## Monday, October 23, 2017 ... //

### Genuine progress requires competition, deeper changes than optimization

Why Babiš and other communist managers aren't good enough

Czechs chose a new parliament and Mr Andrej Babiš's ANO movement, a Führer-style political party, ended up with optically dominant 29.6% of the votes which were translated to 78 out of 200 lawmakers. The remaining 122 lawmakers are divided to a whopping number of 8 political parties, a record high (9 in total). It's this fragmentation that makes the billionaire Babiš – who is deceitfully labeled a Czech Trump by most fake news media – look exceptional.

Babiš's family during Christmas.

But as most of you will surely agree, the absolute number of voters who supported ANO is very far from an overwhelming one. It was less than 30% of voters who came to the polling stations – more than 70% voted for "non-ANO" ("non-YES") or "NE" ("NO") parties. And I haven't included the 61% turnout yet. Because "Babiš or not" was such a vital question of these elections, one could also argue that "no to Babiš" side has overwhelmingly won. After all, he "only" got 1.5 million votes – some 15% of the total population of Czechia.

So it's fair to say that despite his being charged by police for his subsidy fraud (10 years in prison; the charges are suspended because he regained the immunity as soon as the election results became official), he's rather likely to create a new government, one that would surely move us closer to Hungary and Poland according to the "authoritative government" criterion that I am not happy about. I think that he's way more authoritative and ready to abuse the government for his own benefits than either Kaczynski or Orban; but he's way less ideological. Babiš doesn't really have any ideology or moral values surpassing his egotist personal interests at all. He's changed his opinions about pretty much everything where the public opinion wasn't clear enough.

Even though pretty much all the other 8 parties refuse a government with him, he may just find 1-2 parties that will accept some "carrots" and/or buy some individual lawmakers from some other parties or across the spectrum. I don't think this outcome is guaranteed – a big coalition or "opposition agreement" of many subjects without ANO is possible and I prefer it – but it's surely likely enough for Babiš to become a prime minister so that no sane pundit should rule it out at this point.

I am happy that the boss of ODS I voted for (along with 11.3% of voters, silver, 25 deputies), political scientist Prof Petr Fiala, insists on saying No to a government with ANO. I think that most of the 3.5 million voters of the eight "NE parties" (everyone except for ANO) gave the task to their representatives to make it harder for Babiš to create a government, too. At the same moment, I know that this simplified interpretation is far from an accurate summary of the voters' preferences. The number of people who love "both Babiš and [SPD nationalist party leader] Okamura" is substantial, and so is the number of voters who like both Babiš and the communist party. There is surely a clear positive correlation between the voter's support for all the three "authoritarian" parties – which got a safe, but not constitutional, majority in the Parliament.

On top of that, it's rumored that some politicians in ODS that I voted for are also open to collaboration with Babiš. The most frequently mentioned one is Václav Klaus Jr, the oldest son of the Czech ex-president. All exceptional men have been quoted on this blog often. Klaus Jr also got the second highest number of preferred personal votes from his voters – after Babiš himself. An essay at Novinky.cz that Klaus Jr published today made it clear that he's close enough to Mr Babiš, indeed.

Well, Klaus Jr wrote that the majority of voters "always votes rationally". The evidence is some explanation why Babiš's voters voted for Babiš. Klaus Jr believes that Babiš got votes for the thesis "I don't want any real changes, I am both for EU and against it, I want to keep the well-being as it is, we should live well for a few more years, I want to rule everything". It wasn't much but it was enough, Klaus Jr wrote.

First, I didn't understand Babiš's message in this way at all. It doesn't look like a political business-as-usual at all. He wants to change some fundamental aspects of the post-Velvet-Revolution political arrangement, he wants a much more authoritative governing style etc. But when it comes to his style of management, I would agree that Babiš is really "just an optimizer" who doesn't want to do "qualitative" changes.

Second, even if one decides that Klaus' summary of Babiš's voters reasoning is right, it just doesn't imply the proposition that the voters are rational. If one can invent a sentence that summarizes someone's reasoning or a "rationalization" of his vote, it doesn't prove that the underlying reasoning is actually rational, does it? People often behave irrationally. Voters behave irrationally, too. And even majorities of voters often behave irrationally – they often copy irrational opinions and behavior from each other.

In this sense, I think that my paternal grandfather – a hard-working worker who died before I was born – didn't do a terribly good or rational thing for his offspring when he joined the communist party and supported it with everything he had (including his wife, my grandmother whom I remember very well, who had to join the communist party as well but she hated them throughout her life which I remember well, too LOL). You know, we can understand why so many Czechoslovaks voted for the communists in 1946 – which was enough for them to get the total power in 1948. The Soviet Union liberated most of our territory (and existentially saved our nation from the Nazi expansion) while the West had betrayed us instead. Why couldn't we try to copy some of the things they did etc.?

OK, there were reasons – there is a way to describe the history so that it looks logical – and it's plausible that our becoming a communist country after the war had already been decided in 1938 when France and Britain betrayed us. But that still doesn't mean that the voters' "go ahead" for the transition from capitalism to socialism was a rational decision. It reduced the GDP in 1989 by a factor of 5 or so relatively to where it would have been if communism had been avoided. I picked this example of elections but there are many others. Czechoslovak voters voted irrationally – or myopically – in 1946. And so did German voters in 1933. Or German voters in 2017 who still allowed a government that wants to continue with some pro-Islamic or illiberal experiments.

A very similar impartial appraisal leads me to conclude that Babiš's voters have been brainwashed. They gave him an impressive 29.6% but I don't think that it should mean that the remaining 70.4% of voters are obliged to join Babiš's voters and celebrate him and the rationality of his voters. I just don't think that they're politically mature. Statistics make it clear that there is a strong negative correlation between one's education and his or her support for Babiš etc. I don't think that these correlations should be taboos and I think that at least in our country where many things still follow the old-fashioned rules, higher education is still positively correlated with a higher level of critical thinking.

(I am willing to believe that the correlation was literally reversed in the U.S. or Western Europe, at least if the quantities are defined in a certain way, because the scholarly environment has become a full-blown conformist environment where critical thinking is suppressed but I am just sure that Czechia is not that far in the absurd evolution.)

OK, so democracy requires one to respect the power that a politician earns through the elections, and perhaps the political authorities should get a somewhat enhanced "level of respect" from the citizens. But I just think it's absolutely wrong to expect the citizens to vow loyalty e.g. in the next elections to the current politicians or to treat the voters of the current politicians as citizens of a better kind. An elected politician probably has a larger number of voters which is why he was elected in democracy. But this is just a technical description how democracy works which doesn't imply that the voters in the majority are better or smarter or more rational or more ethical people!

To expect this "higher status" of the voters who just happened to vote along with the majority means to push the country towards totalitarianism. So as long as we are a free country, at least approximately, whether the number of voters of ANO were lower or higher than the number of voters of ODS (such as myself) just cannot influence my opinions – and my publicly expressed opinions – on which of the two groups is smarter or more rational or more ethical in average!

So I have some trouble with the excessive rationalization of the ANO voters' reasoning by Mr Klaus Jr. These voters have just made a politician powerful by electing him and his 77 fellow party members – if I avoid the term "puppets" – into the Parliament. That high number doesn't imply anything good about their objective intensive qualities. I am happy that Mr Fiala is defending the voters such as myself who voted for ODS partly as a vote against ANO. And also voters who are either self-employed or appreciate the importance of the business freedom. Klaus Jr and maybe even his father don't seem to care about these things too much which might be a reason to say that I often feel closer to the "mainstream right-wing parties" than them.

But back to Babiš's management style

At the bottom of the election result and all these discussions, there is obviously some emerging "cult of personality" of Mr Babiš. I know lots of people who are a part of this cult. A greater percentage of them are truly uneducated but I know some exceptions, too. This cult is something that I simply don't have any empathy (or instinctive understanding) for. The reasoning of these people looks so dramatically different from my own that I consider these people to be a different subspecies.

You know, he's the 2nd wealthiest Czech citizen. Is it the main reason behind this cult of personality? It's almost certainly not. After all, 2 isn't the smallest positive integer. ;-) If one worshiped Babiš for this reason, why wouldn't he worship Mr Petr Kellner, the financier and the wealthiest Czech, even more than Babiš? Kellner's wealth is larger by a factor of four, he really created himself after the fall of communism, and his methods look cleaner and more sophisticated. And he has also some political views – for example, he funds the Václav Klaus Institute – but he just prefers to keep his private life.

In some sense, I do think that the people who are amazed by Babiš are just amazed by those \$4 billion or so. Pour gold on them and they will be stunned. Well, already when I was a kid, I was convinced that it's just wrong to be "bought" by purely material pressures. But even if I identified the "quality" of a person with his wealth, Babiš clearly isn't #1 in Czechia, let alone in the world. So why should one try to support his political stances because of his wealth?

Various rich people got rich in various ways and these ways obviously matter for "one's feeling about their behavior", too. So I have never studied how Kellner was expanding his financial empire. But it's always the same. One borrows some money, buys some new bank etc. that expands a lot, and so on. There is some big leverage which allows you an impressive growth per year. You sometimes buy very valuable things very cheaply – they're valuable if you know what to do with them.

It seems much more transparent to me what Mr Babiš was doing. In 1980, he joined the communist party and the communist secret police and was growing in influence because he was politically convenient and skillful enough. So he became the director of Petrimex, a company trading with chemical stuff located in the Slovak capital. He probably got lots of information how it works inside, just because he was inside, and he was very ambitious so he basically "privatized it", escaped Slovakia that wanted to stop his aggressive activities robbing the Slovak government. He became a Czech citizen, used this company as his core capital, and continued to expand it as a "Czech" predator. Treat another company as a partner for a while, then harm it and terrify it in some way, buy it cheaply. Repeat. Repeat. You easily add some order of magnitude to your wealth in a decade.

If this path to his wealth was legal or impossible to attack in the courts, well, then it is how things should be. He may have become a billionaire legitimately. But it still seems a very different statement from the statement that there are good reasons to admire this man. Most of his "success" is about his hard work with no compassion towards the rest of the world, lots of decisions that move things around in a way that makes his holding grow. There are only 2 men who are either 1st or 2nd richest Czech citizen but is that it?

What's actually so attractive about him for the people is the combination of his being a billionaire – whether he's #2 or #10 would be almost irrelevant – and his being culturally indistinguishable from the lowest classes of the nation. He speaks in a way that is comprehensible to the uneducated masses. He doesn't use foreign words. He doesn't really make long sentences. He is incapable of creating or analyzing more complex sentences or logical arguments. He has never claimed to have written an essay or a book just by himself. He needs to pay the people who do all this stuff – and who created his P.R. on the Internet because he doesn't even know how to work with a PC.

So Babiš is like the "stupid Johnnie" (hloupý Honza) from the Czech fairy-tales about an ordinary Joe who became very rich etc. Some people love this fairy-tale simply because they are stupid like the stupid Johnnie and they want to be as rich as the stupid Johnnie at the end of the fairy-tale, too! It's that simple. Babiš is just a real world clone of the stupid Johnnie from the fairy-tale. I am actually not the only one who formulated the reason for his attractiveness in this way: it was in an ODS clip from the campaign, too.

But even if I look at the known managerial style in his companies or in the Czech ministry of finance – which he dealt with just fine – I just can't see any reason to be impressed. It's all about some simple optimization. Like others, he wants to maximize his profit but the search for the ways to achieve it are always about the optimization in the sense of the "search for a local extremum". When you look for an extremum of a function of many variables, the "local search" is straightforward. But it's insufficient because you may fail to find some other local extrema – which may be the global extrema – which are located in different basins of attraction.

Communist management was all about the local optimization

What I want to say is that Babiš, a trained trader with fertilizers and feces, is completely unimaginative, uninspiring, uncreative, and this type of managerial work focusing on the "local optimization" just isn't the kind of a contribution that the true visionaries in business – but also in science, technology, and other fields – are all about. The modern economy needs lots of such managers at many places but they're just not the "main ones". Or they shouldn't be.

My real point is that his management style – which is also the only actual skill that he is trying to sell as a politician – is just a continuation of what he was doing as the director of communist companies. Communism also tried to improve the well-being of the people. Some people who were more or less smart were inventing the plans. They were trying to ideally determine the amount of coal that is mined, electricity that is produced, how much is moved from one place to another, and so on. In some sense, the communist managers similar to Mr Babiš did analogous things that managers do in big companies in the capitalist world.

Why did this communist system end up being so inferior economically even though they were doing similar things?

• Well, there was no competition there – the process that really picks the superior people and the superior algorithms
• There wasn't a real motivation for the managers to do things optimally
• There was no disruption – somewhat qualitative events when things jump "out of the box" but the system doesn't collapse
These three points aren't quite independent but they're not equivalent, either.

OK, in communism, lots of the people – including managers – were chosen according to an ideological key. For example, the working-class background of Babiš's family looked great which is why he was very likely to become a director once he joined the system. And sometimes, aside from the ideological criteria, the people were getting some "grades" from some other communists. But the problem of that was that even the "graders" weren't really good at figuring out what's right and what has worked, so the grades weren't really effective at picking the right people.

In meritocracy or capitalism, the grades are dynamically assigned by the whole system, e.g. by the profit that the managers can create. Communism tries to mask the profit or keep it near zero by immediate redistribution etc. so one doesn't really know who is doing a great job.

Second, the communist managers weren't really motivated. The factories were owned by the "working class" and the working class either didn't care or didn't have any effective tool to check that the factories are being used effectively. Things must have gotten more effective when companies became private assets, e.g. when Mr Babiš turned Petrimex into his private company.

But it's the third, final point that inspired the title of this blog post. The problem with communist management is that it is only "maintaining" something that already exists and after a few years, that's simply not enough for your nation to remain at the top! What do I mean?

You know, the capitalist society has spontaneously developed the circulation of commodities and products and cooperation and adjusted the prices so that things are balanced and they work to guarantee the well-being for the people. The very fundamental process of the determining of the price of things by the invisible hand of the free markets – by matching the supply and demand – requires some freedom and is suppressed in communism. Even to find a somewhat sustainable regime of the economy, the communist regime must either "mimic" the trade economy in some way (the market processes are naturally banned in communism) or, more frequently, the communist economy just copies most of these prices and other numbers from the most recently operational capitalist system – and just "sustain" these numbers, hopefully with some growth added.

So there's one big debt that all the world's communists owe to capitalism: they have plagiarized lots of the numbers – vital information – that is needed for the economy to work and be sustainable at least approximately.

A communist society wants to achieve some growth and they instinctively knew that they probably needed to mine more coal and produce more energies, and so on. But how much more? Should the production of coal and energy and butter etc. grow by the same percentage? Or by different percentages? What should all the growth rates be when you're constructing a new 5-year plan? It's clear that there are lots of numbers that are simply being guessed. It's almost guaranteed that this system can't work too well to optimize the actual people's well-being if the power of the prices determined by the supply and demand isn't there – if this key feedback is missing.

But even when the feedback is missing, there may be better and worse communist managers. But all of them still work "inside the box". They're just adjusting some parameters within one basin of attraction.

That's simply not enough to achieve real progress. Many things that the capitalist economies underwent between 1945 and the late 1980s were much more "qualitative". These changes went "outside the box". When some component of a device is replaced with a more modern technology, it's simple. Companies adjust the prices, some things may become cheaper, all the prices automatically adjust to make things work, after some fluctuations. But in communism, you don't have the free market so the planners never know how to adjust things. When a technological advance makes it 100 times cheaper to produce a transistor, should your communist economy produce the same amount of transistors? Or 10 times greater amount? Or 100 times greater amount? And so on.

That ignorance has consequences. They are really scared of any large or qualitative enough changes. Deep enough changes represent a threat that the whole system collapses. They won't know how to fix some things. Components may be overproduced or missing and there will be shortages and other things. So communism excessively discourages experimentation, deep enough changes, and stuff like that. This is a big part of the inferiority of communism.

Whenever I think about these matters, it looks clear to me that Babiš, while a billionaire, is still a textbook example of a communist manager, someone who can only think "inside the box". It's arguably enough to trade feces because you don't need too many things that are "outside the box" when you're trading feces. But the problem of such a self-confident prime minister is that many things in the economy do often require the thinking that is "outside the box". They also require investments of completely new kinds – as a finance minister, Babiš has made almost no investments, let alone groundbreaking ones. To put it simply, way too many things in the economy – and the society in general – are way more delicate and sophisticated than the trading with chemical products or chickens.

I simply believe it is dangerous for the medium-term and long-term growth of an economy when someone who is as narrow-minded as Babiš wants to decide about virtually everything that is important in the economy. This guy doesn't know how to deal with a PC. A man like him who is too powerful is almost guaranteed to confine lots of important things into straitjackets that are suffocating and prevent any substantial growth.

On top of that, he wants to make some political changes that are truly drastic, like the removal of permanent opposition at the city halls.

I totally believe he is a workoholic or has some extremely effective negotiation style and stuff like that. It's been OK for his wealth. But that's very far from a qualification that would allow someone to decide about totally different things. He's a Stakhanovite manager of some kind. Great. But that's just not enough. A modern economy can't be built on Stakhanovites. Even Stakhanov who mined 14 times his quota in 6 hours in 1935 ;-) would just get some damn coal and wouldn't naturally earn the average salary for that today, given the low coal prices and ineffective technology he was using then. The true progress wasn't done by Stakhanovites. Despite the commies' wishful thinking, Stakhanovites just couldn't make communism surpass capitalism! ;-)

(Incidentally, lots of the Stakhanovites did their excess work by ignoring some safety regulations, by using bigger shovels, and tons of them became disabled too early because of that which are long-term expenses that make the usefulness of the whole movement questionable, to say the least, but that were being obfuscated by the propaganda, anyway. You know, when I was a kid in the 1980s, we were still taught about this Stakhanovite "communist folklore" but one could feel that no one really believed that this was a good path to progress anymore. In capitalism, miners don't try to become Stakhanovites. They are trying to minimize their work and/or the damage to their health as long as it is enough for the employer.)

And let me say one important thing: Much of the progress arises thanks to the people's laziness. Laziness is often a key condition that makes the people ask "why" and "how could I make things much more easily and effectively". It may be good for you if your employees are Stakhanovites but it's usually bad for the employer (or the ruler) to think like a Stakhanovite! A ruler-Stakhanovite tends to demand others to be mindless Stakhanovites as well and that's simply not an efficient path to progress.

A healthy, capitalist society constantly looks for some compromise – changes that are deep enough to make things "substantially better" than before but mild enough not to destroy some vital aspects of the mechanisms that everyone depends upon. Authoritarian ways of thinking simply cannot do it right – for the same reason why communism couldn't trump capitalism when it came to the GDP per capita. Babiš has become a billionaire but he's still a classic communist manager and I think it's just bad when a guy like that becomes too powerful in a country. But just to be sure, these objections are way less serious for me than Babiš's apparent efforts to reduce the civic freedoms, other businesses, and impose some mandatory belief system on the nation.

Note that the realistic progress in science depends on some balance between "preserving the precious principles" and "making radical enough changes and insights", too. People may err on both sides, e.g. Andy Strominger would often point out. The right "depth" of the changes is a quantity whose ideal value cannot be easily guessed at the beginning. Some "experimentation" has to be done. And in most cases, one predetermined person cannot find the right value of these parameters on behalf of the whole industry or economy. The right values are found after some collective efforts of many people who compete – and some of whom are eliminated.

These are vital processes that don't exist in communism or the closely related Babiš-style authoritarian flavors of the government. Many people seem to misunderstand these basic mechanisms. They misunderstand the modern world, they misunderstand the human society as a whole, they misunderstand what has allowed us to become wealthier than 25 or 250 years ago. And I am confident that this basic misunderstanding of the prerequisites for progress is much more widespread among the voters of ANO and some other authoritarian (and, of course, also communist) parties.