Self Delusion

Here is a very good article in the Financial Times by Gillian Tett that looks at the crony capitalism at the heart of America:

A decade ago, it was fashionable for western consultants, bankers and business people to decry Japan’s domestic service industry. For Japanese business sectors, ranging from milk production to financial broking, have long been plagued by complex distribution chains and numerous middlemen.

So, Anglo-Saxon consultants – such as McKinsey – would regularly urge the Japanese to reform their distribution chains, and flourish data showing how much more “efficient” the US was than Japan in sectors such as retailing.

Back then, I was working in Tokyo as a reporter. So I dutifully reported those studies-cum-sermons on the evils of middlemen.

However, amid all that debate about American efficiency, one point that western commentators almost never discussed was the proliferation of middlemen in America’s financial world.

If you were to sketch a map of how credit has been sliced and diced in 21st century banking, for example, there would be so many stages – and commission-hungry middlemen – in that process, the Japanese dairy industry might seem positively rational. Yet, for many years the apparent contradiction went almost entirely unnoticed, by western politicians, bankers, and consultants alike. Middlemen were regarded as bad in Japan; but they were somehow overlooked in America’s financial world.

Why? The obvious answer is that the banking sector has been very powerful. Three decades ago, Pierre Bourdieu, a French sociologist, observed that elites in a society typically maintain their power not simply by controlling the means of production (ie money), but by dominating the cultural discourse too (ie a society’s intellectual map). And what is most important in relation to that cognitive map is not what is overtly stated and discussed – but what is left unstated, or ignored. Or as he wrote: “The most successful ideological effects are those which have no need of words, and ask no more than a complicitous silence.”

Go read the whole article. It is well worth your time. She goes on to say...

... if regulators and politicians are to have any hope of building a more effective financial system in future, it is crucial that they start thinking more about power structures, vested interests and social silence. That might sound like an irritatingly abstract or pious plea. However, it has some very practical implications about how policy is formulated.

... and promises more articles to sketch out the practical implications in future articles.

Looking at her Wikipedia profile, I'm very impressed and will definitely put her book on my "to be read" list:

In 2003 Tett became deputy head of the influential Lex column. Tett predicted the financial crisis in 2006. Her 2009 book Fool's Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe was widely reviewed throughout the English-speaking world, and won the Spear's Book Award for the financial book of 2009.