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The Wisdom of Rats, or Why Performance Appraisal Matters

When the former Chairman of the Federal Reserve, Alan Greenspan, fronted a congressional committee about the causes of the 2008 Global Financial Crisis (GFC), he looked a wee bit sub-prime himself. He was dragged forth to explain why he'd done so little to prevent the tsunami of silly debt that drowned Wall Street giants like Lehman Brothers, and pushed the world to the crumbling edge of depression. Seven years on, the recovery is brittle and many governments and households are carrying enough debt to choke a donkey. So why did the Chairman ignore the brightly flashing signs? The reason, he said, was his faith in self-interest, a quality described memorably by Francis Bacon as the wisdom of rats. Greenspan believed that the banks, as free market entities, would not destroy themselves in an orgy of greedy stupidity. The instinct for self-preservation would kick in, and Smith's invisible hand of the market would save the day. Predictably, the hand was nowhere to be seen, but the rats were everywhere.

The GFC is an example of the nonsense that happens whenever accountability is decapitated from responsibility. If the Chairman of the Fed had studied psychology as well as economics, he might have got a clue. To scale Maslow's peak, most people need skin in the game. They need to be responsible and accountable. Responsibility tells us what to do, and accountability sets the bar. Jump! How high? See that bar? If a person is responsible but unaccountable, performance draws air. It sucks, you know. But when responsibility and accountability are properly married, the seal snaps into place and the engine bears down.

Where's the proof? Marx proved it, although he didn't mean to, and his proof was in reverse. Still, he gets points for illustrating the folly of diluting individual accountability to homoeopathic levels. Consider the economy of the once Soviet Union. It excelled at producing worthless products. There were sunglasses so dark the midday sun couldn't penetrate them, rubber raincoats vulcanized together in pallet-size masses, and shoes with the heels attached in the wrong spot at the wrong time. The Soviets had warehouses full of fail, but no one was accountable for anything except their politics.

But let's not blame the Left for everything. Greenspan's bankers had their own special delusion: real estate prices will rise forever. Add deregulation to that formulation and the once-steady banking system becomes a giant casino. The billions in fees and bonuses funnelled to those in the sub-prime loan chain rendered them insensible to the effects of failure. If the loans went bad and the bank collapsed, so what? With the spoils they had carted off already to the fastness of Switzerland, the landing would be soft and snowy, at least for them. I do not mean to suggest that every Wall Street banker was a financial psychopath, or that every Soviet manager was tired and emotional before midday. The effects I am talking about manifest broadly and systemically.

Among the known paradigms of human cooperation, Wall Street and the Soviet Union are opposites, yet both failed for the same reason. I see little difference between the Russian manufacturer who didn't care whether his sunglasses worked and the American banker who felt the same about his loans. The common factor is indifference. This is what the psychologist Skinner had in mind when he said, "As the senses grow dull, the stimulating environment becomes less clear. When reinforcing consequences no longer follow, we are bored, discouraged and depressed."1 Herein lies the first benefit of performance appraisal: it is a reinforcing consequence, impressing the idea that what we do and how well we do it matters. Extract from NASA Culture and the Future of Business by Archer North. 1 September, 2015.  Next: I Will Fix Performance Appraisal

1. Journal of Humanistic Psychology Spring 1991 vol. 31 no. 2 112-113

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