In today's corporations the buck never stops. Welcome to the age of irresponsibility

Our largest companies have become so complex that no one's expected to fully know what's going on. Yet the rewards are bigger than ever

• 
• • Ha-Joon Chang
  • The Guardian, Tuesday 9 July 2013 21.30 BST

Hon Ha's Foxconn plant in Shenzhen, China, in 2010. That year there were 12 suicides in the 300,000-strong workforce. 'The top managers of Apple escaped blame because these deaths happened in ­factories in another country (China) owned by a company from yet another country (Hon Hai, the Taiwanese ­multinational).' Photograph: Qilai Shen

George Osborne confirmed on Monday that he would accept the recommendation of Britain's parliamentary commission on banking standards and add to his banking reform bill a new offence of "reckless misconduct in the management of a bank".

That is a bit of a setback for the managerial class, but it still does not sufficiently change the overall picture that it is a great time to be a top manager in the corporate world, especially in the US and Britain.

Not only do they give you a good salary and handsome bonus, but they are really understanding when you fail to live up to expectations. If they want to show you the door in the middle of your term, they will give you millions of dollars, even tens of millions, in "termination payment". Even if you have totally screwed up, the worst that can happen is that they take away your knighthood or make you give up, say, a third of your multimillion-pound pension pot.

Even better, the buck never stops at your desk. It usually stops at the lowest guy in the food chain – a rogue trader or some owner of a two-bit factory in Bangladesh. Occasionally you may have to blame your main supplier, but rarely your own company, and never yourself.

Welcome to the age of irresponsibility.

The largest companies today are so complex that top managers are not even expected to know fully what is really going on in them. These companies have also increasingly outsourced activities to multiple layers of subcontractors in supply chains crisscrossing the globe.

Increasing complexity not only lowers the quality of decisions, as it creates an information overload, but makes it more difficult to pin down responsibilities. A number of recent scandals have brought home this reality.

The multiple suicides of workers in Foxconn factories in China have revealed Victorian labour conditions down the supply chains for the most futuristic Apple products. But the top managers of Apple escaped blame because these deaths happened in factories in another country (China) owned by a company from yet another country (Hon Hai, the Taiwanese multinational).

No one at the top of the big supermarkets took serious responsibility in the horsemeat scandal because, it was accepted, they could not be expected to police supply chains running from Romania through the Netherlands, Cyprus and Luxembourg to France (and that is only one of several chains involved).

The problem is even more serious in the financial sector, which these days deals in assets that involve households (in the case of mortgages), companies and governments all over the world. On top of that these financial assets are combined, sliced and diced many times over, to produce highly complicated "derivative" products. The result is an exponential increase in complexity.

Andy Haldane, executive director of financial stability at the Bank of England, once pointed out that in order to fully understand a CDO2 – one of the more complicated financial derivatives (but not the most complicated) – a prospective investor needs to absorb more than a billion pages of information. I have come across bankers who confessed that they had derivative contracts running to a few hundred pages, which they naturally didn't have time to read.

Given this level of complexity, financial companies have come to rely heavily on countless others – stock analysts, financial journalists, credit-rating agencies, you name it – for information and, more importantly, making judgments. This means that when something goes wrong, they can always blame others: poor people in Florida who bought houses they cannot afford; "irresponsible" foreign governments; misleading foreign stock analysts; and, yes, incompetent credit-rating agencies.

The result is an economic system in which no one in "responsible" positions takes any serious responsibility. Unless radical action is taken, we will see many more financial crises and corporate scandals in the years to come.

The first thing we need is to modernise our sense of crime and punishment. Most of us still instinctively subscribe to the primeval notion of crime as a direct physical act – killing someone, stealing silver. But in the modern economy, with a complex division of labour, indirect non-physical acts can also seriously harm people. If misbehaving financiers and incompetent regulators cause an economic crisis, they can indirectly kill people by subjecting them to unemployment-related stress and by reducing public health expenditure, as shown by books like The Body Politic. We need to accept the seriousness of these "long-distance crimes" and strengthen punishments for them.

More importantly, we need to simplify our economic system so that responsibilities are easier to determine. This is not to say we have to go back to the days of small workshops owned by a single capitalist: increased complexity is inevitable if we are to increase productivity. However, much of the recent rise in complexity has been designed to make money for certain people, at the cost of social productivity. Such socially unproductive complexity needs to be reduced.

Financial derivatives are the most obvious examples. Given their potential to exponentially increase the complexity of the financial system – and thus the degree of irresponsibility within it – we should only allow such products when their creators can prove their productivity and safety, similar to how the drug approval process works.

The negative potential of outsourcing in non-financial industries may not be as great as that of financial derivatives, but the buying companies should be made far more accountable for making their subcontractors comply with rules regarding product safety, working conditions and environmental standards.

Without measures to simplify the system and recalibrate our sense of crime and punishment, the age of irresponsibility will destroy us all.

From coffee shops to airlines, the trend to 'personalise' products only serves to underline how impersonal services have become

OK, this mug's got my name on it – but that doesn't mean Starbucks cares

• 
• • John Harris
  • The Guardian, Monday 27 May 2013

‘Somewhere between Margaret Thatcher and the fall of Lehman Brothers, there were signs of half-decent customer service.' Illustration by Andrzej Krauze

'A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking," said Andy Warhol. "All the Cokes are the same and all the Cokes are good."

Such was the capitalism that was embodied not just by Coca-Cola, but the Ford Motor Company – and named, towards the end of its dominance, "Fordism". Now, though, we are said to like our transactions personalised and touchy feely. Ergo a summer-long promotion titled "Share a Coke", whereby the usual logo has been replaced by 150 first names – from Aaron to Zoe, via Faisal, Josh, Lauren and Saima. That all this rather cuts across the imperious yet egalitarian brand that Warhol so loved does not seem to have occurred to anyone; nor, apparently, has the whole idea's air of awful tweeness (while writing this, I bought my obligatory "John" bottle from Marks & Spencer, and remained unmoved).

At Starbucks, meanwhile, they now insist that your hot caffeine also comes emblazoned with your name – written on a sticker, to be hollered by a barista. This scheme arrived in early 2012, in a similar flurry of faux-enlightened PR: "Have you noticed how everything seems a little impersonal nowadays?" ran the promotional text.

Unlike the Coke wheeze, though, it was also a see-through attempt at damage limitation: six months later, the company's byzantine tax arrangements would be under intense scrutiny. But in the ordinary world, Starbucks was already becoming a byword for sloppiness and mess, not to mention coffee that tastes like the hot milk my nan used to make me circa 1973. As a former 'Bucks addict, my own epiphany came in their branch in Birmingham's Bullring Centre, where the tables were piled high with dirty cups and plates, only two staff seemed to be on duty – and if the place had been an independent business, you would have taken one look and assumed it was rightly headed for the knacker's yard.

Yet Starbucks is still here, making handsome worldwide profits. Yes, after a major reputational wobble, it has nobly offered to throw £20m over two years at Her Majesty's Revenue & Customs. Hosanna! They now shout your name when they hand you your cup of warm milk and a plywood panini. But going to any of its outlets remains a dependably joyless experience, suggestive of something remarkable: the company is not so much too big to fail, as too big to really care. Once enough competitors are out of the way, it seems, modern branding can work magic: providing you avoid killing anyone, that enough people will carry on trudging through your doors, whatever happens

My own recent experience of sclerotic, unresponsive, mind-bogglingly awful treatment runs from Virgin Media (hours waiting on "helplines", which reached an acme of annoyance when I was offered a choice of what music would be played down the phone – by genre), through the train giant First Great Western (frequently late, insane ticket prices) and on to such behemoths as McDonald's (vast queues) and PC World (don't get me started). When it comes to the ubiquitous Amazon, there are once again lines to be drawn from its tax arrangements, through standards of service – I have long given up on its "next day" delivery option – to its predatory behaviour, last seen when it hiked up its fees to independent "marketplace" sellers by up to 70%.

Running through a lot of this, I would imagine, is much the same business model: workforces hacked down to the bare minimum and poorly paid, the apparent belief that if you track your customer's buys via data accumulation and give them what you think they want, more quaint ideas of customer service can be dumped, fast.

To all this, there is an obvious enough response: hasn't a mixture of flimsy "personalisation" and arrogant business–as-usual always been the capitalist way? Perhaps. But somewhere between the arrival of Margaret Thatcher and the fall of Lehman Brothers, there were at least fleeting signs of an embrace of half-decent customer service – as proved by plenty of businesses, not least the big British supermarkets.

Bear with me, please. Though I cannot quite date them, I have clear memories of visiting Tesco, Asda and Sainsbury's, and realising that though they were strangling independent competitors, squeezing producers and offering an illusion of choice under which lay a remarkably Fordist way of operating, their customer service was actually very good. You may recall the dedicated bag-packers, or the staff's breezy openness to being sent to scour the aisles when you reached the checkout and realised you'd forgotten the broccoli .

More often than not, my own supermarket shopping now ends with an exasperated glimpse of gridlocked checkouts, and the usual trudge through the self-service terminals sometimes known as "the fast lane": a con trick that would have caused Marx and Engels to hoot with mirth, whereby the customer now doubles as the worker. I contacted Sainsbury's, Asda and Tesco to ask how many were now in operation, and what the increasing dominance of fast lanes meant. Their replies were uniformly evasive, and the one from Tesco was particularly grim: "We believe in giving our customers choice. Over a third of shoppers choose to use self-service tills, not least because they find them quicker and more convenient. For customers who need assistance, there is always a member of staff on hand." Somewhere in those words is the same arrogance you can taste in your average grande skinny cappuccino and granola bar.

There is, then, a new model of business, which rather puts me in mind of words uttered not by Andy Warhol but the market traders of the West Midlands. "Never make a mug of your punter," they used to say. But that is what modern business does. And strangest of all, contrary to all that stuff about consumer sovereignty, it seems to be not just getting away with it, but prospering.

If everyone did a Worrall Thompson, maybe Tesco wouldn't be too big to fail

Tesco's poor results have led it to review its practices. The self-service tills used by Wozza may be a good place to start

• 
• • Marina Hyde
  • guardian.co.uk, Friday 13 January 2012 21.00 GMT
  • larger | smaller

Illustration by Otto

Sad news for Tesco, which this week discovered an unexpected item in its bagging area. The rogue element has since been identified as "awful Christmas sales and a profits warning", and the company's chief executive Philip Clarke now appears to be having problems removing this item before continuing with Tesco's hitherto unstoppable rise. I do hope he has to wait a long time for assistance.

Britain ceased to be a nation of shopkeepers some time ago, as the local independent stores had the life bled out of them by the supermarket giants. But we're a nation of shoppers, and perhaps this two fingers to the daddy of them all is our retail version of the Arab spring. Watching the suddenly humble Clarke promising to address product quality, customer service and "longstanding business issues" rather put one in mind of a besieged dictator. "Wait!" is the despot's reaction to increasingly volatile protests. "I am literally just about to introduce a raft of democratic reforms!"

It will take rather more than Clarke's needy mea culpa to reverse the perception that Tesco stands for everything that is monolithic, mercilessly expansionist, and machine driven. Tesco is a place that people more principled than myself probably manage to avoid entirely, but into which most of us feel compelled to go fairly frequently because it's nearby, or because it has effectively shut down any alternatives.

For a long time, criticism of it was crushed by that pat little assertion that it was "what the people wanted". Tesco executives and their defenders appeared to be graduates of the Richard Desmond school of debate, which is to paint anyone who questions your methods as snobs or enemies of enterprise. They acted as if everyone criticising Tesco must have the luxury of shopping at Waitrose or M&S, when this week's evidence has revealed that they might just as easily get their goods at Aldi or Lidl.

Thus the unthinkable has happened. And now that Tesco appears to be not so much what the people want, what precisely does it have going for it?

Its expansion has certainly told us little we did not already know about this septic isle, merely throwing into even sharper relief the iniquities of such institutions as council planning departments. Countless ordinary citizens have tales of their applications to make minuscule home improvements being rejected, while mock Tudor Tesco superstores are waved through with as many clock towers and metal-effect weather vanes as their architects care to spike them with. Since the 90s, 200 have been plonked down like spaceships, pulling customers off high streets with their seemingly irresistible tractor beams. Yet we now discover that these behemoths are among the "less potent" parts of Tesco's enterprise. Whether scarcely 15 years of rapacious profits was worth leaving a blight of potential white elephants scattered across the countryside, only time will show.

But it is in the area of employment, and its effect on customer service, that the Tesco modus operandi has been most pernicious. There are few sights in modern retail more pathetic, in the true sense of that word, than that of the lone, low-paid human charged with overriding technical glitches in the banks of self-service tills that have already claimed the jobs of countless check-out assistants, knowing that they will soon enough claim theirs. (Eighteen months ago, Tesco began trialling a stall with no manned checkouts at all, merely the single overseer.) Given the Japanese government is investing heavily in technology that could provide robot care for the elderly, it seems a likely bet that Tesco hopes one day to have its shelves robotically stacked, and even the automated till supervisors replaced by customer service droids. A similar process of dehumanisation has been afoot in car plants, but few of us have the occasion to pass through those very often. Nowhere is the rise of the machine at the expense of human employment more evident than in supermarkets such as Tesco. It is an everyday dystopia.

What is to be done? Oddly enough, perhaps one mad answer lies in the other Tesco-related story of the week. Just possibly – and obviously entirely unwittingly – shoplifting chef Antony Worrall Thompson has suggested an act of civil disobedience. If a critical mass of shoppers were to decide to do a Wozza for moral reasons, then the robotic scanners would become less economically viable than human checkout workers. Pilfering from Tesco would become a political act. However, if your preference is for grandiose schemes that won't involve accepting a police caution before embarking on psychiatric treatment, perhaps we could get up a campaign for a sort of Tesco Tobin tax, in which some tiny percentage of every penny spent in one of their out-of-town stores would be dedicated to reviving Britain's denuded high streets.

That, of course, is about as likely to happen as one of Tesco's machines accepting you've placed your 25g packet of parsley in the bagging area. Alas, Britain's biggest retailer is such a massive part of our economy that it presumably won't be long before someone is explaining that it is too big to fail, in keeping with the vogue for the most rampant capitalists becoming socialists in their many hours of need.

No Walmart, Please

By Justice Rajindar Sachar (retd)

17 December, 2011
The Tribune, India

Govt’s claim is questionable

If the combined Opposition had sat down for weeks to find an issue to embarrass the UPA government and make it a laughing stock before the whole country, they could not have thought of a better issue than the free gift presented to it initially by the government by insisting that it had decided irrevocably to allow the entry of multi-brand retail super stores like Walmart and then within a few days, with a whimper, withdrawing the proposal.

As it is, even initially this decision defied logic in view of the Punjab and UP elections and known strong views against it of the BJP and the Left. Many states had all the time opposed the entry of Walmart which would affect the lives of millions in the country.

Retail business in India is estimated to be of the order of $ 400 billion, but the share of the corporate sector is only 5 per cent. There are 50 million retailers in India, including hawkers and pavement sellers. This comes to one retailer serving eight Indians. In China, it is one for 100 Chinese. Food is 63 per cent of the retail trade, according to information given by FICCI.

The claim by the government that Walmart intrusion will not result in the closure of small retailers is a deliberate mis-statement. A study done by IOWA State University, US, has shown that in the first decade after Walmart arrived in IOWA the state lost 555 grocery stores, 298 hardware stores, 293 building supply stores, 161 variety stores, 158 women apparels stores and 153 shoe stores, 116 drug stores and 111 men and boys apparels stores. Why would it be different in India with a lesser capacity for resilience by small traders.

The fact is that during 15 years of Walmart entering the market, 31 super market chains sought bankruptcy. Of the 1.6 million employees of Walmart, only 1.2 per cent make a living above the poverty level. The Bureau of Labour Statistics, US, is on record with its conclusion that Walmart’s prices are not lower.

In Thailand, supermarkets led to a 14 per cent reduction in the share of ‘mom and pop’ stores within four years of FDI permission. In India, 33-60 per cent of the traditional fruit and vegetable retailers reported a 15-30 per cent decline in footfalls, a 10-30 per cent fall in sales and a 20-30 per cent decline in incomes across Bangalore, Ahmedabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket-penetrated cities in India.

The average size of the Walmart stores in the US is about 10,800 sq feet employing only 225 people. In that view, is not the government’s claim of an increase in employment unbelievable? The government’s attempt is to soften the blow by emphasising that Walmart is being allowed only 51 per cent in investment up to $100 million. Prima facie, the argument may seem attractive. But is the Walmart management so stupid that when its present turnover of retail is $ 400 billion it would settle for such a small gain? No, obviously, Walmart is proceeding on the maxim of the camel being allowed to put its head inside a tent and the occupant finding thereafter that he is being driven out of it by the camel occupying the whole of the tent space. One may substitute Walmart for the camel to understand the danger to our millions of retailers.

The tongue-in-cheek argument by the government that allowing Walmart to set up its business in India would lead to a fall in prices and an increase in employment is unproven. A 2004 report of a committee of the US House of Representatives concluded that “Walmart’s success has meant downward pressures on wages and benefits, rampant violations of basic workers’ rights and threats to the standard of living in communities across the country.” By what logic does the government say that in India the effect will be the opposite? The only explanation could be that it is a deliberate mis-statement to help multinationals.

Similar anti-consumer effects have happened by the working of another supermarket enterprise, Tesco of Britain.

A study carried out by Sunday Times shows that Tesco has almost total control of the food market of 108 of Britain’s coastal areas — 7.4 per cent of the country. The super stores like Walmart and Tesco have a compulsion to move out of England and the US because their markets are saturated. These companies are looking for countries with a larger population and low supermarket presence, according to David Hogues, Professor of Agri-Business at the Centre for Food Chain Research at Imperial College, London. They have got nowhere else to go and their home markets are already full. Similarly, a professor of Michigan State University has pointed out that retail revolution causes serious risks for developing country farmers who traditionally supply to the local street market.

In Thailand, Tesco controls more than half the Thai market. Though Tesco, when it moved into Thailand, promised to employ local people but it is openly being accused of indulging in unfair trading practices. The claim that these supermarket dealers will buy local products is belied because in a case filed against Tesco in July 2002 the court found it charging slotting fees to carry manufacturers’ products, charging entry fee of suppliers. In Bangkok, grocery stores’ sales declined by more than half since Tesco opened a store only four years ago.

In Malaysia, seeing the damage done by Tesco since January 2004, a freeze on the building of any new supermarket was imposed in three major cities and this when Tesco had only gone to Malaysia in 2002.

It is worth noting that 92 per cent of everything Walmart sells comes from Chinese-owned companies. The Indian market is already flooded with Chinese goods which are capturing the market with cheap offers, and traders are already crying foul because of the deplorable labour practices adopted by China. Can, in all fairness, the Indian government still persist in keeping the retail market open to foreign enterprises and thus endangering the earnings and occupations of millions of our countrymen and women?

The writer is a former Chief Justice of the High Court of Delhi