The Unaccountability Machine

Notes

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Part One: The Nature of the Crisis

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Introduction

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Sixty-six years later, President Donald Trump mused that ‘the buck stops with everybody’

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vague sense that you used to be able to speak to a person and get things done;

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1 ‘Something’s Up’

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Nearly all the individual people involved wanted to be doing almost anything else rather than what they actually did.

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Crimes without criminals

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not only was there no paper trail between the low- level crooks and the bosses, in most cases there was actually no connection. I ended up coining the term ‘self-organising control fraud’.

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All the top executives had to do was set unrealistic profitability targets and underinvest in legal departments and compliance systems.

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The polycrisis and me

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The people who left and came back

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The accountability sinks

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you’re brought up short by the undeniable fact that the gate attendant can’t do anything about it. You ask to speak to someone who can do something about it, but you’re told that’s not company policy.

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the human being you are speaking to is only allowed to follow a set of processes and rules that pass on decisions made at a higher level of the corporate hierarchy.

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The fundamental law of accountability

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The squirrel shredders of Schiphol

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in retrospect, the only safeguard in this system was the nebulous expectation that the people tasked with disposing of the animals might decide to disobey direct instructions if the consequences of following them looked sufficiently grotesque.

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Accountability and its discontents

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How health and safety goes mad

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A decision made by an individual can be second-guessed and questioned, and it can be the object of litigation.

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How crises happen?

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The deep state

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The uncrowned fiscal king of Europe

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If you trace back many important decisions of the last few decades, you will regularly come up against the uncomfortable sensation that the unacknowledged whoputplaceholder up against legislators numbers in are the uncomfortable relatively spreadsheets, junior which are civil later adopted as fundamental constraints; to do otherwise would mean someone having to risk being criticised for making a decision.

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IMF riots

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A premature solution

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It’s more complicated than that

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How much discretion does anyone really want individual middle managers to have?

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Many of the things I’ve identified as ‘accountability sinks’ could just as easily be called ‘the rule of law’.

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The common law of England and Wales, considered as a decision-making system

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2 Stafford Beer

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The black boxes

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Homo economicus and his friends

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the bad assumptions were an inevitable consequence of the methodology; economics was committed to atomism* because this was the step that made the physical analogy work.

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Speaking in prose

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Dawn of the cybernetic moment

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Almost irresistible forces, almost immovable objects

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Purpose

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The purpose of a system is what it does.

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The Road to Chile

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The fundamental relationshipbetween management units the in kind of structures Stafford Beer designed was a ‘resource bargain’.

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This management theory is based neither on control nor on delegation, but on accountability between the parts of a business.

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Purpose and power

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Multiplicity of values

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Hayek’s insight was that if the price system is providing this information, it’s not clear what more the planner is meant to do.

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implicit assumption that price signals are the only kind of signals there can be.

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3 Aliens Among Us

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The third thing in the room

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Boxes of different kinds

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John Searle and something called ‘the Chinese room argument’.

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the Chinese room argument is partly about accountability and partly about respecting the integrity of the black box

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Decision-making systems and accountability sinks

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try to refer to ‘decision-making systems’ rather than ‘artificial intelligences’.

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more likely that managers didn’t feel accountable for the actions of organisations because it didn’t seem to them as if they were the actual decision makers. Why not? Because things were incomprehensible to them too.

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Not even the CEO

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Conspiracy versus cock-up in a cybernetic framework

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The duty and problem of explainability

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started to believe that there is an urgent problem of ‘explainability’;

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Ethics of AI is business ethics

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Paperclip maximisers

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The Algorithm and the system

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How systems go bad

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Intermission: Computing Ponds and Rabbit Holes

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Part Two: Pathologies of the System

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4 How to Psychoanalyse a Non-human Intelligence

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Tremors and ataxia in automated gunsights

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All the wonderful things

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The sad demise of the Cube-turning Society

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Philosophers and telephones

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Stafford Beer used to say that the way in which computers were used in the 1970s was as if companies had recruited the greatest geniuses of humanity, before setting them to work memorising the phone book to save a few seconds turning pages.

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The brain doctors

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anything which aims to be a ‘regulator’ of a system needs to have at least as much variety as that system.

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The variety club of Great Britain

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The squirrel survival facility

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Variety engineering for beginners

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you are always attenuating variety in some way or other, unless you are describing a system that consists of everything in the universe.

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Regulation by veto is a powerful way of solving huge and complicated search problems, because vetoing a situation as unacceptable is a very informationally ‘cheap’ action.

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Splitting the problem

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Engineering failure and system breakdown

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5 Cybernetics Without Diagrams

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One of the most characteristic features of management cybernetics is the diagrams.

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The viable systems

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Keepers of the resource bargain

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System 3 managers would pretend that they were in the harmless and necessary System 2.

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Management, and exceptions

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Management by exception is not just common sense; it’s the right thing to do, objectively.

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operating units have no means to resolve their conflicts other than through internal politics, with resources allocated by grabbing and hoarding them.

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Stafford Beer occasionally seemed to suggest that this kind of informal internal networking could be the best way to create System 3, which was why a big lounge at head office with whisky and cigars was important.

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The viable orchestra

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Matching ‘here and now’ with ‘there and then’

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The true nature of management information

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information and action are one and the same; variety coming in from the environment, or being transferred from one system to another, only counts as ‘information’ if it has a causal role in decision-making. Otherwise it’s just ‘data’

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Recursion, embedding and accountability

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Red flags and red handles

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operations, regulation, integration, intelligence and philosophy.

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An individual driver doesn’t have the authority to rewrite the timetable for the railway that day – pulling the red handle is how he or she indicates to the signalling system that something is threatening catastrophic or unacceptable consequences to the viability of the system, and that it requires immediate action.

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The cybernetic history of the global financial crisis

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if you’re doing all this forecasting, it’s hard to believe anyone who tells you that you’re not looking to the future. A real System 4, though, is explicitly concentrated on those parts of the environment that aren’t yet relevant to what it’s doing.

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Where things went wrong was a matter of philosophy. The central banks had an identity-creating function, but it had failed; it defined their purpose in such a way that they failed to understand that particular kinds of information were relevant to them.

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Intermission: Decerebrate Cats

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Part Three: The Blind Spots

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6 Economics and How It Got That Way

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Adopting the economic mode of thinking reduces the cognitive demands placed on our ruling classes by telling them that there are lots of things they don’t have to bother thinking about.

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Among the economists

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Triumph of the optimisers

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Prices of everything

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Solving it in the model

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Homo economicus was a friend of mine

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There are comparatively few industries where the textbook supply and demand graph is reasonably defensible as a description of how decisions on price and quantity are made.

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Values and uncertainties

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Time and uncertainty

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question that’s very hard to answer: what is the risk of something like the Russian Revolution, or Covid-19, or a climate catastrophe? How do you put a percentage on it and include it as part of your weighted average? And when you think about it, isn’t that a strange way to go about decision-making?

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Places where economics is absent

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Advertising is a big industry, and an important activity of firms, and yet economics not only has hardly anything to say about it, it has no real explanation of why it exists at all.* Advertising and marketing, despite their obvious importance to businesses in the real world, produce and use a different kind of information from the price and quantity signals which the model can handle.

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Markets as computing fabric

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Rather than explaining how the agents in a model might be able to acquire their perfect information, one can just suggest that the information processing happens in the market itself.

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The blind spots

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if something appears to be a market equilibrium, then it must be an optimal solution.

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A great deal of the reasons why policymakers make mistakes comes from a reluctance to second-guess market outcomes.

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the problem of translating information into actionable form hardly exists; when the information set is reduced to price and quantity, and when decision- making is just optimisation of a single value expressed in money terms, there’s no way to talk about ambiguity, perception or incompatible values. This is how cost–benefit analysis goes wrong; a statement like ‘this passenger aircraft has a faulty stall sensor which might cause it to crash’ fundamentally isn’t a piece of information about expected costs

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7 If You’re So Rich, Why Aren’t You Smart?

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We don’t do accounts

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Accountancy, with its books of principles and standards, will always bring distribution, you and face that to sort face of with the knowledge realities is difficult of to productionand reconcilewith economists’ modelling.

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How Ricardians win arguments

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The way in which Ricardianism reproduces itself, and in which Ricardians win arguments, is that they collect the numbers.

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Numbers are collected for a purpose, and it’s often surprisingly hard to use them for any other purpose.

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But this is very hard to prove, because the connection isn’t one that’s had lots of work done on collecting numbers to prove it.

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What are accounts for?

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In the early days of manufacturing, numbers were collected by people who understood what they were measuring, and wanted to know how well it was being done.

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if the variability of a cost is dependent on the overall business strategy, the decision to allocate an overhead cost or not has to depend on whether the manager responsible for that product is really accountable for that part of the resource bargain.

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Accounting for growth

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Einstein reads the phone book

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This would only be a problem, of course, if companies allowed themselves to be fooled by the compromises made for their financial reporting, rather than keeping separate management accounts for themselves and using them for all decision-making purposes. Unfortunately, this often happens. You might think nobody would be so crazy as to make business decisions based on their effect on the financial reporting, but they do, all the time.

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Companies might have considered the possibility of adding layers to their control systems, allowing process and cost allocation reports to be extracted from the same raw transaction data as the financial accounts. But that would have been a costly investment, and would have likely raised questions about organisation and hierarchy, as well as potentially overturning established relationships between cost centres and profit centres.

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Business hallucinations

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Mechanising and computerising the accounting system allowed companies to grow and get more complicated, but on the basis of the same system, one based on financial reporting. This meant that the increase in complexity was masked from the people who were meant to be managing it.

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Of course, the marketing and research costs wouldn’t actually have disappeared. In fact, the overhead costs might have gone up, as there is now a new set of problems relating to quality control and logistics which used to be handled as part of manufacturing.

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It’s fundamentally complicated because, as we said, whether a cost is fixed or variable is a strategic decision; almost any cost is variable if you’re prepared to rearrange your business.

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An accounting system is an almost perfect accountability sink

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Structure, strategy and struggle

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Often, a core skill of middle management is the ability to manipulate the financial reports to compensate for a set of numbers that aren’t giving the right answer.

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The guys you love to hate

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management consultants often act as accountability sinks.

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In one sense, the consultant isn’t contributing anything new. But in that case, why wasn’t the solution already being implemented?

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you’re having to reproduce all the expertise of the middle managers you thought you were saving money by not employing.

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Ideology of the managerial class

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The failure engine

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Intermission: Meanwhile, in Chile

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the very act of creating Cybersyn provoked a reaction from the system it was meant to regulate.

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Part Four: What Happened Next?

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8 Enter Friedman

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The thread running through the ideological shifts associated with Friedmanism – the neoliberal revolution in public policy and the post-1970 turn in managerialism – is that of a deep, almost nihilistic lack of trust in human judgement.

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The market transaction was important to Friedman because it was the only human relationship that you could be sure was honest.

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Hippies, considered as cybernetic disturbance

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If we regard Friedman’s ‘people’ as corporations, their major anxiety at the end of the 1960s was that they lacked a sense of purpose.

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corporations serve the purpose of shareholder value, and that was an end to it.

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The Friedman doctrine

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the crux of Friedman’s doctrine is that when companies act in the interests of society instead of their shareholders, they take on the role of a government.

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If the appointed agents of the owners of capital do anything other than promote the interests of their principals, they are taking the decision to spend other people’s money,

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This is what makes the Friedman doctrine, as far as I can see, a lie; it’s an exhortation to executives to reverse the truth. They are meant to ignore the reality of the company and act as if they are directly employed by human beings, but then ignore the reality of human beings, and act as if they are employed by a theoretical construct.

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The doctrine in the world

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‘fiduciary duty’ of management to ‘maximise shareholder value’. This makes no sense; it’s legal jargon being used outside its specific legal context.

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courts have never found that there’s any particular fiduciary duty to run a company in one way rather than another, and there’s certainly not one to maximise the value of one particular class of its financial securities. It would be a legal disaster if they did; what if the way to maximise the share price involved taking a huge risk of bankruptcy and ripping off the creditors?

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The executives get the benefit of a clear conscience; the Friedman doctrine is also an accountability sink for them at the personal level.

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Friedman and financialisation

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financial markets do give answers to these questions, thousands of times a day, in a way that can seem miraculous. When you look at the capital market in this way, you might be briefly overwhelmed, to the extent that you wonder whether it might be a magical computing fabric after all.

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Debt as a control technology

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How companies lose their minds

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despite the large amount of money spent on provision, and despite all the measures taken to cut costs to the minimum and beyond, care homes did not seem to be profitable;

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All these stories tend to lead to one place: private equity and the leveraged buyout phenomenon.

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it had what many other institutions lacked – a very strong sense of identity and ideology, a ‘System 5’ capacity that allowed it to integrate its information gathering and operational management functions with a single clearly defined goal.

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The most ideological academic journal of them all

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The intellectual backing for the leveraged buyout movement was explicitly disciplinary, and the use of debt as both a technology of control and as a way of serving the interests of capital-owners is clear as the moral of the case studies.

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How it began to go wrong

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expand the definition of companies that could be considered valid targets. Rather than looking for inefficient practices or self- dealing executives, you might just start searching for companies that weren’t making full use of the tax benefits of debt finance. Or anything where the cashflow was stable enough to get a cheap deal on debt. Or you could just take advantage of a temporary dip in the stock market to get an attractive entry price.

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9 The Morbid Symptoms

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A key part of recent history has been a story of class struggle, but not the usual kind. There’s been a class war between the capital-owning class and the managerial class.

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Class traitor to the managers

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The management has greater control over costs than revenue – they depend less on decisions taken outside the organisation’s perimeter.

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Revolutionary capitalism

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For Welch, this disciplinary effect of removing layers of management seems to have been at least as important as the cash savings; that’s why the rank-and-yank of the bottom 10 per cent was carried out to preserve the threat, even when economic conditions made it hard to justify.

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recognising such a big spike in profits would have made it difficult to continue to show steady growth in future years. So they closed down some factories, making more than 1,000 people redundant, in order to generate a corresponding one-off cost. ‘Offsetting the gain has been our practice,’ was the comment at the time from Welch’s spokesperson.

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If you consistently demand the impossible, you will inevitably get the unethical.

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the real disaster for the information processing capacity of the capitalist economy was outsourcing.

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Serious problems and no-brainers

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careful attention needs to be paid to preserving information when a signal crosses a boundary – the ‘translation and transduction’ problem.

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companies exchanged internal boundaries for external ones. Since a large part of the reason for doing so was to economise on management capacity, these relationships necessarily attenuated information – that was the purpose of doing so.

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The typical communication outsourcing channel to contract either narrows ‘everything is the going bandwidth more or ofthe lessas anticipated’ or ‘it’s stopped working and we need to find out why’.

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The broken covenant

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The function of the investing class is to serve the members of the working class by insuring them against loss and by providing them with desired goods.

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Reversing the polarity

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The road to perdition

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The public sector atrophies

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A company that sells goods and services for profit can never completely sever the connection which takes information from its customers; the people who buy the thing have the ability to refuse to do so. In many cases, people who interact with the state don’t have even have the ability to transmit that single bit of information

NOTER_PAGE: (193 0.4658840792369773 . 0.23361823361823364)

The wizards behind the curtain

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‘Everyone in Ireland had the idea that somewhere . . . there was a little wise old man who was in charge of the money . . . They saw him and said, “Who the fuck was that? Is that the fucking guy who is in charge of the money?” That’s when everyone panicked.’

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El pueblo

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The reason why all these quests for the true views of Real America or its geographical equivalents seem to reach such invariably disappointing conclusions is that they’re looking in the wrong place. The medium itself is the message; what liberal society ought to be responding to is the fact of mass distress, not its content.

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Overload and despair

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Autonomy and the status syndrome

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The villain, unmasked?

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10 What Is to Be Done?

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A meeting in Cwarel Isaf

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Endless possibilities

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Restoring the polarity

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J. K. Galbraith saw the role of corporations very differently to Friedman.

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He is in general suspicious of ‘competition’ when it shows up – absolute monopolies, in his view, are likely to be exploitative, but cosy arrangements to fix prices are more likely to be a good thing. They generate profits which can be channelled into investment and innovation, they bring stability to the overall price and wage bargains, and they encourage businesses to compete by improving quality.

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Herbert Simon also proposed a ‘behavioural theory of the firm’, in which profits were not the goal to be maximised, but instead a constraint on behaviour – managers were assumed to do just enough to keep investors happy, then spend the rest of their time and effort trying to do new things they could be proud of.

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The new nature of the corporation

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the first step towards the possibility of any improvement has to involve doing something about private equity.

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the variety of financial situations that a company can be in is much greater than anything that could be written into a rule.

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any entity taking control of an operating company should have to guarantee its debts.

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You can keep the good part of the resource bargain for limited liability, but concentrate it on its original purpose – allowing small, non-controlling investors to contribute to the purchase of industrial capital. That’s where the major benefit of the arrangement is, so there’s no need to allow further levels of limited liability.

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Viability over maximisation

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The ‘profit motive’ isn’t something that can be ascribed to corporations – they don’t have motives. What they have is an imbalance between the two key higher functions – here-and-now versus there-and-then.

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Viable systems fundamentally seek stability, not maximisation. In the era of capitalism that J. K. Galbraith and Herbert Simon described, the giants of corporate America were content with being big and important; they didn’t feel the need to get every last bit of cash that could possibly be extracted.

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Our colleagues the economists

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Every decision-making system set up as a maximiser needs to have a higher-level system watching over it.

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the top level of any decision-making system that’s meant to operate autonomously can’t be a maximiser.

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Our friends the robots

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We cannot afford the luxury of explainability; we can’t keep on demanding that an identifiable human being is available to blame when things go wrong.

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Index

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