Academic

The Financial Crisis and Leadership

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

As David Zaring noted, earlier this month he and I attended the Panic of 2008 conference at GW.  I moderated the panel on historical context, which panel focused on drawing similarities and distinctions between our current financial crisis and previous ones, and seeking to determine if there were any important lessons we could draw from history.  One theme that emerged was the importance of leadership, or to be more precise, the important role that a particular leader has played in steering the country out of crisis, such as Alexander Hamilton?s role in the Panic of 1792 and J.P. Morgan?s role in the Panic of 1907.  In both cases, these leaders had the necessary clout in the business world to act quickly and boldly, and perhaps most importantly, to encourage appropriate collective action among all the key players.  One panelist noted that the absence of this kind of leadership prolongs a crisis and the collateral economic damage. 

Of course these observations prompt the question, do we have such a leader?  The short answer could be yes.  We certainly have many people taking on leadership roles, and perhaps history will tell us which of those people could be viewed as our modern day J.P. Morgan.

However, the panelists seemed to agree that our current economic and financial system may make it nearly impossible for a J.P. Morgan-like leader to emerge and be effective.  In their view, the scope and complexity of our financial system and the current crisis, advances in technology, and today?s informational asymmetries mean that it is nearly impossible for a single person to have the kind of insight and influence necessary to play the type of role that Alexander Hamilton or J.P. Morgan played.  Indeed, panelists noted that we should be concerned if such a person existed today.  So what does this mean in terms of leadership?  It suggests that at best, we either will have multiple leaders or, if a single leader emerges, that leader will have to coordinate the leadership efforts of others.  It also suggests that the effort to provide effective leadership will be significantly more complicated than in prior economic crisis.  Certainly a troublesome suggestion if effective leadership is vital to ensuring that the economic crisis is not protracted and does not generate significant collateral damage.

Full post as published by Conglomerate on April 16, 2009 (boomark / email).