The Greensill scandal

The growing scandal in the UK over corporate lobbing of government – which has implicated the former Prime Minister David Cameron as well as a former civil servant – is a reminder of the uses of bureaucracy and the dangers of its abandonment. Max Weber’s ideal-type bureaucracy is most closely associated with the State civil service, and many of its tenets can be seen in the traditional model of the British Civil Service which emerged from the 1854 Northcote-Trevelyan report (although in more complex ways than some of the received myths – see Greenaway, 2004 for details).

One feature of the Weberian ideal-type which nowadays seems rather quaint is that of the lifetime employment of bureaucrats, which links to the way that in the British system the civil service is a permanent one, existing independently of the government of the day. A virtue of such an approach is that it reduces the incidence of the ‘revolving door’ whereby someone might move between civil service and private sector employment. Of course, lifetime employment was never compulsory, so such moves have always occurred, but they were not the norm and, being rare, could more easily be regulated.

This revolving door (not just for civil servants but for government ministers) is at the heart of the present scandal, but it is much more widespread than that. The particular problem it presents is that the awarding of government contracts, or other favours such as, for example, laxer regulation or favourable planning decisions, is potentially corrupted.

Actually, one aspect of this particular scandal is not even a revolving door but a case in which, it appears, a senior civil servant was working simultaneously as an advisor to a now bankrupt finance company, Greensill Capital, of which he then became a Director after leaving the civil service. This seems to have happened not through oversight or concealment, but with official approval. It was not that the rules were flouted, but that they were followed.

It remains unclear how many similar instances of this there may be, but the more routine ‘revolving door’ cases have become far more common over recent decades because it has become an article of faith since at least the Thatcher governments that private sector expertise is needed to inject competence and dynamism into the supposedly archaic traditional civil service. This has even extended to the extensive use of management consultants not just to deliver policy but to contribute to the making of policy, and not just in the UK (Howlett & Migone, 2013).

At the same time, and for the same reason, the state has been reconfigured so as to be less the provider of public services and more the commissioner of those services from the private sector. This outsourcing, discussed extensively in my book, therefore offers particular opportunities for the award of government contracts, making the revolving door all the more problematic. Again, there are rules in place governing what former civil servants and government ministers may and may not do, but they are fairly lax. So it’s not necessarily a problem of rule-breaking but that the rules themselves are inadequate.

The issue here is not, or not necessarily, an overt corruption involving backhand payments in brown paper envelopes. It is more subtle, and more insidious, than that. It’s partly about conflicts of interest which, whether consciously or unconsciously, shape decisions. It is also about the way that personal networks and contacts – the ‘chumocracy’ – can be the basis for these decisions. So, all too easily, and again it may be both conscious and unconscious, nepotism and patronage creep in, and it flows both ways: ‘I’ll scratch your back if you scratch mine’. This might be to do with individuals (for example, a civil servant anticipating future employment) or organizations (for example a consulting firm which is both advising government but also potentially benefitting from government decisions).

Whilst this isn’t new (and the origins of the Greensill scandal predate the current government) there are reasons to think that it may be more prevalent now. One is that the present Prime Minister has shown, in numerous ways, a cavalier disdain for established norms of conduct, and even for the law (for example in illegally suspending parliament in 2019). He is notoriously dishonest (Oborne, 2021) and exhibits a sense of privileged entitlement which seems to suggest that ‘rules are for the little people’. If, as the saying has it, ‘the fish rots from the head’ then an administration led by such a person may be expected to be tainted.

Related to that, this is a government that is especially resistant to dissent and scrutiny, as shown by its draconian approach to policing protests, hostility to the legal system (‘activist’ lawyers, judicial review) the civil service and 'woke' universities, excessive use of Executive powers (Henry VIII powers, Statutory Instruments), disdain for the ministerial code, resistance to accountability to both the media and parliament, and much more besides. This then becomes the context for an illegal lack of transparency in public procurement with associated accusations of cronyism, assisted by the crisis situation caused by the Covid-19 pandemic which has been used to justify suspending standard rules for such procurement.

What is objectionable about all this isn’t simply the question of whether individuals and companies are lining their pockets – and often already over-filled pockets, at that. It is that they do so at public expense After all, the rationale for bringing private expertise into the civil service, and for outsourcing public services, is supposed to be that this will make more efficient use of public, or taxpayers’, money. Cronyism doesn’t as a matter of logical necessity preclude this – perhaps contracts awarded to cronies are undertaken superbly well – but nor does it require it. It makes it impossible to tell whether ‘value for money’ has been achieved.

Another way of looking at this is the way that the neo-liberal ideology of competitive markets as the most efficient allocator of resources has morphed into a ‘market managerialism’ in which bogus markets are created, with resource allocation being decided managerially by, in this case, politicians and civil servants. It is almost the worst of all worlds in taking the worst features of command economies and combining them with the worst features of capitalist economies.

It might be argued that the very fact that there is currently a scandal means that we shouldn’t worry too much. It shows that there is an accountability in operation. The difficulty with that idea is that we really have no way of knowing whether what has been identified is all that there is to be found, or whether it conceals a hidden iceberg. The only real way to be sure is through a system of formal rules. That entails far more than the often-proposed solution of ‘transparency’ and ‘disclosure’. It is not enough that conflicts of interest be ‘declared’, what matters is that, when declared, they are removed, most obviously by removing an individual from decision making.

That is no easy matter. Much of what is at issue here is extremely difficult to police – late night conversations between friends, for example – and probity requires moral norms as well as procedural rules. Perhaps a different way of putting this is to say that it is not necessarily easy to say where and when ‘decisions’ are made: the meeting room and the written minutes may not tell the whole, or even most, of the story.

So Weberian bureaucracy isn’t by any means the whole answer here. For that matter, we shouldn’t assume that the traditional civil service was free of chumocracy when, no doubt, the ‘old boy network’ was alive and kicking. Similarly, ministers and former ministers of bygone times were not paragons of unalloyed virtue.

But this doesn’t mean that cronyism and more or less overt corruption are simply facts of life. They flourish to a greater or lesser extent according to the particular rules and norms of political administration obtaining in particular places at particular times. Avoiding such problems is always a work in progress, sometimes going in the right direction, sometimes the reverse.

In Britain, at the present time, there is a sense of going in the wrong direction. As Rafael Behr, the Guardian columnist, argues, it is not country “riddled with corruption”, but there is “the stench of decay”. That may have its proximate cause in the particular character of the present Prime Minister and government. But they have been enabled by inheriting a state that had already been hollowed out, and a civil service that had been undermined, by the ‘private good, public bad’ ideology. That gave them a freedom of action that might otherwise been constrained. By the same token, with different ideologies and institutions that freedom of action could be curtailed.

 

The fifth edition of A Very Short, Fairly Interesting and Reasonably Cheap Book about Studying Organizations will be published by SAGE in November 2021.

Your money and your life

The still emerging scandal of the use of Facebook users’ data by Cambridge Analytica for political campaigning has numerous dimensions to it – political, technological, ethical and social. One particular aspect that I find interesting is the idea that users (may) have given their consent to the various ways their data is used by signing up for services. It has apparently long been a truism in the tech world that ‘if the product is free then you are the product’, and on that basis it is claimed that signing up for services is a matter of caveat emptor or ‘buyer beware’ - or should that, in this case, be ‘donor aware’ since the point seems to be that what we should beware of is not buying?

There seems an obvious difficulty with this: how can we make such judgments if we do not know what we are agreeing to? The answer, invariably, is that what is required is greater transparency. However, as Jana Costas and I wrote in our book on secrecy in organizations, using exactly the example of accessing on-line services, transparency is not what it appears to be:

“Indeed, one can even see how increased transparency also entails increased secrecy, as the very proliferation of information makes it easy to hide secrets which get overlooked in the overwhelming torrent of disclosure. For example, consider the ubiquitous ‘terms and conditions’ to which one signs up when using web-based services. These are so detailed and complex that few of us bother to read them, and fewer still will understand them. So we just check the box indicating agreement. If subsequently this causes problems the provider can quite legitimately say that nothing was kept secret and, indeed, that there had been the fullest transparency possible. Yet it is a transparency that obscures rather than reveals.” (Costas & Grey, 2016: 53)

In these circumstances, the idea of a choice being made seems deeply unrealistic. Of course, a ‘hardline’ response would be to say that if people cannot be bothered to read and understand the T&Cs then that is, precisely, their choice. After all, they could simply not sign up to Facebook. In fact, 2.2 billion people worldwide log in to it at least once month, which is getting close to a third of the global population. No one forces them to.

That is true and, personally, I have never had a Facebook account. But it’s increasingly difficult, if not impossible, to exist without signing up to anything at all. It isn’t as if it is just a matter of social media, it is also about the multitude of on-line services that people need to use in some cases including very basic things without which it is impossible to function, including state welfare. The space for an off-line life is becoming very small indeed (generating the new phenomenon of 'cyber insecurity'). No one can, realistically, ‘choose’ to opt out of the entirety of this, even if we have choice about using this or that platform. Nor is it the case (so far as I know) that any on-line provider of anything offers not to collect any data on its users, and that is the case as much for paid for products as for ‘free’ products. Indeed, just browsing websites requires agreement (assumed as given if we continue to browse) to the use of cookies.

Choice and informed decision making in this context are therefore highly precarious, if not meaningless. Apart from the general issue of take-it-or-leave it sign ups to T&Cs, my experience, at least, is that opting out of specific permissions for, for example, receiving marketing materials from companies are often breached. And I frequently receive marketing messages from companies I have never had any contact with which offer the option of unsubscribing – but only if I provide my email address. So I am expected to ‘choose’ to provide data in order to avoid messages that I have never chosen to receive in the first place. Beyond that, my computer and phone are constantly chuntering away doing things that I have no understanding of at all, and constantly nagging me to provide more information about myself (for example my geographical location). There are even cases of phones and other mobile devices continuing to harvest such data despite users having (supposedly) disabled its provision.

Some of these issues are not new in principle. Over 30 years ago I began work on my PhD which was concerned with financial services regulation. Some of the big issues at the time were (as they continue to be) whether people actually understood what they were signing up for when they took out, for example, a life insurance policy, pension, or mortgage. This was all about, in effect, terms and conditions and hidden costs. Associated with this was the question of the sales and marketing tactics used in the industry. And, indeed, in the intervening years we have seen ongoing scandals about the mis-selling of, for example, endowment mortgages and Payment Protection Insurance (PPI) – and, ironically, the subsequent scandals around the pressure selling of PPI compensation claims. The regulation of such matters was, again, primarily conceived of in terms of transparency of information in order to promote ‘informed choice’. Yet this in turn has generated a mass of information which only someone already highly knowledgeable is really in a position to evaluate.

However, the current situation of the mining of on-line data whilst similar in principle is far more extensive in scope. It is all-encompassing in the way that buying a financial product is not, reaching far more deeply into our lives – and also, as the Facebook scandal seems to suggest, into the lives of the people we interact with (that is, Facebook friends). There also seems to be something qualitatively different about the ‘if the product is free then you are the product’ mantra in that whereas it is pretty clear that what, say, a financial advisor is after – your money – what the data wranglers are after seems to be not just your money but your life. 

Reference

Costas, J. & Grey, C. (2016). Secrecy at Work. The Hidden Architecture of Organizational Life. Stanford, CA: Stanford University Press.

Wells Fargo farrago

The unfolding scandal at US bank Wells Fargo, one of the most historic organizations in the USA, is an interesting illustration of the perils of managerial target-setting (see p. 30 of book). What seems to have happened is that sales staff were under such pressure to meet sales targets that they simply invented new bank and credit card accounts – and not just here and there: as many as two million bogus accounts were created.

But this story is also interesting in showing that such perverse incentives are not just an arcane matter of organizational theory. The scandal led to the company having to pay out on a $185 million lawsuit, and the resignation this week of its Chairman and CEO, John Stumpf. And it shows the weakness of corporate whistle blower legislation.

Target setting lies at the heart of many organizational failures and scandals in recent years, whether that be the British NHS or mortgage lenders’ payment protection policies. There is little sign that the lessons of these have been learned. A huge scandal in waiting is the UK deregulation of pensions, which allows people to draw down and spend or invest their pension pot on the advice of salespeople working, of course, to sales targets. Watch this space for what will undoubtedly result in the coming years: pensioners in poverty because they have blown their savings under the paradoxical dogma of 'choice'.

Targets encapsulate the core issue of formal and substantive rationality in organizations (pp. 21-25) because they prioritise the former over the latter. Formal rationality valorises target setting as a means of control; substantive rationality valorises ethical conduct. The irony is that the former is seen as hard-headed business logic whilst the latter is seen as fluffy ethical stuff but, as Wells Fargo shows, that is a false logic. Had Wells Fargo been more substantively rational, it would not face its current problems.

Sick

Today’s post is prompted by the story this week that Hillary Clinton has had to take time off from campaigning because she has pneumonia. In fact, she only took four days off – which, frankly, seems very little to recover from pneumonia - but this has been seized on by her political opponents as evidence that she is not up to the job of US President.

Although the political reasons for this are obvious, it seems to me to fit with a wider issue of the way that in the UK, at least, going off sick is frowned upon, and worse. It can be taken as a sign of unreliability and lack of commitment. The Sports Direct scandal revealed exactly this, with sick leave being counted against workers, who as a result were too scared to take it. But that case is the tip of a much larger iceberg. A 2015 survey found that one in four British workers were too afraid to take time off when ill, and the study suggests that they are much less likely to do so than workers in some other countries: in 2015 8.9% of British workers took more than 8 days sick leave compared with 25.3% of German workers.

If we discount the idea that the British are inherently healthier than the Germans, then it seems obvious that what is at issue is the politics and culture of work. Organizationally, it links to the more brutal management and work conditions in Britain, including the precarious employment terms discussed in my last post. Certainly self-employed workers take about half as much time off sick as those in employment.

British politicians routinely berate the public sector in particular for having higher levels of sick leave than the private sector even though both have fallen steadily for the last 20 years according to the Office for National Statistics. But Stephen Bevan of the Work Foundation and Lancaster University Management School explains that this difference (7.9 days per year in the public sector versus 5.5 days in the private sector) can easily be understood. It isn’t that public sector workers are malingerers, but a combination of the demographics, the more risky occupations and the better recording of sick leave that exist within the public sector.

In addition to this, I think that there is a very macho issue around taking sick leave. This seems evident in the debate about Hillary Clinton illness but, more generally in the sense that it is somehow ‘soft’ or ‘wimpy’ to ‘give in’ and take time off. Real men power on through it. The UK statistics bear this out, with women losing 2.6% of working hours to sickness compared with 1.6% for men (2013 figures).

It seems unlikely to me that it is any better for businesses than for individuals to work when they are sick. They are likely to be less productive, and to infect other workers. With the weather in Britain today having taken a decisive turn to autumn, we are now entering the season of coughs and colds. Personally, I find it intensely unpleasant if the people at work, in shops or on public transport are spluttering and sneezing all over me. In 1945 there was a splendidly amusing public information film (you can see it here) warning that ‘coughs and sneezes spread diseases’ and instructing people to use a handkerchief. Well, that’s fine so far as it goes, but much better for all concerned to stay off sick until you get better, and for employers to support that.

Unsurprisingly shocking

I have not posted for a few weeks now, partly because I took some holiday at the beginning of April, partly because of pressure of work, and partly because I have been writing several blog posts for various sites working with the EU Remain campaign. The most recent of these can be found here for anyone interested and there are several more in the pipeline. And in the even more unlikely event of anyone being interested in my holiday, my new profile picture shows me emerging from a Norfolk pub (quite sober, I should say) whilst I was away.

So there’s plenty I could write about but I’ll focus on the news this week that the retailer British Home Stores (BHS) has gone into administration, with debts of over £1.3Bn and a pension deficit of £571M, leaving the 11,000 employees across its 164 UK stores in limbo, and creating much insecurity for former employees with deferred pension rights. Like all statistics, this depersonalises the reality but I visited my mother this week and, by coincidence, her care assistant used to work for BHS and told me how worried she was about her deferred pension. I tried to reassure her that the Pension Protection Scheme meant that 90% of her rights were assured, but for someone on (I guess) the minimum wage and with limited pension expectations that 10% matters, even if she trusts that the 90% will be forthcoming.

BHS is one of those high street stalwarts that seems to have been there forever – I can remember one of my sisters having a Saturday job there in the 1960s. In fact it goes back to 1928 and joins the long list of British companies, some of which I mention in my book (pp. 105-106), that have fallen by the wayside. There are all sorts of reasons for that, of course, from the rise of the internet to the growth of Pound shops. I actually go to BHS quite regularly to – look away now, kids – buy cigarettes and that branch, at least, seems faded, dilapidated and dated, and the staff demoralised.

That is because underneath the general trends in retailing there is another story to be told about BHS. Bought by the fabulously wealthy tycoon Sir Philip Green for £200M in 2000 he sold it for just £1 in 2015. In the interim, rather than investing in modernising the business it had been used as an enormous cash cow and systematically pillaged for massive dividend payments. Far from ‘adding value’ in the manner self-righteously claimed as the hallmark of dynamic entrepreneurship, value was ripped out of BHS and pocketed. There are now calls for a public inquiry into what happened but, whatever the details specific to BHS, it is just another case of the consequence of rapacious financial engineering of the new capitalism (discussed in chapter 5 of my book). Hardly less noteworthy is that its post-2015 owner was a company run by a twice bankrupt former racing driver with no retailing experience, and the demise of BHS comes as no surprise. Interweaved into this sorry saga are the usual array of offshore tax avoidance schemes and global investment bank advice.

Such stories have become so commonplace that they lose the power to shock. Even so, there is still a jolt of surprise in recollecting that as recently as 2010 Green was commissioned by the British government to make recommendations on improving its efficiency. Reading his report today, my immediate reaction was to think how thin it seemed – I have seen undergraduate student workplace projects with more depth. My second reaction was to recall how similar it was to the 2004 review of public sector efficiency by Sir Peter Gershon. In fact, on government procurement especially, the Gershon recommendations were nearly identical. It makes you wonder what the point is of these endless reviews – perhaps they have the same ritualism as public inquiries, about which I have written before.

Anyway, Green’s review concluded – surprise, surprise – that the way forward was for government to adopt the methods of the private sector, apparently unaware that this has been exactly the approach since the early 1980s, so what he was observing was the consequence of precisely the course of action he was advocating. And his headline finding was that the government was “failing to leverage both its credit rating and its scale”. In other words, the government should get on the wagon of the same financial engineering techniques that he was at the time so assiduously applying to bring BHS to disaster.

With the controversy now surrounding him, it’s unlikely that Green will in the future be asked to give advice on how the government should organize itself. But there will always be someone else – whether a faceless but fresh faced MBA from a big league consultancy, or whoever the currently lauded tycoon may be – to apply the same failed logic. Because however often it fails it is never discredited; worse, each failure provides the impetus for its re-application. That, too, has lost the power to shock.

Shades of grey

No, our topic today is not BDSM (and can I say in passing how peculiar it has been to, almost, share a name with Christian Grey, the protagonist of 50 Shades of Grey?). Instead, I am going to reflect on Allan Massie’s extraordinary novel quartet comprising Death in Bordeaux (2010), Dark Summer in Bordeaux (2012), Cold Winter in Bordeaux (2014) and End Games in Bordeaux (2015).

These novels, which feature Superintendent Lannes are only in the most superficial sense roman policiers. Rather, they are an account of life in wartime France, concerned with the dilemmas of collaboration, resistance and the various shades of grey between. More than this, they show the moral ambiguities of these very categories, told in particular through Lannes’ sons, one of whom joins the Free French forces whilst another joins the Vichy regime. Both do so for honourable reasons.

History is a strange arbiter of morality. In some ways, it enables us to look back and see moral choices as rather easy: for example between resisting and collaborating, even though, as Massie’s novels show, the choices at the time were more agonizing. Other times, what may have at the time been experienced as easy choices (the rightness of joining up in 1914, say) now seem much less clear cut.

Massie’s Bordeaux quartet is quite beautifully written in showing how perspectival moral choices can be, not just in terms of his sons’ choices but those in the world of prostitutes, both male and female, and other demi-monde characters as they negotiate and exist within a complex moral universe. But it is not a work of moral relativism. Within the appreciation of the dilemmas of choice there are clear parameters so that Advocate Labouche is consistently depicted as irredeemably evil, but not so much because of his collaboration as for his bullying and sexual depravity.

Taken together the ‘Bordeaux’ quartet is a fascinating exploration of a theme which continues to be hugely controversial in France to the present day, although not quite reaching the heights of his masterpiece on that same theme, A Question of Loyalties (1989).

It strikes me that the recognition of moral ambiguities is something common to the best writing in the genres of crime and espionage, both of which I read voraciously. In fact, it is what makes such writing more than simply ‘genre novels’. John Le Carré’s ‘Smiley’ (or ‘Karla’) trilogy is the classic and perhaps still unsurpassed example, but excellent contemporary contributions include Edward Wilson’s ‘Catesby’ series and Joseph Kanon’s recent Leaving Berlin (2015).

The latter works derive some of their emotional charge from the fact that they concern secrecy and secret organizations. As mentioned in my last post this is something that currently interests me, and one aspect of this is that novels like Wilson’s and Le Carré’s in particular show how secret organizations are very recognizably similar to any other organization. For example, the same power plays, divisional rivalries or petty rules are in evidence. Conversely, ‘ordinary’ organizations are replete with secrets of all sorts even if they are not ostensibly or overtly concerned with secrecy. In fact, in both cases, whatever secrets are normally at stake may become, just that, normal and hardly registered.

This normalization of secrecy also speaks to the theme of moral ambiguity. For example, when wrongdoing is covered up and subsequently comes to light we may wonder how those involved could have colluded with it – recent examples might include the LIBOR rate fixing scandal or even more controversially the Jimmy Savile abuse scandal at the BBC where ‘cultural factors’ inhibited the reporting of his heinous activities to managers. Perhaps one answer lies in the normalization of secrecy within particular organizational contexts.

That most certainly isn’t to let people who do wrong off the hook it’s just, as in Massie’s novels, to understand that people sometimes do bad things for good reasons (and, for that matter, good things for bad reasons) or for reasons that seem good at the time, or just without really thinking about the reasons. So whilst Savile, like Labouche in Massie’s novels and in similar ways, was unequivocally immoral, those around him who colluded in concealing his activities were operating in a moral grey zone, where good and evil are much more difficult to judge.

Stuck with choice

I had a plan for today’s post, which was to go back through this blog to find where I had used various news stories to make a point and to revisit those stories asking: what happened next? As I began to do so, I found that it was a completely overwhelming task. Over the last three years I have written about under-employment, corporate tax avoidance, outsourcing, immigration and refugees, global supply chains, public sector reform, economic insecurity, pensions, corporate takeovers, air crashes, the NHS, the Greek crisis, the British establishment, the war in Ukraine, the Chinese economy and many, many other things.

So I have given up on that idea (for now) and instead will return to just a couple of things I’ve written about which are in the news again. In my post More on Power (November 2013) I wrote about the ludicrousness of consumer choice in the electricity ‘market’. Wind forward to today, and the price comparison sites that would supposedly enable such a choice are mired in scandal. In my post Pensions (March 2014) I wrote about the deregulation of personal pensions, a reform supposedly freeing up pensioners to make choices about their pension pots. Wind forward and we find that already scandals are emerging as pensioners are ripped-off or conned into making dangerous investments.

The fallacy that links both these cases (and another current story, that of the need to shop around for the best bank account) is that consumer choice is both efficient and morally impregnable. It is a logic in which corporations and consumer rights associations are complicit (see also my post on The Benefits of Work in July 2015). Choice isn’t an unqualified good.

Of course the neo-liberals are right when they point to the absence of choice as being one of the failings of State Communism. But that Cold War rhetoric doesn’t take us very far because the issue isn’t ‘no choice’ versus ‘unlimited choice’: there are degrees in between. Moreover, as these various examples show, choice in many markets is fairly meaningless. I sometimes think that market ideologues genuinely believe that ‘the market’ always and everywhere has the same form as wandering around fruit and veg stalls, looking at the quality and price of produce before buying. If so, it’s wholly unrealistic.

The reality across huge swathes of products – not just energy, pensions or bank accounts but also mobile phones, insurance or university courses – is nothing like the Economics 101 textbooks. It’s all but impossible to compare products and prices, and even if you did so once then within a few days or even minutes things would change again. Choice in these circumstances is meaningless, and the constant invocation of choice as a cardinal value is in fact an attempt to make as central the idea that we are all ‘choosers’. And the significance of that is not that it is a good thing to be a chooser, but that if choosers make the wrong choice – as some or many will - then they have only themselves to blame.

Writ large, this means that whatever happens to anyone, good or bad, is to their own credit or reflects their own fault. And so any social situation, no matter how unfair or wrong it may be, is not just unavoidable but, actually, right. This grotesque moral spoonerism is the ultimate consequence of the benign or even positive spin put upon choice.

In political philosophy, the most sophisticated expression of this valorization of choice as central is to be found in Robert Nozick’s book Anarchy, State and Utopia (1974). It is a beautifully written and intellectually elegant book that I would recommend to anyone. At its heart (as regards choice) is the ‘Wilt Chamberlain example’ (Chamberlain being a famous basketball player). Nozick argues that if before Chamberlain plays a game everyone agrees that the distribution of income in society is fair (even, say, if it is equal); and if, then, everyone who pays to watch Chamberlain play does so as a free choice; and if, then, as a result Chamberlain has more money than everyone else; then that new unequal distribution of income must also be fair, as everyone has chosen it.

There are two flaws in this argument. One is that it is only Chamberlain and those who paid to see him who have consented to the new income distribution. What about everyone else? If consent is the key principle for fairness then how can it be fair when they haven't consented? The other is that if Chamberlain and everyone who paid to see him had known that his extra income was to be taxed at 100% and redistributed, and he had still chosen to play and they had still chosen to pay, then the resultant equal income distribution would also be fair, on the logic of choice.

So choice doesn’t work, even at the most sophisticated theoretical level, as a guarantor of fairness, and it doesn’t work at the demonstrable empirical level of how choice actually works in markets. Which doesn’t mean that it is of no importance if people don’t have choices. On the contrary, choice is vital for both economic and political well-being. It’s just that it is not the only thing that matters, or the thing that matters above all else. It's not a kind of trump card that beats every other aspect of human existence.

Volkswagen and Weber

A huge scandal has erupted in the United States – but with global consequences – about the German car company Volkswagen. In brief, it has been revealed that VW installed software so that their diesel cars would meet emission targets when being tested, but when in actual use emissions were way greater than permitted.

We don’t yet know the full details of how and why this happened but, for sure, it is an organizational story, and one which well-illustrates some of the core arguments in my book. In particular, I make a lot of use of the distinction, derived from Max Weber’s work, of formal and substantive rationality (introduced pp. 21-25) and the various ways that this sets up conflicts and contradictions in organizations, including goal displacement (where following a formal regulation becomes an end in itself, forgetting the substantive purpose of the regulation).

I go on to say that these “are not anomalies and anyone who works in an organization or reads the news will know how pervasive they are” (p.30), and give a couple of examples. One was from education, and the way that faced with a target designed to raise educational attainment teachers focus on that target to the detriment of educational attainment. Another was from healthcare, with rules about waiting times designed to improve healthcare being followed blindly so that all that matters is meeting the formal target, to the detriment of substantive healthcare. The VW case provides a further illustration of this. The organizational response to a formal rule designed to achieve the substantive goal of protecting the environment by controlling emissions was … to follow the formal rule without regard for the substantive purpose.

The VW scandal also illustrates an aspect of another of the main themes of the book, again derived from Weber, about the inefficiencies of efficiency. Presumably, some person or people in VW decided that the best way to sell cars in the US market was to cheat on the tests. And, indeed, VW enjoyed very successful US sales. But the unintended consequence of this decision has been to wreak massive damage on the company, its brand image and very likely its future sales and profitability, as well as potentially crippling legal actions. Where’s the efficiency in that? My guess – it’s only a guess – is that as with the Enron scandal the decision will have been made by ‘the smartest guys in the room’ – so smart that they are stupid.

So I think that this case once again shows the enduring relevance and explanatory power of the concepts of formal and substantive rationality, goal displacement, bureaucratic dysfunctionalism and so on. This in turn means that the likely proposed solutions – smarter regulations on emission testing, more stringent internal procedures within VW and perhaps other car firms – are unlikely to have much traction: they will just provoke further goal displacements, new rules to blindly work to. Not until emission minimization – in this case – forms as much of the taken for granted for engineers and their managers as any other principle of engineering, rather than being seen as something external and alien to those principles, is anything really likely to change. The same analysis could be applied to huge numbers of other cases: prudential banking regulation being an obvious example.

Finally, although this blog is connected to the ‘very short etc’ book, I will shamelessly plug my next book (Jana Costas & Christopher Grey, Secrecy at Work. The Hidden Architecture of Organizational Life. Stanford University Press, to be published March 2016). Because from what is known so far it does seem likely that the decision to rig the tests was kept secret from VW’s senior managers by those who took it. How and why such a thing might happen is explained by …. well, read the book to find out!

The benefits of work

The way that work is rewarded is central to organizations, and pay is only one part of it. Associated benefits such as pensions, maternity and paternity pay, and sick pay are also highly important. Sick pay in particular makes a huge difference to security and quality of life. I know this very well from personal experience. When I was a child in the 1960s and 1970s my father was self-employed. He had no savings, six children, and a wife whose work – looking after these children – was not paid. If he was ill, as he sometimes was, or if for some other reason there was no work for him, as was often the case, we felt the consequences within a day or two: there was no food to eat.

So I was struck today by a news story that the British government are considering the idea that workers should fund their own sick pay by paying into an individual savings account. There are no details yet – it isn’t a policy announcement – but seems to be based on similar systems in the United States and in Singapore. It has also been explained in a paper by – predictably – the free market think tank, the Adam Smith Institute (ASI). The idea seems to be not so much a savings account per se, but a combination of savings and private insurance policies.

The logic, if one can call it that, seems to be the same as that in the debate about NHS funding, which I discussed in a recent post. It is that state welfare is unaffordable and so must be replaced by private provision. That is nonsense because it still has to be paid for: if I can’t afford to pay the tax or national insurance to fund sick pay, how can I magically afford to pay an insurance premium to a private provider? Actually, as with health, the situation is worse than this. State-run insurance systems pool risk across the entire population, making them cheaper. Private insurance systems don’t just pool risk across a smaller population (the customers of the company) but are also inherently prone to sub-divide those populations. Thus, as we see most obviously with car insurance, companies segment their customers into risk groups and charge differentially accordingly – hence the very high premiums charged to young and old drivers. The commercial logic is obvious: those most likely to claim have to pay a higher premium. Translated to sick pay the logic is equally obvious: those most likely to need it have to pay more to insure against it. And, pretty quickly, they become uninsureable.

Perhaps the logic is that private providers will do the job better than a state system. This standard neo-liberal claim for private provision is, predictably, made in the ASI paper (as an aside, if the ASI ideologues read the writings of Adam Smith they might be less naïve). It founders on the now massive evidence of how in the personal finance sector in particular inefficiencies and rip-offs abound. Consider the massive mis-selling of private pensions, endowment mortgages and personal protection insurance (PPI), which have given rise to billions of pounds of compensation claims and huge heartache along the way, since compensation never really compensates and, often, arrives too late to do so at all as in the case of the Equitable Life pension scandal. Most of this arose from precisely the deregulation of financial services and of state provision of welfare. It doesn’t take a genius to work out that if sick pay goes the same way there will be massive scandals a couple of decades down the track. And, if so, then as with PPI a second wave of scandals around scam sales of compensation services will emerge.

But suppose all that is too pessimistic, and a private market in sick pay insurance accounts did not fall prey to scandals and rip-offs. If so, then at best we would have yet another extension of the paradoxically controlling nature of choice, which I discuss in the book (p.75) drawing on the more extensive, and brilliant, discussion in Barry Schwartz’s (2004) book The Paradox of Choice. For, now, we will have to monitor, evaluate and switch between the providers of sick pay accounts alongside our same (unpaid) work choosing electricity, gas, water, phone, pension providers and so on. The extension of choice as an unquestioned good into every area of life re-constitutes us as perennial choosers. An image of, say, shopping around the market for the nicest or cheapest vegetables, becomes elevated to a cardinal and unique principle. Making the wrong choices means you only have yourself to blame, but the consequences will not just be a less than nice dinner; they will be destitution.

It is tempting to think that those advocating such measures are well-intentioned but naïve, over-attached to the theoretical nostrums of page one of the Economics 101 textbook. It is not so. They know exactly what they are about. As the ASI report that provides the intellectual ballast for this idea bleakly puts it:

“The new system must overturn any idea that society collectively is responsible for the future needs of its members; that future provision is for themselves to determine by their actions now.” (p.13)

Or, as Margaret Thatcher so chillingly put it as long ago as 1981: “Economics are the method: the object is to change the soul”.