For the eleventy gazillionth time, Arsene Wenger showed why he is unlike other football managers last night when, describing the farce at West Ham, he used the phrase “the dictatorship of the moment.”
It’s not just football coaches who are subject to this. Fund managers and corporate bosses are judged by quarterly results and politicians by the 24-hour news cycle. And I suspect a big factor in banks’ over-borrowing was less an ignorance of risk management and more a chasing of short-term results in response to analysts' and shareholders' pressure; as Charles Prince said: ““As long as the music is playing, you’ve got to get up and dance.”
There’s a common theme here. We have a principal-agent problem in which the principals are pig-ignorant. In theory, agents would be judged by longer-term performance. But principals - voters (or journalists), shareholders, fans and owners - don’t have the knowledge to do this. So they look at short-term results.
This isn’t necessary wholly irrational. It protects principals from being ripped off by incompetent oafs who try to brush aside their errors. It is, though, a close ally of irrationality, because short-term results can arise from luck rather than skill.
But where does this ignorance come from? In some cases, it is inherent and unavoidable; with equity fund managers, for example, the ratio of noise to signal is so high that their skill can only be judged even tentatively after many years. In other cases, it’s because firms are like black boxes and outsiders cannot know what’s going on, and don‘t try hard to find out. I fear this is true even of football clubs, whose performance is more public than most organizations; fans can’t (or won’t) know if a coach is making a steady improvement, and so judge him by stupid standards such as how much he gesticulates and “shows passion.”
Whatever the cause here, there is another effect as well as that identified by Mr Wenger. Because principals find it hard to judge real results, they are apt to fall for bluffers and lucky charlatans who talk a good game and act the part. In this sense, the rise of the PR industry is a product of an agency problem.
And in this respect again, thankfully, Mr Wenger is an exception.