How our institutions work

The post office scandal is not merely a matter of a few bad bosses. It should raise questions about the very structure of our society.

It's easy to say that Paula Vennells was corrupt and/or incompetent and that the Horizon system was faulty. But this is trivial. Anyone who has switched a computer on knows that software is buggy, and countless thousands of people are stupid and dishonest: you could throw a brick from your house and hit a dozen of them - more in some parts of London. A well-ordered society has mechanisms which prevent such people getting power or doing much damage if they do get it. The Post office scandal shows that we lack such mechanisms, in at least four respects:

 - There's good evidence that companies actually select for psychopaths. People who are unusually concerned with status and power are precisely those who aim for the top of hierarchies (whereas many others of us just want to get on with our jobs), and psychopaths' superficial charm and fluency appeals to hirers. As David Allen Green says, "the likes of Paula Vennells are always with us and will always somehow obtain senior positions." This is consistent with a finding by Luigi Zingales and colleagues, that a lot more corporate fraud occurs than is actually detected. What's more, companies also select for over-confidence as they mistake "competence cues" - the right body language or the illusion of knowledge - for actual ability. (All this might also apply to politics).

 - Ministers failed to control or to replace Post Office management, believing - in a remarkable example of not understanding the function of ownership - that it "has the commercial freedom to run its business operations without interference from the shareholder." Ed Davey distinguishes himself from the other ministers merely by being so uncouth as to have blurted this out in public.

 - Police for years did not investigate the likely fraud and perversion of the course of justice by Post Office bosses. The fact that they have begun to do so since the screening of the ITV drama reminds us that the Met is more concerned with PR than with justice. 

 - The courts failed to acquit innocent sub-postmasters, for systemic reasons discussed by David Allen Green. This was not an isolated miscarriage of justice; it occurred over 700 times.

We should think of our main social institutions - markets, the democratic process, the legal system and so on - as selection devices. What we have here is evidence that these do not operate as you might think they should, not in one or two instances but systematically and persistently. The Post Office board and government ministers did not select honest or competent bosses. The police did not choose to investigate serious crimes. And the courts failed to correctly distinguish between the guilty and the innocent.

These, however, are by no means the only selection mechanisms which don't work as one might imagine they should. Politicians are selected for fanaticism rather than competence. Financial markets often do not select the best investment opportunities, which is why we have asset price bubbles and under-performing fund managers. Product and labour markets do not eliminate the "long tail of extremely badly managed firms" described (pdf) by Bloom and Van Reenen. Peer review often does not select the best academic research. And the media does not select for informed expertise.

Society's main social institutions, then, very often do not select the best or filter out the worst. Often, they do the opposite. What should we make of this fact?

One reasonable inference is that it is just really difficult to make good decisions with limited information and so there will always be a great deal of ruin in the nation.

If this were all, though, we'd expect to see political activity and debate focusing upon how we might improve such mechanisms.

But it isn't. Instead in recent years politics has been consumed with Brexit and other culture war issues. Which is of course yet another example of a selection mechanism: politics selects to focus on irrelevancies rather than more important matters.

This is part of a pattern. It's normal for people to neglect structural and societal forces and to pay more attention instead to individual humans. Which is why public anger is focussed upon Paula Vennells rather than the mechanisms that recruited and enabled her. People like a witch-hunt and are attacking Vennells in the same way that criminals attack nonces - to remind themselves that they are morally superior to at least somebody.

Even good people can inadvertently reinforce this tendency. In exposing the detail of the Post Office scandal there's a danger of missing the big picture. Both journalism (even when done well) and drama look more at human interest stories than at social structures.

And this suits the ruling class. It has long flattered itself that the system works because "good chaps" will be in charge. The fact that "good chaps" so rarely are - and that the Post Office merely joins a list of systemic injustices such as Hillsborough, Windrush and Grenfell - doesn't seem to undermine this complacency.

Which brings me to a concern. You might have noticed that I've avoided using the word "failure" to describe all these different selection effects. This is because they might not be failures at all. The fact that the powerful can enrich themselves at the expense of the powerless; that markets permit the incompetent wealthy to stay rich; and that politics is a clownish sideshow that avoids substantive issues all suit the elite perfectly well. Prem Sikka is right to say that the Post Office affair "has once again shown the UK to be a hotbed of corruption and cronyism where in pursuit of profits and private gains innocent people are bludgeoned to silence and submission."

It has thus shown what Marxists have long known - that law and justice are veils behind which lay exploitation and cruelty. The question for the establishment is how they might bring these veils back down.

Comments

[TickyW]

Yes, and for the system to deflect from its fallibilities it must personalise issues and attribute the problems to individuals. Scapegoating comes to mind.

It is ironic that the Post Office's obsession with its reputation for honesty and trustworthiness, ("the Brand"), caused it to turn to such foul means to protect/enhance the brand!

[Jonathan]

M8 did a test for Tesco and they recruited no one as everyone in the group tests refused to slag off team members after a task.

The whole structure of goals and performance assessment in big companies facilitates the useless - it's classic liberalism that starts with a seemingly virtuous goal but just provides a conceit of goodness. Conformity is king.

Like Labour/Libs/'Dems it's to appear virtuous despite what they do/did! It's one reason they actually lose as they/their fans sound like deluded idiots covering up with lines of rhetoric and screaming whataboutery about supporting rendition say. Sadly in companies we can't vote them out but we can leave for a similar company!

[Jan Wiklund]

They – bosses etc – are also simply spoiled and pampered and believe themselves to be entitled, see https://www.pnas.org/doi/10.1073/pnas.1118373109

[ltr]

Both journalism (even when done well) and drama look more at human interest stories than at social structures.

And this suits the ruling class. It has long flattered itself that the system works because "good chaps" will be in charge. The fact that "good chaps" so rarely are - and that the Post Office merely joins a list of systemic injustices such as Hillsborough, Windrush and Grenfell - doesn't seem to undermine this complacency...

[ Perfect, perfect. A powerful essay. ]

[rsm]

"Financial markets often do not select the best investment opportunities, which is why we have asset price bubbles and under-performing fund managers."

Best according to what? Have housing and Real Estate Investment Trusts bounced back up higher than the bubble prices, so "buy and hold" still would have won out if you could afford to wait? And do fund managers promise lower drawdowns too in panic times, so they outperform the market when the market is crashing because they have bought insurance which drags down upside performance relative to the S&P 500, say, in an up market year? I mean what if investors will sacrifice some performance relative to "the market" in up years, but not lose so much in panic years when "Mr. Market" crashes and may not get better for a few years?

And as usual, why isn't the answer to all the issues raised a Strong Basic Income (non-tax-funded, indexed to inflation, generous, truly universal), so one can have the financial means to free oneself of institutions, as much as possible?

[aragon]

Social Class - we all know the answer.

https://www.theguardian.com/commentisfree/2024/jan/17/rich-think-wealth-tax-labour-party

"But there are signs of shifting attitudes. Whether driven by guilt at the extent of their wealth or concern for the plight of the poor, the rich are decidedly uncomfortable about stepping over homeless people on their way to the opera. Grotesque inequality and the stark nature of the climate crisis are making more of them reflect on their high consumption lifestyles."

[aragon]

This is old (2019) news (and common knowledge):

https://www.bbc.co.uk/news/education-48745333

"Perhaps the most striking statistic is that 24% of this top group have gone to Oxbridge, while only 19% of the working population have been to any university at all."

[...]

"The head teachers' leader Geoff Barton said: "State schools work tirelessly to make social justice a reality but the dice are loaded against them in a society where both privilege and disadvantage are perpetuated from one generation to the next.""

[...]

"A spokeswoman for the Department for Education said: "For too long professions like law, politics and journalism have been dominated by independently schooled people."

But still true.

"When it comes to showing us the money, this is where the comprehensive students are least represented.

Among those in the UK in the Sunday Times Rich List, there were 34% from independent schools compared with 12% from comprehensives.

The biggest group of all were not educated in the UK at all, including migrants who made their wealth after coming to the country."

"In terms of the overall "power gap", the report says 39% of people in these elite groups were privately educated, compared with 7% of the population."

[rsm]

Is it what they know, or whom?

[Blissex]

«for the system to deflect from its fallibilities it must personalise issues and attribute the problems to individuals.»

That is pretty much the role of "Private Eye" vs. "bad apples".

[Blissex]

«"a society where both privilege and disadvantage are perpetuated from one generation to the next."»

Indeed the supreme value of english (and more generally conservative) culture is incumbency, even if which incumbency matters most changes with time.

The genius of thatcherism was to concede a small fragile sliver of incumbency to millions of voters by subsidising (and not just via colossal "Right To Buy" discounts) residential property speculation, and thus make them "Middle Englanders" obsessed with the protection and furtherance of the interest of incumbents (from themselves to the Duke of Westminster) via the parties that represent those interests (Conservatives, New Labour, LibDems).

[Blissex]

«It's normal for people to neglect structural and societal forces and to pay more attention instead to individual humans. Which is why public anger is focussed upon Paula Vennells rather than the mechanisms that recruited and enabled her. People like a witch-hunt and are attacking Vennells in the same way that criminals attack nonces - to remind themselves that they are morally superior to at least somebody.»

Well expressed and that is unfortunately a very common attitude, as usual cultivated by the ruling classes. But it may have also deeper roots as per Rene Girard's "scapegoat" thesis.
https://www.cbc.ca/radio/ideas/the-scapegoat-the-ideas-of-ren%C3%A9-girard-part-1-1.3474195

[Blissex]

«finding by Luigi Zingales and colleagues, that a lot more corporate fraud occurs than is actually detected.»

Fraud and corruption in the private sector seem to me pervasive, because those practice them get a temporary advantage over those who do not, and so can get promoted ahead of their rivals if managers or buy their rivals if businesses. In the long term fraud and corruption cause business failures, but that matters to those managers and CEOs is the impact on themselves, which is rather rare.

The classic relevant quote is:

J. K. Galbraith, "The Great Crash 1929", page 152
“Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.)

At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely not in -- the country’s business and banks. This inventory -- it should be called the bezzle. It also varies in size with the business cycle.

In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly”

[rsm]

Are we in a "bezzle" right now with the S&P back to all time highs? And what can Galbraith possibly do about it other than wave his hand and say shame? Does capitalism tell us more money is good, so why should capitalists stop wanting money in good times?