PART 5: How It All Worked Out

“It is not a coincidence that the emphasis on financial metrics in business occurred at the same time as explosive growth in the size and remuneration of the financial sector. There were useful innovations, such as the emergence of venture capital as a means of financing start-up businesses. But the financial sector is primarily rewarded by fees from facilitating

transactions, not for the consequences of these transactions. Corporate executives engaged in a frenzy of dealmaking, buying and selling existing businesses; incentive plans encouraged actions that generated immediate revenues or cost savings, mostly with unmeasured consequences for the business in the long run. The result was the destruction of many of the great businesses which an earlier generation of less well-rewarded managers had created.

Throughout Beer’s written work on management, this kind of meeting is always emphasised: unstructured, informal connections between staff at different levels and performing different functions. Some of the ephemera — particularly his emphasis on the importance of having adequate supplies of cigars and whisky to facilitate the conversation — might seem comically dated, but the idea of ensuring that there are links across the organisation to spread information and build consensus is entirely modern.

Beer was trying to adapt hierarchical systems so they were fit for their purpose in a changing world. He saw a strict command-and-control approach as dangerously inflexible, while excessive delegation would destroy the organisation’s ability to act as a coherent system. The fundamental relationship between management units in the kind of structures Stafford Beer designed was a ‘resource bargain’. A unit would be allowed to operate autonomously, but only to the extent that doing so did not jeopardise the broader system, whether in terms of a financial budget, physical resources of space, managerial time and bandwidth or general goodwill.

In the early day of the post-war corporation, the question of purpose hardly arose. Companies like DuPont had been given an obvious reason to invest in the production of smokeless gunpowder by the Second World War, and at its end they found themselves in possession of a lot of capital equipment and chemical know-how. They went out looking for new things to do with cellulose and petrochemicals because it would have been strange not to. As they grew more complicated, they had to reorganise their corporate forms and management structures; academic writing in management was really just catching up with the things that engineers and accountants were inventing out of necessity.

From a cybernetic point of view, it’s interesting as an example of how the systems and structures mattered so much more than the individuals involved. The development of the Friedman doctrine into the intellectual backing for the leveraged buyout boom and the private equity industry are best seen as a conflict between two comprehensive systems of interest, both of which might have regarded the other as a threat. The great unremarked class struggle that happened in the 1970s and 1980s was that between capitalism and managerialism.

The managers lost this struggle, pretty comprehensively. And as we’ve seen, the combination of the blind spots in management and the blind spots in economics came together to produce an ideology which was bound to remove management capacity. And that created further blind spots, and further reduced the system’s ability to cope with shocks. The story of how we got to where we are is a story of the attempts of the system to cope with this, and to search for short-term equilibrium.

There are a number of models, most of them ignored for decades, in which the corporate sector provides a stabilising function, insuring the working class against fluctuations in the business cycle, rather than expecting them to soak up the volatility.

The intriguing thing is that Simon and Galbraith didn’t write polemics to the effect that this was how corporations should behave — they just described what was in front of them at the time. Before Milton Friedman’s essay, lots of people assumed that this was just naturally the way things would tend. Without the Friedman fiction by, without very great re-engineering of the systems of corporate finance, the industrial economy might have just gone on and developed into a technostructure.

Maybe they were right? It would certainly be good if they were, because that might indicate a much easier path to defuse the immediate source of crisis. If the problem with the modern corporation is the result of the capitalist counter-revolution against the managerial class, we just need to change the terms of the battle.