Wednesday, 10 July 2013

Incompetent Elites

By Tom Lloyd
Visiting Fellow to Northampton Business School

The contract between ordinary people and powerful high-paid elites rests on the tacit understanding that the former will tolerate the yawning gulf between their power and standards of living and those of the latter, while the latter run society and the economy well.

This unwritten contract begins to break down when high-paid elites continue to exercise enormous power and award themselves enormous pay packets after they have given ordinary people reasons to doubt their competence. Loss of public faith in the competence of ruling elites can lead to civil unrest, revolts and revolutions.

So far the automatic stabilisers in mature multi-party democracies have enabled them to cope with losses of faith in the competence of ruling elites quite well. Fixed terms between general elections allow voters to depose self-serving, or incompetent rulers before they do too much damage. Ordinary people have faith in the system, if not always in their ruling elites and the efficiency of markets that allocate human resources and rewards.

But the incidence of egregious errors in corporate management, and manifestly incompetent government seems to be increasing at a time when web-based communication and ‘social’ media can broadcast word of gaffs, misjudgements and elementary miscalculations instantly.

Take the case of High-Speed Rail 2 (HS2), a planned fast rail link between London, Manchester and Leeds, which has all-party support. At the end of June transport secretary Patrick McLoughlin owned up to an alarming miscalculation, and said that HS2 was now expected to cost £42.6 bn, 24% more than the initial estimate. A week later it emerged that the calculation of the economic benefits of faster journeys, on which the business case for HS2 was based, and about which the National Audit Office had expressed grave doubts in May, was grossly overestimated, because it assumed passengers could not work on trains.

Large sums of taxpayers’ money have been pocketed by well paid and putatively well-qualified people for preparing these deeply flawed cost-benefit analyses, and a new and similarly expensive review of the project’s economic viability seems inevitable. So far no heads have rolled, no ministers, or civil servants have resigned, and no fee claw-backs for shoddy work have been announced.

The HS2 debacle is not a casus belli for a taxpayer revolt, but it certainly adds to the impression of incompetent government, and is particularly disturbing, because all political parties still seem eager to go ahead with the project, even though its business case, marginal from the start, is now in tatters. Some may say that big infrastructure projects of this kind are needed to get the economy moving, but £50 bn (including rolling-stock) is a huge opportunity cost that could be spent on a set of smaller projects, with better economics.

Another way of looking at the new age of incompetent government is to see the problem as lying not so much in the personnel as in the volatility, uncertainty, complexity, and ambiguity (VUCA as the US military characterises the contemporary environment) of the issues confronting the ruling elite. Complexity is the VUCA driver and it has always been with us. We could forecast each raindrop by now if the weather system had only recently become complex. But the world is also becoming more volatile, uncertain and ambiguous, because many of its social, economic, political and financial systems have become complex too.

There’s nothing new about administrative mistakes, but it is to be expected that they will be more frequent and more conspicuous at a time when the unintended consequences of decisions are multiplying and word of errors is spreading ever more rapidly and widely.
The problem for government agencies is that, unlike business, they are not subject to competition, which, in the business world, weed out bad decision-making.
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[The views and opinions expressed in this blogs by guests or members of the CCEG are those of the author, and not of the CCEG or the University of Northampton Business School]

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