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Thursday 29 November 2018

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.

Monday 26 November 2018

The difficulty in managing things that cannot easily be measured

Andrew Hill in The FT 

If there were a tournament for Peter Drucker’s best-known dictum then “what gets measured gets managed” would make it to the finals, even though nobody seems able to pin the saying directly to the Viennese-born management thinker. Repeated misattribution has gilded the truism and propelled it into the Management Maxim Hall of Fame. 


En route, unfortunately, the assumption has taken root that everything can be measured. Worse, anything that does not submit to mathematical evaluation need not be managed, or is simply unmanageable. 

This is the most prominent example of a widespread phenomenon: the tendency to pay more attention to hard facts, targets, outcomes and initiatives than to soft factors that are equally, or sometimes more, important. 

Big data is hard. Culture is soft. Financial goals are hard. Non-financial targets are soft. Gender quotas are hard. Workplace inclusivity is soft. “Stem” subjects are hard. Humanities are soft. (Drucker himself described management as a liberal art.) Machines are hard — very hard. Humans are all too soft. 

The Harvard Business Review tries to reconcile the hard-soft tension annually in its ranking of the “best-performing CEOs in the world”, measured over their whole tenure. Jeff Bezos wins every time. Except he doesn’t, because in 2015, the publication changed its methodology and added soft environmental, social and governance factors to its hard financial assessment, knocking Amazon’s founder from first to 87th. Mr Bezos has crept back to 68th in the latest ranking, topped by Pablo Isla, chief executive of Spanish retail group Inditex with its (soft) family values. I bet, though, that most investors would allocate capital on the hard measures of Mr Bezos’s and Mr Isla’s success. 

The dominance of hard over soft is not uniform, though, and in a few areas it is receding. Would-be leaders aiming for MBAs have for years set equal, even greater, store on the value of the difficult-to-measure human networks they build during their studies. The hard MBA qualification itself has started to crumble, while employers increasingly stress development of executives’ soft skills. 

Elsewhere, companies have finally begun to realise that feedback (soft) trumps forced ranking and even bonuses (both hard) when it comes to appraising and motivating staff. Governance codes now place emphasis on long-term success, healthy cultures and corporate purpose, offsetting boards’ longstanding deference to pure shareholder value. 

Many of these pairs should coexist, of course. Too frequently, though, when a balance of two approaches would be best, the hard solution wins out as soon as pressure is applied. 

In the classic tussle between long-term sustainability and short-term returns, too many directors and executives still obsess about hitting close-range targets. Purpose makes way for profit. The demand to compete overcomes any impulse to reap the benefits of collaboration. 

Even if Drucker did not utter the “what gets measured” axiom, he had plenty to say about measurement. In 1955, he wrote in The Practice of Management how more sophisticated ways of gauging performance would enable managers and workers to direct their own work. But he also warned that if this ability were used to impose control from above, “the new technology [would] inflict incalculable harm by demoralising management and by seriously lowering the effectiveness of managers”. 

Persuading executives to take greater account of soft factors requires a concerted effort. One approach is to play to their utilitarian preference for hard facts and try to measure the unmeasurable. The mania for measurement has extended beyond the production output and profit margins that could be assessed in the 1950s. Start-ups and consultancies frequently pitch to me with new ways of quantifying corporate culture, for instance. 

 Putting a number on the nebulous is one way to give soft achievements a hard edge. Reminding directors of the hard landing that awaits those who ignore, condone or contribute to rotten cultures is another. 

At the same time, managers need to comprehend elements that cannot yet be recorded in 0s and 1s: the strength of team relationships, the importance of empathy, the value of intuition. Ingenious machines may one day put all the mysteries of human behaviour into a spreadsheet. I doubt it, though. This week’s Drucker Forum, in honour of the writer, will explore “the human dimension” of management. At least some of that dimension will always be difficult for chief executives to collect, crunch and codify on their digital dashboards. As a result, they must resolve to try harder to manage the things they will never easily measure.

Brexit won't affect only the UK – it has lessons for the global economy

Exiting the EU highlights the risks of economic and political fragmentation writes Mohamed El Erian in The Guardian 

 
Brexit will have an impact on the global economy, not just the UK. Photograph: Fabian Bimmer/Reuters


The singular issue of Brexit has consumed the United Kingdom for two-and-a-half years. The “if”, “how” and “when” of the country’s withdrawal from the European Union, after decades of membership, has understandably dominated news coverage, and sidelined almost every other policy debate. Lost in the mix, for example, has been any serious discussion of how the UK should boost productivity and competitiveness at a time of global economic and financial fluidity.

At the same time, the rest of the world’s interest in Brexit has understandably waned. The UK’s negotiations with the EU have dragged on through multiple déjà vu moments, and the consensus is that the economic fallout will be felt far more acutely in Britain than in the EU, let alone in countries elsewhere.

Still, the rest of the world is facing profound challenges of its own. Political and economic systems are undergoing far-reaching structural changes, many of them driven by technology, trade, climate change, high inequality and mounting political anger. In addressing these issues, policymakers around the world would do well to heed the lessons of the UK’s Brexit experience. 

When Britons voted by a margin of 51.9% to 48.1% to leave the EU, the decision came as a shock to experts, pundits and Conservative and Labour party leaders alike. They had underappreciated the role of “identity” as a driving force behind the June 2016 referendum. But now, voters’ deeply held ideas about identity, whether real or perceived, can no longer be dismissed. Though today’s disruptive politics are fuelled by economic disappointment and frustration, identity is the tip of the spear. It has exposed and deepened political and social divisions that are as uncomfortable as they are intractable.

Experts also predicted that the UK economy would suffer an immediate and significant fall in output following the 2016 referendum. In the event, they misunderstood the dynamics of what economists call a “sudden stop” – that is, abrupt, catastrophic dysfunction in a key sector of the economy. A perfect example is the 2008 global financial crisis, when financial markets seized up as a result of operational dislocations and a loss of mutual confidence in the payments and settlement system.

Brexit was different. Because you cannot replace something with nothing, there was no immediate break in British-EU trade. In the absence of clarity on what type of Brexit would ultimately materialise, the economic relationship simply continued “as is,” and an immediate disruption was averted.

It turns out that when making macroeconomic and market projections for Brexit so far, “short versus long” has been more important than “soft versus hard” (with “hard” referring to the UK’s full, and most likely disorderly, withdrawal from the European single market and customs union). The question is not whether the UK will face a considerable economic reckoning, but when.

Nonetheless, the UK economy is already experiencing slow-moving structural change. There is evidence of falling foreign investment and this is contributing to the economy’s disappointing level of investment overall. Moreover, this trend is accentuating the challenges associated with weak productivity growth. 

There are also signs that companies with UK-based operations have begun to trigger their Brexit contingency plans after a prolonged period of waiting, planning, and more waiting. In addition to shifting investments out of the UK, firms will also start to relocate jobs. And this process will likely accelerate even if Theresa May manages to get her proposed exit deal through parliament.

The Brexit process thus showcases the risks associated with economic and political fragmentation, and provides a preview of what awaits an increasingly fractured global economy if this continues: namely, less efficient economic interactions, less resilience, more complicated cross-border financial flows, and less agility. In this context, costly self-insurance will come to replace some of the current system’s pooled-insurance mechanisms. And it will be much harder to maintain global norms and standards, let alone pursue international policy harmonisation and coordination.

Tax and regulatory arbitrage are likely to become increasingly common as well. And economic policymaking will become a tool for addressing national security concerns (real or imagined). How this approach will affect existing geopolitical and military arrangements remains to be seen.

Lastly, there will also be a change in how countries seek to structure their economies. In the past, Britain and other countries prided themselves as “small open economies” that could leverage their domestic advantages through shrewd and efficient links with Europe and the rest of the world. But now, being a large and relatively closed economy might start to seem more attractive. And for countries that do not have that option – such as smaller economies in east Asia – tightly knit regional blocs might provide a serviceable alternative.

The messiness of British party politics has made the Brexit process look like a domestic dispute that is sometimes inscrutable to the rest of the world. But Brexit holds important lessons for and about the global economy. Gone are the days when accelerating economic and financial globalisation and correlated growth patterns went almost unquestioned. We are also in an era of considerable technological and political fluidity. The outlooks for growth and liquidity will likely become even more uncertain and divergent than they already are.

Saturday 24 November 2018

Why good forecasters become better people

Tim Harford in The FT

So, what’s going to happen next, eh? Hard to say: the future has a lotta ins, a lotta outs, a lotta what-have-yous. 

Perhaps I should be more willing to make bold forecasts. I see my peers forecasting all kinds of things with a confidence that only seems to add to their credibility. Bad forecasts are usually forgotten and you can milk a spectacular success for years. 

Yet forecasts are the junk food of political and economic analysis: tasty to consume but neither satisfying nor healthy in the long run. So why should they be any more wholesome to produce? The answer, it seems, is that those who habitually make forecasts may turn into better people. That is the conclusion suggested by a research paper from three psychologists, Barbara Mellers, Philip Tetlock and Hal Arkes. 

Prof Tetlock won attention for his 2005 book Expert Political Judgment, which used the simple method of asking a few hundred experts to make specific, time-limited forecasts such as “Will Italy’s government debt/GDP ratio be between 70 and 90 per cent in December 1998?” or “Will Saddam Hussein be the president of Iraq on Dec 31 2002?” 

It is only a modest oversimplification to summarise Prof Tetlock’s results using the late William Goldman’s aphorism: nobody knows anything

Yet Profs Mellers, Tetlock and Don Moore then ran a larger forecasting tournament and discovered that a small number of people seem to be able to forecast better than the rest of us. These so-called superforecasters are not necessarily subject-matter experts, but they tend to be proactively open-minded, always looking for contrary evidence or opinions. 

There are certain mental virtues, then, that make people better forecasters. The new research turns the question around: might trying to become a better forecaster strengthen such mental virtues? In particular, might it make us less polarised in our political views? 

Of course there is nothing particularly virtuous about many of the forecasts we make, which are often pure bluff, attention-seeking or cheerleading. “We are going to make America so great again” (Donald Trump, February 2016); “There will be no downside to Brexit, only a considerable upside” ( David Davis, October 2016); “If this exit poll is right . . . I will publicly eat my hat” (Paddy Ashdown, May 2015). These may all be statements about the future, but it seems reasonable to say that they were never really intended as forecasts. 

A forecasting tournament, on the other hand, rewards a good-faith effort at getting the answer right. A serious forecaster will soon be confronted by the gaps in his or her knowledge. In 2002, psychologists Leonid Rozenblit and Frank Keil coined the phrase “the illusion of explanatory depth”. If you ask people to explain how a flush lavatory actually works (or a helicopter, or a sewing machine) they will quickly find it is hard to explain beyond hand-waving. Most parents discover this when faced by questions from curious children. 

Yet subsequent work has shown that asking people to explain how the US Affordable Care Act or the European Single Market work prompts some humility and, with it, political moderation. It seems plausible that thoughtful forecasting has a similar effect. 

Good forecasters are obliged to consider different scenarios. Few prospects in a forecasting tournament are certainties. A forecaster may believe that parliament is likely to reject the deal the UK has negotiated with the EU, but he or she must seriously evaluate the alternative. Under which circumstances might parliament accept the deal instead? Again, pondering alternative scenarios and viewpoints has been shown to reduce our natural overconfidence. 

My own experience with scenario planning — a very different type of futurology than a forecasting tournament — suggests another benefit of exploring the future. If the issue at hand is contentious, it can feel safer and less confrontational to talk about future possibilities than to argue about the present. 

It may not be so surprising, then, that Profs Mellers, Tetlock and Arkes found that forecasting reduces political polarisation. They recruited people to participate in a multi-month forecasting tournament, then randomly assigned some to the tournament and some to a non-forecasting control group. (A sample question: “Will President Trump announce that the US will pull out of the Trans-Pacific Partnership during the first 100 days of his administration?”) 

At the end of the experiment, the forecasters had moderated their views on a variety of policy domains. They also tempered their inclination to presume the opposite side was packed with extremists. Forecasting, it seems, is an antidote to political tribalism. 

Of course, centrism is not always a virtue and, if forecasting tournaments are a cure for tribalism, then they are a course of treatment that lasts months. Yet the research is a reminder that not all forecasters are blowhards and bluffers. Thinking seriously about the future requires keeping an open mind, understanding what you don’t know, and seeing things as others see them. If the end result is a good forecast, perhaps we should see that as the icing on the cake.

Thursday 22 November 2018

Business schools help create a culture where the profit justifies the means

Business students learn accounting techniques, but not ethical decision-making. This is why corporate scandals persist writes Berend van der Kolk in The Guardian


 
‘When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks, I start wondering whether the accountants knew they were avoiding tax.’ Photograph: Mike Blake/Reuters


As a university teacher of accounting, I see the world through a particular lens. When I read about the sales scandal at Wells Fargo, I can’t help but think about the people who naively designed the incentive schemes that triggered this type of unethical behaviour. When I hear about the complex transfer pricing schemes at companies such as Amazon and Starbucks that enable them to avoid tax, I start wondering which accounting techniques they used. In short, I see the strong connection between unethical business practices and accounting techniques.

One reason why these problems persist is that the textbooks used in most elementary management accounting courses ignore this connection. They tend to focus on the technical aspects of accounting – understanding the formulas, definitions, mechanics and calculations – while ignoring its ethical aspects. The ethical dimension is usually nothing more than an add-on in an isolated chapter, introduction paragraph, or in a separate course on business ethics. This makes ethics an afterthought detached from the topics it is intended to reflect on.

Take the example of transfer pricing – the practice of setting a price for a good or service delivered by one part of an organisation to another. When these units are located in different tax regions, the chosen transfer price affects the amount of tax that has to be paid. Various accounting textbooks discuss the technical aspects of transfer pricing, framed with questions such as “how can multinationals minimise their taxes payable?”. The ethics of whether it’s fair to avoid paying taxes – like how many developing companies are harmed by tax-avoiding multinationals - are rarely discussed.

This may lead students to believe that business decisions are only technical, and bear no ethical implications. In fact, business decisions almost always bear ethical implications: they may deteriorate work conditions elsewhere in the supply chain, create a profit-justifies-the-means culture or increase inequality on a global level.

We need to see a much stronger integration of ethical considerations into business education. This is how managers make real-life business decisions. This could be achieved through a discussion on the techniques and ethics of transfer pricing in one and the same accounting class, using a case that highlights both aspects. Business education should also challenge its own underlying assumptions about human behaviour, and bring in other disciplines such as the humanities to help students think critically about business practices that are taken for granted.

Of course it’s important that business students acquire technical skills, and universities shouldn’t be paternalising students by dictating what is and isn’t ethical. Instead, a more critical and integrated debate about the moral implications of financial instruments, accounting techniques and new technologies should play a central role in business education.

In the film Jurassic Park, Dr Ian Malcolm says: “Scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.” I would like us – business educators, but also students, managers and accountants – to not make that same mistake. Let’s take that step back every once in a while to reflect on the ethics of the technics.