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Managerialism, Accountants and Self-interest

At the “Sites of Communication” conference in 2006 Edmund Capon, director of the Art Gallery of New South Wales since 1978 and known in the first year or so after his appointment for wearing differently coloured socks, said this: “A Director has to be a curator first”  –   “and “You don’t learn management, you do it!”

Here are two statements from the recent program by Stephen Crittenden on ABC Radio National’s Background Briefing program, “MBA: Mostly Bloody Awful“ broadcast Sunday 29 March.

“My view is you cannot create a manager in a classroom, let alone a leader. You simply can’t. Management is not a science, it’s not a profession, it’s a practice; you learn it by doing it. To claim that you’re training people who are not managers to be managers, is a sham, pure and simple, it’s a sham. You can’t do it. You give completely the wrong impression and you send them out with an enormous amount of hubris which is, ‘I can manage anything, even though I’ve never managed anything’.”
(Henry Mintzberg, Professor of Management Studies at McGill University in Montreal)

“Managers must have ‘domain knowledge’. And as the young man progressed up through the ranks towards the top, he would tend to move around all the departments, so he spent a little time in sales, a little time in accounting, a little time in manufacturing, and when he reached the top he would have acquired ‘domain knowledge’. He would know about the product, the suppliers, the customers, the method of production, the relation to regulatory authorities, movements in the market. He would be a master of the subject.” (Jeff Immelt, Chairman and chief Executive of General Electric, quoted by William Hopper, co – author of The Puritan Gift)

What can one say about the wisdom of Edmund Capon? Clearly he deserved to have that $16 million dollar painting by Cezanne bought to commemorate his 30 years at the Gallery!

Crittenden’s report is the story of how the great corporate heritage of “the glory days when America’s leading manufacturing companies were the envy of the world was squandered, and what this all has to do with the rise of a comparatively new social figure: the professional manager.”


At the basis of the relatively recent adoption of managerialism and new public management, as a flow – on from neoliberalism, is the belief that people are rational actors responding to complete or near complete information. But research in behavioural economics by people such as Daniel Kahneman (a psychologist who won the Nobel Prize for economics a few years ago) and the work of Nassim Taleb (published in his book The Black Swan) shows people do not act rationally even in the face of demonstrably inadequate information. To me the presentation by James March on choice theory and decision making is one of the most important I have encountered in 30 years.

(A discussion between Taleb and Kahneman is on ABC Fora. )

The criticism of economic practices is of course nothing new. Quite apart from the left – right, socialist arguments, there are a number of criticisms of recent practices of the financial services industry.

John Gray (John Gray is Professor of European Thought at the London School of Economics) reviewed Naomi Klein’s The Shock Doctrine: The Rise of Disaster Capitalism (Allen Lane, 2007) some 18 months ago (‘The end of the world as we know it’, Guardian September 15, 2007). He wrote, “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.

“” – As Klein sees it, the social breakdowns that have accompanied neo – liberal economic policies are not the result of incompetence or mismanagement. They are integral to the free – market project, which can only advance against a background of disasters. She writes, ‘An economic system that requires constant growth, while bucking almost all serious attempts at environmental regulation, generates a steady stream of disasters all on its own, whether military, ecological or financial. The appetite for easy, short – term profits offered by purely speculative investment has turned the stock, currency and real estate markets into crisis – creation machines, as the Asian financial crisis, the Mexican peso crisis and the dotcom collapse all demonstrate.'”

A recent paper (“The Financial Crisis and the Systemic Failure of Academic Economics* prepared at the 98th Dahlem Workshop, 2008) by a group of economists from universities in the USA, Germany, France and Denmark, including David Colander of Middlebury College Virginia and Thomas Lux of the University of Kiel and Kiel Institute for the World Economy, comment  on the economic models used by academic economists. The models are considered to be inadequate, especially in not dealing with crises and in not taking account of the growing discipline of behavioural economics.

“The economics profession appears to have been unaware of the long build – up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real – world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.”


Museums, like much of government, have adopted a program which pays little attention to these two issues. Competence in managing, especially managing the budget and being fiscally prudent, and ability to generate revenue by fundraising and other means have taken precedence over understanding of the role and purpose of the museum and knowledge of the scholarship on which the museum depends, the organisation has been downsized and reorganised in response to demands for efficiency or the entry of a new director. Little attention has been paid to succession planning because the view has been taken that successive directors will be hired from outside the museum.

With these things in mind, the appointment of Thomas Campbell, then a curator in the Museum and a specialist in tapestries, as Director of the Metropolitan Museum is especially significant. Similarly significant is the recent appointment of Richard Armstrong, 59, to succeed Thomas Krens at the Guggenheim Museum. Armstrong, who took up his job in November last, has a long track record as a curator, including 11 years at New York’s Whitney Museum of American Art and 16 at the Carnegie Museum of Art in Pittsburgh, where he has been director since 1996.

My Conclusions

What emerges from considerations of the issues raised in this program is that the managerialist philosophies which have underpinned corporate behaviour in the last 40 years have to be abandoned. (Like the “Washington Consensus” which British Prime Minister Gordon Brown recently pronounced as dead.)

Boards and executives have to focus on the organisation’s unique contribution
The most important issue for the board and executive is the strategy, the identification of the unique contribution the enterprise makes. The budget is no more than the financial expression of that! In the best organisations the executives and staff alike focus on the unique contribution and the quality of the outcomes for those whose lives they seek to affect. Whatever efficiencies are needed likely flow from that and do not emerge from a focus on efficiency first.

Knowledge of forprofit business practice is not sufficient for board appointment
The practice of appointing business people to boards of government enterprises and government funded nonprofits also has to be severely questioned because, quite clearly, we can no longer maintain that the knowledge of business executives, such as it is, will automatically assist the enterprise simply because those persons have business experience.

Boards must understand the organisation in order to make senior appointments
Boards and those involved in hiring executives have to do a great deal better job by exercising much improved understandings of what it is that leads to the organisation’s success and what it is that characterises superior leadership.

Senior executives must have ‘domain knowledge’, an understanding of the business
Far more emphasis has to be put on senior executives having an understanding of the business and the industry in which the enterprise works, far more attention has to be given to achieving results through cooperation amongst staff within the enterprise, to leveraging the intellectual ability skills and experience of the staff and to ongoing programs to develop, enlarge and deepen the skills and experiences of staff.

Long serving staff are a resource
There can be no credibility attached to the proposition that people who have been in the enterprise for 10 or more years should move on so that fresh ideas can be brought into the organisation: people are quite able to bring in new ideas when encouraged to do so. The departure of long serving staff through downsizing and other decisions have left organisations with vast holes in corporate memory.

Governments must abandon managerialism
Governments in particular have to abandon the managerialist approach which they have adopted with the encouragement of business and discard ‘new public management’ [ – 2/dreschler/] and its precepts and practices, including corporatisation, ‘senior executive services’, contract employment and performance bonuses. Ministers need to understand that their role is in the area of policy, not management and that their staff bring to the job experience of policy as well as of management. Centralised control does not work.

Performance indicators and merit pay have no utility
And the constant demand of the managerialists that we need attention to performance indicators and that merit pay for executives improves firm performance has to be discarded. The former does no more than give more work to accountants and the latter simply produces divisions and resentment without generating any real improvement in ‘firm performance’. Formative evaluation, which means ongoing evaluation and encouragement of above average performance, produces results. Performance management has to be a way of achieving improvement, not a way of ranking employees or drawing up an eligibility list for bonuses.


Here are some extracts from the transcript of Crittenden’s program:

“There’s no doubt that American business has relied heavily on the Masters of Business Administration as a credential. Some say too heavily: 100,000 new MBAs pour out of American business schools each year, and more than 40% of them go into the financial services sector.”

McGill University Professor Henry Mintzberg says what we call a financial crisis is really at its core a crisis of management, and not just a crisis of management, but a crisis of management culture.

Henry Mintzberg: It’s a syndrome, it’s a whole attitude. We’ve corrupted the whole practice of management, it’s utterly, utterly corrupt from top to bottom; not everybody, but much too much of it is corrupt. It is a cultural problem. And by the way, it’s largely an Anglo – Saxon problem I think. I think the worst of it is in the US, and second is the UK. I think Canada has been smarter. In England the UK for example, there’s a long history not just of MBAs but of accountants running everything. In other words, what you had is a detachment of people who know the business from people who are running the business.

Stephen Crittenden: Another critic of the MBA is Harvard Business School Professor Rakesh Khurana. He says the business schools have been teaching some pretty anti – social theories which their graduates go away and put into practice.

For example, Rakesh Khurana says it was the business schools that were the source of the theory of shareholder maximisation. They originated the idea of using derivatives and credit swaps to manage risk, and the idea that managers are so fundamentally self – interested that they can’t be trusted to do their jobs unless they’re provided with huge stock options.

Rakesh Khurana: If you look at the original intention of the founding of the university – based business school, it was to create management as a profession, and not merely a profession in the sense that we make a distinction between an expert and a novice in terms of the knowledge, but also a profession with respect to the orientation of its managers. That is, that managers would largely put the interests of society and the interests of the economic welfare of their firm before their own individual interests. This was the social contract upon which business education was founded.

This contract over a period of several decades at first became neglected and then eventually abandoned. And it was replaced by a very different type of orientation which was that of shareholder maximisation, in which the manager was no longer seen as a professional who had an obligation to society, but rather as merely a hired hand of shareholders. What’s interesting about this phenomenon is that managers haven’t really, if you look at recent events, haven’t even really delivered for shareholders. That actually became a cover under which really the sole purpose of management largely became self – enrichment.


A friend of mine said years ago, “We won the second world war only to turn the whole world over to accountants!” The arguments that ‘domain knowledge’ has been replaced by concern for the numbers in the balance sheet resonate with this!

Some further extracts: Will Hopper: If you don’t possess ‘domain knowledge’, how do you run a company? Well, you do it through the accounting department. And so the senior manager studies the accounts of each division every week, he notes when sales go up, he notes when the profit of a division goes up or down, those divisions that do well, senior managers get promoted. So you have companies run through the accounting department. Now this leads at once to the manipulation of both underlying activities and figures” – So the characteristic of the new age of management as a profession, is improving the numbers, not improving the product.

Kevin Hassett (Director of Economic Policy Studies at the American Enterprise Institute, and Bloomberg news columnist): The reason why Wall Street disappeared is that risk management was terrible, and risk management was terrible because people running risk management for Wall Street firms believed the models 100%. They had great confidence.


The website for Crittenden’s program, lists some extremely important publication, reports of research, newspaper and online articles.

In “Beyond Selfishness” (Sloan Management Review, Fall, 2002), Henry Mintzberg, together with Robert Simons and Kunal Basu, outlines how “corporate irresponsibility is a “symptom of a syndrome of selfishness that has taken hold of our business institutions, our societies and our minds”. A series of half – truths “” or fabrications “” have driven debilitating wedges into society.

These fabrications are that we are all in essence economic man, that corporations exist to maximise shareholder value, that corporations require heroic leaders, that the effective organization is lean and mean an that “a rising tide of prosperity lifts all boats” “Our narrow view of ourselves as “economic man” has driven a wedge of distrust between our individual wants and our social needs. All are based on a narrow view of human society.

These five “mutually reinforcing misperceptions have driven a series of disruptive wedges into the socioeconomic fabric, distorting our views of corporate and social responsibility”, wedges between the creators of economic performance and those who benefit from it, between leaders and everyone else, between short – term and long – term goals and between the prime beneficiaries of stock – price increases and the large numbers of people disadvantaged by the corresponding actions.

They give examples of contrary situations in organisations including IBM and Pilkington Glass (see below). They quote Charles Handy’s observation that the surge of collective effort of people engaged in World War 2 “violated many of the precepts of allocative efficiency but pushed GDP up by 50% in four years and laid the basis for subsequent growth.”

The focus on efficiency has driven restructuring which has broken a basic covenant between employer and employee: the implicit pledge of security in return for loyalty. “People feel betrayed these days.”

The increase in wealth amongst the most wealthy has vastly outstripped that amongst the huge majority of less well off: indeed ordinary Americans have benefitted from no increase in basic wages for decades.

In ‘Economics language and assumptions: How theories can become self – fulfilling’ (Academy of Management Review, 30: 8 – 24, 2005), Fabrizio Ferraro (IESE Business School, University of Navarra, Spain), Jeffrey Pfeffer (Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University) & Robert I Sutton (Stanford School of Engineering, Stanford University) argue that the language and assumptions of social science theories not only influence but in fact determine much of what individuals do, experience, and think. They further claim that a self – fulfilling prophecy is created through negative theoretical assumptions about human motives and behavior being reinforced and diffused through the mechanisms of language, social norms, and institutional design, which in turn determine individual behaviour and reality.

Social science theories can become self – fulfilling by shaping institutional designs and management practices, as well as social norms and expectations about behavior, thereby creating the behavior they predict. They also perpetuate themselves by promulgating language and assumptions that become widely used and accepted. We illustrate these ideas by considering how the language and assumptions of economics shape management practices: theories can “win” in the marketplace for ideas, independent of their empirical validity, to the extent their assumptions and language become taken for granted and normatively valued, therefore creating conditions that make them come “true.”

The most important implication of this paper is that theories become dominant when their language is widely and mindlessly used and their assumptions become accepted and normatively valued, regardless of their empirical validity. This is the case whether the language and assumptions are problematic and harmful (Ghoshal & Moran, 1996) or beneficial. As long as the language and assumptions are widely shared and frequently used, the theory will come to determine what people do and how they think about and design the social and organizational world. If this line of argument is correct, then social science theory and the language and assumptions of such theory matter a great deal. When theories produce self – fulfilling beliefs, societies, organizations, and leaders can become trapped in unproductive or harmful cycles of behavior that are almost impossible to change. Inconsistent evidence is unlikely to emerge because people don’t try, or even contemplate, acting in any manner that clashes with accepted truths.

I have already drawn attention to the problems arising from the application of rational economic theory to organisational management which has been particularly attacked by the late Sumantra Ghoshal and undermined by research such as that of Catherine Dailey and colleagues and Sumantra Ghoshal.

In ‘Toward a stewardship theory of management’ (Academy of Management Review 22/1, p. 20, 28 pp, Jan 1997) James H Davis (University of Notre Dame), F David Schoorman (Purdue University) and Lex Donaldson (AGSM at the University of New South Wales) write, “Recent thinking about top management has been influenced by alternative models of man. Economic approaches to governance such as agency theory tend to assume some form of homo – economicus, which depict subordinates as individualistic, opportunistic and selfserving. Alternatively, sociological and psychological approaches to governance such as stewardship theory depict subordinates as collectivists, pro – organizational and trustworthy…”

Their paper attempts to resolve these differences. They continue, “Organization theory and business policy have been strongly influenced by agency theory, which depicts top managers in the large modern corporation as agents whose interests may diverge from those of their principals, the shareholders where both parties are utility maximizers. According to agency theory, losses to the principal resulting from interest divergence may be curbed by imposing control structures upon the agent. Although agency theory appears to be the dominant paradigm underlying most governance research and prescriptions, researchers in psychology and sociology have suggested theoretical limits of agency theory. In particular, assumptions made in agency theory about individualistic utility motivations resulting in principal – agent interest divergence may not hold for all managers. Therefore, exclusive reliance upon agency theory is undesirable because the complexities of organizational life are ignored. Additional theory is needed to explain relationships based upon other, noneconomic assumptions.”


It is to these notions deriving from the dominance of market economics that these important commentaries and articles go. Adam Smith’s assertions about self – interest have been distorted and market transactions have been asserted as supreme (both matters I have already dealt with). As many recent analyses of the financial turmoil have pointed out, the whole mess has cost governments and corporations trillions of dollars and individuals have lost savings and destroyed lives.

The superiority of organisations which have developed strategies to involve employees in co – operative approaches to achieving results is demonstrated by numerous studies. These may be contrasted with the focus on efficiency, the provision of incentives by way of merit pay, the hiring (particularly by governments) of people on limited – term contracts so as to always be able to recruit the best available and likewise be able to fire those whose performance is unsatisfactory and flexible working conditions which means casualisation, temporary employment and so on.

The drive for efficiency has led amongst other things to technologies known as “enterprise systems,” or ES, which bring together computer hardware and software to standardize and then monitor the entire range of tasks being done by a company’s workforce. An example is the health – care industry. The result has been a declining emphasis on creativity and ingenuity of workers, and the destruction of a sense of community in the workplace by the ceaseless reengineering of the way businesses operate. The concept of a career has become increasingly meaningless in a setting in which employees have neither skills of which they might be proud nor an audience of independently minded fellow workers that might recognize their value.

Examples abound of employees working together to solve problems with outstanding results, results which cannot be achieved through the application of enterprise systems, the drive for efficiency and the hiring of strategy consultants. At Xerox technicians overcame the problems of copying machine breakdown by studying exactly what happened in each individual breakdown, finding out how to fix it and logging the results. Refinement of the information by technicians into the Eureka database saved Xerox $100 millions. Another example is the Regenstrief Institute in Indianapolis.  Have previously drawn attention to the Brazilian firm Semco established by Ricardo Semler. In transforming the company Semler attacked corporate oppression” – time clocks, dress codes, security procedures, privileged office spaces and perks, everyone was to meet their own visitors, send their own faxes,  make their own coffee. He set up ‘factory committees’ to run the plants, in an attempt to get more worker involvement, introduced far – reaching profit – sharing schemes for all the workers. Managers were hired and fired by their own employees. And, to keep employed yourself, you had to find a way to add visible value so that your team would still want to include you in their six – monthly budget. Semco grew, entirely due to the initiatives of its workers.

Max Ogden, a retired ACTU industrial officer and an advisor to the NZ union movement (“Employers Just Don’t Get It”, New Matilda 27 Mar 2009) recently gave an example of cooperation between management and employees in an enterprise at the Port Botany south of Sydney.

ICI Botany, described in the 1980s as a frightful place to work with huge amounts of overtime, many strikes, huge downtime, extraordinarily low employee morale and poor management, was transformed over a period of five or six years by management working constructively with employees and union shop stewards (especially in the maintenance and services departments) to become just about the best in the world. At the same time employees were given decent wage increases, overtime was virtually eradicated, and the employees even got compensation for the wages lost because of less overtime. “By solving the downtime problem, the savings were far greater than simply battling one another to keep wages low.”

Other examples are provided by Millstone Nuclear Power Plant, Southwest Airlines, the entry of IBM into e – business through a “self – absorbed programmer” and a staff manager both removed from formal leadership whose ideas were encouraged by CEO Louis Gerstner, the development of plate glass by Pilkington Glass (both examples cited by Mintzberg and colleagues), and many of the developments at 3M and many other firms.


In her review of the book The Spirit Level: Why More Equal Societies Almost Always Do Better by Richard Wilkinson and Kate Pickett (published by Allen Lane), Lynsey Hanley (the Guardian, 14 March 2009) points out that social inequality has profound implications.

“We are rich enough. Economic growth has done as much as it can to improve material conditions in the developed countries, and in some cases appears to be damaging health. If Britain were instead to concentrate on making its citizens’ incomes as equal as those of people in Japan and Scandinavia, we could each have seven extra weeks’ holiday a year, we would be thinner, we would each live a year or so longer, and we’d trust each other more.”

She continues, “The book argues that economies should stop growing when millions of jobs are being lost, though they may be pushing at an open door in public consciousness. We know there is something wrong, and this book goes a long way towards explaining what and why.”

“The authors point out that the life – diminishing results of valuing growth above equality in rich societies can be seen all around us. Inequality causes shorter, unhealthier and unhappier lives; it increases the rate of teenage pregnancy, violence, obesity, imprisonment and addiction; it destroys relationships between individuals born in the same society but into different classes; and its function as a driver of consumption depletes the planet’s resources” –

“This has nothing to do with total wealth or even the average per – capita income. America is one of the world’s richest nations, with among the highest figures for income per person, but has the lowest longevity of the developed nations, and a level of violence – murder, in particular – that is off the scale. Of all crimes, those involving violence are most closely related to high levels of inequality – within a country, within states and even within cities. For some, mainly young, men with no economic or educational route to achieving the high status and earnings required for full citizenship, the experience of daily life at the bottom of a steep social hierarchy is enraging.”


John Cassidy (“Economics: Which Way for Obama?”, New York Review of Books 55/10, June 12, 2008) reviewing Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein (Yale University Press 2008), wrote “Taken together, however, the experiments [of behavioural economists] confirmed something most people outside of economics hadn’t doubted for a moment: rational economic man, the all – seeing, all – knowing figure on whose shoulders much of contemporary economics had been constructed, was a purely fictional character. Faced with even simple sets of options to pick from, human beings make decisions that are inconsistent, suboptimal, and, sometimes, plain stupid. Rather than thinking things through logically, they rely on misleading rules of thumb and they leap to inappropriate conclusions. Moreover, they are heavily influenced by how the choices are presented to them and, sometimes, by completely irrelevant information.”

A number of mental quirks, or biases, that are pretty much ubiquitous have been identified. “From the perspective of behavioral economics, the key ones are inertia, overconfidence, and loss aversion. In their everyday existences, people tend to stick with what they are doing, even if trying something different wouldn’t be very taxing. Viewers stay with the same channel for the evening news and for prime – time programming, students sit in the same chair for lecture after lecture, families go on vacation to the same spot every year. In the vernacular of behavioral economics, they have a ‘status quo bias’.” These kinds of behaviours influence how much people donate to charities, propensity to save and so on.


Michael Lewis, in Liar’s Poker (Penguin, 1990) about the experiences of being a bond salesman in the 1980’s, reveals the appalling behaviour of traders, financial services staff and rating agency staff in the manipulation of stock and the management and securitisation of debt. Writing in the December 2008 Issue of (“The End”) Lewis says, “In the two decades since [the publication of his book], I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never – ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long – Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26 – year – olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?”

Robert Skidelsky, author of John Maynard Keynes 1883 – 1946: Economist, Philosopher, Statesman (Pan MacMillan, 2003) observes, “The present economic crisis is a great failure of the market system. As George Soros has rightly pointed out, “the salient feature of the current financial crisis is that it was not caused by some external shock like OPEC” – the crisis was generated by the system itself.” It originated in the US, the heart of the world’s financial system and the source of much of its financial innovation. That is why the crisis is global, and is indeed a crisis of globalisation.

“There were three kinds of failure. The first, discussed by John Kay in this issue, was institutional: banks mutated from utilities into casinos. However, they did so because they, their regulators and the policymakers sitting on top of the regulators all succumbed to something called the “efficient market hypothesis”: the view that financial markets could not consistently mis – price assets and therefore needed little regulation. So the second failure was intellectual. The most astonishing admission was that of former Federal Reserve chairman Alan Greenspan in autumn 2008 that the Fed’s regime of monetary management had been based on a “flaw.” The “whole intellectual edifice,” he said, “collapsed in the summer of last year.” Behind the efficient market idea lay the intellectual failure of mainstream economics. It could neither predict nor explain the meltdown because nearly all economists believed that markets were self – correcting. As a consequence, economics itself was marginalised.

“But the crisis also represents a moral failure: that of a system built on debt. At the heart of the moral failure is the worship of growth for its own sake, rather than as a way to achieve the “good life.” As a result, economic efficiency””the means to growth””has been given absolute priority in our thinking and policy. The only moral compass we now have is the thin and degraded notion of economic welfare. This moral lacuna explains uncritical acceptance of globalisation and financial innovation. Leverage is a duty because it “levers” faster growth. The theological language which would have recognised the collapse of the credit bubble as the “wages of sin,” the come – uppance for prodigious profligacy, has become unusable. But the come – uppance has come, nevertheless.”

Skidelsky concludes, “‘Well – behaved’ markets should not only be more stable, they should be more morally acceptable. It is indefensible for a top American CEO to earn 367 times more than the average worker (against 40 times in the 1970s). Part of the swing – back in political economy will be to use the tax system to redress the balance between capital and impotent labour.

“The crisis has rightly led to a revival of interest in Keynes. But he was a moralist as well as an economist. He believed that material wellbeing is a necessary condition of the good life, but that beyond a certain standard of comfort, its pursuit can produce corruption, both for the individual and for society.”



In the present financial crisis, there are those who assert that it was not the lack of intervention in the market, the absence of regulation, on the part of government that has led to the turmoil but the fact that there was still too much government intervention. In ‘How We Were Ruined & What We Can Do’ (New York Review of Books 56/2, February 12, 2009) Jeff Madrick (Visiting Professor at Cooper Union, and Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School) writes that “The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash“ by Charles R. Morris (PublicAffairs, 2008) “provides a decisive rebuttal to all such excuse – making and blame of ‘government’. Morris makes it clear that it was an unquenchable thirst for easy profits that led commercial and investment banks in the US and around the world””as well as hedge funds, insurance companies, private equity firms, and other financial institutions””to take unjustifiable risks for their own gain, and in so doing jeopardize the future of the nation’s credit system and now the economy itself. In fact, government – sponsored entities, Fannie Mae and Freddie Mac, did have a part in the crisis, but not because they were principally trying to help the poor buy homes. Rather, they were also trying to maximize their profits and justify large salaries and bonuses for their executives. They had been made into publicly traded companies in 1989.”


The most famous figure in the history of arguments about rational choice, and specifically about maximization, is not a person but a donkey. Centuries before Sen’s famous essay “Rational Fools,” the fourteenth – century logician Jean Buridan””a philosopher at the University of Paris””popularized the dilemma faced by a “rational ass.” Buridan’s ass faced two equally attractive bundles of hay; they were not only equally attractive but equidistant from him. Unable to decide between them, he starved to death. It was only because he was a rational ass that he starved; a conservative ass that habitually ate whatever was on the left (or right) of his line of view would have been fine; an impulsive ass that ate the first pile of hay his eye lighted on would have been fine. The trouble was that neither pile was (rationally) preferable to the other, so Buridan’s ass could not choose between them. Buridan’s ass stars in several essays here.”

Alan Ryan, “The Way to Reason” (New York Review of Books 50/19, December 4, 2003 (review of Rationality and Freedom by Amartya Sen (Belknap Press/Harvard University Press, 2003)

The corollary to belief in the efficacy of market – based solutions is a push for small government. In his recent book “The Case for Big Government” (Princeton University Press, 2008), Jeff Madrick “recognizes that corrupt and inefficient governments, of whatever size, damage not only growth but freedom. (Madrick’s book is reviewed by Robert Parker, the biographer of James K. (Kenneth) Galbraith, in “Government Beyond Obama?”, New York Review of Books 56/4, March 12, 2009). But he presents persuasive evidence that big or small government is not the critical criterion in economics. To the contrary, government’s management of change is what is critical. And government is a key and arguably the main agent of change…. In the laboratory of the real world, the governments of rich nations have on balance been central to economic growth, and in the process have retained their citizens’ faith in their nations’ promise and social values…. If what we think of as big government is necessary to manage change, and in a complex society it may well be, then we should pursue it actively and positively, and make it function well.’

“Among the rich nations of the world, he points out, there really haven’t been any “small” governments for nearly a century. Among the wealthy OECD countries, for example, the public – sector share of GDP averages roughly 40 percent (the US’s 30 percent is the lowest of the group). It is no coincidence, in Madrick’s view, that the US leads the OECD in income and wealth inequality, poverty, crime, hours worked, and infant mortality.”

The Washington Consensus is dead. But is managerialism? For how long will we continue to be bombarded by the opinions of “economic analysts”?