Intelligent Management

Chris Dillow
is one of my favourite bloggers, and one of his most interesting themes is 'managerialism' - the belief in the power of managers to improve the effectiveness of organisations, either private or public, to dramatic extents, purely by the virtue of their quality as managers.

Chris has attacked this belief on numerous grounds, but mostly on the basis of the observable evidence: many managers are exceedingly well-paid yet deliver few obvious benefits. This would not be a problem if it were a temporary aberration, but the problem seems to be getting worse, not least because this ideology has spread to government, and government's capacity to follow a strategy with no regard for the consequences is considerably greater than the private sector's.

At the core of managerialism is the belief in the ability of individuals to process large amounts of diverse information accurately, then reach a conclusion about how best to respond to this information. This power to manage effectively is, however, limited to a relatively small number of people who have a talent for it. This belief does not, in itself, appear absurd. I've read my Hayek, Popper et al., and I believe in concepts such as the wisdom of crowds, so to me the flaw of managerialism appears obvious: no individual can possibly process enough information to make precise decisions about the management of a large institution. But it's not (yet) obvious to the general public. We still live in a society which believes that if we only had the right people in charge, things would be a lot better. This belief underpins modern politics, which is a clash of personalities rather than ideas, with politicians promising to bring about improvements by managing the government in a 'better' way than their rivals. It also underpins the salaries of managers in large corporations. The fact that modern society believes that management is really important means that managers have great power.

In a way, this power is not unlike the power of prophets in deeply religious societies. If we believe that a particular religion is really important, then those who claim to have some special relationship with the god of this religion become powerful. But making pithy observations isn't going to get us anywhere, so let's look at the recent history of managerialism in government, in the one country that I can claim any familiarity with: Britain. Managerialism can probably be traced back to the authoritarian right, who believed that society needed leaders, men of greater virtue, wisdom and patriotism than average, to lead the great institutions of the nation. A day spent wandering around London will undoubtedly involve walking past many statues of such men. But, for all of its popularity with the right, the managerialist ideology has found favour with the authoritarian left too; Stalin probably stands as the ultimate example of the belief that power should be exercised by one person at the heart of the state. Free market liberals like Hayek argued against this throughout the 20th century; in socialism, they saw a means by which all power might be centralised in the hands of one person.

But, hang on a minute, isn't this all ancient history now? Nobody defends Stalin these days, and Thatcherism demolished the idea of a command economy, right? Well, not really.

Thatcherism was, as I've argued (elsewhere) in the past, more about anti-socialism than genuinely promoting free markets or the liberal values of the intellectuals who are frequently cited as the inspiration behind her policies. Thatcher took powers away from local councils and placed them in the hands of 'quangos' (Quasi-Nongovernmental bodies), public sector institutions whose sole virtue was that they could be led by hand-picked managers rather than socialist local councillors. Power was greatly centralised and the idea of democratic control was displaced by the idea of management by central appointees. Measures such as the national curriculum were introduced to make central management easier, to squash the annoying diversity which didn't fit with the national plan. I might be wrong, but I'm quite sure that this is not what free market liberals had in mind. However, history records that this was a 'free market' revolution, and Hayek, Friedman and the like are remembered as its prophets.

I cannot quite grasp how this view came to be so widely held. My only theory is that the Labour party had a particularly weak grasp of liberal economics. Blair himself was not much of an intellectual - he has a lawyer's gift for making a good argument, not an economist's (or, for that matter, a software engineer's) gift for understanding how things work. It seems to me that New Labour was entirely unable to tell the difference between Adam Smith and Ayn Rand, simply seeing any kind of 'free market' idea as being what they now had to copy. They saw capitalism and saw heroic managers running companies and making them successful, so they decided that this is what they must copy. They followed in Thatcher's footsteps in trying to craft a simulacrum of a market using 'targets' for performance, empowering managers to decide how to meet those targets in the same way that managers in the private sector must decide how to make a profit. What they didn't see was the whole panoply of situational factors which make a company successful, far beyond the control (or even the knowledge) of the chief executive. And so, instead of the invisible hand, we have the clunking fist.

For it is not the disposition of a manager that determines a company's success. It is a whole array of factors, many of which the manager cannot control and which are only visible to those with the knowledge and experience to see them. This is the concept of tacit knowledge, the idea that there are some things which we know which we are unable to communicate. Gut feelings, instincts honed over years of practice, insights, habits and customs formed under the twin pressures of the need to satisfy others and to satisfy one's own professional standards. In a workplace, this knowledge resides not with the managers, but with those closest to the action. A manager, sat atop the organisational chart of a large institution, cannot possibly appreciate the insights of those near the bottom, and his attempts at bringing improvements are as likely to fail as they are to succeed.

The success of the free market lies in the fact that it has solved this problem, not by empowering managers but by making them largely irrelevant to the eventual outcome. Companies continue to change, evolve and, in some cases, improve, regardless of the input of management. Companies do not succeed because they are led by great visionaries, but because they employ great people who work hard and pursue professional excellence, often despite the culture of the company. Look at the most obvious examples of newly-great companies - the software giants of the 1990s and early 21st century. They are not led by experienced CEOs; often their leaders are people who combine a passion for making great software with enough business sense to make a few bucks. It's the innovative products, not the corporate mission statements that make these companies successful. And in their success, they have displaced many older companies who were led by established managers who were, until not long before, considered to be great leaders themselves.

What does this tell us? I think that it tells us that management is not nearly as important as we currently seem to think that it is. The forces that are driving companies to success or failure are out of the control of chief executives. The clever thing about the market is that it doesn't need good managers; companies which make good products simply displace those that perform poorly. The institutional structure of an industry can be dramatically changed without management driving the change or even being able to influence it. This is not the case in the public sector, where there is no competition. A manager of a public sector institution answers only to his political masters, not to the general public. So long as he can produce the statistics which justify his continued existence, his position is unassailable, regardless of the performance of the institution itself.

You may have guessed from the title of the post where my conclusion lies. It is this: management is nothing but the organisational equivalent of the theory of intelligent design. When we see great companies, we think 'wow, what great leaders must have built that company!' in a manner not dissimilar to how a creationist wonders at the existence of antelopes. We completely ignore the efforts of those who worked for that company, the myriad tiny but crucial improvements that they brought about - it is this process that is the engine of progress in a free market, not the plans or visions of leaders. The great failure of the New Labour project has been to borrow from the authoritarian strand of Thatcherism, not the innovative free-market liberal ideas which Thatcherism occasionally claimed to champion.

This has profound implications for society. As long as we continue to believe in CEOs as talismans, we will continue to have to pay them whatever they ask. As long as we continue to underrate the importance of ordinary people working within companies, they will continue to be underpaid. For our public services, the situation is even more dire: a good teacher, doctor, nurse or policeman is stuck in a labour monopsony, the only organisation that will hire them is one presently under the influence of an ideology that regards their contribution as almost worthless in comparison with the contribution of the leaders of the organisation.

In conclusion, I should say that most of my criticism of management applies only to the largest of companies, and to public sector institutions which are, by definition, as large or larger than those companies (the British National Health Service is, according to some, the world's third-largest employer, after the Chinese Red Army and the Indian Railways). Managers in small companies, or in companies or services which are run in a decentralised manner tend to be closer to the reality of that organisation's function; as such they're less likely to do harm and more likely to be able to contribute genuine improvements. They're also likely to be less well-paid.

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