Beecroft's lesson

The Beecroft report (pdf) is drivel. By this, I don't mean that I disagree with it; I also disagree with the TPA's single income tax report, but I can at least see that is a serious piece of work. What I mean is that Beecroft make no attempt to engage with the serious research on the subject. It is, says David Renton, "puff" with "no expertise". Rick says it contains "no data at all" but"quack remedies."

This poses the question: why ever did the government think that such sloppy stool-water is an adequate basis for policy-making?

It could partly be yet another example of the government's anti-intellectualism that has led to so many avoidable policy errors.

I suspect, though, that something else is happening. Beecroft continues a theme which was common under Blair and Brown - of believing that successful businessmen are somehow well-placed to review policy. Blair, for example, asked David Freud to review welfare to work policies even though, by his own admission, he "didn't know anything about welfare at all."

But why have such faith in businessmen? The answer, I fear, lies in the outcome bias. It's natural to see success and infer that some kind of skill lies behind it. So politicians see rich businessmen and think: "if you're so rich you must be smart."

But it ain't necessarily so, as this wonderful paper by Bjorn-Christopher Witte shows. He describes how, under some circumstances, competition will select not the most skilful, clever and hard-working, but rather the lucky chancer: 

Under competitive conditions that favor riskseeking behavior, the importance of skill decreases because actual outcomes are determined mostly by chance. In the extreme case, survivors are not the most skilled but simply the luckiest risk-seekers.

He discusses this in terms of fund managers, but I suspect his point generalizes.

In this sense, we should be grateful to Beecroft. The slovenliness of his report has served a useful function. It highlights how competition does not necessarily favour the smart and rational, and how politicians' deference to the wealthy is founded upon cognitive error.

Comments

[Tom Addison]

I suppose it suits the Tory agenda to worship these guys though. These people are "wealth creators" don't forget, they need all those tax breaks to provide jobs to us plebs....

[Luke]

"if you're so rich you must be smart."

Slightly off topic, but did you once do an article/post with the theme "if you're so rich, how come you're not smarter?" I was looking for it the other day for unrelated reasons. Maybe I'm imagining things.

[Francis Sedgemore]

"It's natural to see success and infer that some kind of skill lies behind it."

This brings to mind an essay by Neal Ascherson, vaguely recalled from memory, in which the historian and Observer columnist referred to a Congressional inquiry into the plight of farmers in the US midwest. Instead of commanding sons and daughters of the soil to testify as expert witnesses, the lawmakers invited a bunch of Hollywood actors who had featured in some blockbuster movie with an agricultural theme.

It's not just a matter of real or perceived skill; celebrity and image come into it too, and this has long been the case.

[Charles]

"He discusses this in terms of fund managers, but I suspect his point generalizes."

A large, and very shakey, assumption.

Fund managers operate in a highly unusual environment, where a randomiser really can achieve great results.

Venture capital is analogous (you could take pot luck on the firms you invest in and still stumble across a winner).

But how can other areas of business be similar? You can't randomly produce goods and randomly sell them, randomly hiring and firing, and hope to survive.

[Adambanksdotcom]

I think you're being too kind. The report of the Parliamentary Inquiry into Online Child Protection is hopeless drivel too, but its author has no background in any related field. She was allowed to do the report to appease a lobby, as was Beecroft. This government isn't actively making bad decisions, it's merely acted on by forces that aggregate towards foolishness.

[Chris E]

"But how can other areas of business be similar? You can't randomly produce goods and randomly sell them, randomly hiring and firing, and hope to survive."

You can however have two people who are equally competent, but one who has wild success purely by being in the right place - and right industry - at the right time.

Similarly you can have relatively bad managers (say just below the 50th percentile) who are in industries that are growing so fast that they succeed for some bounded period of time.

Most business decisions turn on one choice being vastly better than all other choices. At the same time, large amounts of capital can cushion against a streak of bad decisions.

[Account Deleted]

Beecroft’s proposal on checking eligibility for work is amusing.

The current regulation amounts to asking an employee to provide a copy of their passport or work permit when they sign their contract, which the employer can then check for validity online. The report suggests this check should become the responsibility of the UK Border Agency. In other words, increase the role of the state.

This shows that the report is opportunistic, rather than ideologically coherent, hence it is even being orphaned on the right.

[Mike Killingworth]

My career was spent in the public sector, so FWIW I can merely report that those of my acquaintance who have been self-employed say that they worked a damn sight harder when their business was failing (due to technological change or adverse market conditions, e.g. 9-11) than when they were coining it.

[Keith]

How far is deference to business men an attempt to get a sinecure like Blair after a political career? Rather than really believing in the mystical powers of management?

The main weakness with lauding such people is that it ignores the role of all the other not rich people who make business profitable. The people at the top are not necessarily the key to success but the efforts of all the rest lower down are probably far more important in most organisations.

The late prof. crick wrote a book about the difference between the job of politicians and business people and how one role is not a qualification for the other. "In defence of politics", may be more politicos should read it.

[Michael]

The excellent and very funny Marina Hydwe in Guardian had a good piece on this topic, when the Governemnt announced its "hotline to the Minister" idea last year,
Hyde wrote:

"The big idea seems to be that big business bosses will tell government bigwigs what they need. Business investment will thus be boosted, and there won't be any conflicts of interest.

It's a sweet thought. Yet at the rare gatherings for movers and shakers against whose glass I have been allowed to press my nose, I have marvelled at important people's obsession with unimportant things. Faced with the chance to bend the ear of a bigshot, people – mostly other bigshots – instead buttonhole them about the most minor irritations. When he was HSBC chair, [Lord] Green attended lots of parties where fellow guests whinged about late chequebooks and automated phone systems. I can picture Cable holding the receiver away from his ear as the BP boss takes issue with the rubbish collection policy in his area."

http://www.guardian.co.uk/commentisfree/2011/sep/23/buddy-hotline-access-to-ministers

[Neil]

"But why have such faith in businessmen?"

...asked Mrs Merton:

http://www.youtube.com/watch?v=Lj-9lSEBBm0

[Paul Sagar]

It's not just cognitive bias, it's ideology (in the roughly Marxist sense): the dominant mode of post-1980s political thinking being that business and the market is a priori superior to all other forms of resource allocation, meaning that those who are successful in business have wisdom and expertise which must automatically be deferred to. This ideological slant has become the dominant norm, hence why you see it with Labour as well as Tories. Couple this with the cognitive biases you identify, and you get modern politics.

Lovely.

[Luis Enrique]

Paul,

If you're right, which I'm not disputing, then that's a misun derstanding of their own ideology, because if markets are a superior form of resource allocation it is because of competition driven by the preferences of consumers, not because the people running businesses are especially wise.

[Keith]

I think Luis is wrong. What Conservatives identify with is the Business class not a theory of how economics works. In this sense Blair was tory and so was the new Labour Party. Most conservatives have no grasp of economics or not much. "Are they one of us?" as Thatcher used to say is the key question. Theories are for egg heads. No doubt the tendency for their policies to fail in there announced objectives follows from this lack of interest in theory or historical examples.

[Keith]

On the other hand may be Marxists and socialists tend to spend too much time on over abstract theories about society. To the detriment of effectiveness?