three times is political action

the levers not working

This is a bit more “ripped from the headlines” than the usual post on this substack, but it’s a puzzle of British politics which I think might have more general relevance. The question that is on my mind is something like “why are the government losing so many court cases?”. Or more particularly “why are the government taking so many silly Ls, by making rookie legal mistakes?”.

A few recent cases which for various reasons crossed my threshold in quick succession:

1) The Woodland Park datacentre. This was given planning permission by the relevant Secretary of State, overruling the local council and saying that there was no need for an environmental impact assessment. Of course, there was, and the government admitted this on the courthouse steps.

2) The proscription of Palestine Action under the terrorism legislation. The Home Office decided to say, in minutes and a press release, that one benefit of doing so is that it would make it much more operationally convenient for the police. In doing so, it ignored its own policy that terrorism legislation has to be used for terrorism reasons, not just to make things easier.

3) The local elections fiasco. After having decided to postpone local elections in the areas where councils are going to be wound up and reorganised, the Secretary of State then took a look at his legal advice and realised that once more, it wouldn’t fly.

Once is bad luck, twice is coincidence but the third time is enemy action, as the saying goes. Repeatedly, it seems that the government has got into the habit of taking decisions which it then doesn’t fancy to defend. What is going on?

All I have are hypotheses. It is possible that what we’re seeing here is arrogance. The environment of “in front of intelligent neutral parties who can’t be intimidated, with severe penalties for lying” is often an uncongenial one in which to defend one’s decisions. The idea here would be that having got where they are today by factional bullying and waiting for the intellectual and organisational collapse of the other side, the Labour Party is poorly equipped for doing things without its traditional weapons and advantages.

But I feel that this might be letting the civil servants and lawyers off the hook too easily. It might be that the professional advisors were bullied and overruled, but why has this started happening so much, so recently? Are Keir Starmer and his team really so much more intimidating than governments of the past?

Or, is there a problem of state capacity here? I think it’s also possible that we’re seeing a combination of factors; hollowing out and juniorisation in a civil and legal service that can’t pay competitive wages, plus bad habits learned during the pandemic, when it was possible to make calls on team spirit and the greater good and go well beyond your statutory powers.

In any case, our prime minister is apparently frustrated at the fact that the “levers of power” don’t work. That’s always been a bit of an odd metaphor in my view – there aren’t many machines that work by pulling levers, I think the image we’re meant to have is of a railway points-switching box. But it’s clearly one that’s now actively misleading. Pulling at levers and dialling things up and down is only a useful way of thinking about government within the normal zone of operation. We left that normal zone some time between 2008 and 2016.

So now, getting things done is more like herding (whatever your favourite difficult-to-herd animal species is). You need to either build support and consensus through politics, or you need to absolutely dot the i’s and cross the t’s with respect to the legal statutes giving you the power to act without that consensus. Our government doesn’t appear to have caught up to this reality, but I think it is a reality which has changed, rather than them just being no good at it. I might be wrong - I do not have strongly held opinions on this subject - but I do think I’ve identified something that’s going on here.

how to make your organisation dumber

adding the term “adversarial context” to the lexicon

Apologies for the non-arrival of yesterday’s post! I got caught between a couple of deadlines and also went down a slight rabbit hole with trying to tweak my Google NotebookLM environment. (In case anyone’s interested, the notebook in question is one that I’ve uploaded all the important European banking statutes to, so I can use the Gemini AI as a natural language search, to tell me which Article I ought to be looking at, and which past regulatory guidance is relevant to the document I’m reading. It is actually very good, particularly when I get queries for quick response. But, it’s got one weird quirk – it tends to get the actual content right, but it is incredibly inaccurate with page numbers of citations. I am coming to the conclusion that this might be related to the “strawberry problem”; the model uses tokens which are usually somewhat longer than individual words and characters, so it can’t reliably give you the right paragraph number for the same reason it finds it hard to tell you how many r’s there are in the word “strawberry”).

But in any case; while writing a script for a presentation, I realised that I’m increasingly using the phrase “adversarial context”, to describe a cybernetic phenomenon that seems to be quite important. Basically, Stafford Beer places huge importance on what he calls “translation and transduction”. This is the practice of dedicating resources to places where information has to be transmitted across organisational (or intra-organisational) boundaries. It’s part of the central problem of management cybernetics – making sure that information arrives where it can play a part in decisions, in time to be useful and in a form where it can be accepted as input by the decision maker.

In the general case, organisational boundaries are information-reducing filters. But increasingly, I’m thinking that Beer should have paid more attention to the case where effort is expended on doing the opposite of “translation and transduction”. Because I think this is actually quite common.

A lot of the time, organisations and people have opposing interests, but are meant to communicate information. When this happens, there’s an incentive to be strategic; to present the information which serves your interests the most, and suppress things which portray your case in a bad light.

It gets worse, because the existence of those incentives creates what you might think of as a “market for lemons” type problem. Everyone thinks that everyone else is doing this, so a) you’d be a fool not to, and b) you have to discount most of what those other bastards are saying. The adversarial or strategic context makes it difficult or impossible to communicate.

Potentially this might be quite hopeful, because it means that if you can restructure things to reduce the number of adversarial contexts, your organisation could get a lot smarter without any of the individual people in it getting any less dumb.It also suggests to me that structure and context might matter a lot more when it comes to determining the decision-making ability of organisations, than the talent of the individuals.

why this, why now, why not?

the digital euro and theories of action

Since Henry’s and my piece on the global dollar system was published (and my FT Alphaville summary, which leaned a bit more on the Euro angle), I’ve been having some interesting conversations, which I think throw a bit of light on our current crisis. Basically, a lot of people still don’t understand why the ECB is keen on doing this itself. I think I do, for a number of reasons which go to the heart of much more general questions of state capacity. The Socratic dialogue in my head goes something like this:

If we grant that the Europeans don’t like being dependent on Visa and Mastercard, why don’t they just encourage the European banks to develop a local equivalent? (This is a popular objection, which is actually the official position of several European bank trade associations and of the rapporteur on the bill for the European Parliament[1]).

To the extent that this isn’t a case of “bionic duckweed” (a cynical objection to a current workable scheme in disguise as advocacy of a hypothetical but probably unachievable future perfect one), I think the obvious reason is that the European banking system has been trying to get their act together on this for ages and keeps coming up with half-ready, half-of-Europe proposals like Wero.

Which isn’t really to blame them – trying to dislodge the Visa/MC duopoly is difficult, for obvious reasons of network economics. The special power that the ECB has is to use its legal tender powers to overcome the network economics by mandating takeup. (As part of the current legislation, anywhere in Euroland which accepts digital payments at all will have to accept the digital euro on the same basis).

Well OK, I get that the co-ordination problem is a bit difficult, but that doesn’t mean it has to be a central bank thing – couldn’t you just pass the legislation to mandate it and have it owned by a private sector consortium?

Two reasons why that isn’t as good a solution. First, if the digital euro and its legal tender status are the basis of the requirement, then any new developments in payments technology can be kept up with just by changing the functionality of the digital euro. If you pass a specific law mandating a particular set of private sector payment rails, then you are going to need to keep amending that law, which at best introduces a load of inertia into the system, and at worst provides opportunities for the whole thing to be torn apart if the political consensus breaks down.

And more dramatically, what I’m now going to start calling the “Washington Post Problem”. If something is in the private sector it can be bought. Anything which can be sold, one day will be sold, and possibly to someone who doesn’t run it properly. A digital euro that’s a statutory function of the European Central Bank is the best guarantee of strategic autonomy, precisely because it’s a digital euro that will always be under the control of the European Central Bank.

But all those things could still be done without having to have everything on the books of the central bank! This is a new thing to do which hasn’t been tried before! Why does a set of independent payment rails need the central bank to effectively be taking retail deposits? This isn’t their core competency!

And here we have it – the thing I regard as the crisis of the age. The answer is, frankly, that the European Central Bank still has a bit of mojo left. It doesn’t regard “doing something that’s new” as wholly impossible and outside its capacity.

If you want to do something, “doing it” is the simple, straightforward way to get it done. Tendering for outside contractors, drawing up a service level agreement and trying to anticipate all the contractual contingencies … that’s the triple-cushion-in-off-the-blue strategy. Just as a plan for building houses which begins with “put a fence around the site and order bricks” is simpler than one which begins with “redefine the duties of local authorities to consider economic growth in planning applications”.

The outsourcing and contracting approach is one that was forced on the public sector, first by ideology and subsequently by necessity. It’s what you do if you don’t respect your staff’s ability to deliver, or if you don’t have the budget to make large capital expenditures. An organisation which isn’t in that position doesn’t need to make the compromise or take the risk. The hollowing out of state capacity is bad, but the fact that we’re on the cusp of forgetting that any other state of affairs is even possible is genuinely worrying.

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[1] There’s a bit of cross-cutting between political and national factions on the relevant committee; some people are taking positions which are out of line with their ideological groupings, but which make sense when you realise that they are either Germans (who are worried about the effect on the deposit base of small savings banks) or Italians (a very card-based financial system that’s a big payer of merchant fees).

snobby about excel

AI and the end user effect

I actually think there is a serious potential problem here; I wrote a bit about it for my professional clients this week, and have pitched it to a few newspapers, but I’ll outline it here as a Friday post. It’s a train of thought which began by noticing that more and more of my friends are getting evangelistic about Claude Code, and that it might be time for an update of last year’s “towards a sensible AI-skepticism” post.

The thing with Claude Code (and to a significantly lesser extent, Copilot) is that I’ve been on the lookout for a “killer app” of LLMs, in the original sense of “something like spreadsheets, which people will make capital investments and change their own workflow in order to use”. And I think it’s now hard to sustain scepticism as to whether this will happen; early adopters really are spending money and using LLM coding tools to produce apps for themselves.

But the “like spreadsheets” element has me thinking. Over the years, I’ve often found it amusing to tease the Dilbert types among my friends by defending Microsoft Excel, the programming language[1] of the common man. However, computer types don’t just dislike Excel out of pure snobbishness.

In the language of IT professionals, spreadsheets are known as “end-user computing” (EUC). And EUC is a problem as well as a solution. A great deal of corporate information technology work is trying to satisfy the twin goals of “a central and consistent source of data which is secure and accessible across the organisation”, versus “it’s a hell of a lot quicker and easier for me to just open up Excel than to schedule a meeting with the SAP team”.

I’m most familiar with this problem in financial contexts; I have joked in the past that “[some material percentage] of the job of risk management is persuading people to email you spreadsheets on time”. And it’s obvious that a big bank is not in an ideal situation if large and complex risk positions are being tracked in a spreadsheet on someone’s desktop. But it shows up in all sorts of other areas; you can have the best data security policy in the world, but marketing departments are free spirits who cannot be tied down, and who will often email a few megabytes of non-anonymised customer data to a new agency that they want to try out.

At present, EUC is to some extent self-limiting; there is a threshold of size and complexity beyond which it is totally unmanageable to use Excel, so you end up biting the bullet and calling the central IT guys. If Claude Code and its like become a generally used “super-Excel”, though, that might have quite unpredictable results. It’s a productivity boost at some points, but we might be forced to reconsider the aphorism that “speeding up output behind a bottleneck cannot increase overall productivity, although it can reduce it”.

I guess that the prediction problem then switches to something like – if the IT world of the future involves something like “trying to stuff 200 end user apps into a trenchcoat so they can pretend to be a system”, can other LLMs help with that? And the answer is … maybe?

The sentence from last year’s post which I think has held up the best is that “There’s also a very important role for scepticism that AI is in some way or other outside the price mechanism or the normal priorities of political economy.”I am having a tough time following the debate over resource use and cost of LLM use, but it does seem to me that there’s a constraint, and it’s not clear that Moore’s Law-type progress is sweeping that constraint away in the way one might have hoped. The interesting question for me at the moment is whether AI can, at reasonable expense, clear up its own messes.

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[1] Yes that’s what it is, it’s even Turing-complete these days, deal with it.

this is your organisation on drugs

accounting hallucinations revisited

Continuing to worry away at this … Previously on backofmind dot substack dot com:

The first long-standing critique of industrialisation has been pretty easy to dismiss. It’s the noble but sentimental tradition of John Ruskin and William Morris, to the effect that the design tradeoff of the standardised industrial product is bad for us, or at least that it tends to be made badly. We have ugly and cheap things in our houses, when we could have beautiful handmade things.

Except we couldn’t, of course. And the same thing might be true of decision making in the industrial world. We all want to be treated as individuals and to have an accountable human being that we can speak to, but this might be as unrealistic a luxury demand as a wish to have hand-made cutlery, hand-thrown plates and hand-blown stemware on our tables.

But let’s turn that point around. Mass-produced consumer goods have a quality that we can measure and compare to the artisanal versions. What about mass-produced decisions? When the compromises on quality are being made within the cognitive process itself, what basis do we have to know whether the tradeoff was a good one? How do you know when you are making worse decisions?

I’m increasingly worried about this. It’s a specific case of a general phenomenon – it’s difficult to tell how drunk you’re getting, it’s difficult to understand that you’re hallucinating, Dunning-Kruger syndrome is a thing, et cetera.

It’s particularly difficult when you have no effective means of feedback. I’ve suggested in the past that “being so successful that nobody can gainsay your creative choices” is often at the root of bad art which gets blamed on the long-term effects of cocaine. And the terrible cognitive consequences of being surrounded by sycophants are well known to political scientists these days.

What interests me is that as a society, we know that this is a very serious problem, and that quite draconian restrictions on individual liberty can be justified in cases where we think something has affected someone’s ability to accurately judge their mental state. Intoxicants are heavily regulated, the mentally ill can be imprisoned indefinitely and the suspicion of coercive control will justify state involvement in areas where it would never otherwise touch. (I would note that it still surprised me that there is not yet any enthusiasm to regulate chatbots despite a mounting pile of cases which would have brought any pharmaceutical trial with those side-effects to a juddering halt).

Is there an equivalent for organisations? Which is to say – if we take seriously the idea of companies as “very old, very slow AIs”, what recognition in law is there of any equivalent problem of their getting into states where their ability to self-regulate is impaired? I think there is.

Accountancy is one of the most important control systems of a modern organisation. Which means that interfering with the accounting system of a company is the corporate equivalent of administering it hallucinatory drugs. And – cross check – false accounting is indeed very strongly illegal. In general, financial numbers are not subject to anything like the same free speech protections as other kinds of statements. This is partly what I once called a “market crime” – an internal rule of a particular economic entity that ends up rising to the status of criminal law simply because the thing in question is so important. But I think it’s also describable as an underlying principle of justice; if you take the organisation seriously as an entity, then it’s got a right not to have its cognitive system messed around with.

Or at least, not messed around with in this particular way. Accounting is probably the most important information system in modern organisations, and accounting is heavily regulated with quite strict professional standards. But it’s by no means the only kind of information that companies rely on, and most of the other information systems are more or less completely unregulated. Famously, management consultancy is a profession with no professional standards body, and so is economics. Information technology has only very rudimentary professional standards, with no statutory regulation.

And, as I’ve voluminously written in the past, compliance with the standards is hardly any guarantee of anything; accounting fraud can be divided into the categories of “things you have to hide from the auditors” and “things the auditors will help you with”. Even before we begin to introduce generative transformer algorithms into general management, we’re starting from a pretty bad place in terms of thinking about how we might stop our systems from hallucinating, or what kinds of safeguards we might put in place.

The difference between industrial production of razor blades and industrial production of decisions is that when you get a faulty razor blade, you notice.

(Envoi: I think this means that I really ought to have another think about my past optimism for the use of AI to replace and restructure management accounting)