Management and the Next Crash

The Chancellor of the Exchequer is generally pictured as commander of the economy, driving it through a dangerous jungle at the edge of Armageddon, threatened by mortal danger on all sides. Whether he is conceived of as a hugely intelligent and skilful driver, or an ill-informed purveyor of omnishambolic damage, is a matter of political belief. The fundamental error is in the estimation of his power to drive the economy. At most it extends to steering round relatively gentle corners and having some influence over speed. The effectiveness of these limited powers depends on the ability to see dangers far ahead and to make adjustments accordingly. The currently dominant economic ideology is a particular handicap to achieving such foresight. As Chicago Nobel laureate Professor Robert Lucas told the Queen, the best economic theory can do is predict that such events as the 2007-8 crash are unpredictable.

Lots of lessons have been relearned since Lehman’s bust, yet few substantive changes have been made. So it is predictable, and widely predicted, that there will in due course be another, most probably bigger crash than 2007-8. And after that, if no preventive actions are taken, there will be another. And another. Till the changes are made.

What makes economies robust is not the wisdom of chancellors, but the industry of people, their creativity, their desire for progress and their need to eat. Their co-operative inputs to the many enterprises, private and public, which make up the economy, are what drives the economy forward. But that same Friedmanite strand of neoclassical economic theory which prevents prediction, is also corrupting enterprise. Sumantra Ghoshal described the management taught by business schools across the globe as ‘the ruthlessly hard-driving, strictly top-down, command-and-control focused, shareholder-value obsessed, win-at-any-cost business leader’.

As is amply demonstrated in The Rise and Fall of Management that approach is entirely counter-productive. It is the result of neoclassical economic theory being allowed to dominate the knowledge and understanding of human behaviour in organisations. Its only results are to the detriment of firms in the real economy, a) by making their management ineffective, and b) by the diversion of investment from the real economy to the speculative/derivative, which in monetary terms is now far larger than the real economy.

It seems also to be the way political parties are managed in parliament. MPs who are prepared to be independent thinkers and to make public challenge of government decisions do not climb the greasy pole. The system is well worn. Parliamentary private secretaryships are offered to test out the reliability and compliance of junior MPs. Such indications of favour as a PPS role seem only to be offered on condition the recipient will not challenge the ‘strictly top down, command and control focused’ leadership.

Organisations, and government is an organisation, should be keen to accept challenge of the status quo from within. They need to learn how to respond to such challenge intelligently and thoughtfully, rather than in the government’s case, seeing it in terms of media sound-bites and the impact on votes. Then might the necessary changes be made that will make the next potential crash foreseeable and avoidable.

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