Gen. Stanley McChrystal: In the Spirit of the Austrians

I was pleased to see Gen. Stanley McChrystal speak at the Pentagon today about his new book, “Team of Teams.” His basic argument is that the military, like many human organizations, is built on a rigid hierarchy which prevents adaptability. While technologies, and to a lesser degree human behavior, change quickly, our institutional structures often do not keep pace. Al Qaeda, by contrast, utilizes commercial information systems to maintain a decentralized network which allowed what was previously “impossible,” timely action, coordination and resiliency all-together.

Going into the war, McChrystal and most others saw terrorist cells as a compartmentalized hierarchy which could be “decapitated.” His epiphany came when he sought authorization to kill Al Qaeda’s “2+7” leadership (Abu Musab al-Zarqawi, his deputy and seven commanders). McChrystal said “I then thought about what would happen if we killed the top nine guys in the Pentagon… things would get better!”

Naturally the room of Pentagon employees erupted laughing.

Recreation of Gen. McChrystal's Progress Chart

It appeared to me, however, that Gen. McChrystal tip-toed around the themes F.A. Hayek's essay "Uses of Knowledge in Society." In complex environments, different individuals have heterogeneous pieces of information. The challenge is creating a system where localized knowledge can be shared and synchronized. Hayek and Mises demonstrated how central planning is a poor paradigm for rapid adaptation to changes which occur in particular circumstances of time and place.

Hayek defined “catallaxy,” from the Greek verb “to exchange,” as “the order brought about by the mutual adjustment of many individual economies in a market.” We like markets because the price system transmits important information to all actors which empowers them to make efficient decisions. 

McChrystal has not yet figured out the military’s analogue to the price system. When asked how to bring about his adaptive and decentralized organization, his flimsy answer was Video Teleconferencing (VTC). The VTCs he ran at the Joint Special Operations Command (JSOC) included 7,500 participants for 90 minutes each day.

Clearly this is not the solution. The problem in need of addressing is how to streamline information. 

Prices provide only relevant information to the decision-maker. One doesn’t need up-to-date information on complex supply chain factors or consumer sentiment in order to make decisions on resource intensities. All of that opportunity cost is conveyed through the market price.

VTCs, however, do not streamline information. Everyone gets firehosed with the whole set of information. The fact that McChrystal found coordination through mass VTCs to be far superior to hierarchical dissemination means that there are huge efficiency gains out there for someone who can provide bureaucratic organizations (government as well as large firms) with a “price-like” mechanism.