization. Those who are poor and don’t have the resources, capital, credibility or connections to survive a failure prefer the safety net provided by a globalist institution, whether it be a large private company or a government. The Losers are the poor who understand the trade (and defect if the organization shows malevolence or extreme incompetence) and take part, because they prefer or need stability. The evil of such organizations is not that the risk transfer exists and that the poor are rewarded “unfairly” by losing in expected-value terms– that is basic finance (here applied, additionally, to non-financial assets like social stability and credibility). It’s that the Psychopaths at the top of many organizations will do anything possible to drive the exchange rate (not set by a fair market) on this risk transfer as far out of whack as they can get it. The end-state is an organization where the low-level Losers get almost nothing in the way of risk reduction, but give up a lot in terms of compensation and advancement potential (that might enrich them and bring them out of involuntarily Loserism).

My contention is that the MacLeod hierarchy doesn’t emerge only out of peoples’ psychological traits and emotional tastes for various forms of risk. If that were the case, it would be inevitable, and organizations would invariably tend toward pathology. I don’t think it’s so. I think that the MacLeod issues come from rich and poor, which are not limited to financial wealth. So where do rich and poor come from? Ultimately, on the organizational setting, they come from credibility, which I’ve discussed previously. In most companies, the credibility of a non-managerial employee is almost zero. Credibility is intentionally made scarce within the organization. What happens when you lack credibility? Your ideas aren’t taken seriously, you don’t get to define appropriate use of your own working time, and if it goes to zero, you’re typically fired. In the MacLeod world, Losers acquire just enough credibility to feather a nest and, once done, stop gambling. Clueless lay down enormous amounts of effort to get credibility, mindless of the diminishing returns, and get some moderate amount. Sociopaths find the credibility black market (there always is one) and find the most efficient ways to cheat the system, and they get the most credibility of all.

At this point, we can discuss the four work cultures and their tendencies. The planned cultures are guild and rank cultures, and those have globalist intent. Professions, in fact, are globalist beyond the extent of one company, and usually exist to create a guild culture outside of it. The better of the two planned cultures is the guild culture, which replaces power relationships with mentors and proteges. The “boss” is a teacher. The pathological planned culture is the rank culture where blind subordination becomes requisite. The market cultures are the self-executive and tough cultures. Both hold the employee responsible for delivering value to the firm, and allow for localist autonomy of sub-organizations, but the difference is that the self-executive culture gives employees more time to bring their ideas to fruition and more opportunities for good-faith failure. Tough cultures have tight deadlines and no control over scope-of-work for low-level employees. The self-executive culture is the healthier of the two market cultures, and the tough culture is the pathological one.

What unifies the two healthy cultures, and the two pathological ones? It comes down to employee credibility. The credibility floor in the tough and rank cultures is zero. Employees are not held to be implicitly credible. An employee who can’t demonstrate hard value-add on a minute-by-minute basis fails in a tough culture. One who is disliked by his manager fails in rank culture. Both of these cultures, in functionality, are defined by the fear-driven, cutthroat, unethical, and often harmful activities in which normal people will engage when there’s a threat of their credibility levels dropping to an unacceptable level.

The healthy cultures, on the other hand, set a credibility floor, although they do it in markedly different ways. The guild culture has a rigid seniority system, but assumes the junior employee to be a student and therefore of value– especially future value– to the organization. The self-executive culture is a more localist, market-driven culture, but with the assumption that each employee has some quantum of irrevocable credibility– a real vote that can’t be taken away by a priapic manager.

Companies that establish a credibility floor will still exhibit shifts of influence and, if nothing else, inequalities in soft power. There will be cliques and the best one can do is to render them fairly harmless. There will also be attempts to game the system and amass credibility through a variety of means. Credibility trades, although they “shouldn’t” exist, will. That’s human nature. The difference is that, when a credibility floor exists, one doesn’t have the panic trading (which Psychopaths love, because it’s easiest to exploit) that generates organizational pathology at such a rate that it’s uncontrollable. The trade of credibility still exists, but it’s mostly harmless and does not reach a level that creates unmanageable organizational pathology. When there’s a credibility floor, the rate of corrosion is slow enough that attentive management can reverse the damage. When the credibility floor is zero and panic trading defines the organization, institutional corrosion is so rapid and ubiquitous that it can’t be halted. 

I must make one note, here: companies that intend to function without corrosion and pathology must establish a credibility floor. That’s not to say that they must employ unproductive or harmful individuals indefinitely. If someone punches another employee, he’s still “credible” in the abstract, but he’s every bit as fired, because what he did was wrong and dangerous. The purpose of a credibility floor isn’t to say that no one ever gets fired (that’s a horrible idea) but to prevent people from, in RPG terms, being “killed by the dice”– that is, fired because of credibility fluctuations, and not because they deserve it.

It’s the absence of a credibility floor that generates a permanent Loser caste (whose exchange rate in their requisite risk transfer becomes increasingly unfavorable) and a fear-driven, tunnel-visioned Clueless “useful idiot” class, leaving both groups prone to exploitative Sociopaths. So the question becomes, then: how does an organization create a credibility floor? How can one globally legislate an amorphous, hard-to-define, and often very local social asset? That’s an incredibly hard problem to solve, and where I intend to go next.

Gervais / MacLeod 4: a world without Losers?

This is a continuation of last week’s analysis of various work cultures and the patterns of degeneracy. I’ve analyzed hierarchies that form in organizational cultures and the relationship between ascendancy and bad behavior (in particular, psychopathy). I’ve touched on the VC-funded startup ecosystem (VC-istan) but don’t think I’ve done it justice. In these small, agile companies, does the MacLeod classification apply? Or has this dysfunctional and unfair arrangement been rendered obsolete? If so, then how? If not, then who are the Sociopaths, Clueless, and Losers? I’ll answer that. Today, I’m going to focus on the sociology of VC-istan, perhaps the first truly postmodern corporate body.

VC-istan likes to believe that it has evolved beyond the traditional corporate dysfunctions, meaning that the MacLeod hierarchy might be outdated or inaccurate. I will show that this is not the case.

VC-istan, as a post-modern corporate organization, has figured out that companies are disposable. I’m not talking about shell companies, but full-fledged corporate organizations where people actually go to work. These firms have a team and a product. People get hurt when they melt down. The product manager gets to call himself a “CEO” and the technical lead is a “CTO”. They identify as “a startup”, which has some attractive features. If it’s a startup, programmers are unlikely to confront 20-year-old legacy code, and divisions of labor may be undefined enough that an engineer who enters in the right way can get a very high quality of work. It almost looks like these entities are free-standing companies, as they would be, were it not for their dependence on continuing financial investment. That need to be hooked in to prominent investors and VC-istan press keeps them from being truly independent, but they have just enough independence that VC-istan looks like a pattern of separate companies merely flying in formation.

At the top of the VC-istan social pyramid are the venture capitalists. Rather than compete with one another, they collude in order to collectively determine which courtier projects deserve funding and which deserve to lose. As such, they’re effectively one executive team. These are the MacLeod Sociopaths and, as discussed, that doesn’t mean they’re all bad people or sociopaths in the true sense– only that bad people have a disproportionately high likelihood of rising to that tier. A better, more neutral, term would be Manipulators.

To understand why VCs behave in this way, it’s important to assess the mechanics of their industry. Most investments will lose, but the few that succeed will return 10, 100, or even 1000 times their original investment, and it’s nearly impossible to predict how a company will perform until it’s flat-out obvious to all in the know. This puts information and social access at a premium. Whether a VC will succeed has more to do with his access to emerging bargains than anything else. Most investors, therefore, would rather do right by other investors (in order to get an allocation in the next great deal) than by their entrepreneurs, who (as social inferiors) have no leverage. This creates the clubby, collusive nature for which VC-istan’s top echelons are known.

Where are the other two MacLeod tiers, the Clueless and the Losers? Here’s where it gets exciting. The rest of VC-istan is (almost) all Clueless– from the independent project managers called CEOs to the lowest-rung entry-level software engineers. Recall that the MacLeod Loser is, because he’s aware that he’s taking a raw deal, rationally disengaged and manages his performance toward socially acceptable averageness. Loser-level employees trade autonomy, time, self-respect and expectancy (average-case compensation) for minimized variance in compensation and social conditions. In The Office, they are the Stanleys and Phyllises and Angelas. They’ll get their assigned work done, stick around till 5:00, and follow orders… but they’re not likely to do more than that. VC-istan doesn’t want people like that.

The VC-istan culture emphasizes “leanness”, which is a code word for “No Losers”. Startups often say they’re looking for “true believers” (read: Clueless). Then there is the “brogrammer” culture (Clueless machismo) and the age discrimination problem, and it should be obvious what that’s about. Older people are likely either to have climbed the ranks (and, yes, VC-istan circa 2013 has ranks and its own ladder) or to be rationally disengaged Losers. Even the perks touted by many startups are aimed toward the Clueless. I know of one startup that brags about its free dinner (lunch is not provided). Losers would rather have more cash than a 7:00 dinner with co-workers; perks like that are for the Clueless. 

Venkat’s theory of corporate genesis ascertains that companies are started by Sociopaths, generate a Loser tier shortly afterward to handle dead-end administrative work, and then (in maturity) build a Clueless middle to handle growth as the social and economic distance between the company’s base and apex expands to the point that a buffer class is necessary. What causes corporate dysfunction, he argues, is the expansion of the Clueless tier, who lack the economic self-sacrifice (in exchange for social approval and comfort) of Losers and execution skill of the Sociopaths. VC-istan seems to prove, on the other hand, that companies can prosper not only with, but because of, a Clueless monoculture, if directed right.

What about the Sociopaths? Does VC-istan function without them? Well, no. There are Sociopathic founders and, among the people who are really in charge– investors, board members– there will probably be quite a few more. In VC-istan, however, they cleverly keep themselves out of view. Typical corporate culture celebrates the Sociopath lifestyle as something to which all should aspire, while tacitly understanding that the Losers, knowing their odds of making it are pathetically low, won’t depart from their rational disengagement. VC-istan, however, is supposed to be for the Clueless. Sociopaths just sign off on executive-level hires, move into top roles at VC-istan companies once they’re de-risked, and sign the checks.

How does VC-istan function without Losers? Or, are Losers necessary? Are they beneficial, or harmful? My opinion is that they’re beneficial to a large or stable organization. Losers are not really losers, so much as they trade opportunities for social status and economic expectancy for risk reduction and comfort. In addition to their desire for stability, they are stable. They’re loyal, willing to follow orders, and capable of delivering more economic value than they expect the company to provide for them (which is why they might be called “losers”). Rather than compete for better positions, they’ll perform well enough in the roles they have. For a stable, well-defined organization, hiring Losers is a winning proposition. You know that, on average, you will get more than you pay. However, fast-growing startups that can’t afford to tackle the communication problems of larger organizations are going to need to focus on average yield per employee rather than total yield. For this reason, they’d rather hire overachieving Clueless than rational Losers.

This Clueless-mania generates, as it were, a lot of terrible startups with stupid ideas. I’ve noted that Clueless aren’t strategic, and that shows. Most of these companies have silly ideas and crash and burn. For venture capitalists, this is not only tolerable but desirable. If VC-istan were a regular company, it would have to pay salaries month-to-month and pay severance when executives lost faith, projects were cancelled, and (for macroscopic reasons) there was no place to put the people. That gets expensive. With disposable companies, there’s no need to “waste” money on these “soft landings”. Investors can stop funding the companies and, to minimize harm to those they care about, soften the landings of any friends in those companies by handing out executive positions in other, healthier, firms.

I am, for my part, not averse to a tolerant attitude toward good-faith business failure. That’s one of the best things about American business culture. We aren’t perfect, but we’re far better than most other societies on this issue with our forgiving bankruptcy laws and (comparably) low level of small-business regulation. That said, I don’t think VC-istan holds moral high-ground here. VC-istan is tolerant of good-faith business failure, but only because companies are disposable. This also means that it’s tolerant of bad-faith business failure, which is what most “acq-hires” (which benefit executives, and screw employees) are. Furthermore, VC-istan’s tolerance of failure is superficial. It’s a world in which one is expected to be a CxO by 35, and in which the only socially acceptable role for someone after age 45 is investor. This harsh age-grading encourages the same kind of risk-aversion and backstabbing as the stodgy, old-style corporate world that VC-istan was supposed to replace. So how much progress has really been made?

There’s a question that remains about VC-istan’s attempt to “lean” itself down by eliminating the Loser class. Is that stable? Losers make a rational trade that has them “losing” from an economic point of view, but provides comfort and risk reduction. Unlike Clueless, they’re low maintenance. MacLeod Sociopaths embrace risk (and the truly psychopathic ones, as Venkat Rao observes, take “heads, I win; tails, you lose” positions) that Losers wish to sell. Clueless, for their part, are unaware of any risk trading that goes on. They are enticed with a delusion. They expect to rise through the ranks and win someday. To keep a Clueless-only world going, no one can lose. Everyone must win. The Technocrat’s positive-sum resolutions are ideal, but those opportunities are rare, and Clueless lack the skills to tell genuine world-improvers from pipe dreams. Also, the flashiest and often most effective Sociopaths are those who generate transfer (beneficial to them) through elaborate networks of zero-sum transactions. That requires that others lose, right? Not if today’s losers can be tomorrow’s winners…

VC-istan works this way. Every VC-istan engineer expects to be a “tech lead” in the next gig. Every tech lead expects to be an executive at his next startup. Every executive expects investor contact in order to be a founder in two years. Most VC-istan founders want to be investors so they don’t have to suffer the 90-hour workweeks, low salaries, and career volatility associated with starting a company. In a 100-person VC-istan company, there are 2 founders and 98 people figuring out a way to turn their current employment into a launch pad for future founderdom. That is the real selling point of VC-istan; the founders (and, later, executives) say, “You’ll have my job in two years.” That excuses the laughably low equity allotments that, otherwise, would in no way compensate for the drop in salary and the risk associated with such unproven businesses. Huge promises are made to attract the Clueless, and delivery almost never occurs.

An effort to propagate losses of zero-sum transactions into the future looks a lot like an economic bubble, and that’s exactly where I intend to go with this analysis. When you have Sociopaths and Clueless but no Losers, that’s BubbleWorld. You have a pipeline of zero-sum transfers that looks like value creation, with the losses merely being propagated into the future and delivered to people who are powerless to retaliate.

The first dot-com bubble was a textbook financial bubble.Wall Street didn’t know how to value this new class of companies, and “mistakes were made”. However, that bubble was a lot less evil than many. First, there was genuine, lasting economic value in the Internet, and the bubble was more of a result of humanity’s collective inability to evaluate this new thing than malicious manipulation. Second, the commodity in which the bubble existed (technology stock) was not something people needed to survive; the ongoing housing bubble has been a different matter. Wall Street, for its part, learned a lesson. In the current technology bubble, valuations have been fairly reasonable– for Facebook investors, disappointingly so. This time around, startups are overvalued by young talent. That’s the bubble. There are a lot of people eager to be Clueless in order to try at “a startup”. Since they have no idea how to evaluate equity allotments, growth companies, or job titles in a world where they are poorly defined, they often fall into jobs that are terrible deals for them.

The dot-com crash of 2000 was ugly, but the loss was in paper financial assets, meaning that most of the cost was borne by wealthy individuals. This one’s different. Some of the most talented young people are wagering their time on “social media” concerns in exchange for executive positions and investor contact that will not be delivered. When this bubble pops, they will have lost time that they can never get back.

In this light, we can understand the function that Losers perform, and arrive at an alternative formulation of how the MacLeod tiers form.

As I’ve discussed, Sociopaths can be split into the true Psychopaths and the Technocrats, but this delineation deserves certain scrutiny. It’s tempting to assume that, because the Psychopaths are clearly “bad guys”, that the Technocrats are the “good guys”. This would require us to make it a “true Scotsman” category of limited use. In fact, there are bad Technocrats. Some are inept, some are ruthless, and some are even unethical. What differentiates a Psychopath from a Technocrat is the type of goal that he has. Psychopaths want to play zero-sum games and win; the millennia-old, zero-sum fight for status is what they live for. Technocrats believe they can profit personally through positive-sum endeavors that enable them to win personally because a surplus is generated. It’s important to note that positive-sum does not mean “good” or “right”. It only means that more value is generated to the winners than is lost by the losers. Add to this the subjectivity of “value” or “utility” and one can see that incompetent Technocrats would be actively harmful. Most left-leaning people dislike Ayn Rand and find her to be psychopathic, but I would hazard the guess that she was actually technocratic in her aim: she legitimately believed that her ideas were the foundation of a superior society.

Psychopaths are harmful and generally evil, and they’re self-consistent in this. Technocrats believe they are doing good. Both categories of people can externalize harm. Psychopaths do it callously because they only care about their personal victories and dominance over other people. Technocrats often do it under the belief that more is being won than lost. Many ugly things have been built by Technocrats who believed they were doing the best thing for the world. Some were right, and some were wrong.

Novel organizations are started by MacLeod Sociopaths– Technocrats who embrace risk and disruption, and Sociopaths seeking new ways to eke out advantages over others– because Losers would rather play on an existing, proven team and Clueless don’t know how to start anything. Shortly after genesis, the organization must define a division of labor. Discrepancies in labor beget differences in leverage, which produce variation in compensation. Inequality forms, and the Sociopaths have two strategies for dealing with it. The first is to set up a trade, in which low-status employees win comfort and stability while relinquishing access to high-quality labor and outsized compensation. They won’t get rich, but they’re unlikely to be fired, and can leave at 5:00. That generates a Loser tier that will happily “eat” economic loss (the difference between wages and value rendered) in exchange for these intangible assets that only exist in a low-importance organizational role. The second strategy is to mislead people about their futures within the company and, because of the natural human tendency toward optimistic bias, this isn’t hard to do. That generates the Clueless tier, which is a mechanism for propagating losses into the future.

The typical organizational hierarchy presents the Clueless and a buffer between Losers and Sociopaths, but the Losers also form a buffer between Clueless and Sociopaths. Measured in social status and economic yield, Clueless outrank Losers. However, measured in hedonic terms (yield minus pain and discomfort) the Losers outrank the Clueless. This is a fairly stable arrangement, because both the Losers and Clueless think they’re getting the better deal.

MacLeod Losers probably comprise 80 percent of what we call “Corporate America”. They show up, do enough work to maintain adequate social standing, and go home. They care enough to want to do a good job, but not enough to fight authority or get into “vision” disputes. They’re the muscle of the working world. So why doesn’t VC-istan want them? The answer is that these companies cannot afford to make the Loser trade. Losers are strategic, and many of them are smarter than the Sociopaths who run companies. They want comfort and stability, so when undesirable change comes their way, they realize that the trade offered to them– low status and compensation, in exchange for a secure job where little changes– has ended, and they react. The Loser deal is just intolerable if the stability disappears. Most leave, and a few “wake up” and try to play the Sociopath game, but the Loser tier, as a bulwark of social stability and continuity, ceases to exist. When it melts down, it also clues-in the (formerly?) Clueless who tend to want to “protect” the Losers (cf. Michael Scott’s paternalism). Fast-changing VC-funded startups would rather that it not form in the first place.

The result is that one must recruit the Clueless solely into a tier that merges Clueless and Loser traits and functionality. However, it’s hard to predict how a person will assimilate into the organization. Since these tiers have a contextual nature to them, the game comes down to “pattern matching”: bring in the ones who look Clueless. This gets gendered and racial (favor the risk-seeking gender and the privilege-associated complexion) but especially ageist. VC-istan luminaries (investors and founders) claim that they prefer young people because they haven’t been “corrupted” yet by dysfunctional corporate cultures. (Yet they have no qualms about creating new pathological cultures.) As I’ve gotten older, I’ve realized that this isn’t what happens. Older people don’t, in general, get “corrupted”. They get less Clueless.

In truth, VC-istan is a society of the Clueless, by the Clueless… and for the Sociopaths (who justify the high housing costs in the Bay Area). The MacLeod hierarchy hasn’t been rendered obsolete. It has only been re-adapted into a different form. The loss of the Loser class induces instability, and VC-istan compensates for this by making companies themselves disposable. VC-istan is a world without MacLeod Losers, but not without losers.