Wednesday, 28 February 2018

Toby Young and the Modern Establishment

The idea of the establishment arguably has a more concrete reality than the establishment itself. This is not just because the latter is fuzzy around the edges, but because the former is such a useful line of attack that no one bats an eyelid when an Oxbridge-educated newspaper columnist berates the "liberal establishment" for undermining Brexit. This might lead you to think that the establishment has fundamentally changed over the last half-century, or perhaps that it has fragmented into multiple establishments. Certainly many of the recent studies on the subject have tended towards one or the other view, either documenting a comprehensive neoliberal takeover of conservative institutions since the 1980s or a fragmentation under pressure from globalisation into a set of competing, often supranational elites. In that light, the official report into the aborted appointment of Toby Young to the Office for Students is almost reassuringly old-fashioned in the picture it paints. It is a Hogarthian scene that combines the promotion through political patronage of the unqualified but well-connected with the blackballing of the qualified but politically unsound.

The origin of the term is usually attributed to the British journalist Henry Fairlie, writing in 1955: "By the Establishment, I do not only mean the centres of official power—though they are certainly part of it—but rather the whole matrix of official and social relations within which power is exercised. The exercise of power in the United Kingdom (more specifically, in England) cannot be understood unless it is recognized that it is exercised socially". The seminal work on the subject was Anthony Sampson's 1962 Anatomy of Britain, the popular success of which ensured that the topic would be dominated by the "wot I fink" school of long-form journalism rather than by academic sociology, hence recent years have seen chunky books from the likes of Andrew Adonis & Steven Pollard, Jeremy Paxman and Owen Jones. Aeron Davis is the latest addition to the pile, though as a professor of political communications at Goldsmith's College you'd hope for something beyond either nostalgia or polemic. The summary of his thinking that appeared in The Guardian this week doesn't bode well.

While it's unlikely that Fairlie's idea of a matrix of social relations was inspired by Antonio Gramsci's theory of hegemony, which had come to prominence in Italy with the first publication of his Prison Notebooks in 1947, both were symptomatic of a postwar interest in society as a dynamic system in which progressive and conservative elements struggled culturally as much as socially (the war of position, in Gramsci's terminology). This was in contrast to the more straightforward and violent conflict of the prewar years centred on class and national identity (the war of manoeuvre). The context for this shift was the geopolitical stability of the Cold War in Europe and the broad acceptance on the left (most notably by Italy's Communist Party) of a parliamentary road to socialism. Understanding the component parts of society beyond simple class structures became a political necessity. In the UK, the eager misunderstanding of Michael Young's satirical "meritocracy" (and in particular the way that welfare state sinecures were monopolised by the old establishment), together with the uncertainty of Britain's post-Suez trajectory, raised the question of whether the country's governance was any longer fit for purpose.

Davis's approach appears to be firmly in the tradition of Sampson, with a reliance on individual interviews and thus a bias towards the anecdotal. I've not read the book, so the summary may be obscuring a solid foundation of empirical research in order to sex-up the narrative, but the fact that interviews are relied on is not encouraging. While the technique can make sense in a sociological study, where the subjects are usually accessible and other evidence scant, the establishment is surely more suited to a historical approach, given the ample documentary evidence of its doings and the likely inaccessibility of some of its contemporary figures (and that the more accessible ones will be skilled self-promoters). Being able to check facts and interpretations face-to-face is merely a bonus. Davis reports that over 20 years he has interviewed "more than 350 people working in or close to the top". This is not just leisurely in its pace, calling into question how accurate a picture can be formed given the degree of change over two decades, but is vague about the selection criteria. The Molesworth-like "top" and the impression of a series of informal "chats" is close to a parody of establishment values and practice.

The problem at the heart of the study of the British establishment is the model established by Sampson: "In my first Anatomy in 1962 I tried to depict Britain's Establishment as a set of intersecting circles of varying size - each representing a different institution - loosely linked to each other round an empty space in the middle. It was in the nature of Britain's democracy that there was no single dominating centre, and much of the power depended on fixers and go-betweens to connect one circle with another". This Whiggish ideal of collaborating interests placed too much influence on the institutional basis of the separate circles, hence the Church of England could still be considered part of the establishment in the 1960s despite its marginalisation in the postwar years by the welfare state. It also suggested a balance of powers that was negotiated through informal transactions, which fed the popular appetite for occult networks and deep-state conspiracies: that "they" were working against "us". The reality was more mundane: groupthink and mutual back-scratching. The omission in the model - that empty space in the middle - was the hegemon that guaranteed the balance of powers.

The journalistic imagination doesn't have much interest in the structural relationships of institutions (e.g. how the NHS affected organised religion), or the way that institutions evolve (e.g. the professionalisation of politics). It sees institutions as fixed features and individuals as opportunists who seek to exploit them through unmerited occupancy or abuse of power, a prejudice that has been reinforced by Public Choice Theory. To give a current example, foreign aid charities like Oxfam are facing secular decline for a number of economic and geopolitical reasons, but this is being obscured by lurid tales of individual wrong-doing. There is a hint of this (and of the fragmentation theory) in the title of Davis's book, Reckless Opportunists: Elites at the End of the Establishment. The cause of this decline is held to be the triumph of neoliberal self-interest, which has led elites to disown responsibility for any wider coordination and thus the maintenance of the establishment as a normative field. In other words, Davis considers the establishment to have been historically specific to the social democratic era, which echoes Fairlie's conservative spin on a Polanyian double movement: "Men of power need to be checked by a collective opinion which is stable and which they cannot override: public opinion needs its counter; new opinion must be tested. These the Establishment provides: the check, the counter and the test".

Davis sees two key manifestations of the waning of the establishment: "a shift in elite power from the public sector to the private sector" and the breaking of "the automatic links between exclusive education, tradition, status, power and money". Both are questionable. The first is an example of swallowing the Thatcherite myth of a reduced state and a flowering of entrepreneurialism at the expense of anti-commercial institutions. Measured as a share of GDP, the state has not shrunk: large swathes of public goods and services have instead been handed over to private businesses that now rely on tax revenues and thus political influence. Carillion is an obvious recent example. Likewise, the marketisation of institutions has not reduced their social influence. University vice-chancellors may be more venal, but they are no less powerful. As to the conveyor-belt of privilege, Davis cites in evidence CEOs, despite these being unrepresentative of the wider establishment due to greater internationalisation in recent decades and the preponderance of the self-made: "Only a third of those I interviewed – 20 CEOS of FTSE 100 companies, and 10 CEOs from the top 100 private companies – came from a wealthy, upper-class background or had attended a public school". To understand the establishment you would do better to look at the educational background of CFOs and corporate lawyers.

It would also be worth asking how many of those 30 CEOs were paying for their own children to be privately educated. I suspect more than a third. One of the chief roles played by public schools is the laundering of nouveau riche and foreign offspring. While fans talk up public schools as astute operators in a global marketplace, we shouldn't lose sight of the fact that they remain dependent on the native rich who still expect social preferment as well as a polished education for their money. As an illustration of changing times, Davis tells of the culture clash between the plebeian Gerry Robinson and Sir Rocco Forte in the 1995 Granada Group takeover of Trusthouse Forte, forgetting that while the latter may have been a Tory donor who liked shooting grouse, he was also the son of an initially poor Italian immigrant to Scotland. The focus on CEOs is indicative of the increased identification of the establishment in the era of globalisation with the City of London and the stateless corporate class embodied by "Davos man", but this tendency confuses the commercial elite, which of necessity has always been global, with the state elite, which of necessity has always been national. While the two intersect, their interests and modalities are distinct. The danger with this focus on business is that the actual establishment, which is always centred on political and state apparatus elites, moves out of focus.

Davis suggests that the growing power of the money-men has "left the various parts of the current establishment more disparate and more antagonistic towards each other", citing Margaret Beckett on her experience of a meeting in the early-90s: "it was almost like the bride’s side and groom’s side – the people from the financial world, and the people from the industrial world, and they almost weren’t talking to each other". As any history of British industry or the City would reveal, this antipathy and mutual mistrust dates back to the middle of the nineteenth century at least. There is little new here. More significantly, this anecdote occludes the other key interest in the room: the political establishment represented by Beckett herself. The supposedly empty space at the centre of Sampson's model has always been occupied by politics. The changing cast of characters doesn't make it any less of a consistent interest. The surrounding circles were, in Sampson's benign interpretation from 2004 "a network of liberal-minded people who could counteract the excesses of autocratic and short-sighted governments". The timing of those words is obviously telling, but it also highlights the weakness of the peripheral establishment, much of which was complicit in the Iraq misadventure. The core political interest remains the hegemon, all too easily able to overcome Fairlie's checks and counters.

My own view (wot I fink) is that the wider establishment was never as substantial or coherent as Sampson and his imitators thought, being more protean in its membership and having a much more uneven distribution of effective influence. That said, I also doubt that the establishment has changed as much as more recent writers like Jones and Davis imagine. A focus on "banksters" risks being ahistorical (fraud and greed are not new), while a focus on ruthless CEOs risks casting the net so wide as to simply equate the establishment with capitalism, collapsing superstructure and base. Neoliberalism has certainly had a dramatic effect, but that is to be seen mainly in the changing attitudes of the hegemon at the centre of what is better described as a set of concentric circles that reflect access to public money rather than inter-personal networks. Politicians at the core, then the state apparatus, then the para-state of contractors and mediators, then the wider circle of business. Some of those circles have expanded or contracted over time, but the core remains constant. Institutions do not always map to a single circle in this schematic and can move between them. The City of London, for example, owes its power to cutting across all four, while higher education is transitioning from the para-state to business.

Much of the rhetorical use of the establishment as a term concerns competition and readjustment between these circles, thus "the liberal establishment" reflects the relative triumph of the para-state over the state apparatus since the 80s, while the increased use of "the political establishment" reflects not only the perceived congruence of interests of the major parties (at least up until 2015) but also the expansion of political appointments to policy areas previously controlled by the Civil Service (the OfS is a case in point). Insofar as we can talk of a decline in the "old" establishment, it is to be found not in the reduced circumstances of the Royal Navy or the Church of England but in the weakened influence of Whitehall as an institution, a development that started well before the appearance of Yes, Minister on our TV screens. Ironically, this was as much down to pull as push, as much of the government machine's senior talent was willingly siphoned off to Brussels. Brexit is unlikely to reverse this decline: the Tories will continue to favour the para-state (they'll outsource the Irish border to Serco) while Labour will probably expand the political core (having read the warnings in Tony Benn's diaries).

Looked at in the round, the establishment is essentially those individuals and groups that enjoy political influence (derived from their economic position) beyond any democratic justification. It currently includes newspaper proprietors and the military, but not trade union leaders or the National Trust. Because it relies on personal networks and loyalties, influence is "sticky", so it tends to dissipate at a slower rate than economic power. This explains why early studies of the establishment, which caught social formations under pressure from the social democratic dispensation, gave too much weight to tradition and the old school tie. There is some evidence that co-option and rejection by the establishment now happens more quickly than in the past, but this probably just reflects the greater social dynamism of late capitalism (or the postmodern condition, if you prefer). In that respect, Toby Young is again an object lesson: a man who has been repeatedly expelled but whose success in gaining readmittance reflects less on his charm than on the growth of the circle of the para-state and its insatiable demand for useful idiots.

Tuesday, 20 February 2018

The End of UKIP

The general view is that UKIP has slid into irrelevance because it succeeded in its primary goal: securing victory in the 2016 EU referendum. Rafael Behr in The Guardian is not convinced: "Its finances and membership have dwindled as its purpose has become obscure. But why is it obscure? Brexit isn’t done yet. Is it inevitable that an organisation with a single vast ambition should atrophy the moment that ambition captures the state? Surely that is the time for such an organisation to thrive. Seen through the eyes of future historians, it is weird that the locomotive party of a revolution should shunt itself into a ridiculous siding". Of course, there are plenty of examples of organisations that have gone into a rapid decline once their political goal was achieved, from the Suffragettes in the UK to the Prohibition movement in the USA. To make his case, which is ultimately a charge of the betrayal of the electorate, Behr has to convince us that UKIP was more than a mere campaign with a narrow goal; that it amounted to a political movement that sought to reorder society more generally, despite its inability to make political headway outside the special circumstances of elections to the European Parliament. This means reviving the claim of Matt Goodwin and Rob Ford that UKIP's rise represented a general discontent with politics and the established parties; a theory that was clearly disproved in 2017.

Looked at in terms of political dynamics, the cause of Brexit has simply moved from the extra-Parliamentary field to the Parliamentary. It is now official (if vague) government policy and the Tory ultras offer loud resistance to back-sliding. You could view this as either the UKIP-ification of the Conservative Party or the return of a "lost tribe", as Boris Johnson put it, that had been alienated during the post-Thatcher years, but neither story is convincing. The ultras were there all along, cheering Enoch Powell's condemnation of the EEC well before they started sniping at John Major, while UKIP's rise to prominence didn't happen until the 2004 European Parliament elections (when it increased its seats from 3 to 12), which was more than a decade after the Single European Act and the Maastricht Treaty. And while this date coincides with the start of increased migration from the EU, the rise of immigration as an issue of public concern began in the late-90s, amplified by a hostile media focus on asylum-seekers. Tellingly, Nigel Farage did not become leader of UKIP until 2006 and the party did not achieve pole position in the European elections (24 seats) until 2014. Seen through the eyes of future historians, the Tory ultras are a dissenting faction that can be traced back to the Macmillan years while UKIP was a political mayfly.

Behr questions whether it was ever really a party, though only in order to denigrate its cause: "A party founded on a big idea should be able to survive a change of leadership. It should grow when its idea captures the mainstream. And if that party shrivels into a ball of congealed venom, what does that say about the wisdom of its idea?" There is a gulf, both organisationally and conceptually, between a "party of revolution" and "a party founded on a big idea". For a start, political parties tend towards the fox rather than the hedgehog, in Isaiah Berlin's formulation, because they need to institutionalise a broad base of support to secure power. Even if they are driven by a core idea - the inevitability of class conflict, the primacy of individual liberty etc - the political dynamic requires that its impact be worked out in detail across all areas of society: a revolution is general, not particular. This translation of theory into practice was something that UKIP signally failed to do. Its vision of society never quite came into view beyond an incoherent nostalgia and an obsession with quotidian trivia like smoking in pubs, much of which was simply a reflection of the personality of the then leader.

Nigel Farage's success in that role owed much to his projection of an unflappable character that was part spiv, part city gent, part mein host. His appeal for the media was colourful presentation as much as views congenial to the assumed prejudices of consumers. The failure of his successors to achieve a similar prominence wasn't simply a case of pygmies following a giant. After all, Farage as a politician was a one-note gobshite and a practical failure. Not only did he never manage to get elected as an MP, but his record of indolence and financial abuse in Strasbourg would have shamed the beneficiary of a rotten borough. In retrospect, it looks like Paul Nuttall's embroidery of the facts of his history was as much about trying to invent a character sufficiently colourful to maintain media interest as it was a reflection of his inner Walter Mitty. The over-riding impression that the recently defenestrated Henry Bolton gives has nothing to do with his racist girlfriend. It is that he is a dull man with delusions of significance. He reminds me of a 1980s sitcom.

UKIP clearly wasn't a party in the conventional sense, hence its repeated failure in Parliamentary elections (the exceptional circumstances of Douglas Carswell notwithstanding) and its notorious volatility in local government, where its councillors have frequently split or defected. Its mix of jejune libertarians and crusty reactionaries precluded any coherent ideology, revolutionary or otherwise, while its attempts to develop a programme beyond Brexit were repeatedly undermined by eccentricity and the intervention of the racist and Islamophobic right. So was UKIP more a single-issue campaign than a party? There's obviously truth in this - Brexit was the overwhelmingly dominant concern for reasons of unity as much as conviction, while the behaviour of the party's MEPs in the European Parliament never graduated beyond protest - but this doesn't explain how UKIP came to dominate politics in 2016. Behr's attempt to cast Brexit as a complex, emotional spasm over which neither UKIP nor the Tory ultras have much control doesn't answer the question. He seems reluctant to acknowledge that UKIP during the Farage era was a creation of the rightwing media rather than an organic, populist uprising - again repeating the error of Goodwin and Ford.

That Nigel Farage quickly went freelance after the referendum as an all-purpose spokesman for the gammon tendency was less opportunism than a case of advancing his career to its next logical stage: from leader of the band to solo artist. Farage has always depended more on the indulgence of newspaper editors and broadcasting producers than on the support of the party. It is clear that his seat on the BBC's Question Time will remain available for a good while yet, but that might not be the case if he were shackled to UKIP's corpse. Contrary to his loud assertions, he is probably happy that there will be a Brexit transition as it will extend his relevance for a few more years, perhaps longer. That he has sought to internationalise his brand, first in the USA and now in the Republic of Ireland, is an irony that appears to be lost on the Little Englanders of UKIP's fast-diminishing rump. The challenge for Farage is that media interest is shifting towards Jacob Rees-Mogg, who is an even more artificial character but has the advantage of a seat in the House of Commons. That the Tory ultras have settled into a routine of performative protest might look like a tribute to UKIP's salad days in Strasbourg, but it's really just the lasting influence of Enoch Powell.

Saturday, 17 February 2018

The Rise and Fall of the Filter Bubble

The term "filter bubble" was brought to prominence by Eli Pariser in his 2011 book, The Filter Bubble: What the Internet is Hiding From You. Ironically for a book that anthropomorphised the Internet, imagining it as a malevolent entity that sought to confound us, the subject was personalistion, but in this case the attempt to produce more "relevant" content for users through the analysis of their networks, past choices and demographic characteristics. Pariser's theory was that personalisation in social media was simply reinforcing existing biases by excluding conflicting viewpoints. Google's search results and Facebook's news feed were being subtly censored in a way that simultaneously increased plurality (there was now an infinite number of bubbles rather than the single narrative of the totalitarian dystopia) while reducing individual cognitive diversity (you were isolated in your own, singular bubble). This wasn't a new idea - it's just a version of the echo chamber, after all - but Pariser caught the zeitgeist by suggesting that the tech titans were at best indifferent to social capital and at worst malign. Despite ample evidence that default personalisation produced little variation in results, the filter bubble became an established fact in the discourse on the social impact of the Internet.

One reason for this was that the idea chimed with the narrative of increased political polarisation, particularly in the USA. The Internet was thought to be driving people into more entrenched camps, producing greater partisanship and "alternative facts". Inevitably, the filter bubble has been blamed for Brexit and the election of Donald Trump. This distracts attention from the more overt bias and influence on popular discourse exercised by newspapers and television, which may be getting worse as the global news market takes a more nationalistic turn. Insofar as polarisation is an actual social phenomenon, rather than just a reflection of changes in the dynamics of party politics (e.g. the declining significance of race as a bipartisan issue, both in progressive and conservative registers, in the US after the 1960s), it appears to be most acute among older voters with a greater reliance on traditional media. As one American academic study noted, "We find that the growth in polarization in recent years is largest for the demographic groups least likely to use the internet and social media".

In practice, a greater exposure to content of any sort will lead to greater diversity. Even if you only augment The Sun with The Daily Mail you will increase the diversity of views, simply because the overlap between the two is not perfect. The net effect on diversity of opinion will be positive, even if slight (it can't be negative). If you use social media, the odds are that you will be exposed to a broad variety of viewpoints simply because your own family and friends will likely include people with different opinions and affinities. They may be utterly wrong about everything, but you're still going to be exposed to their perspective. Unless you rigorously curate your preferences, and so take control of your personal filter (in which case the idea of an imposed filter bubble does not apply), you are probably exposed to far more diversity of opinion today than you were twenty years ago. Some of that additional opinion will be nonsense or propaganda, but there is no good reason to believe that the relative proportions of "good" and "bad" in new media will be any different to traditional media.

Despite the flaws in the filter bubble theory, its proponents continue to believe its fundamental truth even in the face of contrary evidence. For example, Rachel Botsman (a former director of the William J Clinton Foundation) writing in The Guardian concedes that social media actually increase diversity but remains determined to salvage the filter bubble: "A recent Reuters Institute Digital News Report found that 44% of people in the US who use social media for news end up seeing sources from both the left and the right, at more than twice the rate of people who don’t use social media. However, that’s not to say they necessarily pay attention to any contrary views. When Facebook rolled out its 'related articles' feature last year, users continued to ignore information that undermined their favoured narrative." If you can be bothered to click on the link in Botsman's article you will discover that she has misrepresented the Facebook change, which actually led to lower rates of sharing of contentious articles by providing counter-narratives.

Botsman is typical of the neoliberal establishment in simultaneously extolling freedom and insisting on the need for restraint: "I’m a huge advocate of free speech, open democracy and online dialogue that mirrors the exchange of opinions that happens offline – at work, at home and even in classrooms. The issue is that it has become a free-for-all, a corruptible beast that we can’t, or haven’t, yet learned to control". It should be obvious here that the "beast" is not the Internet but that more traditional animal, the bestial mob. Social media has become a symbolic substitute for society, allowing establishment figures like Botsman to not just attack the common herd for its lack of manners and good sense but to revel in their own contempt. To this end, the inflation of the troll from a social nuisance to a state actor with malign intent (those Russian bots) is a distraction from what would otherwise be a whine against the impropriety and disrespect that characterises the everyday exchanges that Botsman claims to value. The hyping of the threat to democracy is an anti-democratic manoeuvre.

That the filter bubble has actually come to prominence during a period of increased cognitive diversity should lead us to wonder what purpose the concept serves. One explanation can be found in the space where political centrism intersects with the anxieties of traditional media outlets over falling advertising revenues. Centrism by definition deplores partisanship and polarisation, but it also believes that regulation is necessary in the public sphere to ensure a level playing field. This obviously conflicts with the traditional liberal exaltation of the free press, requiring the hyperbole of extreme threats, from antisocial corporations to state actors, to excuse intervention. For traditional outlets like newspapers, the existential crisis presented by the changing advertising landscape is enough to justify a state of exception, but they have no better idea how to tackle the problem of increased diversity than the centrists. The consequence has been a steady inflation in the scare stories and an increasing note of hysteria among traditional media commentators facing falling sales and thus the prospect of their own eventual redundancy.

The limited attempts to address the circulation of "fake news" via social media have centred on the independent verification of news sources. These have tended towards ranking, i.e. classifying content as more or less reliable based on the reputation of the source. This means providing a weighting of content providers that can be incorporated into algorithms, which is little advance on Google's Page Rank. The obvious aim is to reconcile the different interests by giving traditional outlets a privileged position as sources, but this simply substitutes credibility for traffic and is therefore economically unsustainable. The fight is ultimately over money, not truth. Platforms like Facebook are comfortable with this approach not only because it doesn't threaten their revenues but because it allows them to avoid the responsibility of editorial control. To rub salt into the wounds of traditional outlets, this can as easily be done by outsourcing judgement to unpaid volunteers (community self-policing) or not-for-profits as to established media brands. As Mark Zuckerberg disingenuously explained it: "We do not want to be arbiters of truth ourselves, but instead rely on our community and trusted third parties".

The filter bubble, as a controlled environment in which the consumer is passive, has gradually given way to the idea of an active network in which people share junk news (i.e. deliberately false and extremely partisan). From slaves of the machine they have become active amplifiers of each other's prejudice (the way these networks are described often employs tropes familiar from reports of Islamic radicalisation). This evolving idea has been politicised by the evidence that such networks are more prevalent on the political right than the left, leading to the idea of "network contagion" being associated not just with polarisation but with political populism. A recent study by the Oxford Internet Institute (OII) has been widely cited by liberal media in this regard, despite its methodology being quite hilariously flawed. Its sample of junk news is biased towards the right (so comparisons with junk news circulation on the left are impossible) and no rationale is provided for its segmentation of consumers into value-laden groups such as "the resistance". Many of the junk news sources turn out to be vanilla conservative outlets, like National Review.

The stylistic characterisation of junk news in the OII study includes this classic line: "These outlets use emotionally driven language with emotive expressions, hyperbole, ad hominem attacks, misleading headlines, excessive capitalization, unsafe generalizations and fallacies". This description would obviously apply to many mainstream newspapers. The real reason for the rightward bias in junk news is simple economics: there is a large market for rightwing junk and a willingness to spend disposable income on value-reinforcement (the gammon pound, in British terms). This isn't just a structural reality, reflecting the correlation of age with both increased conservatism and financial comfort, but the result of a deliberate cultivation of this market segment through traditional media since the 1970s, notably cable TV, shock-jock radio and partisan newspapers. Though exploited mainly by conservatives, the key enablers of this development have been successive neoliberal reforms that simultaneously removed the social obligations that had been placed on traditional media and insisted that editorial strategy should be subservient to market forces. If you want to understand junk news, start with the deregulation of US TV news in the mid-90s (enacted under a certain William J Clinton).

Having started out as a vision of passive isolation, the filter bubble has matured into the trope of an active cult. The next stage in its evolution points towards irrelevance as more apocalyptic visions of media and content-generation emerge, such as the idea that bad actors will soon be able to fake video so well that we will struggle to believe the evidence of our own eyes (it is worth remembering that cinema has been simulating contemporary reality since Sergei Eisenstein restaged the storming of the Winter Palace, while the tradition of impersonating public figures on the telephone is as old as, well, the telephone). What is telling about this imaginative hellscape is less the implausibility (the technology capable of determining a simulation will advance in parallel with the technology for creating one) but the assumption that we will have once more been reduced to passive idiots, which tells you a lot about the media editors who commission such fantasies. The filter bubble is dead. Long live the filter bubble.

Saturday, 10 February 2018

The Ides of March

The reporting of the leaked government forecasts on the regional impact of various Brexit scenarios this week was a good example of the media's "bias against understanding", with little attempt to explain what the numbers actually represented, let alone what they would mean in practice. Some people interpreted them as evidence of economic depression (i.e. an absolute fall in output), which at 15 years long would be nothing if not remarkable, rather than a reduction in the rate of GDP growth over the period. That all Brexit outcomes are going to make us relatively worse off has never been in serious dispute (i.e. beyond the free-trade fringe), and some leavers were resigned to this from well before the referendum, valuing greater "control" over immigration and domestic law above national wealth. Few commentators noted that the forecast limit does not imply a recovery from sub-par growth after 15 years, that horizon simply being as far out as the analysts felt confident modelling. Given that national wealth is cumulative, it would take many years to make up the lost ground, and that's assuming we could achieve above-par growth for a sustained period (we haven't managed it yet during the recovery that started in 2013), so what is actually being forecast is a generation-long recession.

The noise around the forecasts has helped distract attention from the crisis in government over the Brexit end-state, so much so that I'm wondering if the leak was actually engineered by Number 10 rather than "meddling" civil servants. The division in the cabinet over the desired future is not one that can be bridged. A compromise between those who want maximum alignment with the EU and those who want the minimum would satisfy neither. It would be a lose-lose. As there is no win-win either, the only possible outcome is zero-sum: one side has to win and the other lose, hence the fevered talk of expulsions and leadership challenges. In microcosm, this reflects the larger negotiation between the UK and the EU, except there is little doubt that whatever happens the EU27 will not lose. The best the UK can do is minimise its losses (that was the real message of the multiple GDP growth scenarios), but that necessarily means rejecting any compromise with the Brexit ultras and seeking maximum alignment. This dilemma has led to the current irritable state of affairs in which the EU is pointing out that the UK government has yet to hand in its homework, while ministers in London pretend to be affronted by what they characterise as Brussels' high-handedness.

While cake has been the most prominent food metaphor to date, the tactical objective of the UK government remains cherry-picking: the idea that a series of bespoke sectoral deals can be negotiated that will preserve key European markets and supply-chains while allowing full autonomy in respect of trade agreements with other countries. The problem is that cherry-picking is politically unacceptable to the EU27 because of the obvious precedent it would set, not just for existing members but for those like Switzerland and Turkey who are resigned to non-membership but would like improved benefits. Despite its notorious weakness for fudge, the EU remains a construct built on institutions, hence all that is on offer to the UK is a limited set of menu options, essentially Norway or Canada. If this wasn't challenging enough, the true believers of Brexit (and the opportunists, for that matter) are disinclined to accept any deal that doesn't look like a clear loss for the EU. They want to be able to say that money has been repatriated for the NHS and that the EU has admitted it cannot live without our market for German cars and Italian prosecco. They also want remainers neutralised. They want, to put it bluntly, a dead body.

For the ultras, any continuing authority by the EU over trade or commercial regulation is a red line. Though they are insisting that this authority should end in March 2019, it would be reasonable to compromise on the transition period, despite the hype about being a "vassal state" (a time-delimited vassal state is obviously a nonsense), but that only amounts to a delay until December 2020. Any form of associate status of either the Customs Union or the Single Market would entail continuing EU authority in practice, hence the insistence that only a bilateral trade deal (i.e. one in which the UK has equivalent authority to the EU27) is acceptable. Though the maximum alignment faction, led by Philip Hammond, look closer to the EU27's position, in reality there remains a big gulf between them and Michel Barnier & co because of the insistence that the UK cannot be a member of "the" or "a" customs union. Brexit in name only might look attractive to the #FBPE crowd, but it isn't on offer from the EU27 except in the form of explicit membership of both the Customs Union and the Single Market, which isn't something that Hammond & co can sell domestically.

To no one's surprise, the Irish border has come back into focus as the most intractable problem facing the negotiating teams. Unless the UK stays within both the Customs Union and Single Market, a harder border is inevitable. The questions that arise are where and how hard. The Tories and the DUP are both opposed to a border in the Irish Sea, even though this would be the most practical solution and enjoys popular support (or perhaps indifference), even among unionist voters. For the DUP it is an existential issue that would represent the first step towards their full absorption into a united Ireland. Suggestions that a land border between Northern Ireland and the Republic could be magicked away by technology remain literally incredible. While the Tory ultras insist that there is no need for a hard border, they are essentially playing a game of chicken because they simply don't care what the outcome is. If a hard (or even hardish) border reappears, they will simply blame the EU. If it could be engineered, which I doubt, I suspect that Rees-Mogg and his ilk would accept an Irish Sea border as the price for a "clean break" for Great Britain.

All the structural forces are pushing towards a continuation of the status quo, both during the transition and after, while the political imperative of Brexit remains the need for a visible rupture, even if the material consequences are negative. Everything the government is currently doing is aimed at putting off the inevitable crisis that this entails and hoping that something will turn up. But nothing will turn up. The EU27 aren't going to do anything that calls either the legitimacy or purpose of the union into doubt, which means that a "generous" trade deal for the UK simply isn't going to happen. The Brexit ultras aren't going to go away. Labour will, quite reasonably, present itself as the only party capable of facing down the ultras and the DUP to secure a pragmatic Brexit. Whether they could actually achieve this will remain a counterfactual unless the government falls. The preservation of her administration until 2021 is Theresa May's prime objective, but there is every sign now that she will be lucky to last beyond the end of March. The ultras (and the opportunists) know that the transition agreement will set the tone for the final deal, so the chance to secure the Brexit they want will soon pass: "There is a tide in the affairs of men" etc.

Sunday, 4 February 2018

The Twilight of the Behemoths

The Carillion and Capita stories have highlighted many of the problems that outsourcing gives rise to in the public sector, with notable sub-plots concerning the illusion of risk transfer and the impact of austerity on profit margins, but doubts over outsourcing as a business strategy are also evident in the private sector. The chief argument for business process outsourcing is not direct cost reduction but a focus on "core competence", which is essentially a dilute version of Adam Smith's theory of comparative advantage. In other words, the business should concentrate management on those activities that deliver profit and have the potential to deliver higher levels of productivity. There are two key assumptions here. First, that management is a scarce resource, which in turn justifies high executive pay. But there is little evidence that outsourcing itself intensifies senior management focus. In practice, outsourcing usually means transferring dedicated middle managers outside the corporate boundary. It has little impact on core management. The second assumption is that support services typically suffer from lower productivity due to being relatively labour intensive (i.e. Baumol's Cost Disease). But while many of the functions outsourced may have been characterised by low-productivity growth, this is as likely to have arisen from historic under-investment or poor management as from over-manning.

Sloughing off all non-core activities to outside suppliers makes the firm look lean, but it also means that complexity has been shunted elsewhere; it hasn't been eradicated. Because outsourcers have tended to consolidate, both to achieve economies of scale and lock-in clients by acquiring specialist services, this has led to that complexity and associated risk being concentrated (there is a parallel here with financial derivatives in the lead-up to 2008). Jonathan Lewis, the recently-installed CEO of Capita, has described his business as "too complex" and one that has "underinvested in infrastructure and over-relied on acquisitions for growth". In Coase's theory of the firm, the cost of a business's reduction to its core competence is the increased overhead of supplier contract management. However, that transaction cost analysis rarely considers the implications from the perspective of the outsourcer. Though it has become a cliché that firms such as Carrillion and Capita have become experts in wining contracts, it is less appreciated that this expertise does not reduce the cost of contract management. If anything it exacerbates the problem by ignoring downstream costs. Tales of outsourcers charging silly money for contract amendments may be evidence of price-gouging, but they may also indicate simple inefficiency.

Efficiency gains by outsourcers will have come through a combination of productivity-enhancing technology and lower labour costs, but the ability to make significant improvements through either has declined since the millennium. Much of the growth in outsourcing represented one-off conjunctions in the global economy, such as the first wave of office automation in the 80s, the arrival of the Internet in the 90s (which allowed a lot of customer service to be outsourced to consumers), and the labour-supply shock of globalisation (i.e. offshoring). It is notable that outsourcers are themselves now plagued by under-investment in technology as much as by complexity, while offshoring has lost much of its ability to shave labour costs as global wages converge. The result is that outsourcers now find themselves struggling to achieve significant productivity growth, which undermines their ability to offer falling real costs as contracts come up for renewal, a situation exacerbated in the UK where public sector clients may have no option but to insist on lower prices, all reductions in service scope or quality having been exhausted in the early years of austerity.

If outsourcing appeared to be an irresistible development in the 1990s and early 2000s, the last decade has been marked by an oscillation between outsourcing and insourcing as both private firms and public sector bodies have taken key functions back in-house. While this has sometimes been a temporary measure following an unsatisfactory contract with a particular outsourcer, an increasing number of firms and councils have decided that the initial outsourcing went too far, leading not only to predictable failures in service quality and cost over-runs, but also exposing the organisation to the risks of internal demoralisation and external reputational damage. The Labour Party's current preference for the renationalisation of the railways, and for local authorities to build houses rather than invest in dubious schemes like the Haringey Development Vehicle, echoes a trend that is already well-established in both the private and public sectors. Far from being an ideologically-inspired programme, insourcing is usually advanced for wholly pragmatic reasons: we know it can work (because it previously did so), and we now know that the downsides of outsourcing outweigh the downsides of inhouse provision.

Firms that opt for insourcing frequently cite greater management control as the primary consideration. This is not just control over operating costs or service delivery but also control over data assets. While this is partly driven by "big data" hype, it also reflects a material change in many businesses to a greater reliance on information processing and a wider appreciation of the value of intellectual property, which has caused some firms to question what their core competence actually is. Technology has played a key role in facilitating both outsourcing and insourcing, with the swing to the latter reflecting developments such as cloud computing and software as a service, which obviate the need for up-front capital and allow firms to invest in activities such as data analytics and software development without a comparable investment in infrastructure support. Wider social developments have also played a part with the emergence of low wage regions in developed economies allowing firms to onshore certain functions that in the past might have been offshored, though this also leads to the business being fragmented into geographically dispersed silos, which entails its own transaction costs.

What this highlights is that the traditional division between outsourced and insourced, which was coterminus with functional organisations (e.g. customer service or the IT department), is being blurred. This is another way of saying that the boundary of the firm is now more fluid and dynamic and thus closer to the Coasian ideal. From the outside, it is hard to tell what functions a business operates itself and what it outsources, though this is rarely a matter of concern for its customers. As the private sector has become more discriminating, outsourcing contracts have tended to become smaller, more specialised and more flexible in their management. This has been to the benefit of smaller, more specialised outsourcers, many of which are indistinguishable from independent consultancies, and explains why the larger, traditional outsourcers such as Capita and Serco have been struggling. Scale is no longer an unalloyed benefit and a reliance on big contracts has come to be seen as risky, and not just in respect of public sector clients. The outsource market has become more plural, more varied and more bespoke, which is a sign of maturity.

Though the current headlines are focused on historic errors likes PFI deals in construction or expensive facilities management contracts, what's really going on is the decline of the big "one-stop shops" across both public and private sectors. This same structural change is evident in large-scale housing. The Haringey Development Vehicle was not merely a poorly-designed plan that would have disadvantaged borough residents, it was an out-of-date, 90s-era approach to the problem of supply that sought to create another behemoth with a long-tail of risks for the council. Given that London already has an over-supply of luxury new-builds and is probably facing a crash in prices at the top of the market in the next few years, it is possible that Lendlease, the developer, was starting to get cold feet over the Haringey scheme. The rejection of the HDV is clearly not a nefarious plot by Momentum, but nor is it just a stirring tale of local democracy. It reflects a wider change that will be characterised in the public sector not just by more insourcing, or more plural and selective outsourcing, but above all by a desire to "take back control".