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I was asked by iPolitics.ca to put myself in Premier McGuinty’s shoes to think about priorities and problems at the start of his new mandate. While the iPolitics article, with contributions from a variety of pundits, will be coming out early in January, here are my un-media-ted views now.

The leadership of the federal Liberals is McGuinty’s for the asking. While leading the third party in opposition is always a hard grind, after this overview, the conclusion might be that it is preferable to governing Ontario now.

The province is running a substantial deficit in an economy that is not rebounding as quickly as anticipated a few months ago, and the debt ratings agencies are watching carefully, with the possibility of a downgrade looming. In addition, the generosity of the federal government, for example in constantly increasing transfers for health care, can no longer be taken for granted. It has its own fiscal concerns.

The province has little, if any room, for tax increases as a way to achieving fiscal balance. Economically, higher taxes decrease growth. Politically, higher taxes would confirm the “taxman” image the Conservatives, with at least some success, stuck on McGuinty. The alternative – spending cuts – militates against two key components of McGuinty’s style and substance of government.

First, he has taken pride in improvements in the quality of public service, for example decreases in hospital waiting times, reduction in class sizes, and better student performance in province-wide tests. All of these have required increases in spending. Second, after the public sector turmoil of both the Rae and Harris governments, McGuinty has brought a measure of stability and cordiality to the public sector, achieved through generosity in labour settlements, within both the OPS and the broader public sector. In addition, the McGuinty government has directed considerable spending towards key priorities, such as green energy. Spending cuts will make it very difficult to extend all these components of an activist agenda into the next mandate.

The McGuinty government may face two microeconomic challenges, the worsening situation at RIM and a possible collapse of the high-rise condo market in Toronto. RIM’s troubles may be the result of better strategizing and implementation by its competitors. Or they may be the consequence of co-CEO’s who, instead of sticking to their kitting, were attempting in one case to emulate Albert Einstein and in the other Larry Tannenbaum. A turnaround seems increasingly unlikely, so the best-case scenario would be takeover by a competitor and the worst-case bankruptcy. RIM has spawned an agglomeration of technological and entrepreneurial expertise in the Waterloo-area, and losing it would be very damaging to the Ontario economy. Just as the McGuinty Government intervened to prop up the auto industry in 2008, it can be expected to intervene to ensure a transition that maintains Waterloo’s technological and intellectual capital.

If Toronto’s high-rise condo market collapses, one implication will be major layoffs in the construction industry. The collapse of Toronto’s housing market in the early Nineties is a precedent, as the slack was taken up by the construction of Highway 407. The debt rating agencies were cooperative, agreeing not to add spending on the highway to the Rae government’s debt because of the prospect of cost recovery through tolling. The expansion of the Toronto subway system may play a similar role now, though the financial model and the likely reaction of the rating agencies would be different this time.

Politically, while McGuinty no longer has a majority, the Liberals have the advantage of straddling the political centre, making it hard for the Conservatives and NDP to find common cause and bring down the government. Furthermore, McGuinty has an advantage over the Conservatives in that leader Tim Hudak still chooses to wear the mantle of Mike Harris’s common sense revolution. McGuinty’s response would be that, if austerity is inevitable, it would be better to have it delivered by a leader who will do his best to mitigate the damage than by a leader who relishes it.

Ultimately McGuinty’s challenge will be to find some way to both recast himself and maintain continuity with a self-definition that has worked.

This will be my last post of the calendar year. I wish my readers a relaxing holiday season and healthy and happy new year.

This week I watched an almost-forgotten 1999 made-for-television docudrama, Pirates of Silicon Valley, about the origins of Apple and Microsoft. The movie focuses its attention on Steve Jobs and Bill Gates, with Steve Wozniak and Steve Ballmer both acting as narrators.

Neither Gates nor Jobs was portrayed very attractively. While Jobs was a visionary who combined art and science, he was also a slave-driver who demeaned and insulted his talented staff, a misguided manager who incited a near war between the Macintosh team and the rest of the company, and a dead-beat dad. Gates applied the strategic talent of an expert poker player to position Microsoft in the most lucrative sweet spot of the rapidly-evolving computer industry. Nonetheless, in his demeanor as well as his laughable attempts to impress women, he was a classic geek.

In retrospect, these portraits do not appear far off the mark, particularly that of Jobs, which is in its essentials close to that drawn by Walter Isaacson in his recent biography. Steve Wozniak and Steve Ballmer are both sympathetically portrayed as regular decent guys who, as narrators, explain their flawed genius partners to the audience. This perspective, however, downplayed their similarity with their partners. In Ballmer’s case, certainly, his similarities to Gates have emerged in his role as his successor at Microsoft. A number of YouTube videos of Ballmer catch his hyper-aggressiveness, topped off by his own very particular brand of simian whooping.

Made-for-television movies have a tendency to be melodramatic, or, as their audience would likely say “cheesy,” and this was no exception. Nevertheless, this movie was prescient about the trope that was captured in the title “Pirates of Silicon Valley.” There was a recognition on the part of the major players in the early years of the personal computer industry that an enormous amount of value was about to be created, and the big question was who would seize the lion’s share of it.

Much of this question revolved around intellectual property. Both Gates and Jobs recognized that Xerox’s Palo Alto Research Center (PARC) had invented things that Xerox’s corporate leadership were ignoring, so each went off to steal as much as possible from PARC. In fact, the most interesting scenes in the movie are those involving the principals and their entourage touring each other’s facilities to steal ideas from one another. Jobs explicitly said that “great artists steal,” And Gates, in a confrontation with Jobs about whether Windows was an infringement on Apple’s intellectual property, claimed ‘Steve, all cars have steering wheels, but no one tries to claim that the steering wheel was their invention.”

Flash forward a decade to The Social Network. Here, too, the essence of the story is about claiming the rewards from the creation of intellectual property. Mark Zuckerberg, in words almost identical to Gates’s asks “does a guy who makes a really good chair owe money to anyone who ever made a chair?” The Social Network, too, focuses on the question of appropriating the value of intellectual property, though the narrative device it uses is the deposition-taking involving Zuckerberg, Saverin, and the Winkelvi. In this legal hearing, issues of ownership are debated, and flash back scenes are aired as evidence.

By and large, visual narrative is not effective at depicting the act of creativity particularly if it is the creativity of one individual. One exception I can think of, thought, is the scene early in The Social Network where Zuckerberg launches his Facemash website comparing the attractiveness of Harvard women. Creativity can at least be represented by the different images flickering on his screen.

Visual narrative is effective at depicting human relationships, whether conflictual, cooperative, or something in-between. Pirates of Silicon Valley rightly devoted a good deal of attention to conflict over the appropriation of ideas and to negotiations, in particular Gates’s negotiations with the potential corporate of Microsoft’s first operating systems.

Thus Pirates of Silicon Valley was on the right track. It was prescient in confronting the key issues of the technological entrepreneurship genre. Later films, particularly The Social Network, would do this much more elegantly, but at least Pirates of Silicon Valley was there as a precursor, just as a Lisa was a distant precursor to an iPad.

In attempting to identify entrepreneurship fables, one place to look is the dot-com boom that began in the Nineties. If the dominant fable is the entrepreneurial success story, as most recently depicted in The Social Network, then the counter-fable would be the disaster story. The disaster story looks at a dot-com startup that began with high expectations and fulsome venture capital funding. However, the concept was flawed or poorly executed, the entrepreneurs burned through the funding with nothing to show for it, and when no more capital was forthcoming, the startup declared bankruptcy.

The best-known dot-com disaster movie is the 2001 documentary Startup.com. In it, co-director Jehane Noujaim embedded herself for about a year in an Internet startup, followed the firm to its demise, and provided a compelling cinema verite documentary. The film won a number of documentary awards for Noujaim as well as her mentor, co-director Chris Hegedus. (Hegedus is the spouse of another renowned documentarist, D.A. Pennebaker.) The film got good reviews, seems to have recovered its investment, and launched Noujaim’s career.

A more recent (2008) dot-com disaster movie is August, directed by Austin Chick and written by Howard Rodman. Unfortunately, the movie itself is a disaster. It received poor reviews, quickly closed, and didn’t come near recovering its investment. Its user rating on imdb.com is 5.4, as compared with Startup.com’s very respectable 7.

In the entrepreneurial dot-com genre, the essential business partnership is between the marketer, who attempts to find a need that can be answered online and to convince the world of the value of the website that is intended to answer that need, and the programmer, who attempts to build the website. The potential failing on the part of the marketer is narcissism and on the part of the programmer is solipsism.

Startup.com followed govworks.com, a website intended to facilitate online transactions for municipal government. The essential flaw in the business plan was that, like its federal and state counterparts, municipal governments ultimately developed their own websites to handle transactions, rather than sending them to online intermediaries.

In startup.com we see the failings of Kahleil Tuzman, the externally oriented but narcissistic CEO, and Tom Herman, the skilled but unfocused head programmer. By spending a year up-close and personal with Tuzman and Herman, Jehane Noujaim showed us their strengths and weaknesses. Tuzman was effective at selling a vision to the outside world, including an admiring President Clinton, but had no idea how to manage a growing organization. And Tom Herman was equally at sea as a manager. By the end of the movie, we feel as if we know Kahleil and Tom and sympathize with them, but also understand why their startup did not succeed in the market.

In August, the startup’s CEO, Tom Sterling (played by Tom Cruise clone John Hartnett) tells us that no one does what his website Landshark.com does, that it is not a vehicle but the road itself, that it is pure e, and that it is a brand that speaks for itself. But he never spells out exactly what Landshark does. While I interpret this as a deficiency in the plot, I suppose it could also be interpreted as a satirical statement about the deficiency of many Internet startups during the dot-cot bubble.

We see Landshark in August 2001, which turns out to be the critical lockup period before its managers and investors can trade their shares. Its share price is tanking, along with the rest of the Nasdaq, and it is rapidly burning through cash. Sterling is frantically searching the VC world for enough cash to make it through the lockup period, but stubbornly unwilling to give up control. Sterling’s brother Josh is the programming genius, writing code for whatever Landshark is supposed to do, but also worrying whether the company will be able to provide some financial security for him, his wife, and their new-born child.

Tom, the main protagonist in the movie, assumes the CEO role because of his alleged business acumen, but is a total narcissist, concerned only about his appearance and his gratification. He shows no leadership skill, and rules by command rather than by inspiration. His personal relationships are a disaster. He offends his brother by asking him for a loan and insults his father, saying “you take your failure for success and my success for failure; you wanted to change the world, but settled for tenure.” He reconnects with a former girlfriend, an architect, wins her trust sufficiently to get her into bed, but loses her just as quickly when he is unable or unwilling to show up at her first design show until five minutes before closing.

All told, Tom is a disaster as a leader, and, as he acknowledges, Landshark’s numbers don’t add up, it is running on fumes, and its market doesn’t exist. Tom and his team approach a venture capitalist, charmingly played by David Byrne, who gives Tom an instant take-it-or-leave-it offer of 15 cents on the dollar for his shares, on the condition that he leaves the company, while the rest of the management and technical team stays. Based on the evidence presented in the movie, the venture capitalist made precisely the right decision.

Tom is so disastrous a leader that one wonders how he made it into a leadership role in the first place, which necessarily undercuts the credibility of August’s plot. It is always possible to create how-not-to films, but they are usually comedies (Fawlty Towers, Yes Minister at times, and the Video Arts training films). Drama demands some redeeming virtues of its protagonists. August leaves the audience with contempt for its protagonist and satisfaction at his being cut loose, but it teaches no management lessons.

In future posts, I intend to documentaries or docudramas that chronicle the technology sector’s most notable success stories.

At the end of “Wall Street and Vine,” his essay published in 2005 attempting to explain why he feels Hollywood is critical of business, University of Illinois law professor Larry Ribstein concludes that “the best way to counteract [Hollywood] films’ misleading message about business is to let business speak for itself.” The Acton Institute, a Michigan-based think tank that attempts to enlist the religious community in support of a free market agenda, has done just that in its 2007 documentary The Call of the Entrepreneur.

In this post, I point out some gaps and contradictions in the Acton Institute’s documentary and also show how Prof. Ribstein’s equally warm embrace of free market principles leads him to a dubious hypothesis about the motivations of the creators of films. Thus, this post will be a critique of two defenders of the free market faith.

The Call of the Entrepreneur is a documentary that blends profiles of three entrepreneurs with pontification by a variety of faith-based free market advocates, including Acton Institute president Rev. Robert Sirico, George Gilder, and Michael Novak. The three entrepreneurs are Brad Morgan, a Michigan dairy farmer who has built a business on high-quality compost; Frank Hanna III CEO of Hanna Capital, a privately-held financial services firm; and Jimmy Lai, a Hong Kong-based clothing and media mogul. All three, as far as I can tell from the movie as well as from online searches, have built companies that have prospered. But there are aspects of Hanna’s and Lai’s stories that set off alarms.

Frank Hanna described the essence of his entrepreneurship as the use of financial engineering to pool, minimize, and transfer risk. Even though he didn’t use the term, it is clear from the description that his firm was creating collateralized debt obligations (CDOs) such as mortgage-backed securities (MBS’s). Of course, it was these instruments that blew up during the financial crisis of 2008, when it turned out that the bursting of the housing bubble meant that virtually all the mortgages in a typical MBS tanked at the same time. The film was made in 2007, before the financial crisis. The Hanna Capital website even today tells us only that the value of its portfolio at the end of 2007 exceeded $ 4 billion. The unanswered question is what happened since then. Quite likely $4 billion was Hanna Capital’s high-water mark.

In The Call of the Entrepreneur, Hanna triumphantly proclaims, “but for financial engineering the US would not be what it is today.” Post-financial crisis, we can say exactly the same words but, ironically, with an entirely different meaning.

Jimmy Lai tells us about how he escaped from Guangdong Province in Communist China in 1960 to make his fortune in Hong Kong. At the age of 12, he immediately went to work in a factory from 7 am to 10 pm. The obvious question is whether Hong Kong had any child labor laws at the time. Either it had no such laws or it did and Lai’s employer was violating them. Rev. Sirico interprets Lai’s story with the comment that the wealthiest places on earth have the least regulation and the least taxation. Does the absence of regulation include either openly permitting or failing to detect and prosecute child labor?

Lai moved from clothing to the media out of anger at the brutal Chinese suppression of the Tiananmen Square protests in 1999. While that is an entirely appropriate reaction, and while I admire the determination and imagination that characterize Lai’s story, I would feel a bit more comfortable with his role as press baron if he had some formal education.

The talking heads in the movie go far beyond the three entrepreneurial stories to proselytize for the minimalist state advocated by von Hayek. While city-states with minimalist government have grown rapidly, there have been more than a few economic success stories of nations with more interventionist government (the four Nordic countries, Australia, Canada, and Germany, for example).

Perhaps the most amusing bit of commentary was by Rev. Sirico arguing, with an orchestra playing the Jupiter movement of Holst’s The Planets, that entrepreneurs, like impresarios [sic], coordinate the creativity of others so that they produce pleasing melody rather than cacophony. While the linguistic roots of the term (“carry between”) are consistent with that idea, the true creator in Rev. Sirico’s example is the composer. This leads to the much more complicated issue of the encouragement and protection of intellectual property, something that requires a state that is more than minimalist. Indeed, the minimalist states that Rev. Sirico praises have often permitted the piracy of intellectual property.

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Prof. Ribstein made the unusual argument that Hollywood’s creative class is anti-capitalist because of intrinsic nature of the film enterprise. Film production requires large pools of capital and films are made with an intention of earning a return on that capital. This means catering to audience tastes. Thus constraints are placed on the creatives (screenwriters, producers, directors) and it is these constraints that they face in their working life that have made them resentful of capitalists and capitalism.

An alternative explanation might of course be that capitalism is a flawed economic system and that at least some films give voice to a critique of capitalism. Another alternative explanation is that narrative requires conflict and that one of the dominant fables of conflict in social realism is between heroic individuals and large institutions. In this fable the large institutions could be located in either the public or private sectors.

On reading Ribstein it becomes clear that he idealizes capitalism. Thus he writes “Firms have powerful incentives to build reputations as good corporate citizens in order to encourage people to buy their products” (p. 64, online version), “real firms will not invite, and in fact try to prevent, the unethical or irresponsible corporate behavior films portray,” (p. 65), “the capital markets thrive on truth, and would have no interest in cover-ups,” (p. 66), “Markets penalize the antisocial and the bigoted,” (p. 66), “competitive firms are great social levelers that bypass entrenched classes, castes, and ranks,” (p. 66), “firms create wealth in the long run by inventing and selling better products rather than by chance,” (p. 68), and “the stock markets, far from the perverse gods of film fiction, fairly accurate reflect firms’ value,” (p. 68). In short, if capitalism is the best of all possible economic systems, then the film-makers’ criticism must be a result of their perverse experience with that system, rather than its failings.

Ribstein never seems to imagine a counter-narrative in which people who have done very well in the capitalist system could nonetheless be critical of its failings. The most prominent examples that come to mind are George Soros, Warren Buffet, and Bill Gates (the latter in the sense of using his wealth through his foundation to solve social problems the free market has ignored).

The most recent example of Ribstein’s thinking about the capitalist system is a 2009 paper, “How Movies Created the Financial Crisis,” published in the Michigan State Law Review. Ribstein argues that there are a variety of narratives explaining – that is, finding fault for – the financial crisis. These include no one’s fault, government’s fault, speculators’ fault, the banks’ fault, capitalists’ fault, and the fault of financiers who created CDOs and CDSs.

Ribstein speculates about which of these narratives will ultimately be incorporated into films about the financial crisis. Ribstein prefers a film with a heroic narrative about the contrarian investors who had the foresight to anticipate the crisis and made large and winning bets by shorting CDOs and buying CDSs. This would demonstrate that “competitive markets ultimately reward anybody with a good idea, industry incumbents often attempt to ally with government to squelch the innovator, free markets triumph in the end against all odds, and this outcome helps everybody.” However, because “films are less about the actual evils of capitalism than about filmmakers’ resentment of capitalists,” he predicts we are not likely to get such a film.

Michael Lewis’s book The Big Short told the story Ribstein wanted to see in the cinema, but without the free market triumphalism he was hoping for. Ribstein quotes one of the shorts, James Chanos, who urged Oliver Stone in making Wall Street 2 not to focus on the hedge fund managers – advice Stone rejected – and instead focus on the banking system. Chanos had it right, however.

In his documentary Inside Job, producer-director-writer-interviewer Charles Ferguson (whose IT-based fortune enabled him to escape budget constraints on realizing his vision), told a much more complicated and nuanced story about the financial crisis, apportioning blame broadly across the financial sector, its academic apologists, and its public sector regulators. I found Ferguson’s story, while difficult to summarize in a sound-bite or a tweet, much more compelling than Ribstein’s free market fundamentalism.

When the true believers in the idealized free market – Ribstein as critic of Hollywood’s supposed bias and the Acton Institute using the stories of three entrepreneurs as the point of departure for proselytizing – do have their say, I find much to challenge in the stories they tell.