How Tajik weddings helped me understand Wall Street

Silo EffectGillian TettFinancial Times US Managing Editor and 2014 British Press Awards Columnist of the Year

The Silo Effect first sprung to life during the Great Financial Crisis of 2008. But it is not a book about finance. Far from it. Instead, it asks a basic question: Why do humans working in modern institutions collectively act in ways that sometimes seem stupid? Why do normally clever people fail to see risks and opportunities that are subsequently blindingly obvious? Why, as Daniel Kahneman, the psychologist, put it, are we sometimes so “blind to our own blindness”?

It was a question I often asked myself in 2007 and 2008. Back then, I was working as a journalist in London, running the markets team of the Financial Times. When the financial crisis erupted, we threw ourselves into trying to understand why the disaster had come about. There were lots of potential reasons. Before 2008 bankers had taken some crazy risks with mortgages and other financial assets, creating a gigantic bubble. Regulators had failed to spot the dangers, because they misunderstood how the modern financial system worked. Central bankers and other policymakers had given the wrong economic incentives to financiers. Consumers had been dangerously complacent, running up huge credit card debts and mortgage loans without asking whether they could be repaid. Ratings agencies misread risks. And so on.

But as I dug into the story of the Great Financial Crisis as a journalist (and later wrote a book about it, Fool’s Gold) I became convinced that there was another reason for the disaster: the modern financial system was surprisingly fragmented, in terms of how people organized themselves, interacted with each other, and imagined the world. In theory, pundits often like to say that globalization and the Internet are creating a seamless, interlinked world, where markets, economies, and people are connected more closely than ever before. In some senses, integration is under way. But as I dug into the 2008 crisis I also saw a world where different teams of financial traders at the big banks did not know what each other was doing, even inside the same (supposedly integrated) institution. I heard how government officials were hamstrung by the fact that the big regulatory agencies and central banks were crazily fragmented, not just in terms of their bureaucratic structures, but also their worldview. Politicians were no better. Nor were the credit rating agencies, or parts of the media. Indeed, almost everywhere I looked in the financial crisis it seemed that tunnel vision and tribalism had contributed to the disaster. People were trapped inside their little specialist departments, social groups, teams, or pockets of knowledge. Or, it might be said, inside their silos.

That was striking. But as the 2008 crisis slowly ebbed from view, I realized that this silo effect—as I came to call it—was not just a problem at banks. On the contrary, it crops up in almost every corner of modern life. In 2010 I moved from London to New York, to run the American operations of the Financial Times, and when I looked at the corporate and government world from that perch, I saw a fragmented pattern there too. The silo syndrome cropped up at gigantic companies such as BP, Microsoft, and (later on) at General Motors. It plagued the White House and Washington agencies, not to mention large multilateral groups such as the World Bank and International Monetary Fund – and, I daresay, the Organisation for Economic Cooperation and Development too.

Large universities were often beset with tribalism. So were many media groups. The paradox of the modern age, I realized, is that we live in a world that is closely integrated in some ways; but fragmented in others. Shocks are increasingly contagious. But we continue to behave and think in tiny silos.

So this book sets out to answer two questions: Why do silos arise? And is there anything we can do to master our silos, before these silos master us? I tackle this partly from the perspective of someone who has spent two decades working as a financial journalist, observing global business, economics, and politics. That career has trained me to use stories to illustrate my ideas. So in this book you will hear eight different tales about the silo effect, ranging from Michael Bloomberg’s City Hall in New York to the Bank of England in London, Cleveland Clinic hospital in Ohio, UBS bank in Switzerland, Facebook in California, Sony in Tokyo, BlueMountain hedge fund in New York, and the Chicago police. Some of these narratives illustrate how foolishly people can behave when they are mastered by silos. Others, however, show how institutions and individuals can master their silos. Some of these are stories of failure. But there are also tales of success.

But there is a second strand to this book. Before I became a journalist (in 1993), I did a PhD in the field of cultural anthropology, or the study of human culture, at Cambridge University. As part of this academic work, I conducted fieldwork, first in Tibet, and then down on the southern rim of the former Soviet Union, in Soviet Tajikistan, where I partly lived between 1989 and 1991 in a small village. My research was focused on marriage practices, which I studied as a tool to understand how the Tajik had retained their Islamic identity in a (supposedly atheist) communist state.

When I first became a financial journalist, I was often wary about revealing my peculiar past. The type of academic qualifications that usually command respect on Wall Street, or the City of London, are MBAs or advanced degrees in economics, finance, astrophysics, or another quantitative science. Knowing about the wedding customs of the Tajiks does not seem an obvious training to write about the global economy or banking system. But if there is one thing that the Great Financial Crisis showed it is that finance and economics are not just about numbers. Culture matters too. The way that people organize institutions, define social networks, and classify the world has a crucial impact on how the government, business, and economy function (or sometimes do not function, as in 2008). Studying these cultural aspects is thus important. And this is where anthropology can help. What anthropologists have to say is not just relevant for far-flung non-Western cultures, but can shed light on Western cultures. The methods I used to analyze Tajik weddings, in other words, can be helpful in making sense of Wall Street bankers or government bureaucrats. The lens of anthropology is also useful if you want to make sense of silos. After all, silos are cultural phenomena, which arise out of the systems we use to classify and organize the world. Telling stories about the silo effect as an anthropologist- cum-journalist can thus shed light on the problem. These tales may even offer some answers about how to deal with silos, not just for bankers, but government bureaucrats, business leaders, politicians, philanthropists, academics, journalists – and perhaps OECD officials too. Or that, at least, is my hope.

Useful links

Gillian Tett will be visiting the OECD on October 12 as part of the New Approaches to Economic Challenges seminar series

OECD: From economic NATO to epistemic influence

Today’s post is from Professor Aynsley Kellow of the University of Tasmania School of Government, who with his colleague Professor Peter Carroll of the Business Faculty, has just published The OECD: A Study in Organisational Adaptation in which they present a critical examination of the trajectory of the OECD, from its origins in the Organisation for European Economic Cooperation (OEEC) to the present day.

Peter and I both had the experience of looking for a definitive book on the OECD to tell us about its structure and operations. We found no such work.

Shorter treatments told us little. A chapter on environmental policy in the European Union and the OECD devoted about twenty pages to the EU and around four to the OECD.

The OECD was a neglected topic. It is no longer quite as neglected, with a book by Richard Woodward published recently. Our book coincides with the OECD’s 50th Anniversary, though that was not our intention: we would have gladly finished it sooner!

Our book represents the fruits of more than five years of research. It reflects many days in the Archives of the OECD in Paris and the archives at the European University Institute in Florence, which holds the earliest documents, and in national archives in Canberra, London and Washington.

We traced not only the development of the OECD, but the development of information technology at the OECD: from grainy microfilms to electronic forms of documentation. We were as pleased when we reached the electronic system OLIS as the Members and the Secretariat must have been.

But we also supplemented the documentary ‘fossil record’ of the OECD with interviews, of around half the Ambassadors and many members of the Secretariat. We also conducted interviews with present Secretary-General Angel Gurría, past Secretary-General Donald Johnston, and numerous past senior officers with long experience with the OECD, such as Kumihara Shigehara, David Henderson and Ron Gass.

We have tried to explore all aspects of the OECD, and the theme that emerges is one of adaptation — of an organisation has been remarkably successful at adopting to new demands and challenges and continuing to provide value. The OECD — and its work programs — today would be barely recognisable to those present at its birth in 1961. It has spread beyond its origins as a kind of ‘economic NATO’ to encompass Eastern Europe and the Asia-Pacific among its membership and it now actively engages with India, China, and the other so-called ‘BRICS’ countries. And its work programs have changed as some have dropped off the table to be replaced by environment, information technology, e-commerce, and so on.

While it has encountered some bumps along the road, the OECD has continued to adapt and to demonstrate its continuing value to its member. It is not universally understood or appreciated. It is often dismissed as a ‘mere think tank’, often by international lawyers, concerned that it neither delivers programs nor produces and supports a significant number of international treaties.

It does, of course, produce Council Acts — both Recommendations and Decisions, but there are few sanctions and no real enforcement mechanisms beyond peer review.

This legalistic approach misunderstands the OECD and its influence. We found the OECD to be widely influential, but often in non-obvious ways. Its influence is largely ‘epistemic’. Its influence arises from the quality of its work — often better than that produced in legally-binding arenas, where states are less willing to engage in free-ranging debate because they tread more carefully. For example, the Trade Committee of the OECD remains important for the WTO, which is larger and more heterogeneous in membership (less ‘like-minded’) and highly legalistic.

Thus OECD products are less likely to take the ‘lowest common denominator’ character one finds in many multilateral arenas. Even recalcitrant Members can come on board later, so the ‘convoy’ does not have to limit its speed to that of the slowest boat.

And because the products are developed in committees and other subsidiary bodies where those from national offices are involved, there is often better ‘buy-in’ at the national level, because the very work methods help create whole-of-government coordination and both commitment and international networks of national experts.

These mechanisms by which the OECD adds value are subtle and require some appreciation. While the OECD is not without its limitations (which we discuss in the book), our work suggests that — as it turns 50 — the OECD merits at least two resounding cheers.

If it didn’t exist, an overly legalistic observer might not feel compelled to create it  — but that would miss the point, and the world would be a poorer place.

OECD at 50