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Why we trust fraudsters

From Enron to Wirecard, elaborate scams can remain undetected long after the warning signs appear. What are investors missing? Tom Straw in The FT

In March 2020, the star English fund manager Alexander Darwall spoke admiringly to the chief executive at one of the largest investments in his award-winning portfolio. “The last set of numbers are fantastic,” he gushed, adding: “This is a crazy situation. People should be looking at your company and saying ‘wow’. I’m delighted, I’m delighted to be a shareholder.” 

Seated in a swivel chair at his personal conference table, Markus Braun sounded relaxed. The billionaire technologist was dressed all in black, a turtleneck under his suit like some distant Austrian cousin of the late Steve Jobs, and he had little to say about swirling allegations the company had faked its profits for years. “I am very optimistic,” he offered, when Darwall voiced his hope that the controversy would amount to nothing more than growing pains at a fast expanding company. 

“I haven’t sold a single share,” Darwall assured him, doing most of the talking, while also acknowledging how precarious the situation was. The Financial Times had reported in October 2019 that large portions of Wirecard’s sales and profits were fraudulent, and published internal company documents stuffed with the names of fake clients. A six-month “special audit” by the accounting firm KPMG was approaching completion. “If it shows anything that senior people misled, that would be a disaster,” Darwall said. 

His assessment proved correct. Three months later the company collapsed like a house of cards, punctuated by a final lie: that €1.9bn of its cash was “missing”. In fact, the money never existed and Wirecard had for years relied on a fraud that was almost farcical in its simplicity: a few friends of the company claimed to manage huge amounts of business for Wirecard, with all the vast profits from these partners said to be collected in special bank accounts overseen by a Manila-based lawyer with a YouTube following. Braun, who claims to be a victim of a protégé with security services connections who masterminded the scheme and then absconded to Belarus, faces a trial this autumn alongside two subordinates that will examine how the final years of the fraud were accomplished. 

Left behind in the ashes, however, is a much larger question, one which haunts all victims of such scams: how on earth did they get away with it for so long? Wirecard faces serious questions about the integrity of its accounts since at least 2010. Estimates for losses run to more than €20bn, never mind the reputation of Frankfurt as a financial centre. Why did so many inside and outside the company — a long list of investors, bankers, regulators, prosecutors, auditors and analysts — look at the evidence that Wirecard was too good to be true and decide to trust Braun? 

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In 2019 I worked with whistleblowers to expose Wirecard, using internal documents to show the true source of its spellbinding growth in sales and profit. As I faced Twitter vitriol and accusations I was corrupt, the retired American short-seller Marc Cohodes regularly rang me from wine country on the US west coast to deliver pep talks and describe his own attempts to persuade German journalists to see Wirecard’s true colours. “Keep going Dan. I always say, ‘there’s never just one cockroach in the kitchen’.” 

He was right on that point: find one lie and another soon follows. But short-sellers who search for overvalued companies to bet against are unusual, because they go looking for fraud and skulduggery. Most investors are not prosecutors fitting facts into a pattern of guilt: they don’t see a cockroach at all. 

Think of Elizabeth Holmes, another aficionado of the black turtleneck, who persuaded a group of experts and well-known investors to back or advise her company, Theranos, based on the claim it had technology able to deliver medical results from an improbably small pinprick of blood. The involvement of reputable people and institutions — including retired general James Mattis, former secretary of state Henry Kissinger and former Wells Fargo chief executive Richard Kovacevich as board members — seemed to confirm that all was well. 

Another problem is that complex frauds have a dark magic that is different to, say, “Count” Victor Lustig personally persuading two scrap metal dealers he could sell them a decaying Eiffel Tower in 1925. As Dan Davies wrote in his history of financial scams, Lying for Money, “the way in which most white-collar crime works is by manipulating institutional psychology. That means creating something that looks as much as possible like a normal set of transactions. The drama comes much later, when it all unwinds.”  

What such frauds exploit is the highly valuable character of trust in modern economies. We go through life assuming the businesses we encounter are real, confident that there are institutions and processes in place to check that food standards are met or accounts are prepared correctly. Horse meat smugglers, Enron and Wirecard all abused trust in complex systems as a whole. To doubt them was to doubt the entire structure, which is what makes their impact so insidious; frauds degrade faith in the whole system. 

Trust means not wasting time on pointless checks. Most deceptions would generally have been caught early on by basic due diligence, “but nobody does confirm the facts. There are just too bloody many of them”, wrote Davies. It makes as much sense for a banker to visit every outpost of a company requiring a loan as it would for the buyer of a pint of milk to inquire after the health of the cow. For instance, by the time John Paulson, one of the world’s most famous and successful hedge fund managers, became the largest shareholder in Canadian-listed Sino Forest, its shares had traded for 15 years. Until the group’s 2011 collapse, few thought of travelling to China to see if its woodlands were there. 

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Yet what stands out in the case of Wirecard are the many attempts to check the actual facts. In 2015 a young American investigator, Susannah Kroeber, tried to knock on the doors at several remote Wirecard locations. Between 2010 and 2015 the company claimed to have grown in a series of leaps and bounds by buying businesses all over Asia for tens of millions of euros apiece. In Laos she found nothing at all, in Cambodia only traces. Wirecard’s reception area in Vietnam was like a school lunchroom; the only furniture was a picnic table for six and an open bicycle lock hung from one of the internal doors, a common security measure usually removed at a business expecting visitors. The inside was dim, with only a handful of people visible and many desks empty. She knew something wasn’t right, but she also told me that while she went half mad looking for non-existent addresses on heat-baked Southeast Asian dirt roads, she had an epiphany: “Who in their right mind would go to these lengths just to check out a stock investment?” 

Even when Kroeber’s snapshots of empty offices were gathered into a report for her employer, J Capital Research, and presented to Wirecard investors, the response reflected preconceived expectations: these are reputable people, EY is a good auditor, why would they be lying? The short seller Leo Perry described attending an investor meeting where the report was discussed. A French fund manager responded by reporting his own due diligence. He’d asked his secretary to call Wirecard’s Singapore office, the site of its Asian headquarters, and could happily report that someone there had picked up the phone. 

The shareholders reacted at an emotional level, showing how fraud exploits human behaviour. “When you’re invested in the success of something, you want to see it be the best it can be, you don’t pay attention to the finer details that are inconsistent”, says Martina Dove, author of The Psychology of Fraud, Persuasion and Scam Techniques. She adds that social proof and deference to authority, such as expert accounting firms, were powerful forces when used to spread the lies of crooks: “If a friend recommends a builder, you trust that builder because you trust your friend.” 

Wirecard’s response, in addition to taking analysts on a tour of hastily well-staffed offices in Asia, was to drape itself in complexity. Like WeWork, the office space provider that presented itself as a technology company (and which wasn’t accused of fraud), Wirecard waved a wand of innovation to make an ordinary business appear extraordinary. 

At heart, Wirecard’s legitimate operations processed credit and debit card payments for retailers all over the world. It was a competitive field with many rivals, but Wirecard claimed to have become a European PayPal and more, outpacing the competition with profit margins few could match. Wirecard was “a technology company with a bank as a daughter”, Braun said, one using artificial intelligence and cutting-edge security. As the share price rose, so did Braun’s standing as a technologist who heralded the arrival of a cashless society. Who were mere investors to suggest that the results of this whirligig, with operations in 40 countries, were too good to be true? 

It seems to me Wirecard used a similar tactic to the founder of software group Autonomy, Mike Lynch, who charged that critics simply didn’t understand the business. (Lynch has lost a civil fraud trial relating to the $11bn sale of the group, denied any wrongdoing, said he will appeal, and is fighting extradition to the US to face fraud charges. Autonomy’s former CFO was convicted of fraud in separate American proceedings.) 

When this publication presented internal documents describing a book cooking operation in Singapore, Wirecard focused on the amounts at stake, which were initially small, rather than the unpunished practices of forgery and money laundering, which were damning. 

Then there was the thrall of German officials. Three times, in 2008, 2017, and 2019, the financial market regulator BaFin publicly investigated critics of Wirecard, taken by observers as a signal of support. Indeed, BaFin fell for the big lie when faced with an unenviable choice of circumstances: either foreign journalists and speculators were conspiring to attack Germany’s new technology champion using the pages of a prominent newspaper; or senior executives at a DAX 30 company were lying to prosecutors, as well as some of Germany’s most prestigious banks and investment houses. Acting on a claim by Wirecard that traders knew about an FT story before publication, regulators suspended short selling of the stock to protect the integrity of financial markets. 

Proximity to the subject won out, but the German authorities were hardly the first to fail in this way. Their US counterparts ignored the urging of Harry Markopolos to investigate the Ponzi schemer Bernard Madoff, a former chairman of the Nasdaq whose imaginary $65bn fund sent out account statements run off a dot matrix printer. 

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For some long-term investors, to doubt Wirecard was surely to doubt themselves. Darwall first invested in 2007, when the share price was around €9. As it rose more than tenfold, his investment prowess was recognised accordingly, attracting money to the funds he ran for Jupiter Asset Management, and fame. He knew the Wirecard staff, they had provided advice on taking payments for his wife’s holiday rental. Naturally he trusted Braun. 

Darwall did not respond to requests for comment made to his firm, Devon Equity Management. 

In the buildings beyond the shades of Braun’s office, staff rationalised what didn’t fit. Wirecard was a tech company, yet in early 2016 it suffered a tech disaster. On a quiet Saturday afternoon, running down a list of routine maintenance, a tech guy made a typo. He entered the wrong command when decommissioning a Linux server. Instead of taking out the one machine, he watched with rising panic as it killed all of them, pulling the plug on almost the entire company’s operations without warning. 

Customers were in the dark, as email was offline and Wirecard had no weekend helpline, and it took days for services to recover. Following the incident, a small but notable proportion of clients left and new business was put on hold as teams placated those they already had, staff recalled. Yet the pace of growth in the published numbers remained strong. 

Martin Osterloh, a salesman at Wirecard for 15 years, put the mismatch between claims and capabilities down to spin. Only after the fall was the extent of Wirecard’s hackers, private detectives, intimidation and legal threats exposed to the light. Haphazard lines of communication, disorganisation and poor record keeping created excuses for middle-ranking Wirecard staff and its supervisory board, stories to tell themselves about a failure to integrate and start-up’s culture of experimentation. 

It was perhaps not as hard to believe as we might think. Facebook, which has probed the legal boundaries of surveillance capitalism, famously encouraged staff to “move fast and break things”. Business questions often shade grey before they turn black. As Andrew Fastow said of his own career as a fraudster, “I wasn’t the chief finance officer at Enron, I was the chief loophole officer.” 

Braun’s protégé was chief operating officer Jan Marsalek, a mercurial Austrian who constantly travelled and struck deals, with no real team to speak of. Boasting that he only slept “in the air”, he would appear at headquarters from one flight with a copy of Sun-Tzu’s The Art of War tucked under an arm, then leave a few hours later for the next. Questions were met with a shrug, that strange arrangements reflected Marsalek’s “chaotic genius”. As scrutiny intensified in the final 18 months, the fraudulent imitation shifted to problem solving, allowing board members and staff to think they were engaged in procedures to improve governance. 

After the collapse I shared pretzels with Osterloh on a snowy day in Munich and he seemed embarrassed by events. He and thousands of others had worked on a real business, until they were summarily fired and learned it lost money hand over fist. Osterloh spoke for many when he said: “I’m like the idiot guy in a movie, I got to meet all these guys. The question arises, why were we so naive? And I can’t really answer that question.”  

A women led war on Russia: The weaponisation of finance

Valentina Pop, Sam Fleming and James Politi in The FT

It was the third day of the war in Ukraine, and on the 13th floor of the European Commission’s headquarters Ursula von der Leyen had hit an obstacle. 

The commission president had spent the entire Saturday working the phones in her office in Brussels, seeking consensus among western governments for the most far-reaching and punishing set of financial and economic sanctions ever levelled at an adversary. 

With Russia seemingly intent on a rapid occupation of Ukraine, emotions were running high. During a video call with EU leaders on February 24, the day the invasion began, Volodymyr Zelensky, the Ukrainian president, warned: “I might not see you again because I’m next on the list.” 

A deal was close but, in Washington, Treasury secretary Janet Yellen was still reviewing the details of the most dramatic and market-sensitive measure — sanctioning the Russian central bank itself. The US had been the driving force behind the sanctions push but, as Yellen pored over the fine print, the Europeans were anxious to push the plans over the finishing line. 

Von der Leyen called Mario Draghi, Italian prime minister, and asked him to thrash the details out directly with Yellen. “We were all waiting around, asking, ‘What’s taking so long?’” recalls an EU official. “Then the answer came: Draghi has to work his magic on Yellen.” 

Yellen, who used to chair the US Federal Reserve, and Draghi, a former head of the European Central Bank, are veterans of a series of dramatic crises — from the 2008-09 financial collapse to the euro crisis. All the while, they have exuded calm and stability to nervous financial markets. 

But in this case, the plan agreed by Yellen and Draghi to freeze a large part of Moscow’s $643bn of foreign currency reserves was something very different: they were effectively declaring financial war on Russia. 

The stated intention of the sanctions is to significantly damage the Russian economy. Or as one senior US official put it later that Saturday night after the measures were announced, the sanctions would push the Russian currency “into freefall”. 

This is a very new kind of war — the weaponisation of the US dollar and other western currencies to punish their adversaries. 

It is an approach to conflict two decades in the making. As voters in the US have tired of military interventions and the so-called “endless wars”, financial warfare has partly filled the gap. In the absence of an obvious military or diplomatic option, sanctions — and increasingly financial sanctions — have become the national security policy of choice. 

“This is full-on shock and awe,” says Juan Zarate, a former senior White House official who helped devise the financial sanctions America has developed over the past 20 years. “It’s about as aggressive an unplugging of the Russian financial and commercial system as you can imagine.” 

The weaponisation of finance has profound implications for the future of international politics and economics. Many of the basic assumptions about the post cold war era are being turned on their head. Globalisation was once sold as a barrier to conflict, a web of dependencies that would bring former foes ever closer together. Instead, it has become a new battleground. 

The potency of financial sanctions derives from the omnipresence of the US dollar. It is the most used currency for trade and financial transactions — with a US bank often involved. America’s capital markets are the deepest in the world, and US Treasury bonds act as a backstop to the global financial system. 

As a result, it is very hard for financial institutions, central banks and even many companies to operate if they are cut off from the US dollar and the American financial system. Add in the euro, which is the second most held currency in central bank reserves, as well as sterling, the yen and the Swiss franc, and the impact of such sanctions is even more chilling. 

The US has sanctioned central banks before — North Korea, Iran and Venezuela — but they were largely isolated from global commerce. The sanctions on Russia’s central bank are the first time this weapon has been used against a major economy and the first time as part of a war — especially a conflict involving one of the leading nuclear powers. 

Of course, there are huge risks in such an approach. The central bank sanctions could prompt a backlash against the dollar’s dominance in global finance. In the five weeks since the measures were first imposed, the Russian rouble has recovered much of the ground it initially lost and officials in Moscow claim they will find ways around the sanctions. 

Whatever the result, the moves to freeze Russia’s reserves marks a historic shift in the conduct of foreign policy. “These economic sanctions are a new kind of economic statecraft with the power to inflict damage that rivals military might,” US President Joe Biden said in a speech in Warsaw in late March. The measures were “sapping Russian strength, its ability to replenish its military, and its ability to project power”. 

Global financial police 

Like so much else in American life, the new era of financial warfare began on 9/11. In the aftermath of the terror attacks, the US invaded Afghanistan, moved on to Iraq to topple Saddam Hussein and used drones to kill alleged terrorists on three continents. But with much less scrutiny and fanfare, it also developed the powers to act as the global financial police. 

Within weeks of the attacks on New York and Washington, George W Bush pledged to “starve the terrorists of funding”. The Patriot Act, the controversial law, which provided the basis for the Bush administration’s use of surveillance and indefinite detention, also gave the Treasury department the power to effectively cut off any financial institution involved in money laundering from the US financial system. 

By coincidence, the first country to be threatened under this law was Ukraine, which the Treasury warned in 2002 risked having its banks compromised by Russian organised crime. Shortly after, Ukraine passed a new law to prevent money laundering. 

Treasury officials also negotiated to gain access to data about suspected terrorists from Swift, the Belgium-based messaging system that is the switchboard for international financial transactions — the first step in an expanded network of intelligence on money moving around the world. 

The financial toolkit used to go after al-Qaeda’s money was soon applied to a much bigger target — Iran and its nuclear programme. 

Stuart Levey, who had been appointed as the Treasury’s first under-secretary of terrorism and financial intelligence, remembers hearing Bush complain that all the conventional trade sanctions on Iran had already been imposed, leaving the US without leverage. “I pulled my team together and said: ‘We haven’t begun to use these tools, let’s give him something he can use with Iran’,” he says. 

The US sought to squeeze Iran’s access to the international financial system. Levey and other officials would visit European banks and quietly inform them about accounts with links to the Iranian regime. European governments hated that an American official was effectively telling their banks how to do business, but no one wanted to fall foul of the US Treasury. 

During the Obama administration, when the White House was facing pressure to take military action against its nuclear installations, the US imposed sanctions on Iran’s central bank — the final stage in a campaign to strangle its economy. 

Levey argues that financial sanctions not only put pressure on Iran to negotiate the 2015 deal on its nuclear programme but also cleared a path for this year’s action on Russia. 

“On Iran, we were using machetes to cut down the path step by step, but now people are able to go down it very quickly,” he says. “Going after the central bank of a country like Russia is about as powerful a step as you can take in the category of financial sector sanctions.” 

Central banks do not just print money and monitor the banking system, they can also provide a vital economic buffer in a crisis — defending a currency or paying for essential imports. 

Russia’s reserves increased after its 2014 annexation of Crimea as it sought insurance against future US sanctions — earning the term “Fortress Russia”. China’s large holdings of US Treasury bonds were once seen as a potential source of geopolitical leverage. “How do you deal toughly with your banker?” then secretary of state Hillary Clinton asked in 2009. 

But the western sanctions on Russia’s central bank have undercut its ability to support the economy. According to Official Monetary and Financial Institutions Forum, a central bank research and advisory group, around two-thirds of Russia’s reserves are likely to have been neutralised. 

“The action against the central bank is rather like if you have savings to be used in case of emergency and when the emergency arrives the bank says you can’t take them out,” says a senior European economic policy official. 

A revived transatlantic alliance 

There is an irony behind a joint package of American and EU financial sanctions: European leaders have spent much of the past five decades criticising the outsized influence of the US currency. 

One of the striking features of the war in Ukraine is the way Europe has worked so closely with the US. Sanctions planning began in November when western intelligence picked up strong evidence that Vladimir Putin’s forces were building up along the Ukrainian border. 

Biden asked Yellen to draw up plans for what measures could be taken to respond to an invasion. From that moment the US began coordinating with the EU, UK and others. A senior state department official says that between then and the February 24 invasion, top Biden administration officials spent “an average of 10 to 15 hours a week on secure calls or video conferences with the EU and member states” to co-ordinate the sanctions. 

In Washington, the sanctions plans were led by Daleep Singh, a former New York Fed official now deputy national security adviser for international economics at the White House, and Wally Adeyemo, a former BlackRock executive serving as deputy Treasury secretary. Both had worked in the Obama administration when the US and Europe had disagreed about how to respond to Russia’s annexation of Crimea. 

The EU was also desperate to avoid a more recent embarrassing precedent regarding Belarus sanctions, which ended up much weaker as countries sought carve-outs for their industries. So in a departure from previous practices, the EU effort was co-ordinated directly from von der Leyen’s office through Bjoern Seibert, her chief of staff. 

“Seibert was key, he was the only one having the overview on the EU side and in constant contact with the US on this,” recalls an EU diplomat. 

A senior state department official says Germany’s decision to scrap the Nord Stream 2 pipeline after the invasion was crucial in bringing hesitant Europeans along. It was “a very important signal to other Europeans that sacred cows would have to be sacrificed,” says the official. 

The other central figure was Canada’s finance minister Chrystia Freeland, who is of Ukrainian descent and has been in close contact with officials in Kyiv. Just a few hours after Russian tanks started rolling into Ukraine, Freeland sent a written proposal to both the US Treasury and the state department with a specific plan to punish the Russian central bank, a western official says. That day, Justin Trudeau, Canada’s prime minister, raised the idea at a G7 leaders emergency summit. And Freeland issued an emotional message to the Ukrainian community in Canada. “Now is the time to remember,” she said, before switching to Ukrainian, “Ukraine is not yet dead.” 

The threat of economic pain may not have deterred Putin from invading, but western leaders believe the financial sanctions that have been put in place since the invasion are evidence of a revitalised transatlantic alliance — and a rebuke to the idea that democracies are too slow and hesitant. 

“We have never had in the history of the European Union such close contacts with the Americans on a security issue as we have now — it’s really unprecedented,” says one senior EU official. 

Draghi takes the initiative 

In the end, the move against Russia’s central bank was the product of 72 hours of intensive diplomacy that mixed high emotion and technical detail. 

The idea had not been the priority of prewar planning, which focused more on which Russian banks to cut off from Swift. But the ferocity of Russia’s invasion brought the most aggressive sanctions options to the fore. 

“The horror of Russia’s unacceptable, unjustified, and unlawful invasion of Ukraine and targeting of civilians — that really unlocked our ability to take further steps,” says one senior state department official. 

In Europe, it was Draghi who pushed the idea of sanctioning the central bank at the emergency EU summit on the night of the invasion. Italy, a big importer of Russian gas, had often been hesitant in the past about sanctions. But the Italian leader argued that Russia’s stockpile of reserves could be used to cushion the blow of other sanctions, according to one EU official. 

“To counter that . . . you need to freeze the assets,” the official says. 

The last-minute nature of discussions was critical to ensure Moscow was caught off-guard: given enough notice, Moscow could have started moving some of its reserves into other currencies. An EU official says that given reports Moscow had started placing orders, the measures needed to be ready by the time the markets opened on Monday so that banks would not process any trades. 

“We took the Russians by surprise — they didn’t pick up on it until too late,” the official says. 

According to Adeyemo at the US Treasury: “We were in a place where we knew they really couldn’t find another convertible currency that they could use and try to subvert this.” 

The last-minute talks caught some western allies off guard — forcing them to scramble to implement the measures in time. In the UK, they triggered a frantic weekend effort by British Treasury officials to finalise details before the markets opened in London at 7am on Monday. Chancellor Rishi Sunak communicated by WhatsApp with officials through the night, with the work only concluding at 4am. 

No clear political strategy 

Yet if the western response has been defined by unity, there are already signs of potential faultlines — especially given the new claims about war crimes, which have prompted calls for further sanctions. 

Western governments have not defined what Russia would need to do for sanctions to be lifted, leaving some of the difficult questions about the political strategy for a later date. Is the objective to inflict short-term pain on Russia to inhibit the war effort or long-term containment? 

Even when they work, sanctions take a long time to have an impact. However, the economic pain from the crisis is being unevenly felt, with Europe suffering a much bigger blow than the US. 

Europe has so far been reluctant to impose an oil and gas embargo, given the bloc’s high dependence on Russian energy imports. But since the atrocities allegedly perpetrated by Russian soldiers in the suburbs of Kyiv have been revealed, a fresh round of EU sanctions was announced on Tuesday that will include a ban on Russian coal imports and, at a later stage, possibly also oil. A decision among the 27 capitals is expected later this week. 

The other key factor is whether the west can win the narrative contest over sanctions — both in Russia and in the rest of the world. 

Speaking in 2019, Singh, the White House official, admitted that sanctions imposed on Russia after Crimea were not as effective as hoped because Russian propaganda succeeded in blaming the west for economic problems. 

“Our inability to counter Putin’s scapegoating,” he told Congress, “gave the regime far more staying power than it would have enjoyed otherwise.” 

In the coming weeks and months, Putin will try to convince a Russian population undergoing economic hardship that it is the victim, not the aggressor. 

To China, India, Brazil and the other countries which might potentially help him evade the western sanctions, Putin will pose a deeper question about the role of the US dollar in the global economy: can you still trust America?

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Time spent in the pub is a wise investment

Sarah O'Connor in The FT

When I joined the Financial Times as a trainee in 2007, I spent a lot of time learning about credit default swaps and a similar amount of time in the pub. The CDS knowledge proved useful in the ensuing financial crisis, but 13 years later, I am glad of the hours spent in the pub too. 

It was how I got to know my colleagues, who taught me the FT’s folklore, its funny anecdotes and its subtle power dynamics. I just thought I was having fun, but an economist would have said I was building “social capital”, defined by the UK’s statistical office as “the extent and nature of our connections with others and the collective attitudes and behaviours between people that support a well-functioning, close-knit society”. 

Social capital is a fuzzy concept and hard to measure. But Covid-19 has made us think about who has it, who doesn’t, how we build it and how we lose it. 

I was near the end of my maternity leave when the pandemic started, so it has now been almost 18 months since I last worked in the office. I’m grateful every day for my store of social capital, which has helped me to stay connected, though I do get a twinge of anxiety with every new byline I don’t recognise. 

It has been much tougher for people starting out this year. If it is hard to maintain relationships via video calls, it is harder still to build them from scratch. I spoke recently to some senior accountants about their new crop of trainees. They were learning their trade, but there was no opportunity for general chit-chat before and after virtual meetings, and the trainees seemed to find it harder to ask “daft questions” in video calls than when “sitting round a table with a packet of biscuits”. 

Next year, employers will have to think creatively about how to help new employees “catch up” on forming social capital, especially in a world of “hybrid” work where people stay at home for several days a week. 

Inadequate social capital is a problem for organisations as well as individuals. Research suggests that social capital boosts efficiency by reducing transaction and monitoring costs. In other words, “society wastes resources when people distrust and are dishonest with each other”, according to Dimitri Zenghelis, leader of the Wealth Economy project at Cambridge university, which explores social and natural capital.  

I am often struck by the inefficiencies of distrustful workplaces. Companies using screenshot and mouse-tracking software can end up in a cat-and-mouse game with resentful workers using tech workarounds of their own. Employers who doubt the honesty and motivation of their staff compel line managers to hold “return to work” meetings with employees after every sickness absence, even of only a day. Factories and warehouses often have long queues at shift changes as staff go through scanners to prove they are not stealing. Covid-19 might push some employers further in this direction, particularly if they decide to use more offshore workers with whom they have no prior relationship. 

On the other hand, this year’s forced experiment with homeworking has made some employers realise their staff can be trusted to work productively without oversight. The key will be to hold on to that trust, and the efficiencies it brings, rather than slip back into old habits of micromanagement. 

Social capital matters for economies, too. For his book Extreme Economies, economist Richard Davies travelled to nine unusual places, from a refugee camp in Jordan to an Indonesian town destroyed by the 2004 tsunami. He was struck by how societies with higher social capital were more resilient when disaster struck. In Glasgow, by contrast, he argued that the replacement of tenement homes with tower blocks had dismantled the social capital of the people who lived there, making it harder for them to cope with economic decline. 

For both individuals and economies, social capital is an important buffer against unexpected hardships. Yet in the UK, where the Office for National Statistics has been trying to track various indicators of social capital over time, the trend has not been good. We exchanged favours or stopped to talk with our neighbours less often in 2017/18 than we did in 2011/12. Our sense of belonging to our neighbourhoods also fell. Parents became less likely to regularly give help to, and receive help from, their adult children. 

The pandemic has strained our ability to maintain the bonds between us, but it has also reminded us just how important they are. Any plan to “build back better” when the crisis ends should include plenty of time in the pub.

Javed Akhtar on Atheism

Why can’t we agree on what’s true anymore?

It’s not about foreign trolls, filter bubbles or fake news. Technology encourages us to believe we can all have first-hand access to the ‘real’ facts – and now we can’t stop fighting about it. By William Davies in The Guardian 


We live in a time of political fury and hardening cultural divides. But if there is one thing on which virtually everyone is agreed, it is that the news and information we receive is biased. Every second of every day, someone is complaining about bias, in everything from the latest movie reviews to sports commentary to the BBC’s coverage of Brexit. These complaints and controversies take up a growing share of public discussion.

Much of the outrage that floods social media, occasionally leaking into opinion columns and broadcast interviews, is not simply a reaction to events themselves, but to the way in which they are reported and framed. The “mainstream media” is the principle focal point for this anger. Journalists and broadcasters who purport to be neutral are a constant object of scrutiny and derision, whenever they appear to let their personal views slip. The work of journalists involves an increasing amount of unscripted, real-time discussion, which provides an occasionally troubling window into their thinking.

But this is not simply an anti-journalist sentiment. A similar fury can just as easily descend on a civil servant or independent expert whenever their veneer of neutrality seems to crack, apparently revealing prejudices underneath. Sometimes a report or claim is dismissed as biased or inaccurate for the simple reason that it is unwelcome: to a Brexiter, every bad economic forecast is just another case of the so-called project fear. A sense that the game is rigged now fuels public debate.

This mentality now spans the entire political spectrum and pervades societies around the world. A recent survey found that the majority of people globally believe their society is broken and their economy is rigged. Both the left and the right feel misrepresented and misunderstood by political institutions and the media, but the anger is shared by many in the liberal centre, who believe that populists have gamed the system to harvest more attention than they deserve. Outrage with “mainstream” institutions has become a mass sentiment.

This spirit of indignation was once the natural property of the left, which has long resented the establishment bias of the press. But in the present culture war, the right points to universities, the BBC and civil service as institutions that twist our basic understanding of reality to their own ends. Everyone can point to evidence that justifies their outrage. This arms race in cultural analysis is unwinnable.

This is not as simple as distrust. The appearance of digital platforms, smartphones and the ubiquitous surveillance they enable has ushered in a new public mood that is instinctively suspicious of anyone claiming to describe reality in a fair and objective fashion. It is a mindset that begins with legitimate curiosity about what motivates a given media story, but which ends in a Trumpian refusal to accept any mainstream or official account of the world. We can all probably locate ourselves somewhere on this spectrum, between the curiosity of the engaged citizen and the corrosive cynicism of the climate denier. The question is whether this mentality is doing us any good, either individually or collectively.

Public life has become like a play whose audience is unwilling to suspend disbelief. Any utterance by a public figure can be unpicked in search of its ulterior motive. As cynicism grows, even judges, the supposedly neutral upholders of the law, are publicly accused of personal bias. Once doubt descends on public life, people become increasingly dependent on their own experiences and their own beliefs about how the world really works. One effect of this is that facts no longer seem to matter (the phenomenon misleadingly dubbed “post-truth”). But the crisis of democracy and of truth are one and the same: individuals are increasingly suspicious of the “official” stories they are being told, and expect to witness things for themselves.

On one level, heightened scepticism towards the establishment is a welcome development. A more media-literate and critical citizenry ought to be less easy for the powerful to manipulate. It may even represent a victory for the type of cultural critique pioneered by intellectuals such as Pierre Bourdieu and Stuart Hall in the 1970s and 80s, revealing the injustices embedded in everyday cultural expressions and interactions.

But it is possible to have too much scepticism. How exactly do we distinguish this critical mentality from that of the conspiracy theorist, who is convinced that they alone have seen through the official version of events? Or to turn the question around, how might it be possible to recognise the most flagrant cases of bias in the behaviour of reporters and experts, but nevertheless to accept that what they say is often a reasonable depiction of the world?

It is tempting to blame the internet, populists or foreign trolls for flooding our otherwise rational society with lies. But this underestimates the scale of the technological and philosophical transformations that are under way. The single biggest change in our public sphere is that we now have an unimaginable excess of news and content, where once we had scarcity. Suddenly, the analogue channels and professions we depended on for our knowledge of the world have come to seem partial, slow and dispensable.

And yet, contrary to initial hype surrounding big data, the explosion of information available to us is making it harder, not easier, to achieve consensus on truth. As the quantity of information increases, the need to pick out bite-size pieces of content rises accordingly. In this radically sceptical age, questions of where to look, what to focus on and who to trust are ones that we increasingly seek to answer for ourselves, without the help of intermediaries. This is a liberation of sorts, but it is also at the heart of our deteriorating confidence in public institutions.

The current threat to democracy is often seen to emanate from new forms of propaganda, with the implication that lies are being deliberately fed to a naive and over-emotional public. The simultaneous rise of populist parties and digital platforms has triggered well-known anxieties regarding the fate of truth in democratic societies. Fake news and internet echo chambers are believed to manipulate and ghettoise certain communities, for shadowy ends. Key groups – millennials or the white working-class, say – are accused of being easily persuadable, thanks to their excessive sentimentality.

This diagnosis exaggerates old-fashioned threats while overlooking new phenomena. Over-reliant on analogies to 20th century totalitarianism, it paints the present moment as a moral conflict between truth and lies, with an unthinking public passively consuming the results. But our relationship to information and news is now entirely different: it has become an active and critical one, that is deeply suspicious of the official line. Nowadays, everyone is engaged in spotting and rebutting propaganda of one kind or another, curating our news feeds, attacking the framing of the other side and consciously resisting manipulation. In some ways, we have become too concerned with truth, to the point where we can no longer agree on it. The very institutions that might once have brought controversies to an end are under constant fire for their compromises and biases.

The threat of misinformation and propaganda should not be denied. As the scholars Yochai Benkler, Robert Faris and Hal Roberts have shown in their book Network Propaganda, there is now a self-sustaining information ecosystem on the American right through which conspiracy theories and untruths get recycled, between Breitbart, Fox News, talk radio and social media. Meanwhile, the anti-vaxx movement is becoming a serious public health problem across the world, aided by the online circulation of conspiracy theories and pseudo-science. This is a situation where simple misinformation poses a serious threat to society.

But away from these eye-catching cases, things look less clear-cut. The majority of people in northern Europe still regularly encounter mainstream news and information. Britain is a long way from the US experience, thanks principally to the presence of the BBC, which, for all its faults, still performs a basic function in providing a common informational experience. It is treated as a primary source of news by 60% of people in the UK. Even 42% of Brexit party and Ukip voters get their news from the BBC.

 

Protesters in London earlier this year. Photograph: Avpics/Alamy

The panic surrounding echo chambers and so-called filter bubbles is largely groundless. If we think of an echo chamber as a sealed environment, which only circulates opinions and facts that are agreeable to its participants, it is a rather implausible phenomenon. Research by the Oxford Internet Institute suggests that just 8% of the UK public are at risk of becoming trapped in such a clique.

Trust in the media is low, but this entrenched scepticism long predates the internet or contemporary populism. From the Sun’s lies about Hillsborough to the BBC’s failure to expose Jimmy Savile as early as they might, to the fevered enthusiasm for the Iraq war that gripped much of Fleet Street, the British public has had plenty of good reasons to distrust journalists. Even so, the number of people in the UK who trust journalists to tell the truth has actually risen slightly since the 1980s.

What, then, has changed? The key thing is that the elites of government and the media have lost their monopoly over the provision of information, but retain their prominence in the public eye. They have become more like celebrities, anti-heroes or figures in a reality TV show. And digital platforms now provide a public space to identify and rake over the flaws, biases and falsehoods of mainstream institutions. The result is an increasingly sceptical citizenry, each seeking to manage their media diet, checking up on individual journalists in order to resist the pernicious influence of the establishment.

There are clear and obvious benefits to this, where it allows hateful and manipulative journalism to be called out. It is reassuring to discover the large swell of public sympathy for the likes of Ben Stokes and Gareth Thomas, and their families, who have been harassed by the tabloids in recent days. But this also generates a mood of outrage, which is far more focused on denouncing bad and biased reporting than with defending the alternative. Across the political spectrum, we are increasingly distracted and enraged by what our adversaries deem important and how they frame it. It is not typically the media’s lies that provoke the greatest fury online, but the discovery that an important event has been ignored or downplayed. While it is true that arguments rage over dodgy facts and figures (concerning climate change or the details of Britain’s trading relations), many of the most bitter controversies of our news cycle concern the framing and weighting of different issues and how they are reported, rather than the facts of what actually happened.

The problem we face is not, then, that certain people are oblivious to the “mainstream media”, or are victims of fake news, but that we are all seeking to see through the veneer of facts and information provided to us by public institutions. Facts and official reports are no longer the end of the story. Such scepticism is healthy and, in many ways, the just deserts of an establishment that has been caught twisting the truth too many times. But political problems arise once we turn against all representations and framings of reality, on the basis that these are compromised and biased – as if some purer, unmediated access to the truth might be possible instead. This is a seductive, but misleading ideal.

Every human culture throughout history has developed ways to record experiences and events, allowing them to endure. From early modern times, liberal societies have developed a wide range of institutions and professions whose work ensures that events do not simply pass without trace or public awareness. Newspapers and broadcasters share reports, photographs and footage of things that have happened in politics, business, society and culture. Court documents and the Hansard parliamentary reports provide records of what has been said in court and in parliament. Systems of accounting, audit and economics help to establish basic facts of what takes place in businesses and markets.

Traditionally, it is through these systems, which are grounded in written testimonies and public statements, that we have learned what is going on in the world. But in the past 20 years, this patchwork of record-keeping has been supplemented and threatened by a radically different system, which is transforming the nature of empirical evidence and memory. One term for this is “big data”, which highlights the exponential growth in the quantity of data that societies create, thanks to digital technologies.

The reason there is so much data today is that more and more of our social lives are mediated digitally. Internet browsers, smartphones, social media platforms, smart cards and every other smart interface record every move we make. Whether or not we are conscious of it, we are constantly leaving traces of our activities, no matter how trivial.

But it is not the escalating quantity of data that constitutes the radical change. Something altogether new has occurred that distinguishes today’s society from previous epochs. In the past, recording devices were principally trained upon events that were already acknowledged as important. Journalists did not just report news, but determined what counted as newsworthy. TV crews turned up at events that were deemed of national significance. The rest of us kept our cameras for noteworthy occasions, such as holidays and parties.

The ubiquity of digital technology has thrown all of this up in the air. Things no longer need to be judged “important” to be captured. Consciously, we photograph events and record experiences regardless of their importance. Unconsciously, we leave a trace of our behaviour every time we swipe a smart card, address Amazon’s Alexa or touch our phone. For the first time in human history, recording now happens by default, and the question of significance is addressed separately.

This shift has prompted an unrealistic set of expectations regarding possibilities for human knowledge. As many of the original evangelists of big data liked to claim, when everything is being recorded, our knowledge of the world no longer needs to be mediated by professionals, experts, institutions and theories. Instead, they argued that the data can simply “speak for itself”. Patterns will emerge, traces will come to light. This holds out the prospect of some purer truth than the one presented to us by professional editors or trained experts. As the Australian surveillance scholar Mark Andrejevic has brilliantly articulated, this is a fantasy of a truth unpolluted by any deliberate human intervention – the ultimate in scientific objectivity.

Andrejevic argues that the rise of this fantasy coincides with growing impatience with the efforts of reporters and experts to frame reality in meaningful ways. He writes that “we might describe the contemporary media moment – and its characteristic attitude of sceptical savviness regarding the contrivance of representation – as one that implicitly embraces the ideal of framelessness”. From this perspective, every controversy can in principle be settled thanks to the vast trove of data – CCTV, records of digital activity and so on – now available to us. Reality in its totality is being recorded, and reporters and officials look dismally compromised by comparison.

One way in which seemingly frameless media has transformed public life over recent years is in the elevation of photography and video as arbiters of truth, as opposed to written testimony or numbers. “Pics or it didn’t happen” is a jokey barb sometimes thrown at social media users when they share some unlikely experience. It is often a single image that seems to capture the truth of an event, only now there are cameras everywhere. No matter how many times it is disproven, the notion that “the camera doesn’t lie” has a peculiar hold over our imaginations. In a society of blanket CCTV and smartphones, there are more cameras than people, and the torrent of data adds to the sense that the truth is somewhere amid the deluge, ignored by mainstream accounts. The central demand of this newly sceptical public is “so show me”.

This transformation in our recording equipment is responsible for much of the outrage directed at those formerly tasked with describing the world. The rise of blanket surveillance technologies has paradoxical effects, raising expectations for objective knowledge to unrealistic levels, and then provoking fury when those in the public eye do not meet them.

On the one hand, data science appears to make the question of objective truth easier to settle. Slow and imperfect institutions of social science and journalism can be circumvented, and we can get directly to reality itself, unpolluted by human bias. Surely, in this age of mass data capture, the truth will become undeniable.

On the other hand, as the quantity of data becomes overwhelming – greater than human intelligence can comprehend – our ability to agree on the nature of reality seems to be declining. Once everything is, in principle, recordable, disputes heat up regarding what counts as significant in the first place. It turns out that the “frames” that journalists and experts use to reduce and organise information are indispensable to its coherence and meaning.

What we are discovering is that, once the limitations on data capture are removed, there are escalating opportunities for conflict over the nature of reality. Every time a mainstream media agency reports the news, they can instantly be met with the retort: but what about this other event, in another time and another place, that you failed to report? What about the bits you left out? What about the other voters in the town you didn’t talk to? When editors judge the relative importance of stories, they now confront a panoply of alternative judgements. Where records are abundant, fights break out over relevance and meaning.

Professional editors have always faced the challenge of reducing long interviews to short consumable chunks and discarding the majority of photos or text. Editing is largely a question of what to throw away. This necessitates value judgements, that readers and audiences once had little option but to trust. Now, however, the question of which image or sentence is truly significant opens irresolvable arguments. One person’s offcut is another person’s revealing nugget.

Political agendas can be pursued this way, including cynical ones aimed at painting one’s opponents in the worst possible light. An absurd or extreme voice can be represented as typical of a political movement (known as “nutpicking”). Taking quotes out of context is one of the most disruptive of online ploys, which provokes far more fury than simple insults. Rather than deploying lies or “fake news”, it messes with the significance of data, taking the fact that someone did say or write something, but violating their intended meaning. No doubt professional journalists have always descended to such tactics from time to time, but now we are all at it, provoking a vicious circle of misrepresentation.

Then consider the status of photography and video. It is not just that photographic evidence can be manipulated to mislead, but that questions will always survive regarding camera angle and context. What happened before or after a camera started rolling? What was outside the shot? These questions provoke suspicion, often with good reason.

The most historic example of such a controversy predates digital media. The Zapruder film, which captured the assassination of John F Kennedy, became the most scrutinised piece of footage in history. The film helped spawn countless conspiracy theories, with individual frames becoming the focus of controversies, with competing theories as to what they reveal. The difficulty of completely squaring any narrative with a photographic image is a philosophical one as much as anything, and the Zapruder film gave a glimpse of the sorts of media disputes that have become endemic now cameras are ubiquitous parts of our social lives and built environments.

Minor gestures pored over for hidden meanings … Emily Maitlis (left) with Nadhim Zahawi and Barry Gardiner on the BBC’s Newsnight. Photograph: BBC

Today, minor gestures that would usually have passed without comment only a decade ago become pored over in search of their hidden message. What did Emily Maitlis mean when she rolled her eyes at Barry Gardiner on Newsnight? What was Jeremy Corbyn mouthing during Prime Minister’s Questions? Who took the photo of Boris Johnson and Carrie Symonds sitting at a garden table in July, and why? This way madness lies.

While we are now able to see evidence for ourselves, we all have conflicting ideas of what bit to attend to, and what it means. The camera may not lie, but that is because it does not speak at all. As we become more fixated on some ultimate gold-standard of objective truth, which exceeds the words of mere journalists or experts, so the number of interpretations applied to the evidence multiplies. As our faith in the idea of undeniable proof deepens, so our frustration with competing framings and official accounts rises. All too often, the charge of “bias” means “that’s not my perspective”. Our screen-based interactions with many institutions have become fuelled by anger that our experiences are not being better recognised, along with a new pleasure at being able to complain about it. As the writer and programmer Paul Ford wrote, back in 2011, “the fundamental question of the web” is: “Why wasn’t I consulted?”

What we are witnessing is a collision between two conflicting ideals of truth: one that depends on trusted intermediaries (journalists and experts), and another that promises the illusion of direct access to reality itself. This has echoes of the populist challenge to liberal democracy, which pits direct expressions of the popular will against parliaments and judges, undermining the very possibility of compromise. The Brexit crisis exemplifies this as well as anything. Liberals and remainers adhere to the long-standing constitutional convention that the public speaks via the institutions of general elections and parliament. Adamant Brexiters believe that the people spoke for themselves in June 2016, and have been thwarted ever since by MPs and civil servants. It is this latter logic that paints suspending parliament as an act of democracy.

This is the tension that many populist leaders exploit. Officials and elected politicians are painted as cynically self-interested, while the “will of the people” is both pure and obvious. Attacks on the mainstream media follow an identical script: the individuals professionally tasked with informing the public, in this case journalists, are biased and fake. It is widely noted that leaders such as Donald Trump, Jair Bolsonaro and Matteo Salvini are enthusiastic users of Twitter, and Boris Johnson has recently begun to use Facebook Live to speak directly to “the people” from Downing Street. Whether it be parliaments or broadcasters, the analogue intermediaries of the public sphere are discredited and circumvented.

What can professional editors and journalists do in response? One response is to shout even louder about their commitment to “truth”, as some American newspapers have profitably done in the face of Trump. But this escalates cultural conflict, and fails to account for how the media and informational landscape has changed in the past 20 years.

What if, instead, we accepted the claim that all reports about the world are simply framings of one kind or another, which cannot but involve political and moral ideas about what counts as important? After all, reality becomes incoherent and overwhelming unless it is simplified and narrated in some way or other. And what if we accepted that journalists, editors and public figures will inevitably let cultural and personal biases slip from time to time? A shrug is often the more appropriate response than a howl. If we abandoned the search for some pure and unbiased truth, where might our critical energies be directed instead?

If we recognise that reporting and editing is always a political act (at least in the sense that it asserts the importance of one story rather than another), then the key question is not whether it is biased, but whether it is independent of financial or political influence. The problem becomes a quasi-constitutional one, of what processes, networks and money determine how data gets turned into news, and how power gets distributed. On this front, the British media is looking worse and worse, with every year that passes.

The relationship between the government and the press has been getting tighter since the 1980s. This is partly thanks to the overweening power of Rupert Murdoch, and the image management that developed in response. Spin doctors such as Alastair Campbell, Andy Coulson, Tom Baldwin, Robbie Gibb and Seumas Milne typically move from the media into party politics, weakening the division between the two.

Then there are those individuals who shift backwards and forwards between senior political positions and the BBC, such as Gibb, Rona Fairhead and James Purnell. The press has taken a very bad turn over recent years, with ex-Chancellor George Osborne becoming editor of the Evening Standard, then the extraordinary recent behaviour of the Daily Telegraph, which seeks to present whatever story or gloss is most supportive of their former star columnist in 10 Downing Street, and rubbishes his opponents. (The Opinion page of the Telegraph website proudly includes a “Best of Boris” section.)

Since the financial crisis of 2008, there have been regular complaints about the revolving door between the financial sector and governmental institutions around the world, most importantly the White House. There has been far less criticism of the similar door that links the media and politics. The exception to this comes from populist leaders, who routinely denounce all “mainstream” democratic and media institutions as a single liberal elite, that acts against the will of the people. One of the reasons they are able to do this is because there is a grain of truth in what they say.

The financial obstacles confronting critical, independent, investigative media are significant. If the Johnson administration takes a more sharply populist turn, the political obstacles could increase, too – Channel 4 is frequently held up as an enemy of Brexit, for example. But let us be clear that an independent, professional media is what we need to defend at the present moment, and abandon the misleading and destructive idea that – thanks to a combination of ubiquitous data capture and personal passions – the truth can be grasped directly, without anyone needing to report it.

The magical science of storytelling

Why we stopped trusting elites

The credibility of establishment figures has been demolished by technological change and political upheavals. But it’s too late to turn back the clock. By William Davies in The Guardian

For hundreds of years, modern societies have depended on something that is so ubiquitous, so ordinary, that we scarcely ever stop to notice it: trust. The fact that millions of people are able to believe the same things about reality is a remarkable achievement, but one that is more fragile than is often recognised.

At times when public institutions – including the media, government departments and professions – command widespread trust, we rarely question how they achieve this. And yet at the heart of successful liberal democracies lies a remarkable collective leap of faith: that when public officials, reporters, experts and politicians share a piece of information, they are presumed to be doing so in an honest fashion. 

The notion that public figures and professionals are basically trustworthy has been integral to the health of representative democracies. After all, the very core of liberal democracy is the idea that a small group of people – politicians – can represent millions of others. If this system is to work, there must be a basic modicum of trust that the small group will act on behalf of the much larger one, at least some of the time. As the past decade has made clear, nothing turns voters against liberalism more rapidly than the appearance of corruption: the suspicion, valid or otherwise, that politicians are exploiting their power for their own private interest.

This isn’t just about politics. In fact, much of what we believe to be true about the world is actually taken on trust, via newspapers, experts, officials and broadcasters. While each of us sometimes witnesses events with our own eyes, there are plenty of apparently reasonable truths that we all accept without seeing. In order to believe that the economy has grown by 1%, or to find out about latest medical advances, we take various things on trust; we don’t automatically doubt the moral character of the researchers or reporters involved.

Much of the time, the edifice that we refer to as “truth” is really an investment of trust. Consider how we come to know the facts about climate change: scientists carefully collect and analyse data, before drafting a paper for anonymous review by other scientists, who assume that the data is authentic. If published, the findings are shared with journalists in press releases, drafted by university press offices. We expect that these findings are then reported honestly and without distortion by broadcasters and newspapers. Civil servants draft ministerial speeches that respond to these facts, including details on what the government has achieved to date.

A modern liberal society is a complex web of trust relations, held together by reports, accounts, records and testimonies. Such systems have always faced political risks and threats. The template of modern expertise can be traced back to the second half of the 17th century, when scientists and merchants first established techniques for recording and sharing facts and figures. These were soon adopted by governments, for purposes of tax collection and rudimentary public finance. But from the start, strict codes of conduct had to be established to ensure that officials and experts were not seeking personal gain or glory (for instance through exaggerating their scientific discoveries), and were bound by strict norms of honesty.

But regardless of how honest parties may be in their dealings with one another, the cultural homogeneity and social intimacy of these gentlemanly networks and clubs has always been grounds for suspicion. Right back to the mid-17th century, the bodies tasked with handling public knowledge have always privileged white male graduates, living in global cities and university towns. This does not discredit the knowledge they produce – but where things get trickier is when that homogeneity starts to appear to be a political identity, with a shared set of political goals. This is what is implied by the concept of “elites”: that purportedly separate domains of power – media, business, politics, law, academia – are acting in unison.

A further threat comes from individuals taking advantage of their authority for personal gain. Systems that rely on trust are always open to abuse by those seeking to exploit them. It is a key feature of modern administrations that they use written documents to verify things – but there will always be scope for records to be manipulated, suppressed or fabricated. There is no escaping that possibility altogether. This applies to many fields: at a certain point, the willingness to trust that a newspaper is honestly reporting what a police officer claims to have been told by a credible witness, for example, relies on a leap of faith.

A trend of declining trust has been underway across the western world for many years, even decades, as copious survey evidence attests. Trust, and its absence, became a preoccupation for policymakers and business leaders during the 1990s and early 2000s. They feared that shrinking trust led to higher rates of crime and less cohesive communities, producing costs that would be picked up by the state.

What nobody foresaw was that, when trust sinks beneath a certain point, many people may come to view the entire spectacle of politics and public life as a sham. This happens not because trust in general declines, but because key public figures – notably politicians and journalists – are perceived as untrustworthy. It is those figures specifically tasked with representing society, either as elected representatives or as professional reporters, who have lost credibility.

To understand the crisis liberal democracy faces today – whether we identify this primarily in terms of “populism” or “post-truth” – it’s not enough to simply bemoan the rising cynicism of the public. We need also to consider some of the reasons why trust has been withdrawn. The infrastructure of fact has been undermined in part by a combination of technology and market forces – but we must seriously reckon with the underlying truth of the populists’ charge against the establishment today. Too often, the rise of insurgent political parties and demagogues is viewed as the source of liberalism’s problems, rather than as a symptom. But by focusing on trust, and the failure of liberal institutions to sustain it, we get a clearer sense of why this is happening now.

The problem today is that, across a number of crucial areas of public life, the basic intuitions of populists have been repeatedly verified. One of the main contributors to this has been the spread of digital technology, creating vast data trails with the latent potential to contradict public statements, and even undermine entire public institutions. Whereas it is impossible to conclusively prove that a politician is morally innocent or that a news report is undistorted, it is far easier to demonstrate the opposite. Scandals, leaks, whistleblowing and revelations of fraud all serve to confirm our worst suspicions. While trust relies on a leap of faith, distrust is supported by ever-mounting piles of evidence. And in Britain, this pile has been expanding much faster than many of us have been prepared to admit.

Confronted by the rise of populist parties and leaders, some commentators have described the crisis facing liberalism in largely economic terms – as a revolt among those “left behind” by inequality and globalisation. Another camp sees it primarily as the expression of cultural anxieties surrounding identity and immigration. There is some truth in both, of course – but neither gets to the heart of the trust crisis that populists exploit so ruthlessly. A crucial reason liberalism is in danger right now is that the basic honesty of mainstream politicians, journalists and senior officials is no longer taken for granted.

There are copious explanations for Trump, Brexit and so on, but insufficient attention to what populists are actually saying, which focuses relentlessly on the idea of self-serving “elites” maintaining a status quo that primarily benefits them. On the right, Nigel Farage has accused individual civil servants of seeking to sabotage Brexit for their own private ends. On the left, Jeremy Corbyn repeatedly refers to Britain’s “rigged” economic system. The promise to crack down on corruption and private lobbying is integral to the pitch made by figures such as Donald Trump, Jair Bolsonaro or Viktor Orbán.

One of the great political riddles of recent years is that declining trust in “elites” is often encouraged and exploited by figures of far more dubious moral character – not to mention far greater wealth – than the technocrats and politicians being ousted. On the face of it, it would seem odd that a sense of “elite” corruption would play into the hands of hucksters and blaggards such as Donald Trump or Arron Banks. But the authority of these figures owes nothing to their moral character, and everything to their perceived willingness to blow the whistle on corrupt “insiders” dominating the state and media.

Liberals – including those who occupy “elite” positions – may comfort themselves with the belief that these charges are ill-founded or exaggerated, or else that the populists offer no solutions to the failures they identify. After all, Trump has not “drained the swamp” of Washington lobbying. But this is to miss the point of how such rhetoric works, which is to chip away at the core faith on which liberalism depends, namely that power is being used in ways that represent the public interest, and that the facts published by the mainstream media are valid representations of reality.

Populists target various centres of power, including dominant political parties, mainstream media, big business and the institutions of the state, including the judiciary. The chilling phrase “enemies of the people” has recently been employed by Donald Trump to describe those broadcasters and newspapers he dislikes (such as CNN and the New York Times), and by the Daily Mail to describe high court judges, following their 2016 ruling that Brexit would require parliamentary consent. But on a deeper level, whether it is the judiciary, the media or the independent civil service that is being attacked is secondary to a more important allegation: that public life in general has become fraudulent.

Nigel Farage campaigning with Donald Trump in 2016. Photograph: Jonathan Bachman/Getty Images

How does this allegation work? One aspect of it is to dispute the very possibility that a judge, reporter or expert might act in a disinterested, objective fashion. For those whose authority depends on separating their public duties from their personal feelings, having their private views or identities publicised serves as an attack on their credibility. But another aspect is to gradually blur the distinctions between different varieties of expertise and authority, with the implication that politicians, journalists, judges, regulators and officials are effectively all working together.

It is easy for rival professions to argue that they have little in common with each other, and are often antagonistic to each other. Ostensibly, these disparate centres of expertise and power hold each other in check in various ways, producing a pluralist system of checks and balances. Twentieth-century defenders of liberalism, such as the American political scientist Robert Dahl, often argued that it didn’t matter how much power was concentrated in the hands of individual authorities, as long as no single political entity was able to monopolise power. The famous liberal ideal of a “separation of powers” (distinguishing executive, legislative and judicial branches of government), so influential in the framing of the US constitution, could persist so long as different domains of society hold one another up to critical scrutiny.

But one thing that these diverse professions and authorities do have in common is that they trade primarily in words and symbols. By lumping together journalists, judges, experts and politicians as a single homogeneous “liberal elite”, it is possible to treat them all as indulging in a babble of jargon, political correctness and, ultimately, lies. Their status as public servants is demolished once their claim to speak honestly is thrown into doubt. One way in which this is done is by bringing their private opinions and tastes before the public, something that social media and email render far easier. Tensions and contradictions between the public face of, say, a BBC reporter, and their private opinions and feelings, are much easier to discover in the age of Twitter.

Whether in the media, politics or academia, liberal professions suffer a vulnerability that a figure such as Trump doesn’t, in that their authority hangs on their claim to speak the truth. A recent sociological paper called The Authentic Appeal of the Lying Demagogue, by US academics Oliver Hahl, Minjae Kim and Ezra Zuckerman Sivan, draws a distinction between two types of lies. The first, “special access lies”, may be better termed “insider lies”. This is dishonesty from those trusted to truthfully report facts, who abuse that trust by failing to state what they privately know to be true. (The authors give the example of Bill Clinton’s infamous claim that he “did not have sexual relations with that woman”.)

The second, which they refer to as “common knowledge lies”, are the kinds of lies told by Donald Trump about the size of his election victory or the crowds at his inauguration, or the Vote Leave campaign’s false claims about sending “£350m a week to the EU”. These lies do not pretend to be bound by the norm of honesty in the first place, and the listener can make up their own mind what to make of them.

What the paper shows is that, where politics comes to be viewed as the domain of “insider” liars, there is a seductive authenticity, even a strange kind of honesty, about the “common knowledge” liar. The rise of highly polished, professional politicians such as Tony Blair and Bill Clinton exacerbated the sense that politics is all about strategic concealment of the truth, something that the Iraq war seemed to confirm as much as anything. Trump or Farage may have a reputation for fabricating things, but they don’t (rightly or wrongly) have a reputation for concealing things, which grants them a form of credibility not available to technocrats or professional politicians.

At the same time, and even more corrosively, when elected representatives come to be viewed as “insider liars”, it turns out that other professions whose job it is to report the truth – journalists, experts, officials – also suffer a slump in trust. Indeed, the distinctions between all these fact-peddlers start to look irrelevant in the eyes of those who’ve given up on the establishment altogether. It is this type of all-encompassing disbelief that creates the opportunity for rightwing populism in particular. Trump voters are more than twice as likely to distrust the media as those who voted for Clinton in 2016, according to the annual Edelman Trust Barometer, which adds that the four countries currently suffering the most “extreme trust losses” are Italy, Brazil, South Africa and the US.

It’s one thing to measure public attitudes, but quite another to understand what shapes them. Alienation and disillusionment develop slowly, and without any single provocation. No doubt economic stagnation and soaring inequality have played a role – but we should not discount the growing significance of scandals that appear to discredit the honesty and objectivity of “liberal elites”. The misbehaviour of elites did not “cause” Brexit, but it is striking, in hindsight, how little attention was paid to the accumulation of scandal and its consequences for trust in the establishment.

The 2010 edition of the annual British Social Attitudes survey included an ominous finding. Trust in politicians, already low, had suffered a fresh slump, with a majority of people saying politicians never tell the truth. But at the same time, interest in politics had mysteriously risen.

To whom would this newly engaged section of the electorate turn if they had lost trust in “politicians”? One answer was clearly Ukip, who experienced their greatest electoral gains in the years that followed, to the point of winning the most seats in the 2014 elections for the European parliament. Ukip’s surge, which initially appeared to threaten the Conservative party, was integral to David Cameron’s decision to hold a referendum on EU membership. One of the decisive (and unexpected) factors in the referendum result was the number of voters who went to the polls for the first time, specifically to vote leave.

What might have prompted the combination of angry disillusionment and intensifying interest that was visible in the 2010 survey? It clearly predated the toughest years of austerity. But there was clearly one event that did more than any other to weaken trust in politicians: the MPs’ expenses scandal, which blew up in May 2009 thanks to a drip-feed of revelations published by the Daily Telegraph.

Following as it did so soon after a disaster of world-historic proportions – the financial crisis – the full significance of the expenses scandal may have been forgotten. But its ramifications were vast. For one thing, it engulfed many of the highest reaches of power in Westminster: the Speaker of the House of Commons, the home secretary, the secretary of state for communities and local government and the chief secretary to the treasury all resigned. Not only that, but the rot appeared to have infected all parties equally, validating the feeling that politicians had more in common with each other (regardless of party loyalties) than they did with decent, ordinary people.

Many of the issues that “elites” deal with are complex, concerning law, regulation and economic analysis. We can all see the fallout of the financial crisis, for instance, but the precise causes are disputed and hard to fathom. By contrast, everybody understands expense claims, and everybody knows lying and exaggerating are among the most basic moral failings; even a child understands they are wrong. This may be unfair to the hundreds of honest MPs and to the dozens whose misdemeanours fell into a murky area around the “spirit” of the rules. But the sense of a mass stitch-up was deeply – and understandably – entrenched.

The other significant thing about the expenses scandal was the way it set a template for a decade of elite scandals – most of which also involved lies, leaks and dishonest denials. One year later, there was another leak from a vast archive of government data: in 2010, WikiLeaks released hundreds of thousands of US military field reports from Iraq and Afghanistan. With the assistance of newspaper including the New York Times, Der Spiegel, the Guardian and Le Monde, these “war logs” disclosed horrifying details about the conduct of US forces and revealed the Pentagon had falsely denied knowledge of various abuses. While some politicians expressed moral revulsion with what had been exposed, the US and British governments blamed WikiLeaks for endangering their troops, and the leaker, Chelsea Manning, was jailed for espionage.

 

Rupert Murdoch on his way to give evidence to the Leveson inquiry in 2012. Photograph: Ben Stansall/AFP/Getty Images

In 2011, the phone-hacking scandal put the press itself under the spotlight. It was revealed that senior figures in News International and the Metropolitan police had long been aware of the extent of phone-hacking practices – and they had lied about how much they knew. Among those implicated was the prime minister’s communications director, former News of the World editor Andy Coulson, who was forced to resign his post and later jailed. By the end of 2011, the News of the World had been closed down, the Leveson inquiry was underway, and the entire Murdoch empire was shaking.

The biggest scandal of 2012 was a different beast altogether, involving unknown men manipulating a number that very few people had even heard of. The number in question, the London interbank offered rate, or Libor, is meant to represent the rate at which banks are willing to loan to each other. What was surreal, in an age of complex derivatives and high-frequency trading algorithms, was that this number was calculated on the basis of estimates declared by each bank on a daily basis, and accepted purely on trust. The revelation that a handful of brokers had conspired to alter Libor for private gain (with possible costs to around 250,000 UK mortgage-holders, among others) may have been difficult to fully comprehend, but it gave the not unreasonable impression of an industry enriching itself in a criminal fashion at the public’s expense. Bob Diamond, the CEO of Barclays, the bank at the centre of the conspiracy, resigned in July 2012.

Towards the end of that year, the media was caught in another prolonged crisis, this time at the BBC. Horror greeted the broadcast of the ITV documentary The Other Side of Jimmy Savile in October 2012. How many people had known about his predatory sexual behaviour, and for how long? Why had the police abandoned earlier investigations? And why had BBC Newsnight dropped its own film about Savile, due to be broadcast shortly after his death in 2011? The police swiftly established Operation Yewtree to investigate historic sexual abuse allegations, while the BBC established independent commissions into what had gone wrong. But a sense lingered that neither the BBC nor the police had really wanted to know the truth of these matters for the previous 40 years.

It wasn’t long before it was the turn of the corporate world. In September 2014, a whistleblower revealed that Tesco had exaggerated its half-yearly profits by £250m, increasing the figure by around a third. An accounting fiddle on this scale clearly had roots at a senior managerial level. Sure enough, four senior executives were suspended the same month and three were charged with fraud two years later. A year later, it emerged that Volkswagen had systematically and deliberately tinkered with emissions controls in their vehicles, so as to dupe regulators in tests, but then pollute liberally the rest of the time. The CEO, Martin Winterkorn, resigned.

“We didn’t really learn anything from WikiLeaks we didn’t already presume to be true,” the philosopher Slavoj Žižek observed in 2014. “But it is one thing to know it in general and another to get concrete data.” The nature of all these scandals suggests the emergence of a new form of “facts”, in the shape of a leaked archive – one that, crucially, does not depend on trusting the secondhand report of a journalist or official. These revelations are powerful and consequential precisely because they appear to directly confirm our fears and suspicions. Resentment towards “liberal elites” would no doubt brew even in the absence of supporting evidence. But when that evidence arises, things become far angrier, even when the data – such as Hillary Clinton’s emails – isn’t actually very shocking.

This is by no means an exhaustive list of the scandals of the past decade, nor are they all of equal significance. But viewing them together provides a better sense of how the suspicions of populists cut through. Whether or not we continue to trust in politicians, journalists or officials, we have grown increasingly used to this pattern in which a curtain is dramatically pulled back, to reveal those who have been lying to or defrauding the public.

Another pattern also begins to emerge. It’s not just that isolated individuals are unmasked as corrupt or self-interested (something that is as old as politics), but that the establishment itself starts to appear deceitful and dubious. The distinctive scandals of the 21st century are a combination of some very basic and timeless moral failings (greed and dishonesty) with technologies of exposure that expose malpractice on an unprecedented scale, and with far more dramatic results.

Perhaps the most important feature of all these revelations was that they were definitely scandals, and not merely failures: they involved deliberate efforts to defraud or mislead. Several involved sustained cover-ups, delaying the moment of truth for as long as possible.

Several of the scandals ended with high profile figures behind bars. Jail terms satisfy some of the public demand that the “elites” pay for their dishonesty, but they don’t repair the trust that has been damaged. On the contrary, there’s a risk that they affirm the cry for retribution, after which the quest for punishment is only ramped up further. Chants of “lock her up” continue to reverberate around Trump rallies.

In addition to their conscious and deliberate nature, a second striking feature of these scandals was the ambiguous role played by the media. On the one hand, the reputation of the media has taken a pummelling over the past decade, egged on by populists and conspiracy theorists who accuse the “mainstream media” of being allied to professional political leaders, and who now have the benefit of social media through which to spread this message.

The moral authority of newspapers may never have been high, but the grisly revelations that journalists hacked the phone of murdered schoolgirl Milly Dowler represented a new low in the public standing of the press. The Leveson inquiry, followed soon after by the Savile revelations and Operation Yewtree, generated a sense of a media class who were adept at exposing others, but equally expert at concealing the truth of their own behaviours.

On the other hand, it was newspapers and broadcasters that enabled all of this to come to light at all. The extent of phone hacking was eventually exposed by the Guardian, the MPs’ expenses by the Telegraph, Jimmy Savile by ITV, and the “war logs” reported with the aid of several newspapers around the world simultaneously.

But the media was playing a different kind of role from the one traditionally played by journalists and newspapers, with very different implications for the status of truth in society. A backlog of data and allegations had built up in secret, until eventually a whistle was blown. An archive existed that the authorities refused to acknowledge, until they couldn’t resist the pressure to do so any longer. Journalists and whistleblowers were instrumental in removing the pressure valve, but from that point on, truth poured out unpredictably. While such torrents are underway, there is no way of knowing how far they may spread or how long they may last.

 

Tony Blair and Bill Clinton in Belfast in April. Photograph: Charles McQuillan/Getty Images

The era of “big data” is also the era of “leaks”. Where traditional “sleaze” could topple a minister, several of the defining scandals of the past decade have been on a scale so vast that they exceed any individual’s responsibility. The Edward Snowden revelations of 2013, the Panama Papers leak of 2015 and the HSBC files (revealing organised tax evasion) all involved the release of tens of thousands or even millions of documents. Paper-based bureaucracies never faced threats to their legitimacy on this scale.

The power of commissions and inquiries to make sense of so much data is not to be understated, nor is the integrity of those newspapers and whistleblowers that helped bring misdemeanours to light. In cases such as MPs’ expenses, some newspapers even invited their readers to help search these vast archives for treasure troves, like human algorithms sorting through data. But it is hard to imagine that the net effect of so many revelations was to build trust in any publicly visible institutions. On the contrary, the discovery that “elites” have been blocking access to a mine of incriminating data is perfect fodder for conspiracy theories. In his 2010 memoir, A Journey, Tony Blair confessed that legislating for freedom of information was one of his biggest regrets, which gave a glimpse of how transparency is viewed from the centre of power.

Following the release of the war logs by WikiLeaks, nobody in any position of power claimed that the data wasn’t accurate (it was, after all, the data, and not a journalistic report). Nor did they offer any moral justification for what was revealed. Defence departments were left making the flimsiest of arguments – that it was better for everyone if they didn’t know how war was conducted. It may well be that the House of Commons was not fairly represented by the MPs’ expenses scandal, that most City brokers are honest, or that the VW emissions scam was a one-off within the car industry. But scandals don’t work through producing fair or representative pictures of the world; they do so by blowing the lid on hidden truths and lies. Where whistleblowing and leaking become the dominant form of truth-telling, the authority of professional truth-tellers – reporters, experts, professionals, broadcasters – is thrown into question.

The term “illiberal democracy” is now frequently invoked to describe states such as Hungary under Viktor Orbán or Turkey under Recep Tayyip Erdoğan. In contrast to liberal democracy, this model of authoritarian populism targets the independence of the judiciary and the media, ostensibly on behalf of “the people”.

Brexit has been caused partly by distrust in “liberal elites”, but the anxiety is that it is also accelerating a drift towards “illiberalism”. There is a feeling at large, albeit amongst outspoken remainers, that the BBC has treated the leave campaign and Brexit itself with kid gloves, for fear of provoking animosity. More worrying was the discovery by openDemocracy in October that the Metropolitan police were delaying their investigation into alleged breaches of electoral law by the leave campaign due to what a Met spokesperson called “political sensitivities”. The risk at the present juncture is that key civic institutions will seek to avoid exercising scrutiny and due process, for fear of upsetting their opponents.

Britain is not an “illiberal democracy”, but the credibility of our elites is still in trouble, and efforts to placate their populist opponents may only make matters worse. At the more extreme end of the spectrum, the far-right activist Stephen Yaxley-Lennon, also known as Tommy Robinson, has used his celebrity and social media reach to cast doubt on the judiciary and the BBC at once.

Yaxley-Lennon has positioned himself as a freedom fighter, revealing “the truth” about Muslim men accused of grooming underage girls by violating legal rules that restrict reporting details of ongoing trials. Yaxley-Lennon was found guilty of contempt of court and jailed (he was later released after the court of appeal ordered a retrial, and the case has been referred to the attorney general), but this only deepened his appeal for those who believed the establishment was complicit in a cover-up, and ordinary people were being deliberately duped.

The political concern right now is that suspicions of this nature – that the truth is being deliberately hidden by an alliance of “elites” – are no longer the preserve of conspiracy theorists, but becoming increasingly common. Our current crisis has too many causes to enumerate here, and it is impossible to apportion blame for a collective collapse of trust – which is as much a symptom of changes in media technologies as it is of any moral failings on the part of elites.

But what is emerging now is what the social theorist Michel Foucault would have called a new “regime of truth” – a different way of organising knowledge and trust in society. The advent of experts and government administrators in the 17th century created the platform for a distinctive liberal solution to this problem, which rested on the assumption that knowledge would reside in public records, newspapers, government files and journals. But once the integrity of these people and these instruments is cast into doubt, an opportunity arises for a new class of political figures and technologies to demand trust instead.

The project that was launched over three centuries ago, of trusting elite individuals to know, report and judge things on our behalf, may not be viable in the long term, at least not in its existing form. It is tempting to indulge the fantasy that we can reverse the forces that have undermined it, or else batter them into retreat with an even bigger arsenal of facts. But this is to ignore the more fundamental ways in which the nature of trust is changing.

The main feature of the emerging regime is that truth is now assumed to reside in hidden archives of data, rather than in publicly available facts. This is what is affirmed by scandals such as MPs’ expenses and the leak of the Iraq war logs – and more recently in the #MeToo movement, which also occurred through a sudden and voluminous series of revelations, generating a crisis of trust. The truth was out there, just not in the public domain. In the age of email, social media and cameraphones, it is now common sense to assume that virtually all social activity is generating raw data, which exists out there somewhere. Truth becomes like the lava below the earth’s crust, which periodically bursts through as a volcano.

What role does this leave for the traditional, analogue purveyors of facts and figures? What does it mean to “report” the news in an age of reflexive disbelief? Newspapers have been grappling with this question for some time now; some have decided to refashion themselves as portals to the raw data, or curators of other people’s content. But it is no longer intuitively obvious to the public why they should be prepared to take a journalist’s word for something, when they can witness the thing itself in digital form. There may be good answers to these questions, but they are not obvious ones.

Instead, a new type of heroic truth-teller has emerged in tandem with these trends. This is the individual who appears brave enough to call bullshit on the rest of the establishment – whether that be government agencies, newspapers, business, political parties or anything else. Some are whistleblowers, others are political leaders, and others are more like conspiracy theorists or trolls. The problem is that everyone has a different heroic truth-teller, because we’re all preoccupied by different bullshit. There is no political alignment between figures such as Chelsea Manning and Nigel Farage; what they share is only a willingness to defy the establishment and break consensus.
If a world where everyone has their own truth-tellers sounds dangerously like relativism, that’s because it is. But the roots of this new and often unsettling “regime of truth” don’t only lie with the rise of populism or the age of big data. Elites have largely failed to understand that this crisis is about trust rather than facts – which may be why they did not detect the rapid erosion of their own credibility.

Unless liberal institutions and their defenders are willing to reckon with their own inability to sustain trust, the events of the past decade will remain opaque to them. And unless those institutions can rediscover aspects of the original liberal impulse – to keep different domains of power separate, and put the disinterested pursuit of knowledge before the pursuit of profit – then the present trends will only intensify, and no quantity of facts will be sufficient to resist. Power and authority will accrue to a combination of decreasingly liberal states and digital platforms – interrupted only by the occasional outcry as whistles are blown and outrages exposed.