book about management cybernetics by Dan Davies ISBN:1788169549 (see Accountability, Pathological)

Partial excerpts (Antilibrary)

Author’s Note

History is the study of decisions, not of events, and many decisions are best understood as the outcome of larger systems rather than individual acts of will.

If this book had a real villain, we might identify it as ‘the regrettable tendency of complex systems to have opaque and volatile dynamics’.

Introduction

What counts as a crisis is the expectation of loss of control; in other words, cybernetic breakdown in an institution. Stafford Beer, Brain of the Firm (2nd edn), 1981

This is a book about the industrialisation of decision-making

fundamental change in the relationship between decision makers and those affected by their decisions, the vast population of what might be called ‘the decided-upon’. That relationship used to be what we called ‘accountability’, and this book is about the ways in which accountability has atrophied

Anyone who has dealt with a corporation or bureaucracy of any size, and who is over the age of forty, is likely to have a vague sense that you used to be able to speak to a person and get things done; the world wasn’t always a maze of options menus.

there are fewer decision makers than there used to be

decisions which used to be made by identifiable rulers and bosses, are now the result of systems and processes

a decision-making system is not just a computer. Financial and other decisions have been made on the basis of handbooks and lists of criteria since the days in which they were recorded with quill pens

For a while, in the early days of this profound social change, people tried to understand what was going on. The study of decision-making systems was a big thing – they called it ‘cybernetics’. But for a number of reasons, it never took off

The most important reason was that the new science was a victim of its own technological success

they quickly made a lot of discoveries relating to the representation of information and the operations that could be performed on it. These discoveries turned out to be extremely useful in the design of electronic circuits. Consequently, there was a huge and rapid brain drain away from the abstract study of decision-making systems and into the new industry of manufacturing computers

Related to this fact, many of the people who were involved in the early days of cybernetics were a bit odd

Some elements of management cybernetics – even some of the ideas of Stafford Beer himself – live on in business schools, usually as personal idiosyncrasies of individual researchers. In the economics departments, however, they have their own theories

Why did they do this? Any account of how we got to where we are must cover three intellectual and organisational revolutions

There was one that happened but we forgot about it – the managerial revolution, where control was transferred from owners and capitalists to professional administrators.

There was one that looked like it was going somewhere interesting but never arrived – the cybernetic revolution, which might have helped us understand that what mattered were the systems of professional management rather than the individual managers.

And then, sometime in the early 1970s, we had the neoliberal revolution

In a more fortunate counterfactual history, this book might have told the story of an academic debate between the neoliberal economists and the management cyberneticians

that debate didn’t happen. Or rather, it did happen, but not with diagrams and equations. It played out, very suddenly, with helicopters and guns at the presidential palace of La Moneda, in Chile on 11 September 1973, when the government of Salvador Allende was brought down by a coup

Cybernetics was arguably in trouble long before the coup, but that was the moment that the world finally chose a different path. In doing so, we began to get into the habit of ignoring the fact that every year, more of the decisions that affect our lives are made not by people but by systems. Strange, alien intelligences with desires and drives quite different from our own.

seems that some of them are going mad

1 ‘Something’s Up’

Capitalism is disappearing, but Socialism is not replacing it. What is now arising is a new kind of planned, centralised society

George Orwell

But those clowns put us in an awkward place where we’re going to have to thread the needle.’ An executive at Fox News called Ron Mitchell wrote those words

The litigation in which Mitchell was quoted related to a defamation case which ended up being settled for $787.5m

The nature of the defamation was about as serious as they get; over a period of months, Fox News had repeatedly accused Dominion Systems, a manufacturer of voting machines, of conspiring to rig the 2020 US presidential election

the emails and texts turned up in pre-trial disclosure seemed to confirm that nearly all the executives and journalists at Fox News knew that this was false

Why did they do it? This question never got put to them properly, because the case was settled on the courthouse steps. But the cache of emails suggests that they felt they had no choice

Having initially reported, correctly, that Donald Trump had lost the election, Fox News was completely unprepared for the consequent backlash from its viewers

Nearly all the individual people involved wanted to be doing almost anything else rather than what they actually did

Crimes without criminals

I have a professional interest in situations like this – cases where the exact thing that nobody wanted to happen has happened.

I was once an investment banker, and during the bouncingrubble period of the last global financial crisis, I wrote a book called Lying for Money, about the history and economics of financial fraud

despite there being a strong popular perception that hanging was too good for them, bankers were not going to jail

the basic problem was that in a democratic society, if you want to put someone in prison then you need them to intentionally carry out a specific criminal act.

criminogenic organisation

It referred to an institution in which incentives and management systems were structurally designed to ensure that crimes would be committed. This was an integral part of his theory of the savings bank crisis, that of a ‘control fraud’. This occurred when a bank came under the control of a criminal, who was then able to set in place a system of incentives which ensured that fraudulent loans would be made and profits declared, which would naturally flow into the fraudster’s pockets

This solved several of the key problems that had bedevilled white-collar criminals over the years, the biggest of which was the need for overt acts of embezzlement. Stealing money by dishonesty had previously tended to require you to make illegal transactions

In a control fraud, the dishonesty resided in the overall scheme and all the transfers of cash were legitimate

After investigating some of the biggest scandals of the financial crisis, I concluded that not only was there no paper trail between the low-level crooks and the bosses, in most cases there was actually no connection. I ended up coining the term ‘self-organising control fraud’.

the overall system of incentives in the economy was so criminogenic that banks had a natural tendency to organise themselves into fraudulent behaviour.

All the top executives had to do was set unrealistic profitability targets and underinvest in legal departments and compliance systems.

The polycrisis and me

I started wondering more about the raw material of the Capitol Hill riots. These angry people, whose reactions were so frightening, so difficult to control

To a certain extent, of course, Fox News made them

But there’s more to it than that. Fox News couldn’t actually control the rage of its audience, as it belatedly found out. And it’s not intellectually satisfying to create a theory of Trump voters that only explains that one phenomenon

Because almost everywhere you look in the world over the last couple of decades, you will find popular movements

The historian and writer Adam Tooze refers to a ‘polycrisis’ of the twenty-first century.

The defining characteristic of the polycrisis is a loss of control by the previously existing hierarchy.

often associated with an economic crisis of some sort, as in Greece in the early 2010s, but not always. There’s a sudden loss of prestige, as the professional and managerial class makes a high-profile mistake. And the populists and the merchants of rage step into that gap.

The people who left and came back

One of the stylised facts that interested me is that the people most involved in the ground level of the polycrisis were often the ones who had been disenfranchised for long periods before it began

Think about the period from the fall of the Berlin Wall in 1989 to the bankruptcy of Lehman Brothers in 2008. There had been hardly any choices to make. If you wanted to vote against globalisation, you couldn’t. Wanted to vote for higher top rates of income tax or tighter bank regulation? Couldn’t. Or the level of interest rates – it wasn’t even possible to have a political opinion about it

Then the 2008 financial crisis happened, followed by a long period of recession and austerity, and suddenly it turned out that the technocratic consensus wasn’t as competent or moderate as it had appeared.

The accountability sinks

Bad things were happening, but they didn’t seem to be anybody’s fault. This was infuriating to everyone

There was no mechanism to punish individual human beings, so the hoi polloi defaulted to what seemed like the only alternative – to use the democratic powers available to them to tear down the whole system.

This wasn’t really a crisis of managerialism or a crisis of political legitimacy – it was a crisis of accountability

has become ubiquitous with the development of the call centre

you’re brought up short by the undeniable fact that the gate attendant can’t do anything about it

you progressively realise that the human being you are speaking to is only allowed to follow a set of processes and rules that pass on decisions made at a higher level of the corporate hierarchy

Meanwhile, the managers who made the decision to prioritise Gold Elite members are able to maximise shareholder value without any distractions from the consequences of their actions.

They have constructed an accountability sink to absorb unwanted negative emotion

The fundamental law of accountability

So the crucial thing at work here seems to be the delegation of the decision to a rule book, removing the human from the process and thereby severing the connection that’s needed in order for the concept of accountability to make sense

You could even coin a sort of law of management here: The fundamental law of accountability: the extent to which you are able to change a decision is precisely the extent to which you can be accountable for it, and vice versa.

The construction of accountability sinks has damaging implications for the flow of information. For an accountability sink to function, it has to break a link; it has to prevent the feedback of the person affected by the decision from affecting the operation of the system

Implicitly, every rule is a model of the world – you can see both a model and a rule book as a relationship between causes and effects, inputs and outputs. But because they can’t be a model of the whole world, both a rule book and a model have to leave out a lot of detail

When an unanticipated situation arises

there will be a mismatch between the input that the system anticipated, and what it actually got. And, because the system has been designed to work as an accountability sink, the outcome could be gruesome or absurd

The squirrel shredders of Schiphol

airport staff threw all 440 squirrels

Before the story hit the headlines, ground staff had over a period of months shredded 200 other squirrels, several dozen water turtles and a small flock of parakeets

the order to destroy the squirrels had come from the Dutch government’s Department of Agriculture, Environment Management and Fishing. However, KLM’s management, with the benefit of hindsight, said that ‘this order, in this form and without feasible alternatives, was unethical’. The employees had acted ‘formally correctly’ by obeying the order, but KLM acknowledged that they had made an ‘assessment mistake’ in doing so*

For their part, the people in the agriculture ministry were a long way from the workers who had to carry out their instructions. They had a responsibility to protect the biosecurity of the Netherlands and implement the relevant European regulations that required health checks for imported squirrels

That’s the purpose of making policies – to reduce the amount of time and effort spent making decisions on individual cases.

illustrates a few potentially important things about the underlying reality of management and information. A decision with no real owner had been created because it was the outcome of a process. The process worked well, until something that hadn’t been anticipated (the pet squirrel craze) showed up, and then it delivered disastrous results. There was no effective way in which information could be fed back to the people who could change the policy, so the decisions continued to get worse

This property of there being ‘nobody to blame’ is the definition of what constitutes an accountability sink

Accountability and its discontents

The key privilege of being a manager, surely, ought to be that you have the status of being a manager rather than one of the managed. Having your decisions questioned, and having pressure placed on you to change them – which, if the fundamental law above is correct, is the essence of accountability – is humiliating and unpleasant

Let’s consider, as an example, the accountability sink in the academic publishing industry, through which scholarly papers are gathered in journals and sold to university libraries.

Academic publishing is extremely profitable. The foundations of Robert Maxwell’s media empire were built on Pergamon Press, which was one of the first companies to realise that the business model has two incredibly favourable properties. Firstly, the customer base is captive and highly vulnerable to price gouging. A university library has to have access to the best journals, without which the members of the university can’t keep up with their field or do their own research. Secondly, although the publishers who bought the titles took over the responsibility for their administration and distribution, this is a small part of the effort involved in producing an academic journal

the model persists because somewhere along the way, the journal industry managed to insert itself into the staff promotion and recruitment function of universities all over the world

The truly valuable output of the academic publishing industry is not journals, but citations.

if you have to decide which academics should be promoted or employed, the ‘weighted citation count’ is a perfect accountability sink

So although the citation index is in all probability a bad measure that seems to lock the universities into an expensive and unsatisfactory publishing model, the outsourcing of the academic performance measurement system is a solution rather than a problem. It redirects potentially destructive negative emotions to a place where they can be relatively harmlessly dissipated

How health and safety goes mad

The accountability sink doesn’t just dissipate resentment and jealousy – deployed correctly, it can shield organisations against legal liability and similar threats. A decision made by an individual can be second-guessed and questioned, and it can be the object of litigation. A policy, on the other hand, is harder to challenge, particularly if it is made public

*Accountability sinks are even more important when the insurance industry gets involved. Insurance is a business of risk pooling – it only works because the average of a lot of similar events is much more predictable than any single event

insurance underwriters love consistent processes; standardisation is a key part of what they do. Once a risk assessment is subject to a set of rules, the class of uncertain events covered by the (corporate) policy can be covered by an (insurance) policy.

When a risk is covered by an insurance policy, however, being accountable for a decision becomes not just psychologically unpleasant, but financially risky. If you’ve agreed with your insurer that something will be required or forbidden, then even if it seems obvious that an exception should be made, it’s possible that you would be invalidating your policy to do so

How crises happen?

We were looking at a crisis of legitimacy, which involved a crisis of managerialism, and they were both really crises of accountability

rise of the professional and managerial class in the economy and society. These people had been able to reorganise and re-engineer many of the most important institutions

in order to reduce the extent to which they could be held responsible for their actions.

They had done this partly because it was psychologically more pleasant for them to do so, and partly because they weren’t a unified class – they were at risk from one another, and accountability sinks were a useful way of redirecting what might otherwise be sources of conflict.

One thing made my idea attractive as a Big Theory of Everything: it had a built-in prediction of periodic crisis, to make it more interesting and to allow for some movement in the forecasts

There were various parallels to the work of some of my favourite authors. Nassim Nicholas Taleb had published Skin in the Game a few years earlier, emphasising the importance of robust decision rules based on individual personal accountability.

similar to Hyman P. Minsky’s financial instability hypothesis

even a link to a theory that could explain why the crisis of managerialism had resulted in a crisis of systemic legitimacy

The deep state

My favourite historian of conspiracy theories, Peter Dale Scott, had been using the concept of accountability reduction as a central organising principle of his work since the 1980s. Rather than ‘conspiracy’, he preferred to use the term ‘parapolitics’, defining that as the part of the government system in which the possibility of accountability is intentionally diminished

He later supplemented this with the idea of ‘deep politics’, referring to the political practices and arrangements which were kept out of public discourse

and in the 2000s, he began to refer to the ‘deep state’. This phrase was originally used by political commentators in Turkey as a simple factual shorthand for the network of relationships between the army, media and large industrial companies in their country, but it caught on rapidly in the English-speaking world when Donald Trump began to use it to refer to anyone who stopped him from doing what he wanted.

When Peter Dale Scott began to write about parapolitics and the conscious reduction of accountability, he was mainly referring to the military and intelligence services. But if you look at how the world has developed over the last four decades, there’s hardly any ‘non-deep’ state left.

*For example, look how the political system has used ‘the market’ as an accountability shield since the early 1980s.

the market has encroached on areas which were previously considered the normal business of government

The uncrowned fiscal king of Europe

In 1995, Europe was in the process of establishing a single common currency

Euro member countries came to an agreement, known as the Stability and Growth Pact, that they would commit to cutting spending or raising taxes if the gap between the two (the ‘fiscal deficit’) grew too large when measured as a percentage of GDP

But what should that percentage be? The compromise ended up being set at 3 per cent.

The exact number had been suggested by a civil servant called Guy Abeille in 1981.

3 per cent was ‘a good number, a number that has gone through the ages, it made one think of the Trinity’. The process by which the attractiveness of various small numbers was discussed before 3 per cent was chosen apparently took less than an hour

By 2010, the Stability and Growth Pact had resulted in a lost decade of growth for Italy, and very nearly saw Greece ejected from the Euro

the target became important to the entire European project precisely because, once enacted, it was an accountability sink, defusing the political conflict that would have been opened up if there had been a public debate in which German politicians discussed what social programmes and benefits needed to be cut in Greece and Portugal.

The Stability and Growth Pact was an accountability sink for the Euro

And the decision to import the 3 per cent threshold from the French budgetary framework was an accountability sink for the Pact – to have carried out a detailed analysis of the subject would have involved someone deciding whether applying a single percentage for every country in the Euro zone made any sense.

If you trace back many important decisions of the last few decades, you will regularly come up against the uncomfortable sensation that the unacknowledged legislators are relatively junior civil servants who put placeholder numbers in spreadsheets, which are later adopted as fundamental constraints; to do otherwise would mean someone having to risk being criticised for making a decision.

IMF riots

There is only one situation in which the avoidance of accountability is widely analysed by economists, and that is the case of the International Monetary Fund

The phenomenon of civil unrest taking place shortly after the agreement of an IMF or World Bank loan is common

the loans tend to be agreed alongside ‘structural adjustment programmes’ which have often included quite severe budget austerity, the removal of subsidies on fuel and food

the IMF itself said that ‘weak governments like to be able to reduce the domestic pressure applied by interest groups and political parties by pointing to the need to respond to an alternative pressure coming from the outside

Something feels wrong about this, though – in specialist journals and internal discussions, the idea of tricking the public into blaming a global institution in order to solve a domestic political dilemma might seem quite clever, but few economists would care to defend it to a crowd of people gathered in a square because they do not have enough food to eat

Just as accountability is psychologically intolerable to the decision makers, its absence is intolerable to the subjects of their decisions.

The ‘managerial revolution’ happened relatively recently in historical time (the book of that name was written by James Burnham in 1941 and was intended to describe what Burnham saw as a new reality). The increasing domination of the industrial world by accountability sinks is even more recent

whether the policies they have to suffer under are being imposed on them by people and institutions they understand and feel they can communicate with, or by impersonal and abstract entities that have to be experienced as forces of nature

For nearly all of history, there have been two kinds of authority taking the big decisions affecting people’s lives. There is a fundamental distinction between ‘kings’ and ‘priests’.

it matters a great deal which kinds of decisions are given to which kinds of authorities, and the question of the boundary between the two spheres has often been one of the central issues of entire eras

A premature solution

I had even, to my utter shame, begun to coin a law

The principle of diminishing accountability: Unless conscious steps are taken to prevent it from doing so, any organisation in a modern industrial society will tend to restructure itself so as to reduce the amount of personal responsibility attributable to its actions. This tendency will continue until crisis results

I can still remember the crushing disappointment of realising that it was all much too simple

It’s more complicated than that

the only way to bring accountability back into the system is to increase the ability of individual human beings to make exceptions to policies. And that’s often bad; many of these policies were brought in specifically because the individual human beings were being capricious, unfair, even racist

And are the accountability sinks really as inflexible as all that?

Even the IMF riots could be seen as the ultimate appeal to higher authority

Many of the things I’ve identified as ‘accountability sinks’ could just as easily be called ‘the rule of law’.

The common law of England and Wales, considered as a decision-making system

thinking about the law in this way suggested to me that there can be good and bad accountability sinks