In a recent bog post David Boyle, whom I regard as a fellow campaigner for a new economic paradigm, describes the phenomenon of the “empty corporation”. He mentioned this after trying to deal with two large British companies: Barclays Bank and TalkTalk, the telecoms company. These companies offer their customers no human contact, and are unable to solve more than very simple problems without causing their customers a lot of work. And yet these businesses conform to our idea of high productivity, which is the holy grail of economic development. Examining how these companies work gives us clues about how economic development needs to change direction.
The key to this is the insight, offered in recent book by information scientist César Hidalgo, that the human brain can only handle so much complexity. And the human brain is at the apex of any system for managing complexity. Whatever power Artificial Intelligence (AI) and computing may have to transform life, they remain a long way from handling complex situations reliably. Groups of people can manage more complexity that individuals, but this is a process of diminishing returns; it ceases to be true of large groups. That is fundamentally why large organisations do not handle complexity well. So how do they succeed?
They do so by simplifying things. Manufacturers build standard products in large numbers. Service providers try to pull off a similar feat, by offering a standard service, handled by a relatively simple set of rules, with the minimum variation due to context. Further, they produce these products and services by fragmenting the more complex parts into simpler steps. By doing so they are able to develop “economies of scale”, first admiringly highlighted by the founder of modern economics, Adam Smith, in a pin factory. That makes them highly productive and competitive, within a tightly defined remit.
Anybody who has worked in a large organisation (as I have within in financial services) will recognise this drive to simplicity. Failures are usually attributed to excessive complexity. Every so often there is a reorganisation to re-simplify things. Hierarchies and bureaucracy is put in place with the aim of preventing complexity from growing – though this sometimes backfires by doing the opposite. Even so large organisations often become unstuck because vital processes are neglected (a recent example being TalkTalk’s inadequate defence against hacking) or parts of the organisation interpret their an over-narrow remit without comprehending the full context (VW’s problems with emissions standards being a case in point here). It seems impossible to get the balance between inadequate and excessive control.
And yet officialdom often favours large corporations. That is mainly because they have a similar problem with complexity. They find it much easier to handle a smaller number of large organisations. They are many examples, but one that sticks in my mind is the almost vindictive campaign by officialdom against smaller abattoirs after a scandal of lax standards. This still afflicts British agriculture; we may question whether it really has produced much in the way of safety benefits. But it has made the blame game easier to manage. There is a further, and sinister twist. Large corporations, especially in the USA, have discovered how easy it is to manipulate new regulations by lobbying officials and politicians. The payback on investment is apparently enormous.
The problems of excessive scale are even more apparent in the public sector than in the private one. A recent case described by Guardian journalist Deborah Orr is particularly poignant. She told of a woman falsely accused by a neighbour of antisocial behaviour. It was quite clear that this neighbour had mental health problems. Officialdom, in the shape of the housing association that managed the property and the police, where utterly unable to cope. They could not see beyond an isolated series of incidents, which each had to be dealt with according to a set process, regardless of human impacts. In the end her neighbour was evicted – but only because his rent was behind; at no point did anybody think of getting down to the root of the problem – the neighbour’s mental health problems, which are presumably being inflicted on somebody new. The theme of Ms Orr’s article is the lack of compassion in the modern world. To me it is simply the inability of large organisations, like the housing association and the police, to manage context and complexity. There is no place for compassion is such places. Compassion means allowing the impact of context, and that means losing control.
These problems are made worse by organisations attempting to be more “productive” by reducing levels of staff, and “de-skilling” – using less qualified, and cheaper, staff, working within tightly defined rules. Unfortunately this is one area where the wrong lessons from the private sector are being imposed on the public sector.
There is a sort of defining paradox about the problem. On the one hand we have workers working very hard, and very productively, and on the other we have the organisations they work for failing. This almost always arises because the sum of all the things that the workers are doing fails to add up to what they are collectively trying to do. There is even a name for the discipline of trying to resolve this type of problem: “process management” – which I personally have found an essential set of ideas as a manager. Unfortunately people charged with process management are usually given too narrow a remit to get to grips with the real problems their organisation faces. And all too often these problems are insoluble for large organisations – because solving them means depending too much on the exercise of judgement at a junior level (including the “compassion” of which Ms Orr speaks), the full consequences of which the wider organisation will be unable to handle.
Economists should ponder this paradox when they tut-tut about poor growth in productivity, as they are prone to do. Most still believe that productivity comes about with simplification and scale. But each of our lives is complex, from the billionaire to the welfare claimant. Offering us a bewildering menu of simple, standardised products and services is often not what we need, even if each of these services is very cheap, because it is produced to high standards of productivity. At least the billionaire can employ a small staff of professionals to try and make sense of it all. Alas the welfare claimant often needs interaction with just the sort of trained and empowered professional whose jobs are being de-skilled. Productivity, as it is usually understood, may be self-defeating. We need a new way of looking at it.
In the private sector the processes of technological advance and competition will eventually drive positive change. Big corporations will try to slow it down by creating monopolies, by making life difficult for their competitors, or by misusing such concepts as intellectual property rights. But the life expectancy of larger organisations is already shortening. A long last technology may be taking forward individual empowerment at the expense of centralisation. It is always dangerous to predict where technology will take us, but the smartphone, blockchain technology (pioneered by BitCoin), and additive manufacturing (3D-printing) are surely pointing towards a more distributed model of capitalism. Meanwhile the struggles of large companies to secure customer databases and fight disruption from cyber attack are pointing the same way too. With inevitable exceptions, the big commercial corporation may have had its day.
Alas there is no sign that policymakers understand that scale is a problem for public services, even though almost very day provides evidence that it is. Each failure is greeted with promises that some tweak in the system will sort the problem out. You would think that after so many years of such failed promises that people would start to twig. And yet, alas, no.