How China changed the game for countries in default

Robin Wigglesworth and Sun Yu  in The FT

Zambia, struggling from an economic and financial crisis compounded by the Covid-19 pandemic, first missed an interest payment on its international bonds. Two and a half years later it remains in limbo, unable to resolve the default on most of its $31.6bn debts. 

That an impoverished and vulnerable country has for so long unsuccessfully laboured to reach a deal with creditors and move on from the crisis is an illustration of the messy process to deal with government bankruptcies, which some experts fear has now broken down completely. 

The consequences could be severe for the spate of countries that have recently defaulted on their debts, and the topic has been high on the agenda of this week’s spring meetings of the IMF and World Bank in Washington. 

In her opening remarks at those meetings, the IMF’s managing director Kristalina Georgieva noted that about 15 per cent of low-income countries were already in “debt distress” and almost half were in danger of falling into it. 

“This has raised concerns over a potential wave of debt restructuring requests—and how to handle them at a time when current restructuring cases are facing costly delays, Zambia being the most recent example,” she told attendees.  

While domestic laws and judges govern the bankruptcies of companies and individuals, there is no international law for insolvent countries — only a chaotic, ad hoc process that involves working through a hodgepodge of contractual clauses and tacit conventions, enduring tortuous negotiations and navigating geopolitical expediency. 

A decade ago, US-based hedge fund Elliott Management exploited that landscape to notch up several lucrative victories by suing defaulters for full repayment of their debts. But this fragile patchwork is now under threat of unravelling completely due to the emergence of a new, disruptive, opaque and powerful force in sovereign debt: China. 

Some experts say Beijing’s lending spree to developing countries and refusal to play by western-established rules represents the single greatest impediment to government debt workouts and threatens to leave some countries in debt limbo for years. 

But Yu Jie, a senior research fellow on China at think-tank Chatham House, believes Beijing’s stance “is less about economic rationalities and more about geopolitical competition”. 

“The multilateral financial institutions are run largely by Americans and Europeans. China had hoped to be able to shape the agenda of debt relief, not to have it dictated by the west,” she says. 

Jay Newman, the former Elliott fund manager who successfully sued Argentina for $2.4bn after its 2001 debt restructuring, says the emergence of China as a significant player has left the entire system in uncharted waters. “You now have one big state creditor with the power to dictate terms and the patience not to make a deal if it doesn’t suit them. It has completely changed the game.” 

The new landscape 

In a grim sign of the times, Alvarez & Marsal — one of the world’s biggest corporate bankruptcy advisers — this year set up a sovereign practice for the first time. Underscoring its expectations for the business, it hired Reza Baqir, a former senior IMF official and governor of Pakistan’s central bank, to lead the new unit. 

The potential is clear. The latest IMF data from the end of February indicates that nine poorer countries — such as Mozambique, Zambia and Grenada — are already in what it terms “debt distress”, while another 27 countries are at “high risk” of falling into it. A further 26 more are on the watchlist. Baqir points out that there are also a lot of struggling state-controlled companies in these countries that will need help as a result. 

“The timing was right” for A&M to set up a sovereign advisory unit, he says. “Given that there are more than 50 countries in various stages of debt distress there is an opportunity for a more holistic approach.” 

Baqir is among those that say the debt restructuring process is broken, largely because it was primarily designed for a bygone era, when creditors were overwhelmingly western countries and western banks. 

Decades ago, the Paris Club was formed to co-ordinate between government creditors, while bankers formed the London Club to restructure their debts. Broadly speaking, western governments drove the process, and occasionally leaned on banks to accept painful settlements. It was largely improvised and often slow, but it mostly worked. 

But the decline of bank lending and the growth of the bond market shook things up in the spate of sovereign defaults that started in the early 1990s. Creditor co-ordination became trickier with myriad bondholders trading claims around the world, rather than just a handful of banks. 

Argentina’s default on $80bn of bonds in 2001 led to years of fights between Buenos Aires and investors such as Elliott, which refused to accept the terms agreed by other creditors. At one point the hedge fund famously seized an Argentine naval vessel when it docked in Ghana. Its reputation became such that bondholders would sometimes invoke the mere spectre of Elliott to scare countries contemplating a default, while policymakers used it as prima facie evidence of the sovereign debt restructuring system’s weaknesses. 

In the wake of the Argentine debacle the IMF responded by attempting to set up a kind of bankruptcy court for countries with itself as judge. But the sovereign debt restructuring mechanism foundered after attracting little support from the IMF’s biggest shareholders. Instead, the US championed the insertion of “collective action clauses” into bonds, which compel recalcitrant creditors to accept a restructuring agreement made by a majority. After Greece’s debt restructuring in 2012 these CACs were beefed up further. 

However, many bonds still lack these clauses. Moreover, they can only help ease a restructuring agreement once it is struck. Many experts point out that they do nothing to solve the biggest fundamental problem: countries are far too slow to seek a debt restructuring as they are wary of a messy process with the potential of worsening an economic crisis and the inevitable political humiliation of defaulting. 

“If I was a finance minister, I’d find it hard to tell my prime minister that we have a clean framework to work with,” says Baqir. 

When they are finally forced into a debt restructuring, the financial relief that countries secure is often too little to ensure a durable upswing. In the few cases where it does clean up their balance sheet, it sometimes only leads to another debt binge. 

This flawed process has now been further complicated — some say wrecked — by China’s vast lending programme across the developing world over the past decade. Many of these loans are opaque in size, terms, nature and sometimes even existence. 

The overall size of the lending programmes is hard to judge, given that China does not report most of it to the likes of the IMF, OECD or Bank for International Settlements. But AidData, a development think-tank based at William & Mary’s Global Research Institute, estimates that the loans amount to about $843bn. China is not a member of the Paris Club, and in most cases the loans are made by its myriad state-owned or merely state-controlled banks, muddling things further. 

It’s like the international financial policy community spent the past decade trying to clean up around the street light, oblivious to the mounds of rubbish piling up unseen around the rest of the darkened street, says Anna Gelpern, a professor of law and international finance at Georgetown University. 

“We spent 20 years focusing on contractual tweaks, assuming that bonds were the problem,” she says. “The problem is the state of global politics, and the fate of low-income countries just isn’t a big priority anywhere.” 

Life in default 

Zambia is a prime example. Of the roughly $20bn of external debt that the IMF tallied when forming its programme in 2022, $2.7bn was lent by international development banks, $1.3bn comes from various western governments, bank loans come to $1.6bn, local kwacha-denominated bonds held by non-residents are $3.3bn and international dollar-denominated bonds account for $3.3bn. But the biggest chunk is nearly $6bn owed to China. 

The IMF has reached a support agreement with Zambia that is conditional on its debt burden becoming sustainable. But other bondholders do not want any relief they offer to simply go towards paying off China. Beijing has in principle agreed to accept a “haircut” on its debts, but experts say it appears to not want anything it offers to go towards improving the recovery of private creditors, leading to the impasse. 

In the meantime, Zambia says it has accumulated about $1.2bn in arrears since its default. Including missed payments to various government contractors, the IMF has estimated that the arrears are actually nearly $3bn. 

Highlighting how China also appears to be leveraging these situations to undermine the western-designed global financial architecture, in January it called for international organisations such as the IMF and World Bank to participate in the debt restructuring. This would overturn half a century of convention that these organisations are “super-senior” creditors exempt from debt restructurings, as participating would imperil their ability to lend to other countries. 

One senior adviser to the Chinese government says that “there is no law that requires World Bank loans to be prioritised” and that the country was “not happy” with a practice that originated in an era when western countries were generally the only creditors. “If we allow the World Bank to take precedence over us, we need to have bigger voting rights and take larger stakes at the bank. China’s duty doesn’t match its rights in development finance.” 

Another increasingly common wrinkle in debt restructuring is what to do with domestic bonds, which local banks and financial companies have often gorged upon. Here too, Zambia is a good example. 

The $3.3bn of local currency bonds held by non-residents have also been cordoned off from the debt restructuring. Lusaka fears that reducing the value of kwacha bonds could wreck its banking industry and do more damage than they are worth. But some holders of other international bonds argue that they should also be included in the restructuring. 

“In the sovereign debt restructuring business we didn’t really think much about local debts,” says Lee Buchheit, a leading lawyer in the field. “There often wasn’t much of it, and we always assumed that the sovereign has a much broader palate of mechanisms it can use to deal with domestic debt.” 

But what to do about Zambia’s Chinese loans remains the thorniest issue and has risen to the highest levels in Washington and Beijing. US Treasury secretary Janet Yellen this year raised the stand-off with Chinese president Xi Jinping’s economic adviser Liu He, and said that it had “taken far too long already to resolve this matter” when she visited Lusaka in January. 

China’s exceptionalism? 

For the most part, experts say China seems mostly content with rolling its debts rather than restructuring them, handing out new loans to ensure that its domestic banks can be repaid in full. But it prefers to act alone, at its own pace, and feels no need for transparency. 

A recent paper by several economists, including Harvard University’s Carmen Reinhart, estimated that China has made 128 bailout loans worth $240bn to 20 distressed countries between 2000 and 2021. About $185bn was extended over the last five years of the study, and more than $100bn in 2019-21. 

Reinhart says that China’s lending stands out for its “extreme” opacity but stresses that its overall behaviour is not as unusual as some people say. “China is really playing hardball because it is a major creditor. US commercial banks also played hardball back in the 1980s,” she says. Baqir agrees, saying: “Whatever the colour or creed of a creditor, creditors think like creditors.” 

The Chinese government adviser also points to factors such as the country’s relative inexperience with debt workouts. “China is still at an early stage in coming up with its debt relief programme,” he says. 

Incomplete domestic financial reforms have also made it harder to offer debt relief to overseas creditors, while some Chinese banks are also struggling with big hits from the country’s wilting real estate sector. 

“We need co-ordination from the top level, which now has other priorities,” the adviser says. He also points out that the pressure on developing countries has intensified following a series of US interest rate rises, and that as a result Washington “should be responsible for the debt trap”. 

But whatever the root cause, most agree on the end result. “All of this [creditor] fragmentation is leading to paralysis,” says Sean Hagan, a former general counsel at the IMF who now teaches international law at Georgetown. 

 There are few solutions being floated around. The IMF in February announced a new Global Sovereign Debt Roundtable to bring together the full gamut of creditors and debtors, and hopefully thrash out ways to “facilitate the debt resolution process”. It is an initiative that few experts harbour much hope for. 

Buchheit likens the impact of an assertive new player on an already fault-riddled debt restructuring system to someone having a bad cold that a doctor struggles to treat, who is then impaled by a spear. “The cold hasn’t gone away, but the doctor is likely to focus more on the spear,” he says. 

Ironically, both Buchheit and Newman — who clashed many times over the years as the leading lawyer for and suer of bankrupt countries — advocate for the same basic approach: countries should restructure the debts they can, remain in default to China, and the IMF should drop its “kumbaya” approach and accept semi-permanent arrears to its biggest shareholders. 

But most expect Zambia-like debt limbo to be the likeliest outcome for a lot of countries. “I suspect this is going to be a recurring problem,” says Reinhart. “And the longer these countries are in the [debt] netherworld . . . the [more the] fabric of the country is affected.”  

The magical thinking that misleads managers

A handy guide to sorcery and superstitions in modern leadership

ANDREW HILL in the FT

It has been a while since a UK company was accused of sorcery. 

Congratulations, then, to evolutionary biologist Sally Le Page for triggering just such a charge last week. She blogged her astonishment that many of the country’s biggest water companies had blithely admitted to using dowsing rods to help locate pipes and leaks. Another scientist has dismissed the technique as witchcraft. 

The water suppliers themselves have been rowing back fast. Some engineers were part-time diviners, apparently, but the real hard work of leak detection was backed by drones, robots and lots and lots of science. 

I say let us allow the water industry’s warlocks to indulge their medieval pastimes. After all, there are plenty of examples of modern management and leadership based on superstition, credulity and blind faith. Here are just a few: 

Numerology. In China, mumbo-jumbo about feng shui and ominous or propitious flotation dates, trading symbols and stock codes often influences how supposedly sophisticated companies arrange their affairs. Elements of Alibaba’s 2014 listing appeared to revolve around the “lucky” number eight, for example. 

But before western chief executives scoff, they should consider how much they are still in thrall to the cult described in Alex Berenson’s 2003book The Number — the quarterly earnings consensus they conspire with analysts and investors to hit, or better still, to beat. Regular evidence — recently, for instance, from Campbell Soup (a miss), and Home Depot (a “beat”) — suggests the cult is thriving. 

Indeed, the availability and crunchability of Big Data have broadened disciples of the number. They now include company bosses who worship near-term, data-driven answers, rather than holding out for better, if messier, longer-term solutions that take account of human intuition. 

As the veteran management thinker Charles Handy pointed out in a rousing closing address to the recent Drucker Forum, “if the organisation were purely digitised . . . it would be a very dreary place, a prison for the human soul”. 

Leaps of faith. Any chief executive who has ever announced a corporate vision without a clear idea of the kinds of steps needed to achieve the goal is at least partly guilty of magical thinking. 

Richard Rumelt wrote in Good Strategy/Bad Strategy about the dangerous delusion that aiming for success can lead to success: “I would not care to fly in an aircraft designed by people who focused only on an image of a flying aeroplane and never considered modes of failure.” 

Throw a coin and make a wish. Modern companies still close their eyes to evidence suggesting bonuses are at best a blunt incentive, and chuck cash at staff in the hope that it will help them reach their heart’s desire. At least wishing wells swallow the donation with no adverse consequence, other than the loss of your penny. Unfettered bonus culture, as the worst excesses of the financial crisis suggest, can backfire in unexpected ways. 

Chants and mantras. Slavishly applied governance codes and regulations help box-ticking compliance staff and board members sleep easy, by absolving them of the need to make difficult judgments. Meaningless mission statements give executives a mantra to recite as cover for not actually putting their values into practice. 

Human sacrifice. Restructurings and lay-offs are the modern ritual for appeasing the gods (but without the benefits of bringing the community together for a bit of a celebration). 

Hero worship. For all the modish talk of flat hierarchies and distributed leadership, chief executives still become the central figures in a myth that is largely of their own creation. 

The most dangerous part of this self-delusion is that they believe success was achieved entirely through their “skill, preparation and tenacity”, as described by Jim Collins and Morten Hansen in Great by Choice. 

The researchers found successful leaders could generate a greater “return on luck” by being more disciplined at exploiting opportunities and riding bad luck to make themselves stronger. But they pointed out there was a fine line between the best leaders and those who put their organisations at risk through an exaggerated and dangerous belief in their own powers. Such leaders had a tendency to make these sorts of assertions: “Luck played no role in my success — I’m just really good.” 

Here is where humble deference to unpredictable and poorly understood outside forces would be healthy. If nothing else, over-confident leaders should be reminded that their destiny is sometimes out of their hands.

From inboxing to thought showers: how business bullshit took over

Andre Spicer in The Guardian

In early 1984, executives at the telephone company Pacific Bell made a fateful decision. For decades, the company had enjoyed a virtual monopoly on telephone services in California, but now it was facing a problem. The industry was about to be deregulated, and Pacific Bell would soon be facing tough competition.

The management team responded by doing all the things managers usually do: restructuring, downsizing, rebranding. But for the company executives, this wasn’t enough. They worried that Pacific Bell didn’t have the right culture, that employees did not understand “the profit concept” and were not sufficiently entrepreneurial. If they were to compete in this new world, it was not just their balance sheet that needed an overhaul, the executives decided. Their 23,000 employees needed to be overhauled as well.

The company turned to a well-known organisational development specialist, Charles Krone, who set about designing a management-training programme to transform the way people thought, talked and behaved. The programme was based on the ideas of the 20th-century Russian mystic George Gurdjieff. According to Gurdjieff, most of us spend our days mired in “waking sleep”, and it is only by shedding ingrained habits of thinking that we can liberate our inner potential. Gurdjieff’s mystical ideas originally appealed to members of the modernist avant garde, such as the writer Katherine Mansfield and the architect Frank Lloyd Wright. More than 60 years later, senior executives at Pacific Bell were likewise seduced by Gurdjieff’s ideas. The company planned to spend $147m (£111m) putting their employees through the new training programme, which came to be known as Kroning.

Over the course of 10 two-day sessions, staff were instructed in new concepts, such as “the law of three” (a “thinking framework that helps us identify the quality of mental energy we have”), and discovered the importance of “alignment”, “intentionality” and “end-state visions”. This new vocabulary was designed to awake employees from their bureaucratic doze and open their eyes to a new higher-level consciousness. And some did indeed feel like their ability to get things done had improved.

But there were some unfortunate side-effects of this heightened corporate consciousness. First, according to one former middle manager, it was virtually impossible for anyone outside the company to understand this new language the employees were speaking. Second, the manager said, the new language “led to a lot more meetings” and the sheer amount of time wasted nurturing their newfound states of higher consciousness meant that “everything took twice as long”. “If the energy that had been put into Kroning had been put to the business at hand, we all would have gotten a lot more done,” said the manager.

Although Kroning was packaged in the new-age language of psychic liberation, it was backed by all the threats of an authoritarian corporation. Many employees felt they were under undue pressure to buy into Kroning. For instance, one manager was summoned to her superior’s office after a team member walked out of a Kroning session. She was asked to “force out or retire” the rebellious employee.

Some Pacific Bell employees wrote to their congressmen about Kroning. Newspapers ran damning stories with headlines such as “Phone company dabbles in mysticism”. The Californian utility regulator launched a public inquiry, and eventually closed the training course, but not before $40m dollars had been spent.

During this period, a young computer programmer at Pacific Bell was spending his spare time drawing a cartoon that mercilessly mocked the management-speak that had invaded his workplace. The cartoon featured a hapless office drone, his disaffected colleagues, his evil boss and an even more evil management consultant. It was a hit, and the comic strip was syndicated in newspapers across the world. The programmer’s name was Scott Adams, and the series he created was Dilbert. You can still find these images pinned up in thousands of office cubicles around the world today.

Although Kroning may have been killed off, Kronese has lived on. The indecipherable management-speak of which Charles Krone was an early proponent seems to have infected the entire world. These days, Krone’s gobbledygook seems relatively benign compared to much of the vacuous language circulating in the emails and meeting rooms of corporations, government agencies and NGOs. Words like “intentionality” sound quite sensible when compared to “ideation”, “imagineering”, and “inboxing” – the sort of management-speak used to talk about everything from educating children to running nuclear power plants. This language has become a kind of organisational lingua franca, used by middle managers in the same way that freemasons use secret handshakes – to indicate their membership and status. It echoes across the cubicled landscape. It seems to be everywhere, and refer to anything, and nothing.

It hasn’t always been this way. A certain amount of empty talk is unavoidable when humans gather together in large groups, but the kind of bullshit through which we all have to wade every day is a remarkably recent creation. To understand why, we have to look at how management fashions have changed over the past century or so.

In the late 18th century, firms were owned and operated by businesspeople who tended to rely on tradition and instinct to manage their employees. Over the next century, as factories became more common, a new figure appeared: the manager. This new class of boss faced a big problem, albeit one familiar to many people who occupy new positions: they were not taken seriously. To gain respect, managers assumed the trappings of established professions such as doctors and lawyers. They were particularly keen to be seen as a new kind of engineer, so they appropriated the stopwatches and rulers used by them. In the process, they created the first major workplace fashion: scientific management.

Charlie Chaplin ‘satirising the cult of scientific management’ in 1936 film Modern Times. Photograph: Allstar/Cinetext

Firms started recruiting efficiency experts to conduct time-and-motion studies. After recording every single movement of a worker in minute detail, the time-and-motion expert would rearrange the worker’s performance of tasks into a more efficient order. Their aim was to make the worker into a well-functioning machine, doing each part of the job in the most efficient way. Scientific management was not limited to the workplaces of the capitalist west – Stalin pushed for similar techniques to be imposed in factories throughout the Soviet Union.

Workers found the new techniques alien, and a backlash inevitably followed. Charlie Chaplin famously satirised the cult of scientific management in his 1936 film Modern Times, which depicts a factory worker who is slowly driven mad by the pressures of life on the production line.

As scientific management became increasingly unpopular, executives began casting around for alternatives. They found inspiration in a famous series of experiments conducted by psychologists in the 1920s at the Hawthorne Works, a factory complex in Illinois where tens of thousands of workers were employed by Western Electric to make telephone equipment. A team of researchers from Harvard had initially set out to discover whether changes in environment, such as adjusting the lighting or temperature, could influence how much workers produced each day.

To their surprise, the researchers found that no matter how light or dark the workplace was, employees continued to work hard. The only thing that seemed to make a difference was the amount of attention that workers got from the experimenters. This insight led one of the researchers, an Australian psychologist called Elton Mayo, to conclude that what he called the “human aspects” of work were far more important than “environmental” factors. While this may seem obvious, it came as news to many executives at the time.

As Mayo’s ideas caught hold, companies attempted to humanise their workplaces. They began talking about human relationships, worker motivation and group dynamics. They started conducting personality testing and running teambuilding exercises: all in the hope of nurturing good human relations in the workplace.

This newfound interest in the human side of work did not last long. During the second world war, as the US and UK military invested heavily in trying to make war more efficient, management fashions began to shift. A bright young Berkeley graduate called Robert McNamara led a US army air forces team that used statistics to plan the most cost-effective way to flatten Japan in bombing campaigns. After the war, many military leaders brought these new techniques into the corporate world. McNamara, for instance, joined the Ford Motor Company, rising quickly to become its CEO, while the mathematical procedures that he had developed during the war were enthusiastically taken up by companies to help plan the best way to deliver cheese, toothpaste and Barbie dolls to American consumers. Today these techniques are known as supply-chain management.

During the postwar years, the individual worker once again became a cog in a large, hierarchical machine. While many of the grey-suited employees at these firms savoured the security, freedom and increasing affluence that their work brought, many also complained about the deep lack of meaning in their lives. The backlash came in the late 1960s, as the youth movement railed against the conformity demanded by big corporations. Protesters sprayed slogans such as “live without dead time” and “to hell with boundaries” on to city walls around the world. They wanted to be themselves, express who they really were, and not have to obey “the Man”.

In response to this cultural change, in the 1970s, management fashions changed again. Executives began attending new-age workshops to help them “self actualise” by unlocking their hidden “human potential”. Companies instigated “encounter groups”, in which employees could explore their deeper inner emotions. Offices were redesigned to look more like university campuses than factories.

Mad Men’s liberated adman Don Draper (Jon Hamm). Photograph: Courtesy of AMC/AMC

Nowhere is this shift better captured than in the final episode of the television series Mad Men. Don Draper had been the exemplar of the organisational man, wearing a standard-issue grey suit when we met him at the beginning of the show’s first series. After suffering numerous breakdowns over the intervening years, he finds himself at the Esalen institute in northern California, the home of the human potential movement. Initially, Draper resists. But soon he is sitting in a confessional circle, sobbing as he tells his story. His personal breakthrough leads him to take up meditating and chanting, looking out over the Pacific Ocean. The result of Don Draper’s visit to Esalen isn’t just personal transformation. The final scene shows the now-liberated adman’s new creation – an iconic Coca-Cola commercial in which a multiracial group of children stand on a hilltop singing about how they would like to buy the world a Coke and drink it in perfect harmony.

After the fictional Don Draper visited Esalen, work became a place you could go to find yourself. Corporate mission statements now sounded like the revolutionary graffiti of the 1960s. The company training programme run by Charles Krone at Pacific Bell came straight from the Esalen playbook.

Since new-age ideas first permeated the workplace in the 1970s, the spin cycle of management-speak has sped up. During the 1980s, management experts went in search of fresh ideas in Japan. Management became a kind of martial art, with executives visiting “quality dojos” to earn “lean black-belts”. In their 1982 bestseller, In Search of Excellence, Tom Peters and Robert Waterman – both employees of McKinsey, the huge management consultancy agency – recommended that firms foster the same commitment to the company that they found among Honda employees in Japan. The book included the story of one Japanese employee who happens upon a damaged Honda on a public street. He stops and immediately begins repairing the car. The reason? He can’t bear to see a Honda that isn’t perfect.

While McKinsey consultants were mining the wisdom of the east, the ideas of Harvard Business School’s Michael Jensen started to find favour among Wall Street financiers. Jensen saw the corporation as a portfolio of assets. Even people – labelled as “human resources” – were part of this portfolio. Each company existed to create returns for shareholders, and if managers failed to do this, they should be fired. If a company didn’t generate adequate returns, it should be broken up and sold off. Every little part of the company was seen as a business. Seduced by this view, many organisations started creating “internal markets”. In the 1990s, under director general John Birt, the BBC created a system in which everything from time in a recording studio to toilet cleaning was traded on a complex internal market. The number of accountants working for the broadcaster exploded, while people who created TV and radio shows were laid off.

As companies have become increasingly ravenous for the latest management fad, they have also become less discerning. Some bizarre recent trends include equine-assisted coaching (“You can lead people, but can you lead a horse?”) and rage rooms (a room where employees can go to take out their frustrations by smashing up office furniture, computers and images of their boss).

A century of management fads has created workplaces that are full of empty words and equally empty rituals. We have to live with the consequences of this history every day. Consider a meeting I recently attended. During the course of an hour, I recorded 64 different nuggets of corporate claptrap. They included familiar favourites such as “doing a deep dive”, “reaching out”, and “thought leadership”. There were also some new ones I hadn’t heard before: people with “protected characteristics” (anyone who wasn’t a white straight guy), “the aha effect” (realising something), “getting our friends in the tent” (getting support from others).

After the meeting, I found myself wondering why otherwise smart people so easily slipped into this kind of business bullshit. How had this obfuscatory way of speaking become so successful? There are a number of familiar and credible explanations. People use management-speak to give the impression of expertise. The inherent vagueness of this language also helps us dodge tough questions. Then there is the simple fact that even if business bullshit annoys many people, in most work situations we try our hardest to be polite and avoid confrontation. So instead of causing a scene by questioning the bullshit flying around the room, I followed the example of Simon Harwood, the director of strategic governance in the BBC’s self-satirising TV sitcom W1A. I used his standard response to any idea – no matter how absurd – “hurrah”.

Still, these explanations did not seem to fully account for the conquest of bullshit. I came across one further explanation in a short article by the anthropologist David Graeber. As factories producing goods in the west have been dismantled, and their work outsourced or replaced with automation, large parts of western economies have been left with little to do. In the 1970s, some sociologists worried that this would lead to a world in which people would need to find new ways to fill their time. The great tragedy for many is that just the opposite seems to have happened.

Simon Harwood (Jason Watkins, centre) of W1A, the BBC’s fictional director of strategic governance. Photograph: Jack Barnes/BBC

At the very point when work seemed to be withering away, we all became obsessed with it. To be a good citizen, you need to be a productive citizen. There is only one problem, of course: there is less than ever that actually needs to be produced. As Graeber pointed out, the answer has come in the form of what he calls “bullshit jobs”. These are jobs in which people experience their work as “utterly meaningless, contributing nothing to the world”. In a YouGov poll conducted in 2015, 37% of respondents in the UK said their job made no meaningful contribution to the world. But people working in bullshit jobs need to do something. And that something is usually the production, distribution and consumption of bullshit. According to a 2014 survey by the polling agency Harris, the average US employee now spends 45% of their working day doing their real job. The other 55% is spent doing things such as wading through endless emails or attending pointless meetings. Many employees have extended their working day so they can stay late to do their “real work”.

One thing continued to puzzle me: why was it that so many people were paid to do this kind of empty work. One reason that David Graeber gives, in his book The Utopia of Rules, is rampant bureaucracy: there are more forms to be filled in, procedures to be followed and standards to be complied with than ever. Today, bureaucracy comes cloaked in the language of change. Organisations are full of people whose job is to create change for no real reason.

Manufacturing hollow change requires a constant supply of new management fads and fashions. Fortunately, there is a massive industry of business bullshit merchants who are quite happy to supply it. For each new change, new bullshit is needed. Looking back over the list of business bullshit I had noted down during the meeting, I realised that much of it was directly related to empty new bureaucratic initiatives, which were seen as terribly urgent, but would probably be forgotten about in a few years’ time.

One of the corrosive effects of business bullshit can be seen in the statistic that 43% of all teachers in England are considering quitting in the next five years. The most frequently cited reasons are increasingly heavy workloads caused by excessive administration, and a lack of time and space to devote to educating students. A remarkably similar picture appears if you look at the healthcare sector: in the UK, 81% of senior doctors say they are considering retiring from their job early; 57% of GPs are considering leaving the profession; 66% of nurses say they would quit if they could. In each case, the most frequently cited reason is stress caused by increasing managerial demands, and lack of time to do their job properly.

It is not just employees who feel overwhelmed. During the 1980s, when Kroning was in full swing, empty management-speak was confined to the beige meeting rooms of large corporations. Now, it has seeped into every aspect of life. Politicians use business balderdash to avoid grappling with important issues. The machinery of state has also come down with the word-virus. The NHS is crawling with “quality sensei”, “lean ninjas”, and “blue-sky thinkers”. Even schools are flooded with the latest business buzzwords like “grit”, “flipped learning” and “mastery”. Naturally, the kids are learning fast. One teacher recalled how a seven-year-old described her day at school: “Well, when we get to class, we get out our books and start on our non-negotiables.”

In the introduction to his 2015 book, Trust Me, PR Is Dead, the former PR executive Robert Phillips tells a fascinating story. One day he was called up by the CEO of a global corporation. The CEO was worried. A factory which was part of his firm’s supply chain had caught fire and 100 women had burned to death. “My chairman’s been giving me grief,” said the CEO. “He thinks we’re failing to get our message across. We are not emphasising our CSR [corporate social responsibility] credentials well enough.” Phillips responded: “While 100 women’s bodies are still smouldering?” The CEO was “struggling to contain both incredulity and temper”. “I know,” he said. “Please help.” Phillips responded: “You start with actions, not words.”

In many ways, this one interaction tells us how bullshit is used in corporate life. Individual executives facing a problem know that turning to bullshit is probably not the best idea. However, they feel compelled. The problem is that such compulsions often cloud people’s best judgements. They start to think empty words will trump reasonable reflection and considered action. Sadly, in many contexts, empty words win out.

If we hope to improve organisational life – and the wider impact that organisations have on our society – then a good place to start is by reducing the amount of bullshit our organisations produce. Business bullshit allows us to blather on without saying anything. It empties out language and makes us less able to think clearly and soberly about the real issues. As we find our words become increasingly meaningless, we begin to feel a sense of powerlessness. We start to feel there is little we can do apart from play along, benefit from the game and have the occasional laugh.

But this does not need to be the case. Business bullshit can and should be challenged. This is a task each of us can take up by refusing to use empty management-speak. We can stop ourselves from being one more conduit in its circulation. Instead of just rolling our eyes and checking our emails, we should demand something more meaningful.

Clearly, our own individual efforts are not enough. Putting management-speak in its place is going to require a collective effort. What we need is an anti-bullshit movement. It would be made up of people from all walks of life who are dedicated to rooting out empty language. It would question management twaddle in government, in popular culture, in the private sector, in education and in our private lives.

The aim would not just be bullshit-spotting. It would also be a way of reminding people that each of our institutions has its own language and rich set of traditions which are being undermined by the spread of the empty management-speak. It would try to remind people of the power which speech and ideas can have when they are not suffocated with bullshit. By cleaning out the bullshit, it might become possible to have much better functioning organisations and institutions and richer and fulfilling lives.

A mutiny by World Bank staff when prescribed a dose of its own restructuring medicine

The recommendations of the World Bank/IMF are presented to us, the people of the South, as scientific, objective, necessary, fair, and in the best interests of the countries where they are to be implemented. This is why the rebellion episode by the bank staff to its restructuring is so significant

PETER RONALD DESOUZA in The Hindu

In the Financial Times of October 8, the columnist Shawn Donnan, reported that the World Bank was facing an internal “‘mutiny.” Yes, the word mutiny was used. The professional staff were apparently angry about several issues, a deep discontent, because of which the rebellion had been brewing over many days. The key issue was the restructuring exercise being undertaken by the President, Jim Yong Kim, to save, through both the elimination of benefits to staff on mission and also through possible lay-offs, the sum of $400 million. The restructuring exercise, staff felt, was deeply flawed both procedurally and substantively. The columnist reported some members saying that this “thing [restructuring] is affecting everything.” “We can’t do business. We don’t have the budget. It’s a mess, ...” Another staff member complained that “nickel and diming” on travel budgets was causing travelling staff to have to pay for their own breakfasts. “It’s really small beer,” she said. “Has anyone ever thought about the impact of these changes on staff morale?”

Resistance against restructuring

To assuage their feelings, before the semi-annual meeting of the Bank and International Monetary Fund (IMF) with Finance Ministers and Central Bankers of member countries, President Jim Yong Kim had to hurriedly convene a “town hall” meeting with the staff to discuss their concerns. The issues that was fuelling their anger were: (i) the cost-cutting exercise which meant that items of expenditure that they had been accustomed to, such as a paid for breakfast, were being withdrawn, (ii) the secrecy and opacity of the whole exercise i.e., appointment of consultants, payment of bonus to the senior management, hiring of new senior managers, etc, (iii) the award of a “scarce skills premium” of $94,000 as bonus, over and above his salary of $3,79,000, to the Chief Financial Officer who was carrying out the exercise, and (iv) to the appointment and payment of the huge sum of $12.5 million to external consultants such as McKinsey, Deloitte, and Booz Allen for advice on how to restructure a development Bank, as reported in the Economic Times of October 15, 2014.

For those of us from the Global South, who not only receive but also have to follow the advice of the Bretton Woods twins, on how to “restructure” our economies and change our policies, this episode has four very interesting lessons. The recommendations of the World Bank/IMF are presented to us, the people of the South, as scientific, objective, necessary, fair, and in the best interests of the countries where they are to be implemented. The World Bank is the repository of the most authoritative knowledge on development. It annually publishes the flagship World Development Report (WDR), the first of which in 1978 was titled “Prospects for Growth and Alleviation of Poverty.” Every year since 1978, it flags important themes for development with the 2013 WDR being on “Jobs” and restructuring required to align them with the new economy. The 2015 WDR is on “Mind and Culture” and the World Bank website reports the central argument as being “that policy design that takes into account psychological and cultural factors will achieve development goals faster.” This is scholarly knowledge and is used by many university classrooms as part of required reading. This is what positions the World Bank as a premier knowledge institution on development. Then why is the rebellion episode so significant? There are four aspects of that which merit discussion.

The first is the resistance against the restructuring medicine. This is the same medicine used by the World Bank against the rest of the world. The restructuring exercise, which has eliminated jobs within the public sector, whether this be in government or in the support services required by any public institution, such as of subordinate administrative staff, has produced an underclass of workers, who, although they are still needed, have been deprived of the welfare and security benefits that the permanent staff enjoys and were benefits that had been won by a long history of working class struggles. So, when security guards, drivers, mess workers, sweepers, the class IV workers, have now to live lives filled with anxiety about illness, unemployment, etc., because they work for labour contractors who do not provide any such benefits, the anger of the World Bank professional staff who, because of the restructuring, have to pay for their “breakfast” is a little difficult to understand. The restructuring exercise of economies in the global south has produced an underclass whose livelihood insecurity has increased exponentially. The mutiny at the World Bank appears somewhat paradoxical. Not only is the exercise personally dishonest, given the rebellion when the policy is applied at home, but it is also intellectually dishonest when read against the 2015 WDR. Is this the modern performance of the “mutiny on the bounty”?

Control by the few

The second aspect is the process adopted in the internal restructuring. The Reuters and FT reports tell us that the common complaint of the staff is that the many aspects of the restructuring exercise, initiated by the president, were non-transparent. There was an opacity to the process. For example, questions such as the following needed to be asked. What was the method followed to give the CFO a “scarce skills premium” of $94,000 over and above his salary? Was the work done outside the normal duty of the CFO? How did the president decide on who qualifies for a “scarce skills premium” and how many persons have qualified for this bonus? These were questions asked at the town hall meeting. If the “scarce skills premium” was based on sound management principles, why did the CFO agree to forego the bonus after the uproar? These are good questions and lead one to wonder if countries have the same option of protesting? Did Greece and Portugal and Ireland and Argentina have the protest option? The interesting lesson from this episode is that restructuring produces pain and distress to the many while it rewards the few especially those tasked with implementing it. These few have access to political and intellectual power. They control the methods adopted of public justification which produces a discourse that the restructuring is necessary and will benefit the whole. The few get rewarded while the many pay the price in the restructuring in many countries of the global south.

Neo-liberal triumph

The third aspect is the use of consultants. This is the most disappointing and alarming aspect of the episode. For an institution such as the World Bank, whose main rationale is that it is a knowledge institution about how to promote development, to now implicitly declare that it does not have the knowledge required to restructure itself is a severe admission of the weakness of its knowledge base and skill sets. How does it then prepare a road map to restructure economies when restructuring an institution is infinitely easier than restructuring the economy of a country? Restructuring an institution can draw on the interdisciplinary knowledge of the WDR 2015 such as best practice, graduated approaches, evidenced-based policies, results-based management, measuring and monitoring, etc. (all the keywords of the World Bank itself), to achieve the result of a better, leaner, more efficient, and fair institution. But the decision to hire outside consultants, paying a whopping fee of $12.5 million, shows that the World Bank does not either believe in its own capability, or worse doesn’t have this capability. What is alarming is the message that development thinking will, from now on, be done and propagated by the big global consultancies. Is the World Bank announcing that henceforth even its development knowledge will be outsourced? As reported in the Economic Times, one of the protesters said, “What do they know about development and the complexities of what we do?” Indeed, what do they know? But if we see the economic policy institutions of many countries, we will see a seamless movement of personnel between global consultancies and central banks. Our own development thinking has been outsourced to neo-liberal knowledge institutions, such as global consultancies, ratings agencies and investment banks. We can see this takeover of knowledge production in the area of economic policy, the triumph of the neo-liberal frame, even in India. Look at the key players of our economic policymaking. The World Bank has now given its stamp of approval to this trend. The recolonisation of the Indian mind and the policy discourse is near complete.

The fourth aspect of this troubling episode is the use of words to legitimise the action. In the last few months of the Indian public debate, we have come to see the power of words and the social power the purveyors of these words acquire. The word makes the world. Tagore argued for this philosophical position that language constructs reality, that we see the beauty of the world through our language, and that outside language there is no beauty. Controlling the word, the Bank decides to reward its CFO with a large bonus, while it is reducing the financial package of its other employees; it deploys the justification for this decision as a “scare skills premium.” The CFO gets the additional money because he has scarce skills. The investment Bank fraternity has to be rewarded with huge bonuses because they have scarce skills. Wall Street is built on this justification. This is capitalism’s masterstroke of controlling perception, controlling the public discourse by controlling words. We accept the differentials because we are made to believe it is a “scarce skills premium” to be paid for our own good. Sometimes a typographical error brings out the truth much better. By mistake I typed it as “scare skills premium.” It is.

We need a fair system for restructuring sovereign debt

If the debt vultures have their way, there will never be a fresh start for indebted countries - and no one will agree to restructuring

• 
• • Joseph Stiglitz
  • theguardian.com, Wednesday 4 September 2013 17.48 BST

If the debt vultures have their way, there will never be a fresh start for indebted countries - and no one will agree to restructuring. Photograph: Joe Petersburger/Getty Images/National Geographic Creative

A recent decision by a United States appeals court threatens to upend global sovereign debt markets. It may even lead to the US no longer being viewed as a good place to issue sovereign debt. At the very least, it renders non-viable all debt restructurings under the standard debt contracts. In the process, a basic principle of modern capitalism – that when debtors cannot pay back creditors, a fresh start is needed – has been overturned.

The trouble began a dozen years ago, when Argentina had no choice but to devalue its currency and default on its debt. Under the existing regime, the country had been on a rapid downward spiral of the kind that has now become familiar in Greece and elsewhere in Europe. Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.

Devaluation and debt restructuring worked. In subsequent years, until the global financial crisis erupted in 2008, Argentina's annual GDP growth was 8% or higher, one of the fastest rates in the world.

Even former creditors benefited from this rebound. In a highly innovative move, Argentina exchanged old debt for new debt – at about 30 cents on the dollar or a little more – plus a GDP-indexed bond. The more Argentina grew, the more it paid to its former creditors.

Argentina's interests and those of its creditors were thus aligned: both wanted growth. It was the equivalent of a "Chapter 11" restructuring of American corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

Debt restructurings often entail conflicts among different claimants. That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes.

Once upon a time, such contracts were enforced by armed intervention, as Mexico, Venezuela, Egypt, and a host of other countries learned at great cost in the nineteenth and early twentieth centuries. After the Argentine crisis, President George W. Bush's administration vetoed proposals to create a mechanism for sovereign-debt restructuring. As a result, there is not even the pretence of attempting fair and efficient restructurings.

Poor countries are typically at a huge disadvantage in bargaining with big multinational lenders, which are usually backed by powerful home-country governments. Often, debtor countries are squeezed so hard for payment that they are bankrupt again after a few years.

Economists applauded Argentina's attempt to avoid this outcome through a deep restructuring accompanied by the GDP-linked bonds. But a few "vulture" funds – most notoriously the hedge fund Elliott Management, headed by the billionaire Paul E. Singer – saw Argentina's travails as an opportunity to make huge profits at the expense of the Argentine people. They bought the old bonds at a fraction of their face value, and then used litigation to try to force Argentina to pay 100 cents on the dollar.

Americans have seen how financial firms put their own interests ahead of those of the country – and the world. The vulture funds have raised greed to a new level.

Their litigation strategy took advantage of a standard contractual clause (called pari passu) intended to ensure that all claimants are treated equally. Incredibly, the US Court of Appeals for the Second Circuit in New York decided that this meant that if Argentina paid in full what it owed those who had accepted debt restructuring, it had to pay in full what it owed to the vultures.

If this principle prevails, no one would ever accept debt restructuring. There would never be a fresh start – with all of the unpleasant consequences that this implies.

In debt crises, blame tends to fall on the debtors. They borrowed too much. But the creditors are equally to blame – they lent too much and imprudently. Indeed, lenders are supposed to be experts on risk management and assessment, and in that sense, the onus should be on them. The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

The repercussions of this miscarriage of justice may be felt for a long time. After all, what developing country with its citizens' long-term interests in mind will be prepared to issue bonds through the US financial system, when America's courts – as so many other parts of its political system – seem to allow financial interests to trump the public interest?

Countries would be well advised not to include pari passu clauses in future debt contracts, at least without specifying more fully what is intended. Such contracts should also include collective-action clauses, which make it impossible for vulture funds to hold up debt restructuring. When a sufficient proportion of creditors agree to a restructuring plan (in the case of Argentina, the holders of more than 90% of the country's debt did), the others can be forced to go along.

The fact that the International Monetary Fund, the US Department of Justice, and anti-poverty NGOs all joined in opposing the vulture funds is revealing. But so, too, is the court's decision, which evidently assigned little weight to their arguments.

For those in developing and emerging-market countries who harbor grievances against the advanced countries, there is now one more reason for discontent with a brand of globalization that has been managed to serve rich countries' interests (especially their financial sectors' interests).

In the aftermath of the global financial crisis, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System urged that we design an efficient and fair system for the restructuring of sovereign debt. The US court's tendentious, economically dangerous ruling shows why we need such a system now.