Yves here. This article broaches a very large issue, and it pains me to be able to offer only a few additional thoughts. I don’t think risk aversion is quite the right frame for why destructive conduct has become so pervasive. For instance, as we’ve documented, casual lying is pervasive at CalPERS even though nearly everyone below the CEO is a civil service employee. Generally speaking, that means they are hard to fire. At CalPERS, the motivation seems to be that a lot of people find lying to be much easier than doing things well.
Some of the factors that I believe have contributed to the increase in the propensity to bury problems under rugs, even when everyone can see the rug is lumpy and moving, are:
Diffusion of responsibility. Some of that is not accidental, but you have a great deal of people in corner offices making decisions that they know will hurt people (numerous cases of companies covering up or worse publicly denying health risks of their products, servicers foreclosing on borrowers who could have been saved) and distancing themselves from them because other people are on the front line doing the dirty work.
Increased effectiveness of PR and propaganda. If you can get others to believe it, surely it is real.
Lowering of collective standards from what is proper to what is legal (aka what you can get away with). When I was growing up, it would have been inconceivable for a prominent felon like Mike Milken to rehabilitate himself. I can’t prove it, but I believe one factor in the erosion of norms has been corporate consolidation. In the stone ages of my childhood, there were many more mid-sized companies whose executives were important figures in their communities, often cities in flyover like Dayton, Milwaukee, St. Louis. Being a biggish fish in a small pond meant your personal reputation mattered for more than it seems to now. And those business and community leader therefore felt the need to keep up appearances, which in turn imposed some limits on their conduct.
By Chris Becker. Originally published at MacroBusiness
The HBO series Chernobyl wasn’t about the dangers of nuclear power but rather the ability of societies at large to lie, obfuscate, conceal and pass off individual responsibility to create huge “mistakes”. The collapse of the Soviet Union was due to this cascade of lies, that its economic and social system was literally built on sand and the “meltdown” was just a plain admission by Gorbachev and others that Stalinism and the perversions he created was all a lie.
Luckily, this can’t happen in the West. Can it? We’ve never seen a whole swathe of society lie, defraud, or pass off individual responsibility to create a “big short” have we?
A system that may well be as perverted as communism is the rocky “foundation” of capitalism itself – the financial sector. And the near capitulation of one of its many tentacles this past week, Deutsche Bank, has echoes of Bear Stearns demise twelve years ago.
Robert Gottliebsen has a very good take on DB here at The Oz:
What happened to Deutsche Bank is yet another example of the inability of large companies and government organisations to admit huge errors.
Despite what is taught at management schools around the world, in most countries, especially outside the US and including Australia, when executives see a disaster that will cost them their job they do not confess. Instead they hold back, often looking for another job.
In the case of Deutsche Bank, concealment virtually destroyed the bank and Germany’s hopes of being a global financial player to rival London and New York.
The culture of concealment starts in middle management but often goes to the top.
Gottliebsen goes on to compare the Japanese banks in the 1990s with our own here recently, namely Commonwealth Bank, but also super manipulator AMP and the deep “denial” culture that permeates our public service.
You can add agencies like the RBA, ATO and ARPA to that culture. And indeed, the Defence Department with its decades long three monkeys problem over procuring equipment for our fighting men and women, let alone the abject disgusting way our veterans are treated by the DVA.
The question is why is the West failing at pointing out these risks? Why are bureaucracies failing at getting this “vital information” out into public where it can be dissected, discussed and solved?
Media is partly to blame, more hellbent on producing reality TV bullshit or covering the latest celebrity or virtue signalling crusade while ignoring systemic issues that only hard core journalism and not sensationalism can uncover. Ironically, its the ABC that leads on that front with successive Four Corners investigations providing the public with access to whistleblowers.
But its not just the media. Its modern corporate and economic culture. Its to be risk averse at every level. To signal to consumers, customers, managers, employers, taxpayers, government and shareholders that you must broadcast all the time a desire to be safe and secure. To not offend. To not make a mistake that would hurt someone’s feelings, to obscure the plain facts behind layers of complexity and doublespeak.
This twisted post-modern desire then leads to cover up and keep disclosure of systemic risk within ranks so that “face” can be saved and jobs and positions can be secured, no matter the cost to society. Perversely, the higher up the responsibility ladder, the less ramifications and the less moral fortitude to actually solve the problem with fidelity. Witness how not a single banker or manager was imprisoned during the GFC. Witness how each of the bankers involved in the latest Royal Commission have not paid a single cent in fines, or any other form of punishment, indeed most got off with golden parachutes.
An erosion of trust in the system is the obvious outcome, with many seeking populist solutions to “drain the swamp” or leave the bureaucrats in Brussels (insert: everywhere) or to turn it all upside down and bring out the socialist revolution.
This modern form of capitalism, this perverted rationalism, where any risks taken by a corporation or public bureaucracy is thus borne by society at large, where individual responsibility is waved away while any rewards are given to the few upends the risk/reward equation that has traditionally led Western society to where it stands today. It is the end game in the neoliberal/economic rationalism trend, where lies are truth and the free market was never free.
Gottliebsen reckons managers need to “Tell the truth and address the problems early.”
It goes beyond teaching managers to tell the truth. The problem lies within how we deal with risk and reward, how we treat our public and private institutions and how individuals should be admired and respected for telling the truth all the time, no matter the cost.