Stumbling and Mumbling

Management in question

Can we rebuild public services without massive extra spending? Can we really implement the new technologies necessary to get us to net zero? Can we build infrastructure projects on budget and on time? Can we increase housebuilding quickly? How can we reverse the UK's lamentable productivity performance?

These important policy issues have something in common. They all pose the same question: do we as a country have the management ability to achieve what we'd like to?

Casual evidence suggests not. We have some of the most expensive electricity in the world; water companies cannot, it seems, make a profit without polluting our waterways; trains are unreliable and overpriced; infrastructure projects cost vastly more in the UK than elsewhere; and new-build houses are of appalling quality. All of which are signs that managers just don't deliver the goods at acceptable prices and quality.

This isn't the only evidence. Nick Bloom and colleagues have shown (pdf) that there is "a long tail of extremely badly managed firms." Staffan Canback has described how diseconomies of scale often set in quite quickly, suggesting that managers can't easily overcome the inefficiencies caused by expansion. Alex Coad has shown that there's a large random element to firm growth, implying that bosses contribute less to corporate success than they claim. And Paul Ormerod and Bridget Rosewell have shown (pdf) that "firms have very limited capacities to acquire knowledge about the likely impact of their strategies", perhaps because, as Kenneth Boulding said, there is a high chance that "top decision-makers will be operating in purely imaginary worlds."

Is it really plausible that the UK's low and stagnant productivity has nothing to do with the calibre of the people running businesses?

Maynard Keynes famously said: "Anything we can actually do, we can afford." But perhaps we cannot actually do very much because we just don't have the management skill to build things, provide decent services or increase efficiency.

Why not?

One possibility is that bosses haven't had the incentives to do so. If they can make millions even from failing businesses such as Wilko, why should they bother trying to do a good job?

There's evidence for this. The internet has become enshittified not because tech bosses lack ability but because they can make more money from ad-riddled sites than from ones pleasing to their users. And Bloom says that a big reason for that long tail of poorly managed firms (around the world) is that a lack of product market competition relieves them of the pressure to up their game.

To the extent that this is the case, the policy solution is to change incentives. In the case of utilities and transport, this requires - at least - more rigorous regulation of prices and quality. In other cases, we need that other regulator, the market. I'm not just thinking here of beefing up the Competition and Markets Authority. We need also to strengthen competition by reducing barriers to entry such as lack of finance or restrictive intellectual property laws.

In this context, we should welcome falling house prices. They send the signal that if you want to get rich you should try producing goods and services rather than relying on asset price inflation, and could therefore increase the supply of entrepreneurs and managers.

There is, however, another reason for bad management. It's that the job of senior management has ceased to be what it should be - that of humble technocrats (pdf) improving corporate engineering - but has instead become a cargo cult ideology in which wannabe heroes express "leadership" and "vision".

Managerialism has, in many places eclipsed management. And there's a big difference between the two. Managerialism has a messiah complex and belief in great leaders, whereas management looks for good fits (pdf) between bosses and roles. Managerialism tries to apply the same methods everywhere, whereas management knows it is domain-specific; what works in (say) supermarkets might not work in universities. Managerialism valorises top-down control whereas management believes in listening and feedback. And managerialism speaks of vision and strategy whilst management focuses on empirical detail and ground truth.

If we are to have better management, we need to replace managerialism with management: more worker democracy might be part of this.

Now, you might or might not agree with all this. Whether you do or not, I hope you'd agree that there is at least an important issue here. But you wouldn't guess so from Westminster politics, where this question is not on the agenda at all. How often, for example, is it discussed on those poshcuntstalkshit shows that pollute the airwaves?

Whilst the management question is not discussed in mainstream politics, however, labour issues very much are. Whether it be efforts to weaken trades unions or to "strengthen work incentives", both Labour and Tory governments have for decades seen their task as ensuring an adequate supply of quiescent labour. Ensuring an adequate supply of good management, by contrast, has barely figured as an objective. In this respect, the state not so much an empirically-based solver of genuine economic problems but rather an embodiment of Marx's point: "the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie."

In defence of Labour

There might be more to be said in defence of Labour than many on the left suppose.

True, on the face of it the party seems to be willing the ends but not the means. Rachel Reeves promises faster growth, higher investment and the creation of good new jobs around the country, but without having a detailed plan to achieve any of these and apparently oblivious to the fact that the forces of capitalist stagnation militate against faster growth. These forces aren't just the economic ones of lack of big innovations, ageing population, falling profit rates and so on but also political ones: there's a large constituency of nimbys, financiers and monopolists opposed to faster growth.

Reeves' failure to appreciate the scale of her task is however not a personal failing. Part of politicians' professional deformation is to be over-optimistic about the transformative potential of small policy tweaks, and social democrats have traditionally been over-optimistic and incurious about capitalism. We shouldn't blame Reeves for these failings any more than we should blame the elephant for having big feet: it's the nature of the beast.

She is, however, doing something right. In merely calling for faster economic growth she is facing in the right direction, which could be a preparation to moving in the right direction.

What if better planning regulations and less policy instability don't significantly improve growth? A party that is sincere about wanting this would then have to focus on other obstacles to growth. Failing high streets might require a land value tax to deter landlords from keeping premises empty. High utility bills, in light of Reeves promise to cut household bills, would require tougher regulation - perhaps to the point of driving companies into bankruptcy and the public sector. Poor transport would require harsher penalties for incompetent rail companies and more infrastructure investment. The inability of capitalism to invest might require more socialization of investment along the lines of the original green new deal. And decent trading arrangements with the EU might lead to rejoining the single market.

In these ways, simply trying to solve the problem Labour is looking at might propel the party in a sensible direction.

There's something I've left off this list - fiscal policy.

There's a good reason why the party is promising fiscal discipline. It's that it might well inherit a labour market that is quite tight - albeit not as much so as a few months ago. There's a limit, therefore, upon how much the party can fulfil its promise to create "jobs for plumbers, builders and electricians...for scientists, designers and engineers" merely by adding to demand. Beyond quite a narrow point, any attempt to do so would bid wages up which the Bank of England would see as a reason to raise interest rates. And if that happens, you can say goodbye to hopes of much more housebuilding.

"Bond vigilantes don’t exist" as a constraint on how much governments can borrow in recessionary times, such as during the pandemic, but they do exist as a constraint on how much governments can fuel inflation, as we discovered with the Truss Budget.

We all know that the question "where will the money come from?" is asinine imbecility. But "where will the workers come from?" is certainly not. More "jobs for plumbers, builders and electricians" must therefore mean fewer jobs elsewhere.

For now, Labour isn't addressing this question - understandably because it's a nasty one. Traditionally, governments have diverted labour away from some jobs is by raising taxes or interest rates. But these methods might be insufficient. Instead, we might need more radical interventions for example to reduce the bullshit jobs and guard labour arising from private sector agency failures; or the excess labour created by policy failures such as excessive tax and benefit complexity; or the jobs that owe their existence to environmental, risk or intellectual pollution; or those (such as some managers) which exist because of a mistaken ideology.

It is a crude social democratic error to identify policy radicalism with a loose fiscal stance. The truth is that fiscal conservatism is entirely compatible - at least in logic - with economic radicalism.

Again, Labour is at least facing in the direction of sensible policies. It doesn't have a coherent fully-worked economic policy. But it has a hint of a trace of the beginnings of a clue, which is more than can be said for the Tories.

It's in this context that Starmer's support for Netanyahu makes sense. As a description of events in Israel-Gaza it is indefensible. But we shouldn't regard it as that. Nothing Starmer says will make a jot of difference to the region. Instead, he is talking to a domestic audience. Any support for Palestinians would be exploited by the Tories and the media to stoke up a culture war with which to distract attention from 13 years of failure. In supporting Netanyahu Starmer is thus keeping the focus on economics. Which is where it should be, because this might lead somewhere intelligent.

Now, you might think that in saying all this I'm ignoring the advice of my previous post because I'm failing to test my ideas against the empirical evidence. And the evidence that Labour is thinking along radical lines for its third or fourth move is lacking, which is why the pro-capital, anti-welfare Anna Soubry feels comfortable supporting Labour.

This, though, isn't necessarily a clinching argument. It shows that Starmer is succeeding in marginalizing the Tories, in reducing them to a rump of deluded fanatics detached from the real world.

And we must remember that parties never enter office with fully-worked plans. The Tories' 1979 manifesto, for example, made little reference to privatization or to using mass unemployment to smash the unions. It is possible that the clash between the desire to raise economic growth and the reality of sclerotic capitalism will push Labour in the correct direction.

One thing suggests this isn't wholly fanciful. It's Starmer's and Reeves' claims to come from modest backgrounds. Such talk isn't trivial. Your upbringing influences your sympathies, to use that great Smithian idea; this is why many people from poor families remain left-leaning even after making money. Such sympathies suggest that when the chips are down, Labour will pay more heed to the needs of the working class than the Tories would. Its "new deal" for workers rights is a genuine and important difference with the Tories.

I concede that in writing all this I might well be engaging in wishful thinking and clutching at straws, and I'm underplaying the strength of the forces of rentier capitalism opposed to pro-growth policies. What Labour offers is not so much an attractive substantive platform as the possibility of one. But options, even out-of-the-money ones, have some value. Which is more than can be said for the Tories.

On reflective equilibrium

We should all be more Rawlsian, and not merely in the conventional sense.

To see what I mean, take this suggestion from Josh Hendrickson for a cost-minimizing legal system:

More specifically, when someone is accused committing a crime, they could be given the option to admit guilt and pay a fine, the magnitude of which depends on the severity of the crime. If the person is unwilling or unable to admit guilt and pay the fine, their prosecution is determined by a dice roll with the number of sides on the die inversely related to the severity of the crime. Some die might have six sides. Other die might have thousands of sides. (You don’t actually need to use dice. Just a random draw.) If the prosecutor rolls a 1, the perpetrator is sentenced to death. Otherwise, the perpetrator is set free.

Form one perspective, there's something to this: it saves on the cost of lawyers and prisons. But as Josh says:

Of course, when we look around at various modern legal systems, none of them look even remotely like the hypothetical system. What gives? Are modern legal systems just really bad at minimizing costs? Does the system just seem crazy because it is so different than our own? Or is this discussion missing something?

What Josh is doing here is moving towards what Rawls called a reflective equilibrium. This is the process whereby we go back and forth between high theory and our everyday judgments, revising either or both until they are consonant. As Rawls said:

It is obviously impossible to develop a substantive theory of justice founded solely on truth of logic and definition.

Instead, he said, logically-derived principles must be checked against facts - in his case, the facts being "our considered judgments in reflective equilibrium" - until we have a set of beliefs that hang together.

It's not just a theory of justice for which this is true. Rawls thinking applies more generally.

In financial markets, our beliefs are marked to market - in liquid ones with transparent prices, whether we like it or not. If you lose money then no matter how clever you are you have been wrong. This is one reason why I advise young people to work in financial markets. Doing so teaches you that your best ideas are often wrong and thus might imbue humility - a virtue lacking not just in Johnson's pigheaded idea that he knew more than the experts about long Covid but also in most of the contributors to the poshcuntstalkshitshows that pass for current affairs programming.

The same thing happens in science, when it is done properly. As Richard Feynman said:

It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.

Both cases require an exercise in Rawlsian reflective equilibrium. We must check both the facts (are the experimental results actually correct? Has the stock price fallen for a merely temporary reason?) and our beliefs (Were we wrong and if so why?) until we have better consonance between the two. That's just good Bayesian updating.

It's not just in the natural and social sciences that this should happen, though. It also happens in religious orders. Lorraine Daston describes how the many strict rules for Benedictine monks are tempered by the discretion of the abbot:

No precept is so rigid that it cannot be bent if the abbot judges that circumstances warrant an exception: it all depends.

In this way, an equilibrium is reached between the theory of the ideal religious community and the demands of everyday life. And, says Daston, the point holds more generally: rules must be tempered by discretion.

This is true in creative endevaours. The last of Orwell's rules for writing is: "Break any of these rules sooner than say anything outright barbarous." Writing is a process of reaching reflective equilibrium, going back and forth between rules of good writing (not necessarily Orwell's) and what sounds right.

The same's true in music. Charlie Parker advised: "First you learn the instrument, then you learn the music, then you forget all that shit and just play." But of course, you never really forget technique and scales. Instead they become part of your muscle memory; it's not good enough to have your brains only in your head. What you play is a reflective equilibrium, a consonance between instinct and technique or between the rules of harmony and your ears with each constraining and thus enhancing each other. Freedom, wrote Arnold Schoenberg "prospers best when under control."

You might think all this is trivially obvious. It's not. There are many instances of people ignoring this.

One of my favourites was when Steve Levitt and Stephen Dubner visited then-PM David Cameron to suggest reforming the NHS:

We suggested to Mr. Cameron that he consider a similar policy in a different arena. What if, for instance... everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home.”

Cameron, in a rare display of wisdom, showed them the door. What Levitt and Dubner failed to do was engage in reflective equilibrium, to ask: if the NHS is so theoretically absurd, why is it so popular and why so effective (before the Tories did their worst)? They didn't equilibriate between theory and big facts. They failed to see that theories of economics, just like theories of justice cannot be "founded solely on truth of logic and definition."

And that was not untypical of a lot of economics before the (arguable) "empirical turn". Many mainstream economists over-valued theory to the neglect of real world forces. They didn't ask: "this general equilibrium; is it in the room with you now?"

Not all departures from reflective equilibrium are merely absurd, though. They can be deadly. The Chilcott report said:

Senior decision‑makers – Ministers, Chiefs of Staff, senior officials – must have a flow of accurate and frank reporting...At times in Iraq, the bearers of bad tidings were not heard. On several occasions, decision‑makers visiting Iraq…found the situation on the ground to be much worse than had been reported to them.

There was not the back-and-forth between the theories of the government and the facts on the ground, and no equilibrium between the two.

That, though, was perhaps an isolated failure by Blair. Otherwise, he did achieve an equilibrium between his two big beliefs: the desire to get elected, and to be a socially democratic government. I'm not sure the same can be said of his epigones, who are pursuing "electability" to the denial of the facts of our widespread economic failure.

A more absurd example of such a failure was the Truss-Kwarteng Budget. Their enthusiasm for tax cuts was not challenged by facts: what's the evidence that tax cuts boost growth? How long does it take for them to do so? Should we be loosening fiscal policy at a time when bond markets are worrying about inflation? Again, no back-and-forth, no equilibrium.

The Tories might have learned from that episode that they must occasionally test their beliefs against the evidence. But they haven't. Instead we saw at the party conference a further retreat from any notion of having to do so. There was talk of the need for change without asking why this was necessary after 13 years of Tory government, and utter gibberish about 15 minute cities and meat taxes.

It's easy to see why the Tories should avoid trying to reach a reflective equilibrium. For years, they've had no need to do so as the media has consistently accepted their fictions, from austerity to "£350m a week for the NHS". And what's more, if you've no ideas about reality, why not escape from it?

Which in one sense is unconservative. Edmund Burke anticipated Rawls' reflective equilibrium when he demanded that high theory meets empirical evidence:

I cannot stand forward, and give praise or blame to any thing which relates to human actions, and human concerns, on a simple view of the object, as it stands stripped of every relation, in all the nakedness and solitude of metaphysical abstraction. Circumstances (which with some gentlemen pass for nothing) give in reality to every political principle its distinguishing colour, and discriminating effect. The circumstances are what render every civil and political scheme beneficial or noxious to mankind.

Now, you might have noticed that my examples of good use of reflective equilibrium come from the arts and sciences (investing is applied social science) whilst examples of its non-use come mostly from politics. Which poses the question: why is it so easy for politicians (of all parties) to sometimes be "operating in purely imaginary worlds," to use Kenneth Boulding's phrase? What must change to enable politics to be more like fulfilling, progressive and successful disciplines? Few political partisans, however, care about such questions: all that matters to them is that their side wins. Which is part of the problem.