Inequality, mental models, and counterfactuals

09/09/2013 § 4 Comments

In the recent book Inequality: A New Zealand Crisis, Jonathan Boston has a really useful chapter. It probably should have started the book as a way of laying some intellectual groundwork, instead of being Chapter 5. It raises the same point as Matt Nolan does at TVHE, quoting Amartya Sen, but with more detail. Here’s Boston:

As highlighted in this chapter, there is almost universal acceptance that equality matters. Yet there is no consensus on what kind of equality should be championed.

And here’s Nolan:

 Everyone, especially those who are more extreme in any given “political dimension” cares about equality of something – and the underlying reason why there are trade-offs stems from (as Sen discusses in the book) the heterogeneity of individuals!

Boston tries to cope with the different equality targets in two ways. First, he says that some equalities are more important than others, arguing that there is an inequality of equalities. With this, I believe he steps right back from his initial understanding — that reasonable people may reasonably disagree. Secondly, he suggests a certain pragmatism, or specific egalitarianism. While this seems attractive, it papers over the real conflict amongst theories of egalitarianisms with a poorly defined set of concrete goals.

In doing this, Boston shows how hard it really is to have evidence-based policies. When it comes time to make a decision, we have to take values and preferences into account. A particular set of evidence can be made to suit a range of policies, once you introduce different values. I’ve not read Peter Gluckman’s new report on evidence-based policies (pdf), but the reporting I’ve seen suggests that it is insufficiently attuned to this problem.

There is a second problem less well understood. When we make judgements about inequality, we are using mental models of social systems to create counterfactuals. For example, if one says, ‘they wouldn’t be poor if they weren’t lazy’, there is a mental model of society that underpins the judgement. That model has a weighting on ‘effort’, as well as weightings on other things like ‘education’, ‘social network’, ‘ethnicity’, ‘gender’, and more. The ‘effort’ weighting is sufficiently large to counteract any negatives from the other factors. We could, through interviews and surveys, estimate the parameters that people apply to those factors.

We all have these models. They are all wrong. I say that with conviction because ‘all models are wrong.’ They are always partial — they have missing variables — and the parameters are estimated from a sample of observations rather than the population. So, in my interpretation of my experience, it may be that ‘effort’ is sufficient to make a person not-poor. That doesn’t make it so, either for my experience (which suffers from observer error) or for the wider world.

In economic analysis, counterfactuals are hard to construct. You have to decide which factors are important and how important and over what time. If I’m being cynical, I might say that the counterfactual is the most important part of any cost-benefit analysis, and it is literally something we just make up. With data and evidence, mind you. But we make it up just the same.

How much harder is it, then, to understand the counterfactuals that people create from poorly-specified mental models of complex social systems?

More evidence would help, so it’s good to see Gluckman encouraging the government to find and use more. The findings will rarely be conclusive, however, as evidenced by Boston’s discussion of equality.


Five stages of workplaces

14/08/2013 Comments Off on Five stages of workplaces

Another business book review. This time, it’s Tribal Leadership, by Logan, King, and Fischer-Wright. The book is, helpfully, available as a free audio book from the website.

Overall rating: good. useful. pretty smart.

Yes, there are the annoying traits of pop-culture business books. There are beautiful anecdotes about teams that overcome adversity to realise the potential hidden within. There is the university research used as a totem, such as the cameo appearance by Daniel Kahneman. There are the impossible generalisations, the air-brushing of complex people (such as Frank Jordan, former San Francisco mayor — ask Food Not Bombs how cuddly he is), and the simple tools to make things better.

But there is also good stuff.

What hooked me into the book was that it starts off saying that ‘life sucks’ for some people. The First Stage of Tribes describes bad environments. It was really refreshing to have a book recognise that it isn’t all good and not everything can be fixed.

The Second Stage of Tribes is when ‘life sucks for me’. This is apparently an advance on the First Stage, because it recognises that life is good for some people, which opens up the possibility that it could actually one day be good for me. Wisely, the book acknowledges that professional workplaces can suck. They can be awful places, horribly dysfunctional and unpleasant to work in. The authors recognise their readers may be in such a situation. Recognising ‘where we are’ is important if we are trying to change.

So what if we want to fix it? The authors say that slogans and techniques don’t work, especially not in a dysfunctional environment. When you have people in a beaten-down state, you can’t change them with one-minute management or good thoughts for the week. These devices only add to the insult. The authors admit that it takes work to sort out problems.

Of course, this is also a self-help book, so they do offer techniques to make things better, and they do give examples of slogans that motivate workplaces. But this is the central irony of the genre, no?

Something else that they get right is that it’s all about people. It is always about people and their relationships. The book focuses on how people feel about where they work and how they relate to each other. From a consultant’s perspective, there is nothing more important. People decide whether to send work your way; people decide whether your work meets their needs. There can be all sorts of objective measures to judge that a proposal or a report is really bad or really good, but in the end a consultant needs to convince people.

And so the book goes, taking us through the Third, Fourth, and Fifth Stages of Tribes and Tribal Leadership. At each stage, life gets better, people feel more fulfilled, and workplaces are more productive. Stages Four and Five are the Future of Business, according to the authors. Their message, in a sense, isn’t too far off books on Flow or Bliss or Being in the Zone. The less time we spend bickering amongst ourselves, the more energy we have for working towards a common purpose. Simple thermodynamics.

Subtly, though, the book undermines its central premise (which is the central premise of all self-help books), that everyone can be great. To get to Stages Four and Five, you have to go through Three, whose catchcry is ‘I’m great!’ The authors tell us that we should become great — world-class, even! — at something. Then, we can really live Stage Three and be recognised as a valuable member for a Stage Four organisation. The problem is that we can’t all be world-class. Does that mean we should embrace Stage Two? Should we join in saying, ‘Bonjour paresse‘?

But you wouldn’t be reading Tribal Leadership to be a slacker, would you? So my verdict is that it’s worth reading and thinking about, and wondering about the interpersonal dynamics in your workplace. Then wonder if maybe there isn’t a way to improve them and of being the change you wish to see.

Questioning quintiles

31/07/2013 Comments Off on Questioning quintiles

I’m in the middle of Inequality: A New Zealand Crisis. An issue that is bothering me is the use of quintiles for talking about inequality, income and opportunities. There are actually two parts to my problem — a measurement issue and a normative one.

I’ll start with the measurement issue. Quintiles divide the sample into five groups, ranked in some order (say, smallest to largest). As such, it is necessarily a zero-sum game. For every person who leaves the bottom income quintile to join a higher one, someone else must fall back into the lowest quintile. Even if we were to lift everyone out of absolute poverty, we could still create income quintiles and have a lowest and a highest. We would always find inequality because the metric itself in a sense creates the inequality.

There is also no measure of dispersion or variance in quintiles. Now, I should mention that Inequality also uses Gini coefficients, which are all about measuring income distribution. The two measures together are useful. But quintiles themselves just show that one number is greater than another, without indicating how much greater.

The second issue with quintiles is the normative one: what do we want them to look like? What is the ideal towards which we are aiming? One of the uses of income quintiles is assessing intergenerational income mobility. Ongoing research in the US is using new datasets to create fine-grained maps of income mobility. Mobility varies tremendously, suggesting that where you were born is important to your economic fortunes. Of course, that’s true in all sorts of ways.

As I already pointed out, if the economy rewards talent and skill and they have some genetic basis, then class or income mobility will be limited. How limited depends on the relative rewards and genetic basis.

As a reductio ad absurdum, consider this alternative: perfect mobility. What if parents’ income had no correlation with children’s income? There are two clear problems with that situation. First, it suggests that incomes would be randomly assigned, which then suggests that incomes wouldn’t have anything to do with talent and skill (and hard work). Secondly, it also suggests that parents would not be able to influence their children’s outcomes. All the money spent on elocution lessons and finishing schools, all the time spent on proper use of knives and forks — all wasted. That situation would diminish the incentives for parents to invest in their children. Reducing the pay-offs to intergenerational investment would only serve to increase short-term thinking and create a sort of social Prisoner’s Dilemma.

Income quintiles are rhetorically useful, as a King of the Hill metaphor for people who prefer Parachute Games. For policy, though, they need to say what they really mean. What do they want the world to look like?

Inequality: I’m not yet convinced

29/07/2013 § 4 Comments

I have started the book Inequality: A New Zealand Crisis. It’s slow going but want to start teasing out my reactions, so I’ll review it piecemeal. Today, we’ll look at Part One, the introduction. My apologies at the start — this is long and somewhat rambling.

The reason it is slow going is that I’m having to weigh up each sentence. I think there are logical flaws, so the book doesn’t carry me along. I’m sure some readers will enjoy the outrage and devour the book — I’m not one of them.

A major premise of the introduction is that we are all worse off when inequality increases. They rely on Wilkinson and Pickett’s The Spirit Level for this argument, even reproducing a figure from the book (see here for my take on that book).  But they know themselves that this isn’t true. On page 17, we are told

We are all worse off for having wide income gaps in New Zealand.

On page 16, by contrast, the argument is

in countries with large concentrations of income, the wealthy can use their power to argue for policies that further their interests rather than those of the economy as a whole.

When you put these two statements together, the argument is that the wealthy are working against their own interests by arguing for policies that favour their interests. Obviously, this is illogical.

I also think it’s a tactical mistake. People working to lessen inequality are trying to get other people on board, to make equality politically popular. They are doing this by saying that equality is in everyone’s benefit. But this is simply not true, and obscures the fight they have on their hands.

(There is a similar retrospective argument going on over slavery in the United States during this sesquicentennial of the Civil War. One side says that slaveowners could have been bought out and everyone would have been better off. The other side argues that this wouldn’t have been possible.)

A second issue is that equality/inequality is a muddled concept throughout the Introduction. It seems to stand in for ‘things we don’t like’ rather than having an independent definition. This was quite striking with the second personal profile in the book. It’s a profile of a family with mum, dad and four children. They moved from Auckland to Whanganui, then mum lost her job and things got tight. But ‘tight’ is a relative term. For example, the family can afford some after-school activities but not all of them. Is that deprivation or not? Most important, though, is the notion of choice:

But even though she’d almost certainly get work in Auckland, Kristine doesn’t regret the move to Whanganui. ‘Being down here enables us to do so many more things for the children. We get a far better lifestyle here, with far more time together as a family.’

So how is this inequality? This family is choosing non-monetary rewards over monetary rewards and dealing with the consequences of that choice. They know they have other options and choose not to exercise them.

Another issue is that the statistical basis for the arguments is not consistent. Sometimes, the talk is of personal income, which includes all the superannuitants. We are told, for example, that 30% of individuals have incomes less than $15,000. In the very next paragraph, we move to a discussion of household incomes, which look much less dire (decile 1, single person, no children: $16,600 or less). Further on, the discussion moves to disposable incomes (after tax) for single households, but figures for the top 1% of those earners are given as pre-tax amounts because of data constraints. In essence, the number of people at the low end is inflated, and the incomes at the high end are inflated. It would have been better to work harder at a consistent measure of income to present a fair picture of the situation.

This kind of ‘worst case’ picture doesn’t stop with the incomes figures. For example, we are told that

this country has a relatively small earnings advantage to those with degrees.

As it happens, I know a little about this topic. The footnote (ftnt 66!) to the statement correct notes that the OECD has measured returns to tertiary education. However, that includes not only degrees but also sub-degree qualifications. The composition of New Zealand tertiary education (comparatively more sub-degree qualifications than other OECD countries) drags down our average return.

This statement about a small earnings advantage also shows the incoherence of the whole introduction. In a relatively equal society, we should have low returns to increased education. The premium should cover the time spent out of the workforce but not much else. Just because someone didn’t get an education is no reason for them to be disadvantaged in the workplace.

If this strikes you as a silly argument, that’s because you are thinking about productivity and economic efficiency. Clearly, the book recognises that some inequality is okay (degree holders should make more money), but too much is not. What I want is a clear statement about where they think that line is, and how they propose to measure it.

Leadership, the consultant’s perspective

02/11/2012 Comments Off on Leadership, the consultant’s perspective

Last one! This is the fourth of four posts on The Leadership Challenge, by James Kouzes and Barry Posner, and looks at it from a consultant’s viewpoint. Prior posts took different perspectives: literary, psychoanalytic, and economic. Looking back over them, I haven’t been too supportive. The book has the literary value of a romance novel, the self-help value of a fad diet, and the economic value of a penny tech stock.

For a consultant, though, it’s very useful.

First, it tells you something about the mindset of the kinds of people who consume these books. Secondly, it’s a good explanation of how to provide guidance to a client. Let me explain both points.

Mindset first. As a consultant, you are working with all kinds of people. You have to be able to listen to them, understand the text and subtext of their messages, and frame your communications so they make sense. These sorts of management books are popular, especially with executive and aspiring executive types. They give you a chance to see what the concerns are and what the language is. Then, as a consultant, you can position your work to reflect them.

Using these books explicitly can also mark you as one of the tribe. The Art of War was very popular a few years back. It still pops up, but not like before. One of the stories emphasises decisiveness:

[A]rrangements were made to bring 180 ladies out of the Palace.  Sun Tzu divided them into two companies, and placed one of the King’s favorite concubines at the head of each….

So he started drilling them again, and this time gave  the order “Left turn,” whereupon the girls once more burst  into fits of laughter.  Sun Tzu:  “If words of command are  not clear and distinct, if orders are not thoroughly  understood, the general is to blame.  But if his orders ARE  clear, and the soldiers nevertheless disobey, then it is the  fault of their officers.”

So saying, he ordered the leaders of the two companies  to be beheaded.

The Leadership Challenge suggests that this sort of management by punishment is exactly wrong. Instead, team members have to know that it is safe to make mistakes. This increases the willingness to try new ideas, and increases the willingness to identify things that aren’t working and stop them.

When talking with your client, should you communicate execution or consultation? results or process? The management book-of-the-month club will help you decide.

The second way I found the book useful was in thinking about the consultant’s role. The Leadership Challenge describes leading without position or hierarchy. Often, that’s exactly what consultants have to do.

Consultants are external to the client’s organisation, and bring skills and knowledge that the client doesn’t have. They are trying to show the client a new way or demonstrate new thinking. As outsiders, though, they have no official clout, no institutional leverage. It isn’t enough to show up and say, ‘We’re the experts, here’s the answer.’ To be effective (and to be desired), consultants have to lead clients gently. They have to understand the values, align the project with the values, engage the client with the new direction through those values, and the encourage the client to make the new knowledge their own.

I have tended to think of consulting as providing advice. Since reading this book, I also see that there’s an element of leadership. That’s something I’ll want to integrate into my communication. At least until it goes out of style.

Leadership, the economic critique

01/11/2012 Comments Off on Leadership, the economic critique

One of the keys to economic thinking is models. We are always simplifying the world into models of cause, effect, and interaction. Economists try to do this explicitly, to write down the inputs (causes), outputs (effects), and equations (interactions) in a way that clearly explains our mental models. Then, they ex-sist in a way that allows us to play with them openly and consistently.

When we are analysing a particular phenomenon, the choice of model is very important. In this, the third of four reviews of The Leadership Challenge, by James Kouzes and Barry Posner, I’m suggesting a few different economic models and trying to figure out what they mean for leadership.

One model is the $20 bill on the footpath. It’s an old economics joke. An economics professor and a graduate student are walking down the street. The graduate student says, ‘Hey, there’s a $20 bill on the footpath.’ The professor replies, ‘No, there’s not. If there were, someone would already have picked it up!’

Another model is a standard production model, in which factors of production are combined to produce outputs. In addition to land, labour, and capital, we can add other factors like entrepreneurship, managerial capability, and leadership. We can imagine two scenarios: both have the same physical inputs, but one has high leadership and the other low leadership.

The second model suggests that, yes, we can produce more. We can be more productive and more efficient. This is essentially what The Leadership Challenge is offering. With low leadership, employees are not engaged and are not contributing to the full extent that they could. With high leadership, they can be encouraged to work harder and smarter, to present new and better ideas, to do more.

This is where the first model comes in: if there are these $20 bills lying around that can be ‘found’ by reading this book, we would expect that they would have already been found.

The likely explanation is that leadership is hard. Learning about and practising good leadership takes time and effort. Adding more leadership to your production function isn’t costless and its success is uncertain. If a business wants to produce more, it may be better off adding more machines or workers, rather than worrying about the uncertain pay-off from leadership training. It is safer to depend on mediocre leadership.

There is an interesting wrinkle, though. From the firm’s perspective, it may be safer to assume mediocre leadership. However, the individual’s perspective is different. An individual can become richer by increasing human capital, in this case, leadership abilities. Furthermore, self-help books are efficient from the firm’s perspective. The firm doesn’t have to select people, spend resources training them, and then discover that it has only a 20% success rate (or whatever). Instead, individuals self-select as those who are willing to spend time improving their leadership, bear the costs, bear the uncertainty of success, and then potentially reap the benefits of improving their own human capital. The firm provides the environment in which individuals could improve their fitness by improving their leadership, but allows variation and selection to do the work of identifying those superior organisms.

You will have noticed that I have slipped into a third model, that of evolution.

A further observation: the low price and wide distribution of pop-management books is further evidence of the difficulties with leadership. Here, I take up a fourth model: expected value. Let us assume that the gains to good leadership are as great as suggested. That is the potential payoff. Expected value is the potential payoff multiplied by the probability that it will happen:

EV = probability * payoff.

If I as an individual invest in buying and reading a book, I am investing according to the EV of the self-improvement project. A $40 to $50 book and a few hours of my time reading is a relatively low investment. If the payoff is huge — tens of thousands of dollars to me, personally, and thousands or potentially millions to the firm — the the probability of success must be quite small. Just to throw in some numbers:

$500 per year = probability * $10,000 per year

probability = 5%.

There you have it, four economic models for thinking about leadership: $20 bills, production function, evolution, and expected value. They all suggest that leadership is hard and uncertain. I don’t think Kouzes and Posner would disagree. The difference is that their book cheers, ‘You can do it!’ My models mumble, ‘Well, no, you probably can’t.’

Leadership, the psychoanalytic critique

30/10/2012 § 3 Comments

This is the second of four reviews of The Leadership Challenge, by James Kouzes and Barry Posner, each through a different lens. In the last post, it was a literary critique. This post is the psychoanalytic critique.

The reason for the multiple critiques is this: I read these popular management books from time to time, to understand the work world and learn some management skills. But they don’t really make sense to me. If they were true — if all we needed were seven habits to be highly successful or five practices to be good leaders or 60 seconds to accomplish management tasks — then we wouldn’t need the hundreds (thousands?) of books published each year. They are, it seems, a bit like weight-loss books. Their success as a product depends on their failure to deliver results.

Kouzes and Posner advocate a specific style of leadership. This isn’t ‘fake it ’till you make it’. Real leaders get in touch with their core values, align those values with the organisation, engage their employees through their values, and inspire them to be better. This isn’t so much about getting people to do things. It’s about getting them to want to do things.

Organization Studies devoted the September 2012 issue to ‘What can psychoanalysis offer organization studies today?‘. Costas and Taheri provided their perspective on the return of the primal father through the modern theme of authentic leadership. They argued that ‘authentic’ leadership, as opposed to leadership via position and hierarchy, has the potential to be either liberating or repressive. They used the Lacanian discourses to argue that the modern version of leadership — which stresses connecting leaders’ values with the organisation and the employees or team members, and which suggests giving power and discretion to employees to get the best out of them — could be a movement from the master’s discourse to the analyst’s discourse. In that case, workers can potentially achieve the sort of liberation that psychoanalysis can provide. But, it could also be a movement away from the post-Oedipal structure to the primal father, who sees and wants and consumes. In that case, employees are left without the protection of the symbolic structure and are at the mercy of the boss/primal father.

I see it differently, relying more on Seminar XX and less on the four discourses. In Seminar XX, Lacan discusses two positions with respective to the phallic signifier, the masculine and feminine positions. Zizek has a nice, short essay on this. The Leadership Challenge and authentic leadership generally claim to be moving away from a dictatorial approach, which on the surface seems to be a movement away from hierarchy and therefore phallocentrism. However, the explanation for how this new paradigm actually works re-asserts the primacy of a specific phallic signifier. The explanation is that employees will learn how their behaviours contribute to business success. Their behaviours will then be regulated not by the boss but by the market.

This interpretation doesn’t necessarily take you to the primal father; there is still system of signifiers, just a different phallus. It also doesn’t take you directly to the analyst’s discourse, which depends on keeping a structure but recognising its inherent emptiness. Instead, it suggests a reinvigorated phallic function. But, as Zizek points out, the paradox is that ‘the phallic function coincides with its own self-limitation’. Reinvigorating it also reinvigorates its limitation. If we are forced to admit, finally, that we are ‘bound by the prison rules’, then authentic leadership may actually ‘[open] up a space for true hope’.

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