God is a Capitalist

Tuesday, June 7, 2016

How D-Day teaches economics

June 6, 1945, Allied forces invaded the Nazi fortress of Europe. Not everyone cheered. General Douglass MacArthur said of the invasion that he would court martial the SOB who had planned it. Of course, he knew well the planner. He had worked as MacArthur’s aid for several years: General Dwight Eisenhower. The mass slaughter of Allied troops in the invasion horrified MacArthur. His philosophy had been to land where the enemy wasn’t and then attack. In dozens of amphibious landings MacArthur lost fewer men than the Allies lost at Anzio alone. Churchill had lobbied for the main landing in the south of France where the German presence was much thinner. Instead, Eisenhower and the Allied command chose to jump right into the the teeth of German troops in Western Europe.

The D-Day invasion succeeded in spite of being a very poor military strategy. But why? The Germans held a significant advantage and were very confident. The answer lies mostly in the field of organizational behavior, specifically, the issue of centralized versus decentralized decision making. In organizational theory, the larger and more complex the situation, the more decentralized decision making must become. Centralized decision making works best with routine and simple operations.
The Germans had adopted a strong centralized command and control structure. Ground level troops had no authority to make decisions. While watching the approaching armada, they could do nothing but wait for instructions from Hitler. Tank divisions that might have turned the battle in Germany’s favor sat idling their engines while awaiting orders from Berlin.

The Allies, on the other hand, had embraced decentralized decision making after failures in North Africa. A military friend of mine called it “centralized control; decentralized execution.” Allied command determined the overall strategy then allowed lower commanders to decide how to execute those plans.

Keven Scherrer wrote of the invasion in "World War II: Eisenhower and Clausewitz on the Western Front,"
Eisenhower’s broad-front strategy was no rigid, linear operation, but rather a framework that allowed for opportunistic variation at lower levels.
Decentralized decision-making is critical for the conquest of friction. Consider the converse example on D-Day, Hitler (the German head of state) retained control of the reserve panzer divisions and would not be awakened to deploy them until well after any chance of success had passed. By contrast, American leaders at all levels were empowered to make on-the-spot tactical decisions within the boundaries of the overall operational scheme. On D-Day, friction reigned supreme, as units were disembarked at wrong locations, Allied bombers missed their targets, and paratroopers were scattered across the Cotentin peninsula. However, this friction was defeated by Allied initiative throughout the chain of command. Again, Stephen Ambrose: “The contrast between men like Generals Roosevelt and Cota, Colonels Canham and Otway, Major Howard, Captain Dawson, Lieutenants Spaulding and Winters, in adjusting and reacting to unexpected situations, and their German counterparts could not have been greater. The men of democracy were able to make quick, on-site decisions and act on them, the men fighting for the totalitarian regime were not.
The success of D-Day ultimately came down to the decisions of lower level officers and sergeants on the beaches. Once the landing craft had dumped the young men on the beaches, the excellent defenses planned and executed by the Germans slaughtered hundreds of thousands of boys in their late teens and early twenties. They pinned the boys to the beaches. The commanders in the ships could only watch and pray as their boys were butchered by machine gun and artillery fire.

The excellent training of the boys on the beaches kicked in and they planned their own assaults. Captains, lieutenants, sergeants and corporals, not generals, defeated the defenses of Germany’s best military minds. They knew they could not rely for help on the commanders in the safety of the ships far out at sea. Like entrepreneurs, they used their own resources and creativity.

After conquering the beeches, Allied forces got bogged down in the hedgerows and suffered heavy casualties again. The hedgerows were ridges of earth and when tanks tried to roll over them they exposed their soft bellies to German anti-tank weapons. An American sergeant solved the problem by welding metal "teeth" to the front of the tanks so they plowed through the hedgerows instead of travelling over them.

I first learned the lessons of organization behavior from a class in college. The professor assigned the non-fiction book The Great Escape as a supplement to our textbook. The German prisoner of war camp represented the hierarchical organization with centralized command. The commander never rewarded initiative and punished every mistake. He had to make all of the decisions. As a result, he wasted the intelligence and resourcefulness of the lower level troops.

The British prisoners followed a decentralized decision making structure. The leadership determined strategy and timing but left the execution to those who would do the work. Enlisted men demonstrated astonishing creativity in solving problems and their commanders rewarded them for it. As a result, they pulled off the largest escape of prisoners during the war.

However, the roles were reversed in North Africa where the Brits held German prisoners. The Brits adopted hierarchy and centralized control and execution while the Germans embraced decentralization. The results were similar. The Germans escaped in large numbers.

The damage that hierarchy and centralized control inflicts on people was analyzed by Clifford G. Holderness and Jeffrey Pontiff in their paper "Hierarchies and the Survival of POWs during WWII." Their conclusion - it can be deadly. The authors discovered that freedom of trade among POWs and between POWs, guards and civilians was crucial to survival:
One interpretation of these findings is that a hierarchy developed for one environment,
winning battles, did not adapt well to a related but different environment, surviving captivity. Although a command and control might be optimal for the battlefield, it is less appropriate for a POW camp. The accounts of the POWs themselves and some of our findings raise the possibility that the military’s hierarchy impeded trading among the prisoners.
What does D-Day have to do with economics? D-Day was complex, but there is no operation as complex as the economy of a nation, especially a large one like the US. Organizational behavior and history, have proven that the successful operation of such complexity requires decentralized decision making, such as exists in a free market. Attempts to dictate to companies how to operate through millions of pages of regulations or through Fed control of money are doomed to the same failure that embraced the Germans on D-Day.

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