“Why big systems make terrible decisions – and how the world lost its mind”

This is a freshly published book (just came out a few months back) and still not available in the digital version. I had to get my hard copy delivered from Great Britain.

It is a fairly dense and interesting book.

It basically establishes the concept of “accountability sinks”. How post war, certain systems came of being where effective walls were built such that no one could be held accountable. It starts with the story of the airline passenger who got bumped off his seat but cannot talk to any manager because it is not there in their “policies”. By citing something as a “policy”, management can effectively shirk from accountability that is required in exception cases. (Policies are still required for 99.99% of the cases).

It talks of how the financial system has effectively created many accountability sinks which has led it to behave for short term gains till the whole system collapses upon itself – as we have seen in the many financial crises and then the average taxpayer is left with the burden.

It talks about how government and politicians have created accountability sinks – e.g. different agencies, where any economic disaster can be blamed on the Fed (or central banks) whereas people vote their government directly to fix their problems in the economy.

The book shines a particular spotlight on how the Private Equity firms are creating havoc by behaving in a short term way by leveraging debt-laden buyouts. He points to how companies post war went from being a lot more employee and society conscious (they were big then too but short term profit was only one of the motives) to today’s world where shareholder value is the sole motive backed by Friedman’s philosophies.

He also directs a lot of his ire towards economists in general, Friedman in particular, who he says tries endlessly to fit the world into their pre-conceived models rather than the other way round.

He points out how globalization, outsourcing and such constructs completely broke down the information flow and led to further short term behaviors by companies.

Finally, he explains this rise of the investor class has created a deep schism in the society where nobody needs to take accountability for the real challenges of the common person. He points to how this has created a sense of helplessness and anger, how news channels like Fox figured out how to productize that rage and sell it and the eventual rise of populist leaders like Trump or Modi. This, he says is nothing but a cry from that populace for help.

Dan, an ardent student of cybernetics, uses a lot of concepts from the science of cybernetics (which kind of faded away once technology took over) to explain how to think of what is happening in the various systems. I, for one, learnt the contribution of Stafford Beers for the first time. I loved one quote of Beers where he laments that when we discovered fast information processing systems like computers, instead of using that increased information flow to rethink systems (e.g. management structures) that were built in the previous two hundred years, we applied them to do accounting (crunch numbers). He compares this to getting Einstein, Feynman and the likes to a room and see if they can figure out how to count sheep in a field faster than a shepherd can do today – or something like that!

Whether you agree to his views or not, the author will make you think. Again, a fairly deep book and deserving of a second read. But a dense book – especially the concepts of cybernetics needs careful understanding. So, give yourself some time if you pick this book up.

This is one of those books that totally gets me. I cannot possibly overemphasize the importance of reading this book if you are a leader of any kind – business, community, politics or even of your own household. The book, at least for me, articulates eloquently the struggle I have had with simplistic solutions I hear in business world on how to solve problems – “right talent” often being suggested as the panacea. This book – along with a cursory reading of a book like The Drunkards Walk should give a sobering thought to anybody who wants to be a leader.

By the way, I got to know about this book while listening to a Ted Talk by Rory Sutherland. Another guy with some great concepts

I am quoting a few paragraphs together from the book as is but there is simply no substitute to reading the book. And if you do read the book, call me. Would love to discuss your thoughts.

Excerpts:

The success of the physical sciences has encouraged us to believe there might be a science of decision making. All kinds of problems in our business and our financial lives, in the political and personal spheres, could then be managed objectively. Such a scientific procedure would, if done carefully enough, lead every conscientious person to the same answer. As a result, both political and personal disputes could be resolved by applying evidence and rational discourse. The distinction of the great business leader, the measure of financial acumen, would rest only in the ability to arrive at the right answer faster than other people.

Obliquity is the best approach whenever complex systems evolve in an uncertain environment and whenever the effect of our actions depends on the ways in which others respond to them. There is a role for carrots and sticks, but to rely on carrots and sticks alone is effective only when we employ donkeys and we are sure exactly what we want the donkeys to do. Directness is only appropriate when the environment is stable, objectives are one-dimensional and transparent and it is possible to determine when and whether goals have been achieved. The world of politics and business today is afflicted by many hedgehogs, men and women who mistakenly believe the world is like that.