I have been reading with great interest William Caferro's biography John Hawkwood: An English Mercenary in Fourteenth-Century Italy. It interests me both because of my longstanding interest in military history and because, as Caferro notes:
Mercenary bands were corporate in structure. The captain stood at the head of his brigade in a manner similar to the way a modern CEO stands at the head of his firm. When the captain decided to leave, the company did not disband but retained its name and elected another man. (Kindle Locations 1511-1513).
And here's a really interesting fact about those companies: the most famous and successful condottieri got paid a very substantial multiple of what the common soldiers made.
The famous Italian mercenary Giovanni d’Azzo deli Ubaldini earned an impressive salary of 500 florins a month in Sienese service in 1381. But his cavalrymen earned only 6 florins a month .... (Kindle Locations 1665-1667).
Granted, a multiple of 83 to 1 is lower than the multiple earned by many of today's top CEOs. But it's still a very dramatic difference.
What's going on here? There are two basic theories of executive compensation: managerial power and arms'-length bargaining:
The so-called principal-agent problem arises because agents who shirk do not internalize all of the costs thereby created; the principal reaps part of the value of hard work by the agent, but the agent receives all of the value of shirking.
Although agents thus have strong ex post incentives to shirk, they have equally strong ex ante incentives to agree to contractual arrangements designed to prevent shirking.Wherever a principal-agent problem is found, we thus expect to see a mixture of carrots and sticks designed to constrain shirking. The sticks include ex post sanctions, up to and including dismissal. The carrots include incentives that align the agent's interests with those of the principal.
In theory, these divergences in interest can be ameliorated by executive compensation schemes that realign the interests of corporate managers with those of the shareholders.
Stephen M. Bainbridge, Book Review Essay Executive Compensation: Who Decides?, 83 Tex. L. Rev. 1615, 1620 (2005), reviewing: Pay without Performance: The Unfulfilled Promise of Executive Compensation, Cambridge, Ma: Harvard University Press, 2004. Pp. Xii, 278. $24.95. (Draft available here.)
In the arms'-length model, "compensation schemes are claimed to be 'the product of arm's-length bargaining' between managers 'attempting to get the best possible deal for themselves and boards seeking to get the best possible deal for shareholders.' As a result, financial economists loyal to the arm's-length-bargaining model assume compensation schemes are generally efficient, while courts generally defer to decisions by the board of directors." Id. at 1623.
In contrast, the managerial power model claims that:
... boards of directors--even those nominally independent of management--have strong incentives to acquiesce in executive compensation that pays managers rents (i.e., amounts in excess of the compensation that management would receive if the board had bargained with them at arm's length). The first of these incentives flows from the fact that directors often are chosen de facto by the CEO. Once a director is on the board, pay and other incentives give the director a strong interest in being reelected; in turn, due to the CEO's considerable influence over selection of the board slate, directors have an incentive to stay on the CEO's good side. Second, Bebchuk and Fried argue that directors who work closely with top management develop feelings of loyalty and affection for those managers, and they become inculcated with norms of collegiality and team spirit that induce directors to go along with bloated pay packages. (Id. at 1624-25)
The net effect of managerial power is that CEO pay packets are higher than would obtain under arm's-length bargaining and less sensitive to performance. (Id. at 1626.)
A condottieri's pay ought to be the product of arms'-length bargaining rather than managerial power. In the first instance, the condottieri's pay is set in the condatta (the contract between the city-state employer and the condottieri), which presumably is negotiated more or less at arms' length (of course, the condottieri has a considerable degree of bargaining power in the form of the military band at his disposal).
In the second, unlike public corporations where the owners of the business are dispersed and relatively powerless, the condottieri is elected by his employees. In theory, employee ownership should obviate the agency cost problem that drives up CEO pay.
Interestingly, however, the modern evidence suggests that employee owned enterprises should have much lower ratios of CEO to worker pay. In the famous Mondragon cooperative, the permissible ratio of the highest paid to lowest paid employee has gradually risen but only to 8.91 to 1. (Jones, D. C. 2013. The Ombudsman: Employee Ownership as a Mechanism to Enhance Corporate Governance and Moderate Executive Pay Levels. Interfaces, 43(6): 599-601.)
Why then did the condottieri's pay so greatly exceed that of the common soldier? One likely explanation is the tournament theory of executive compensation.
As the story goes, tournaments are a mechanism for reducing agency costs by providing incentives through “comparative performance evaluation.” In a promotion tournament, the principal ranks its agents by their performance relative to one another. The best performing agents are promoted to positions with higher pay and/or status.
Stephen M. Bainbridge, The Tournament at the Intersection of Business and Legal Ethics, 1 U. St. Thomas L.J. 909, 911 (2004). (Draft available here.)
Caferro's book offers some support for this hypothesis:
The pay structure provided obvious financial incentive for cavalrymen and officers to seek advancement to the leadership of companies. (Kindle Locations 1673-1674).
But why would the common soldier tolerate the vast disparity in pay? What did the common soldier get out of working for a condottieri who made more than 80 times what he did? Interestingly, Caferro informs us that:
There was surprisingly little connection between the wages of cavalrymen and those of the captains for whom they worked. Service for a renowned mercenary did not result in higher pay. The famous Italian mercenary Giovanni d’Azzo degli Ubaldini earned an impressive salary of 500 florins a month in Sienese service in 1381. But his cavalrymen earned only 6 florins a month, the same as those in the employ of the obscure mercenary Riccardo Dovadola, whose own monthly stipend was 24 florins.
But it turns out that soldiers in the mercenary companies were not paid by salary alone:
The appeal of working for a well-known captain lay in his ability, through victories, to bring earnings beyond salaries in the form of spoils of war and, perhaps, through his reputation, to increase the likelihood that an employer would pay wages he promised. (Kindle Locations 1664-1669).
So it turns out that the winner of the tournament does have coattail effects on those below him in the hierarchy.
I'm not sure if this has anything to do with modern corporation CEO pay, but it does suggest new ways of thinking about CEO pay in workers cooperatives, employee-owned corporations, and maybe even law firms.
I skipped watching President Obama's Oval Office speech last night (I can't stand hearing his speeches), but today I read a transcript and found much with which to disagree. Let's start with some quibbles:
It is this type of attack that we saw at Fort Hood in 2009; in Chattanooga earlier this year; and now in San Bernardino.
It took Obama an awfully long time to admit that the Ft Hood incident was terrorism. Better late than never, I guess, but still ....
...our military will continue to hunt down terrorist plotters in any country where it is necessary. In Iraq and Syria, airstrikes are taking out ISIL leaders, heavy weapons, oil tankers, infrastructure.
The problem is that the rule of engagement imposed by the Obama administration have been too restrictive to be really effective. In particular, we have been far too reluctant until just recently to hit the oil infrastructure (maybe Obama thinks doing so would contribute to global warming or something). It would have been nice if Obama had admitted that the rule of engagement have to change and laid out some specific changes.
... we will continue to provide training and equipment to tens of thousands of Iraqi and Syrian forces fighting ISIL on the ground so that we take away their safe havens
Tens of thousands? Really? When the real number seems to be 5?
In both countries, we’re deploying Special Operations Forces who can accelerate that offensive.
Why now? And why so few?
But here's the big problem:
I am confident we will succeed in this mission because we are on the right side of history.
I think the WSJ nicely captured the problem with that part of the speech:
Perhaps the oddest note in the President’s speech was toward the end when he claimed that the U.S. will defeat the jihadist threat because we are “on the right side of history.” History is made, not delivered as a birthright, and victory against killers has to be won. Islamic State has been gaining so much ground precisely because it has appeared to be winning. Mr. Obama has yet to show that he knows what it takes for the U.S. to win.
Obama's is an intensely naive, Fukuyama-esque triumphalist worldview that assumes history is an inevitable march upwards to the light. It's the same mistaken worldview that progressives have held going all the way back to the Whigs. Charles Cooke analyzed this core element of Obama's thinking and drew some conclusions with which I would associate myself:
All cultures are not equal, and the superiority of the West — and, within it, the Anglosphere — should be proclaimed as loudly and proudly as is tactful. But to acknowledge that an idea is virtuous is by no means to imply that it is regnant or that it is inevitable. Au contraire. Liberty as we understand it in the United States has been the exception not the rule — and its survival over the past three centuries the consequence not of happy foreordination but of the good guys in the world having enjoyed unmatched military and financial supremacy. Having known little else, the historically myopic will find it tempting to presume that our present global order represents the immutable state of nature. It does not. Just as the primary reason that the forces of liberty have prevailed since 1815 is that they have acquired and maintained unrivaled power, the relative peace and buzzing international trade that we currently enjoy is the product not of the West’s moral dominance, but of the prepotency first of the British Empire and then — after a seamless and invisible handover — of an ascendant United States. “Freedom will win,” the president said this morning in an egregious and curiously self-refuting phrase, “not because it’s inevitable, not because it is ordained, but because these basic human yearnings for dignity and justice and democracy do not go away.” What silliness. If freedom “wins,” it will be, as it has always been, because the free maintained the upper hand over the barbarians. Arcs and flows have bugger all to do with it.
This is not an argument for unlimited militarism. I agree with Obama that invading Iraq in 2003 was a huge mistake. But it is an argument against Obama's Whiggish view of the world.
Okay, I don't really think that Google will go to war with China, but as a corporate law professor who grew up as an army brat and remains a military history buff, I can't help but wonder whether we could someday see war between a massive multi-national and a nation-state. The rise of cyber-warfare would seem to make this especially practicable. One could imagine a tech company getting so annoyed at Chinese theft of their trade secrets that the company retaliates via various forms of malware aimed at crippling China's economy.
There's an interesting post over at Columbia Law's blog on this very topic:
Unfortunately, the current state of both domestic and international law leaves a corporation with limited response options. Under domestic law there is no overarching legal doctrine available to private corporations, but rather a myriad of federal statutes addressing various aspects of cybersecurity. Enforcement of this patchwork of statutes is solely within the discretion of law enforcement and therefore a corporation that is a victim of cyber hostilities must rely upon a government agency to respond. This limitation can cause frustration and lead businesses to consider active defense measures in their cyber security systems. However, a corporation’s attempt to use active measures is particularly problematic under international law.
International law categorically prohibits a non-state actor—in this case a corporation—from actively engaging a hostile state, even if victimized by a cyber attack. The right of action against a state actor is exclusively within the purview of states as articulated in the United Nations Charter and the Articles on State Responsibility. ...
Of course international law limits the use of force to states. States make international law and they don't want the competition! The states' monopoly on the use of deadly force protects themselves both from their own subjects and the sort of predation waged over the years by pirates and free-lancing condottieri. (Indeed, arguably we might think of pirates and freebooter condottieri as an historical approximation of state-corporate warfare.)
This raises both an ought and an is question. As to the latter, if state protection remains ineffectual, will corporations continue to rely on it? Or, if we view cyberspace as a sort of failed state, will we see private actors exercising self-defense? As to the former, should private actors have a right of self-defense against nations? If it is true that humans have a natural law right to self-defense, why should that not extend to corporations (who are people too) and to resistance to states?
I've been reading about World War I lately. Two books specifically, First, G.J. Meyer's A World Undone: The Story of the Great War, which I very highly recommend. Amazon says:
The First World War is one of history’s greatest tragedies. In this remarkable and intimate account, author G. J. Meyer draws on exhaustive research to bring to life the story of how the Great War reduced Europe’s mightiest empires to rubble, killed twenty million people, and cracked the foundations of the world we live in today.
I say it's very well written, easy to read, pegged at just the right level of detail, offers some really interesting digressions, and had both facts and insights I had not seen in books on the subject I had read previously.
I also read, but am much less enthusiastic about Kristian Coates Ulrichsen's The First World War in the Middle East. Here's what Amazon says:
The First World War in the Middle East is an accessibly written military and social history of the clash of world empires in the Dardanelles, Egypt and Palestine, Mesopotamia, Persia and the Caucasus. Coates Ulrichsen demonstrates how wartime exigencies shaped the parameters of the modern Middle East, and describes and assesses the major campaigns against the Ottoman Empire and Germany involving British and imperial troops from the French and Russian Empires, as well as their Arab and Armenian allies.
Also documented are the enormous logistical demands placed on host societies by the Great Powers' conduct of industrialised warfare in hostile terrain. The resulting deepening of imperial penetration, and the extension of state controls across a heterogeneous sprawl of territories, generated a powerful backlash both during and immediately after the war, which played a pivotal role in shaping national identities as the Ottoman Empire was dismembered.
This is a multidimensional account of the many seemingly discrete yet interlinked campaigns that resulted in one to one and a half million casualties. It details not just their military outcome but relates them to intelligence-gathering, industrial organisation, authoritarianism and the political economy of empires at war.
I had high hopes for this book, because it's an interesting aspect of the Great War that often gets short shrift in one-volume histories, and because I expect that much of today's mess in the Middle East can be traced back to decisions made by the British and French during and immediately after the war. Sadly, I did not find it very accessible. Instead, I found it very academic ... and not in a good way. There's an awful lot of "Historian Joe Bob said XY&Z about this, while Historian Jane Does said AB&S." It's pretty heavy going. On top of which, the Kindle edition has a lot of errors. So I confess to not having finished it. But YMMV.
Critical race theorists and left-leaning behavioral economists (is there any other kind?) have been telling us for years that you cannot use rational actor theory to analyze discrimination. Examples:
Our commonsense narratives about racism and guns--centered on a conception of humans as autonomous, self-transparent, rational actors--are outdated and strongly contradicted by recent evidence from the mind sciences.
Advances in implicit social cognition reveal that most people carry biases against racial minorities beyond their conscious awareness. These biases affect critical behavior, including the actions of individuals performing shooting tasks. In simulations, Americans are faster and more accurate when firing on armed blacks than when firing on armed whites, and faster and more accurate in electing to hold their fire when confronting unarmed whites than when confronting unarmed blacks.
As both critical race theory and behavioral economics would suggest, Posner's hypothesis about subprime borrowers fails, because consumers operate according to various cognitive biases--not purely according to rationality.
In contrast to law and economics, critical race theory has concerned itself with how race is constructed through unconscious bias and institutional structures. Race scholars do not presume that rational choice is the sine qua non of human behavior. Instead, they try to unpack the reflexive habits and hidden assumptions that guide racial judgments.
Apparently, however, President Obama has not gotten the message. To the contrary, he seems to have imbibed a very strong version of the Chicago School rational choice model, which he is now applying to his nuclear deal with Iran:... no one makes the unqualified claim that individuals always, without exception, behave rationally. And no one suggests that markets are perfect disciplinarians. So, the real debate is about how often and in what contexts do individuals and markets behave “rationally” in contexts where race matters. My only point here is that we have good reasons to be cautious of any robust rationality assumption.
... in his interview, Goldberg asked about an even more basic point of contention. A nuclear deal will be signed with an Iranian regime that promotes an intensely anti-Western and, as Obama readily admits, anti-Semitic state ideology. Goldberg wondered how Obama could believe that anti-Semitism was inherently irrational, while also believing that the Tehran regime was itself rational. ...
"Well the fact that you are anti-Semitic, or racist, doesn’t preclude you from being interested in survival," Obama said. "It doesn’t preclude you from being rational about the need to keep your economy afloat; it doesn’t preclude you from making strategic decisions about how you stay in power; and so the fact that [Iran's] supreme leader is anti-Semitic doesn’t mean that this overrides all of his other considerations."
This may be true enough, but it discounts how anti-Semitism could inform the regime's strategic and economic considerations. After all, in spreading anti-Semitism and supporting terrorism against Jewish and Israeli targets, the regime invited sanctions and a general isolation that's all but locked the country out of valuable consumer markets — a clear case of anti-Semitism precluding Tehran from "being rational about the need to keep your economy afloat."Obama believes that the Iranian government's anti-Semitism is subject to the same rational cost-benefit calculus as any other aspects of a nation's behavior, even if anti-Semitism is itself irrational.
The idea of corporate versus nation-state Suppose the CEO and board of directors of Sony decided that North Korea is responsible for the hacking to which they've been subjected and decided to hit back. So they hire the best cyber warriors available to create internet viruses and so on to take out as much of North Korea's infrastructure as possible (such as it is). It'd make a great science fiction story (has it been written?), but it also raises some legal questions:
Plus, I'm sure I'm missing a lot of other issues. Mainly I'm wondering of anybody has thought about this stuff?
My dear friend, Georgetown University Professor Anthony Arend interviewed on the legality of USA's strikes against ISIS (or ISIL or IS, as you prefer):
As always, clear and cogent.
As regular readers know, I have always been fascinated by military history. The First World War has always been of special interest: Such an amazing and tragic holocaust that was so unnecessary. The paradigmatic march of folly. Here are some books I've found especially valuable to understanding this tragedy:
Interesting commentary from Dan Hodges on the West's dilemma:
If Boko Haram don’t bring back our girls, what are we going to do about it? I ask this question because yesterday I saw our Prime Minister do a very strange thing. During a break in his interview with Andrew Marr, he sat next to CNN’s chief international correspondent Christiane Amanpour, and held up a bit of paper that asked the Islamist terror group to do just that. “Bring back our girls,” Her Majesty’s first minister demanded.
He’s not alone. Earlier in the week Michelle Obama, the wife of the most powerful man on the planet, stood in the White House and did the same thing. Having held up her sign, she then proceeded to deliver a radio address – unprecedented for a First Lady – in which she said: “In these girls, Barack and I see our own daughters.” ...
OK, we’ve decided “something must be done”. So I repeat, what happens if nothing is done? What then? Do we put up more signs. Bigger signs. Get more high-profile advocates. A fundraiser. A pop concert perhaps. Get “Bring back our girls” to number one.
Or should we actually go and get our girls. Send some big, rough men, with very big guns to say to Boko Haram: “We’ve come to take our girls back. And if you try to stop us, it’s the last thing you’ll ever do.”
I'm not unsympathetic to the argument that "We sleep safely in our beds because rough men stand ready in the night to visit violence on those who would harm us." On the other hand, my views on interventionism are roughly those of Russell Kirk, who wrote that "presidents of the United States must not be encouraged to make Perpetual War for Perpetual Peace, nor to fancy that they can establish a New World Order through eliminating dissenters." The USA cannot be the world's policeman. Instead, as Kirk wrote, "armed conflict, for all involved, ought to be the last desperate resort, to be entered upon only when all means of diplomacy, conciliation, and compromise have been exhausted." And then the Powell Doctrine must govern.
But that brings me back to Hodges:
Do we want to be the world’s policeman, or do we not? If we don’t, then fine. But let’s take down the signs, and the hashtags, because all we’re doing is communicating our own impotence.
So take them down.
John Aziz acknowledges that "a world war is still possible," but nevertheless opines that:
The world has become much more economically interconnected since the last global war. Economic cooperation treaties and free trade agreements have intertwined the economies of countries around the world. This has meant there has been a huge rise in the volume of global trade since World War II, and especially since the 1980s. ...
In other words, global trade interdependency has become, to borrow a phrase from finance, too big to fail. ...
Of course, world wars have been waged despite international business interests, but the world today is far more globalized than ever before and well-connected domestic interests are more dependent on access to global markets, components and resources, or the repayment of foreign debts. These are huge disincentives to global war.
I'm reminded, however, that before World War I Norman Angell argued in The Great Illusion that the increased global economic interdependence of that age would make a major European war futile and therefore that war was obsolete. As Paul Krugman observed in connection with Russia's last militaristic adventure:
Some analysts tell us not to worry: global economic integration itself protects us against war, they argue, because successful trading economies won’t risk their prosperity by engaging in military adventurism. But this, too, raises unpleasant historical memories.
Shortly before World War I another British author, Norman Angell, published a famous book titled “The Great Illusion,” in which he argued that war had become obsolete, that in the modern industrial era even military victors lose far more than they gain. He was right — but wars kept happening anyway.
So are the foundations of the second global economy any more solid than those of the first? In some ways, yes. For example, war among the nations of Western Europe really does seem inconceivable now, not so much because of economic ties as because of shared democratic values.
Much of the world, however, including nations that play a key role in the global economy, doesn’t share those values. Most of us have proceeded on the belief that, at least as far as economics goes, this doesn’t matter — that we can count on world trade continuing to flow freely simply because it’s so profitable. But that’s not a safe assumption.
Angell was right to describe the belief that conquest pays as a great illusion. But the belief that economic rationality always prevents war is an equally great illusion. And today’s high degree of global economic interdependence, which can be sustained only if all major governments act sensibly, is more fragile than we imagine.
"And ye shall hear of wars and rumours of wars ...."
Violence in Iraq in 2013 was worse than at any time since 2008 – when Iraq was still in the throes of its all-out civil war that had led to over 100,000 deaths. And Iraq’s problems are getting worse, not better. Although there are many differences, the situation in Iraq today reminds me in some ways of where we were in Syria two years ago: we knew the situation was bad, we knew the situation was getting worse, and we were unable to devise a coherent policy response. We all know the results. I worry that in 2015 we’ll be looking at Iraq as we do Syria today, wondering how to manage a strategic and humanitarian disaster and lamenting the opportunities we missed before the conflict was completely out of control. The latest reports in the New York Times that Al Qaeda in Iraq have at least temporarilycaptured large swathes of territory in Anbar and threaten major cities are particularly alarming
Although I do not exonerate President Obama for his own policy failures in the last 5 years, the ultimate blame must go to President Bush. Many years ago I wrote an op-ed entitled Bush 43 has been a disaster for conservatives, in which I argued that:
As for Bush’s war of choice in Iraq, it is clear that the administration lacked a plan for succeeding with the occupation. We still don’t have a handle on the security problems in Iraq. Our feckless handling of the country looks likely to breed another generation of jihadists, and there is no sign that Bush has a viable exit plan. Worse yet, he created an American gulag: Abu Ghraib, Guantanamo, secret renditions, the use of water-boarding and other coercive interrogation techniques that are little short of torture.
As conservative icon Russell Kirk observed of George H.W. Bush’s Middle East policy, "devastating Iraq (and the rescued Kuwait) is an uncompromising way of opening an era of sweetness and light. Peoples so rescued from tyrants might cry, as did the boy whom Don Quixote de la Mancha had saved from beating by the muleteers but who was thrashed by them not long later, nevertheless — ‘In the name of God, Don Jorge de la Casablanca, don’t rescue me again!’ "
The question now is whether the neoconservatives and other chickenhawks who got us into Iraq will admit that their war would make an admirable case study for an historian updating Barbara Tuchman's classic The March of Folly: From Troy to Vietnam?
It's frequently said that more people have been killed by AK-47s than by any other firearm in history. I'm pondering the question of whether its designer Mikhail Kalashnikov bears moral responsibility for all those deaths. I'm a firm believer in the proposition that guns don't kill people, people kill people, but what about the people who made it possible? Kalashnikov didn't think so, but was he right?
Mikhail Kalashnikov refused to accept any responsibility for the many people killed with the weapon.
"My aim was to create armaments to protect the borders of my motherland," he said.
"It is not my fault that the Kalashnikov was used in many troubled places. I think the policies of these countries are to blame, not the designers."
Today my thoughts turn to my Grandfather Irwin Gottschall, who served in the Seventeenth Cavalry before and during the First World War, and my father Clarence A Bainbridge III, who served as an enlisted man in the Coast Guard during World War II, and was a career Chaplain in the US Army between 1956 and 1985. Both were Protestants, but I suspect they would not object to my offering this Catholic prayer for them:
O God, by whose mercy the faithful departed find rest, look kindly on your departed veterans who gave their lives in the service of their country. Grant that through the passion, death, and resurrection of your Son they may share in the joy of your heavenly kingdom and rejoice in you with your saints forever. We ask this through Christ our Lord.