Archive for the 'Economics' Category
Museums Have Visitors: They Don’t Serve The Wishes Of Market Analysts
Thursday, April 10th, 2008
Increasingly, criticism is being voiced about the destructive effect of the market on civilized society. This has even reached the hallowed halls of museums. Two leading museologists Robert Janes, formerly of Glenbow in Calgary and Maxwell Anderson, now Director of the Indianapolis Museum of Art and formerly of the Whitney in New York have criticised this trend.Janes (“Museums, Corporatism and the Civil Society” Curator The Museum Journal 50(2): 219-237, 2007) observes, “the prevailing worldview in North America is grounded in the belief that continuous economic growth is essential to individual and societal well-being”. He argues that this is enfeebling or diverting museums from realizing their unique strengths and opportunities as social institutions in civil society: museums, he asserts, must exploit their uniqueness, resist domination of marketplace thinking and seek ways of achieving meaning and sustainability within their communities.
Anderson (“Prescriptions for Art Museums in the Decade Ahead”, Curator the Museum Journal 50(1), 9-18, 2007) asserts, “rather than following a path towards community service or an educational mandate, the [museum] field has been led astray by a corporate mindset.” Anderson identifies the primary challenges facing art museums in rebalancing their mission, and suggests a series of remedies to the unrealistic economic model that threatens to exclude education as museums’ primary mandate.
Before dismissing what is said below as overly ideological, consider this statement from John Gray (School Professor of European Thought at the London School of Economics) reviewing (in The Guardian September 15, 2007) Naomi Klein’s recent book, The Shock Doctrine: The Rise of Disaster Capitalism (Allen Lane).
“Over the past few decades, many of the ideas of the far left have found new homes on the right. Lenin believed that it was in conditions of catastrophic upheaval that humanity advances most rapidly, and the idea that economic progress can be achieved through the devastation of entire societies has been a key part of the neo-liberal cult of the free market. Soviet-style economies left an inheritance of human and ecological devastation, while neo-liberal policies have had results that are not radically dissimilar in many countries. Yet, while the Marxist faith in central planning is now confined to a few dingy sects, a quasi-religious belief in free markets continues to shape the policies of governments.
“Many writers have pointed to the havoc and ruin that have accompanied the imposition of free markets across the world. Whether in Africa, Asia, Latin America or post-communist Europe, policies of wholesale privatisation and structural adjustment have led to declining economic activity and social dislocation on a massive scale. Anyone who has watched a country lurch from one crisis to another as the bureaucrats of the IMF impose cut after cut in pursuit of the holy grail of stabilisation will recognise the process Naomi Klein describes in her latest and most important book to date. Visiting Argentina not long before the economic collapse of 2002, I found the government struggling to implement an IMF diktat to roll back public spending at a time when the economy was already rapidly contracting. The result was predictable, and the country was plunged into a depression, with calamitous consequences in terms of poverty and social breakdown.”
Timothy Garton Ash is Professor of European Studies in the University of Oxford, Isaiah Berlin Professorial Fellow at St Antony’s College, Oxford, and a Senior Fellow at the Hoover Institution, Stanford University. He is the author of eight books and his essays appear regularly in the New York Review of Books and weekly in the Guardian (widely syndicated in Europe, Asia and the Americas). In an article in the Guardian last year (22 February 2007) Ash said,
“What is the elephant in all our rooms? It is the global triumph of capitalism. Democracy is fiercely disputed. Freedom is under threat even in old-established democracies such as Britain. Western supremacy is on the skids. But everyone does capitalism. Americans and Europeans do it. Indians do it. Russian oligarchs and Saudi princes do it. Even Chinese communists do it. And now the members of Israel’s oldest kibbutz, that last best hope of egalitarian socialism, have voted to introduce variable salaries based on individual performance. Karl Marx would be turning in his grave. Or perhaps not, since some of his writings eerily foreshadowed our era of globalised capitalism. His prescription failed but his description was prescient.”
In the last 40 or so years much of the business world and many governments (as expressed by New Public Management or NPM, particularly in developed western countries, have adopted market (or “rational”) economics and corporatism. Market mechanisms, according to this approach, should be allowed to determine production and pricing and government should stay out of the way of entrepreneurial business ventures. The focus is on the short term because the emphasis is efficiency as assessed by return on investment reflected in stock price as spruiked by stock market analysists. Rather than seeking new products and markets and quality service, the market oriented business seeks increase in the wealth of shareholders. (To varying extents, Nordic and some other European countries have been less prepared to adopt the market economic model.)
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What exactly is New Public Management and has it delivered?
Thursday, April 10th, 2008
New Public Management or NPM, is the transfer of business and market principles and management techniques from the private into the public sector. In the view of Wolfgang Drechsler, Professor in the Technology Governance Program at Tallinn University in Estonia, it is the most important reform movement within the public sphere over the last quarter of a century. The goal of NPM is, in Dreschler’s words, “a slim, reduced, minimal state in which any public activity is decreased and, if at all, exercised according to business principles of efficiency. NPM is based on the belief that all human behavior is motivated by self-interest and, specifically, profit maximization.”
Wikipedia describes NPM as “a broad and very complex term used to describe the wave of public sector reforms throughout the world since the 1980s. [NPM is] based on public choice and managerial schools of thought [which] seek to enhance the efficiency of the public sector and the control that government has over it. The main hypothesis … is that more market orientation in the public sector will lead to greater cost-efficiency for governments, without having negative side effects on other objectives and considerations.”
The application of NPM has had a great effect on governments in many countries and continues to do so in several countries including Australia and Canada. There is every reason why Boards and Directors of museums should be aware of these matters and doing their best to minimize the application of market economics and its outgrowths like NPM and Public Choice Theory.
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Generalisations and Transformations
Sunday, January 20th, 2008
In seeking to understand complex issues, we need rich data sets, not broad generalisations. So says Bill Lewis, founding director of McKinsey Global Institute, just a few years ago in “The Power of Productivity” (McKinsey Quarterly 2004 number 2).
Lewis asserts that the consensuses about economics at the end of the Second World War and at the fall of the Soviet Union have proved wrong. These consensuses at the end of the Second World War concerned infrastructure, technology, education and health care. After the fall of the Soviet Union the consensuses focused on inflation, price control, privatisation and corporate governance. In both cases it was believed resolution of these issues would advance economies, in particular the economies of poorer countries. In considering these “failures” Lewis draws an analogy with astronomy and cosmology.
The problem was, according to Lewis, that the consensuses were grounded in an analysis of economies at the aggregate level. That was like trying to learn about the physical universe by using only the telescopes of astronomy. Most real understanding in physics, however, has actually come from studying the interaction of the tiniest particles in the universe. In economics, Lewis says, it is necessary to understand why individual companies operate as they do, not national data sets and complex econometric tools that yield qualified answers at best.
Lewis proceeds to analyze some of the productivity data from around the world, drawing some challenging conclusions, particularly that economic growth principally flows from competition, not from education or technology or better governance and so on. The data which Lewis analyses comes from studies by the McKinsey Global Institute of individual companies.
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Of more specific interest are two articles in the McKinsey Quarterly in 2006 dealing with change management and managing organizational performance on the basis of evidence. Both are topics which I have previously dealt with. Both articles contain information of relevance to museums. (There are also interesting conclusions in a number of papers in the 2007 issues of the McKinsey Quarterly and these will be summarized in a forthcoming post.)
The McKinsey studies show that the most successful transformations of business performance occur when executives mobilize and sustain energy within their organizations and communicate their objectives clearly and creatively.
Strong organizational performance is really fueled not by isolated interventions but by a combination of three or four carefully selected complementary ones, what McKinsey calls management “practices”. Managers, according to McKinsey researchers, should concentrate most of their energy on a small number of practices that, introduced together, typically produces the best results. Doing more doesn’t add much value and involves disproportionate, not to mention wasted, effort.
Many executives struggle to design structures, create reporting relationships, and develop evaluation systems that make people accountable—in other words, that require them to take responsibility for the results of the business. However “companies seeking to improve in this area are much more likely to succeed if they concentrate on giving individuals clear roles rather than resorting to other options, such as consequence management.”
“… executives who set broad, stretching aspirations that are meaningful to their employees have a better chance of achieving the outcome they want than do executives who resort to conventional, dominant, or detailed top-down leadership… the best way to promote high-performance behavior in organizations is to emphasize openness and trust among employees.”
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There is an important point relevant to these findings. It is that if we are going to be concerned about understanding the workings of individual enterprises and we are gong to demand management based on evidence, as indeed we should, then the ongoing dominance of what is called New Public Management (NPM), needs to be more than seriously questioned. NPM seeks to have public activity decreased and, if at all, exercised according to business principles of efficiency. It is based on the belief that all human behaviour is motivated by self-interest and, specifically, profit maximization. Governments pursuing NPM have failed to deliver a more effective state better serving the citizenry, they have failed the accountability test! One of the bases of NPM is self-interest. Self interest was one of the three key themes of eighteenth century Scottish moral philosopher and pioneering political economist Adam Smith. But this term is used in the context of NPM in a way quite different from that in which Adam Smith employed it in his treatise, “The Wealth of Nations“.
The reaction to the run down in services, the decline in infrastructure and the perceived problems of the State’s infrastructure which we see in many western industrialised countries outside continental Europe, derives, it is asserted, from the failure of the bureaucracy to function effectively and of politicians to correct the failures. This affects the majority of museums as well as arts and heritage organizations. The translation of the best of business practice to nonprofits, not the translation of the profit-making motive of business, has been a central theme in the pages of this site.
Making government more businesslike has simply involved a set of assertions, not any real understanding. That is not the approach Atul Gawande, award-winning professor of surgery at Harvard Medical School, surgeon and author, took in exploring what makes a good doctor and how hospitals can be improved. Gawande says, “I would love to know who really are the best in the kinds of operations I do, who had the lowest complication rates, the highest survival rates? And if I knew that, I would go and watch them and I’d learn from them”.
The problems with NPM and the mistranslation of Adam Smith’s work will be taken up in a forthcoming short note.
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Lessons from the wider world of Organizational Development
Thursday, January 10th, 2008
If Nobel prize-winner Richard Feynman can learn something about a major theory of physics from watching the way plates thrown across a university refectory wobble, why wouldn’t climbing Mount Everest and the problems in the paediatric cardiac surgery program of the Bristol Royal Infirmary potentially give us useful insights into our own organizations?
Three areas of research seem to me to be of particular interest: leadership, governance and organizational development. Existing parts of this site deal with these areas.
The papers dealt with in this post and related page concern organizational development, the way organizations work, what does and what does not effect and affect change and the progress toward outcomes which advance the organization and the people in it. They include some of the more important research papers published in the last 10 years.
In the translation from a previous version of the site to the present one, certain changes occur inevitably and sometimes losses. Unless one is very vigilant, these may go unnoticed. So it is with these important references about organizational change which I have frequently quoted in published papers.
Although the list was completed in 2003, some of the articles are of long-term importance. The articles deal with issues such as lessons learned from climbing Mount Everest – and the accidents that can happen in such a high risk pursuit - and how hospitals work. These are included because of my abiding belief that useful lessons are to be found in all kinds of unusual places. After all, if Nobel prize-winner Richard Feynman can learn something about a major theory of physics from watching the way plates thrown across a university refectory wobble, why wouldn’t climbing Mount Everest and the problems in the paediatric cardiac surgery program of the Bristol Royal Infirmary potentially give us useful insights into our own organizations.
I especially commend the papers by Nitin Nohria, William Joyce & Bruce Roberson on successful change, by Karl E Weick & Kathleen M. Sutcliffe on a major problem at he Bristol Royal Infirmary, by Dan Lovallo & Daniel Kahneman on the effect optimism has on executive judgement, Robert Chapman Wood & Gary Hamel on innovative approaches to grant giving in the World Bank, by Lynda Gratton & Sumantra Ghoshal on the way conversations influence people’s attitudes and behaviours and, of all things, a critique of transaction cost analysis by the wonderful (late) Sumantra Ghoshal and Peter Moran: anything but boring, this paper actually demolishes much of the favoured basis of governance theory and practice.
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“Workchoices” and Industrial Relations
Monday, February 5th, 2007
In 2006 the Howard Government in Australia passed the Workchoices Bill which significantly altered most of the provisions governing employment and not least the extent to which unions would be involved. In part this reflected the government’s paranoia about unions and their impact on all domains, including universities where even student unions have been banned. But principally the legislation determined the relations between employer and employee. To those supporting the legislation the changes were promoted as increasing employment and productivity. Those opposing the changes believed it significantly eroded rights established over more than a century and made possible disruption of family life through the ability of employers to require employees to report for work at almost any time at short notice.
The legislation was tested in the High Court in late 2006 by all the States and the ACTU. The Court found the Government was entitled to use the provisions of Corporations Law to effect the changes of the Workchoices legislation. The implication is that the Commonwealth is able to apply sweeping powers to almost every area of activity in the States, even to the conduct of school boards. Professor Greg Craven of Curtin University is amongst a number of people who have spoken strongly on several occasions about the implications of the High Court’s decision.
In the early stages of the debate about the changes, the two sides took issue about the existing situation in workplaces, the need for “flexibility” and the impact of unions through restrictive practices which were alleged to limit the employer in dismissing workers and forced the payment of wage rates which diminished the opportunity of the employer to hire more employees and so on.
The literature on this subject is vast. Three articles which I write dealt with some of the issues, starting with the unsubstantiated assertions derived from a consultants report commissioned by the Business Council of Australia. Links to the three articles together with the first several paragraphs are below.
What price economic growth and progress? Taylorism revisited
On Line Opinion, 14 September 2004
“Older people remember the Charlie Chaplin film, “Modern Times”, Chaplin emerging from a manhole with a red flag to unknowingly lead a march of striking workers. It is easy to think we are not much further advanced in our understanding of industrial relations, getting a productive and satisfying workplace and intersection of work with life.
“In July the Business Council of Australia (BCA) released a report commissioned from Access Economics. It asserted that the ALP Industrial Relations Policy had negative economic consequences: the interventions proposed would mean significant losses of jobs. Access Economics’ Report assumes that present economic wellbeings are due to the application of recent workplace reforms including particularly individual agreements on wages…”
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Workplace reform: inequity, more stress, less choice On Line Opinion Monday, 7 November 2005
The Howard Government’s industrial relations-workplace reforms commenced their progress as legislation through the Federal Parliament on Wednesday, November 2. Among the benefits claimed for them are more jobs, greater choice for employees and higher wages. And a multitude of workplace arrangements in the various states will be brought together, tidied up. Up to $40 million of our money has been spent just in promoting these benefits and countering the seemingly effective union campaign against the changes.
But the evidence for benefits resulting from the changes is absent or at most weak and there is little doubt the costs will be high. Of most concern is that, in fact, investment in training and development, creative structuring of work, higher than average wages and opportunities for collective bargaining all produce higher productivity, attract business investment and generate employment: facts shown by two recent major reports.
Howard’s changes have been attacked by labour economists, industrial relations experts and distinguished members of the judiciary. “Market” economists and analysts point out the changes do not address major workplace issues. Church leaders oppose the changes as having potentially deleterious impact on families. Economic and general commentators have pointed out errors in the claims and how the reforms will inevitably trade off less recreation and family life for what will turn out to be small gains in wages. All Andrews, Howard and their supporters have done is repeat the mantra.
“How to Wreck a Working Nation” New Matilda Tuesday 12 July 2005
“The Howard Government ‘reforms’ to workplace relations will cost the community dearly and achieve next to nothing for employment or productivity. Genuine leadership and investment in people would. The Government should play a different role and address the complexity of the issues in the long-term.
“Employer groups, especially the Australian Chamber of Commerce & Industry (’ACCI’), in endorsing these reforms, talk of increased opportunities, greater flexibility, higher productivity and more jobs. The present system they say, particularly ‘unfair dismissal’ provisions, frustrates employers in their efforts to increase productivity.
Those opposing the changes are addressing different consequences…”