Superb article explaining the DEI crisis in America and Europe, and why planes will keep on falling and our society failing.
Harold Robertson June 1, 2023 Articles
At a casual glance, the recent cascades of American disasters might
seem unrelated. In a span of fewer than six months in 2017, three U.S.
Naval warships experienced three separate collisions resulting in 17
deaths. A year later, powerlines owned by PG&E started a wildfire
that killed 85 people. The pipeline carrying almost half of the East
Coast’s gasoline shut down due to a ransomware attack. Almost half a
million intermodal containers sat on cargo ships unable to dock at Los
Angeles ports. A train carrying thousands of tons of hazardous and
flammable chemicals derailed near East Palestine, Ohio. Air Traffic
Control cleared a FedEx plane to land on a runway occupied by a
Southwest plane preparing to take off. Eye drops contaminated with
antibiotic-resistant bacteria killed four and blinded fourteen.
While disasters like these are often front-page news, the broader
connection between the disasters barely elicits any mention. America
must be understood as a system of interwoven systems; the healthcare
system sends a bill to a patient using the postal system, and that
patient uses the mobile phone system to pay the bill with a credit card
issued by the banking system. All these systems must be assumed to work
for anyone to make even simple decisions. But the failure of one system
has cascading consequences for all of the adjacent systems. As a
consequence of escalating rates of failure, America’s complex systems
are slowly collapsing.
The core issue is that changing political mores have established the
systematic promotion of the unqualified and sidelining of the competent.
This has continually weakened our society’s ability to manage modern
systems. At its inception, it represented a break from the trend of the
1920s to the 1960s, when the direct meritocratic evaluation of
competence became the norm across vast swaths of American society.
In the first decades of the twentieth century, the idea that
individuals should be systematically evaluated and selected based on
their ability rather than wealth, class, or political connections, led
to significant changes in selection techniques at all levels of American
society. The Scholastic Aptitude Test (SAT) revolutionized college
admissions by allowing elite universities to find and recruit talented
students from beyond the boarding schools of New England. Following the
adoption of the SAT, aptitude tests such as Wonderlic (1936), Graduate
Record Examination (1936), Army General Classification Test (1941), and
Law School Admission Test (1948) swept the United States. Spurred on by
the demands of two world wars, this system of institutional management
electrified the Tennessee Valley, created the first atom bomb, invented
the transistor, and put a man on the moon.
By the 1960s, the systematic selection for competence came into
direct conflict with the political imperatives of the civil rights
movement. During the period from 1961 to 1972, a series of Supreme Court
rulings, executive orders, and laws—most critically, the Civil Rights
Act of 1964—put meritocracy and the new political imperative of
protected-group diversity on a collision course. Administrative law
judges have accepted statistically observable disparities in outcomes
between groups as prima facie evidence of illegal
discrimination. The result has been clear: any time meritocracy and
diversity come into direct conflict, diversity must take priority.
The resulting norms have steadily eroded institutional competency,
causing America’s complex systems to fail with increasing regularity. In
the language of a systems theorist, by decreasing the competency of the
actors within the system, formerly stable systems have begun to
experience normal accidents at a rate that is faster than the system can
adapt. The prognosis is harsh but clear: either selection for
competence will return or America will experience devolution to more
primitive forms of civilization and loss of geopolitical power.
From Meritocracy to Diversity
The first domino to fall as Civil Rights-era policies took effect was
the quantitative evaluation of competency by employers using
straightforward cognitive batteries. While some tests are still legally
used in hiring today, several high-profile enforcement actions against employers caused a wholesale change in the tools customarily usable by employers to screen for ability.
After the early 1970s, employers responded by shifting from directly
testing for ability to using the next best thing: a degree from a
highly-selective university. By pushing the selection challenge to the
college admissions offices, selective employers did two things: they
reduced their risk of lawsuits and they turned the U.S. college
application process into a high-stakes war of all against all. Admission
to Harvard would be a golden ticket to join the professional managerial
class, while mere admission to a state school could mean a struggle to
remain in the middle class.
This outsourcing did not stave off the ideological change for long.
Within the system of political imperatives now dominant in all major
U.S. organizations, diversity must be prioritized even if there is a
price in competency. The definition of diversity varies by industry and
geography. In elite universities, diversity means black, indigenous, or
Hispanic. In California, Indian women are diverse but Indian men are
not. When selecting corporate board members, diversity means “anyone who
is not a straight white man.” The legally protected and politically
enforced nature of this imperative renders an open dialogue nearly
impossible.
However diversity itself is defined, most policy on the matter is
based on a simple premise: since all groups are identical in talent, any
unbiased process must produce the same group proportions as the general
population, and therefore, processes that produce disproportionate
outcomes must be biased. Prestigious journals like Harvard Business Review are the first to summarize and parrot these views, which then flow down to reporting by mass media organizations like Bloomberg Businessweek. Soon, it joins McKinsey’s “best practices” list and becomes instantiated in corporate policies.
Unlike accounting policies, which emanate from the Financial
Accounting Standards Board and are then implemented by Chief Financial
Officers, the diversity push emanates inside of organizations from
multiple power centers, each of which joins in for independent reasons.
CEOs push diversity policies primarily to please board members and
increase their status. Human Resources (HR) professionals push diversity
policies primarily to avoid anti-discrimination lawsuits. Business
development teams push diversity to win additional business from
diversity-sensitive clients (e.g. government agencies). Employee
Resource Groups (ERGs), such as the Black Googler Network, push
diversity to help their in-group in hiring and promotion decisions.
Diversity in Theory and Practice
In police academies around the country, new recruits are taught to
apply an escalation of force algorithm with non-compliant subjects:
“Ask, Tell, Make.” The idea behind “Ask, Tell, Make” is to apply the
least amount of force necessary to achieve the desired level of
compliance. This is the means by which police power, which is ultimately
backed by significant coercive force, can maintain an appearance of
voluntary compliance and soft-handedness. Similarly, the power centers
inside U.S. institutions apply a variant of “Ask, Tell, Make” to achieve
diversity in their respective organizations.
The first tactics for implementing diversity imperatives are the
“Ask” tactics. These simply ask all the members of the organization to
end bias. At this stage, the policies seem so reasonable and fair that
there will rarely be much pushback. Best practices such as slating guidelines
are a common tool at this stage. Slating guidelines require that every
hiring process must include a certain number and type of diverse
candidates for every job opening. Structured interviews are another best
practice that requires interviewers to stick with a script to minimize
the chance of uncovering commonalities between the interviewer and
interviewee that might introduce bias. Often HR will become involved in
the hiring process, specifically asking the hiring manager to defend
their choice not to hire a diverse candidate. Because the wrong
answer could result in shaming, loss of advancement opportunities, or
even termination, the hiring manager can often be persuaded to
prioritize diversity over competence.
Within specialized professional services companies, senior-level
recruiting will occasionally result in a resume collection where not a
single diverse candidate meets the minimum specifications of the job.
This is a terrible outcome for the hiring manager as it attracts
negative attention from HR. At this point, firms will often retain an
executive search agency that focuses on exclusively diverse candidates.
When that does not result in sufficient diversity, roles will often have
their requirements diluted to increase the pool of diverse candidates.
For example, within hedge funds, the ideal entry-level candidate
might be an experienced former investment banker who went to a top MBA
program. This preferred pedigree sets a minimum bar for both competence
and work ethic. This first-pass filter enormously winnows the field of
underrepresented candidates. To relax requirements for diversity’s sake,
this will be diluted in various ways. First, the work experience might
be stripped. Next, the role gets offered to MBA interns. Finally, fresh
undergraduates are hired into the analyst role. Dilution works not just
because of the larger field of candidates it allows for but also because
the Harvard Admission Office of 2019 is even more focused on certain
kinds of diversity than the Harvard Admission Office of 2011 was.
This dilution is not costless; fewer data points result in a wider
range of outcomes and increase the risk of a bad hire. All bad hires are
costly but bad hires that are diverse are even worse. The risk of a
wrongful termination lawsuit either draws out the termination process
for diverse hires or results in the firm adjusting by giving them
harmless busy work until they leave of their own volition—either way, a
terrible outcome for the organizations which hired them.
If these “Ask” tactics do not achieve enough diversity, the next step
in the escalation is to attach carrots and sticks to directly tell
decision-makers to increase the diversity of the organization. This is
the point at which the goals of diversity and competence truly begin
displaying significant tension between each other. The first step is the
implementation of Key Performance Indicators (KPI) linked to diversity
for all managers. Diversity KPIs are a tool to embarrass leaders and
teams that are not meeting their diversity targets. Given that most
organizations are hierarchical and pyramidal, combined with the fact
that America was much whiter 50 years ago than it was today, it is
unsurprising that senior leadership teams are less diverse than America
as a whole—and, more pertinently, than their own junior teams.
The combination of a pyramid-shaped org chart and a senior leadership
team where white men often make up 80 percent or more of the team means
that the imposition of an aggressive KPI sends a message to the layer
below them: no white man in middle management will likely ever see a
promotion as long as they remain in the organization. This is never
expressed verbally. Rather, those overlooked figure it out as they are
passed over continually for less competent but more diverse colleagues.
The result is demoralization, disengagement, and over time, departure.
While all the aforementioned techniques fall into the broad category
of affirmative action, they primarily result in slightly tilting the
scale toward diverse candidates. The next step is simply holding
different groups to different standards. Within academia, the recently
filed Students for Fair Admissions v. President and Fellows of Harvard
College lawsuit
leveraged data to show the extent to which Harvard penalizes Asian and
white applicants to help black and Hispanic applicants. The UC System,
despite formally being forbidden from practicing affirmative action by
Proposition 209, uses a tool called “comprehensive admission” to
accomplish the same goal.
The latest technique, which was recently
brought to light, shows UC admissions offices using the applicants’
high schools as a proxy for race to achieve their desired goal. Heavily
Asian high schools such as Arcadia—which is 68 percent Asian—saw their
UC-San Diego acceptance rate cut from 37 percent to 13 percent while the
99-percent-Hispanic Garfield High School saw its UC-San Diego
acceptance rate rise from 29 percent to 65 percent.
The preference for diversity at the college faculty level is similarly strong. Jessica Nordell’s End of Bias: A Beginning
heralded MIT’s efforts to increase the gender diversity of its
engineering department: “When applications came in, the Dean of
Engineering personally reviewed every one from a woman. If departments
turned down a good candidate, they had to explain why.”
When this was not enough, MIT increased its gender diversity by
simply offering jobs to previously rejected female candidates. While no
university will admit to letting standards slip for the sake of
diversity, no one has offered a serious argument why the new processes
produce higher or even equivalent quality faculty as opposed to simply
more diverse faculty. The extreme preference for diversity in academia
today explains much of the phenomenon of professors identifying with a
minor fraction of their ancestry or even making it up entirely.
During COVID-19, the difficulty of in-person testing and online
proctoring created a new mechanism to push diversity at the expense of
competency: the gradual but systematic elimination of standardized tests
as a barrier to admission to universities and graduate schools. Today,
the majority of U.S. colleges have either stopped requiring SAT/ACT
scores, no longer require them for students in the top 10 percent of
their class, or will no longer consider them. Several elite law schools,
including Harvard Law School, no longer require the LSAT as of 2023.
With thousands of unqualified law students headed to a bar exam that
they are unlikely to pass, the National Conference of Bar Examiners is
already planning to dilute the bar exam under the “NextGen” plan. Specifically,
“eliminat[ing] any aspects of our exams that could contribute to
performance disparities” will almost definitionally reduce the degree to
which the exam tests for competency.
Similarly, standards used to select doctors have also been weakened
to promote diversity. Programs such as the City College of New York’s
BS/MD program have eliminated the MCAT requirement. With the SAT now
optional, new candidates can go straight from high school to the United
States Medical Licensing Examination Step 1 exam in medical school
without having gone through any rigorous standardized test whose score
can be compared across schools. Step 1 scores were historically the most
significant factor in the National Residency Matching Program, which
pairs soon-to-be doctors with their future residency training programs.
Because Step 1 scores serve as a barrier to increasing diversity, they
have been made pass/fail. A handful of doctors are speaking out
about the dangers of picking doctors based on factors other than
competency but most either explicitly prefer diversity or else stay
silent, concerned about the career-ending repercussions of pointing out
the obvious.
When even carrot and stick incentives and the removal of standards do
not achieve enough diversity, the end game is to simply make
decision-makers comply. “Make” has two preferred implementations: one is
widely discussed and the other is, for obvious reasons, never disclosed
publicly. The first method of implementation is the application of
quotas. Quotas or set-asides require the reservation of admissions
slots, jobs, contracts, board seats, or other scarce goods for women and
members of favored minority groups. Government contracts and supplier
agreements are explicitly awarded to firms that have acronyms such as SB, WBE, MBE, DBE, SDB, VOSB, SDVOSB, WOSB, HUB, and 8(a).
Within large employers and government contractors, quotas are used
for both hiring and promotions, requiring specific percentages of hiring
or promotions to be reserved for favored groups. During the summer of
2020, the CEO of Wells Fargo, was publicly shamed after his memo blaming the underrepresentation of black senior leaders on a “very limited pool” of black talent was leaked to Reuters. Less than a month later, the bank publicly pledged to reserve
12 percent of leadership positions for black candidates and began tying
executive compensation to reaching diversity goals. In 2022, Goldman
Sachs extended quotas to the capital markets by adopting a policy to
avoid underwriting IPOs of firms without at least two board members that
are not straight white men.
When diversity still refuses to rise to acceptable levels, the
remaining solution is the direct exclusion of non-diverse candidates.
While public support for anti-discrimination laws and equal opportunity
laws is high, public support for affirmative action and quotas is
decidedly mixed. Hardline views such as those expressed in author Ijeoma
Oluo’s Mediocre: The Dangerous Legacy of White Male America—namely
that “any white man in a position of power perpetuates a system of
white male domination”—are still considered extreme, even within U.S.
progressive circles.
As such, when explicit exclusion is used to eliminate groups like
white men from selection processes, it is done subtly. Managers are told
to sequester all the resumes from “non-diverse” candidates—that is,
white males. These resumes are discarded and the candidates are sent
emails politely telling them that “other candidates were a better fit.”
While some so-called “reverse discrimination”
lawsuits have been filed, most of these policies go unreported. The
reasons are straightforward; even in 2023, screening out all white men
is not de jure legal. Moreover, any member of the professional
managerial class who witnesses and reports discrimination against white
men will never work in their field again.
Even anonymous whistleblowing is likely to be rare. To imagine why,
suppose incontrovertible evidence was produced that one’s employer was
explicitly excluding white male candidates, and a lawsuit was filed. The
employer’s reputation and the reputation of all the employees there,
including the white men still working there, would be tarnished. That
said, we can expect to see more lawsuits from men who feel they have
little to lose.
This “Ask, Tell, Make” framework, under various descriptions, is the
method by which individuals with a vested interest in more diversity
push their organizations toward their preferred outcome. Force begins
requesting modest changes to recruiting to make it “more fair.” Force
ends with the heavy-handed application of quotas and even exclusion. The
American system is not a monolith, however, which means that the
strength of the push and its effects on competency is not distributed
evenly.
Competency Is Declining From the Core Outwards
Think of the American system as a series of concentric rings with the
government at the center. Directly surrounding that are the
organizations that receive government funds, then the nonprofits that
influence and are subject to policy, and finally business at the
periphery. Since the era of the Manhattan Project and the Space Race,
the state capacity of the federal government has been declining almost
monotonically.
While this has occurred for a multitude of reasons, the steel girders
supporting the competency of the federal government were the first to
be exposed to the saltwater of the Civil Rights Act and related
executive orders. Government agencies, which are in charge of overseeing
all the other systems, have seen the quality of their human capital
decline tremendously since the 1960s. While the damage to an agency like
the Department of Agriculture may have long-term deadly consequences,
the most immediate danger is at safety-critical agencies like the
Federal Aviation Administration (FAA).
The Air Traffic Control (ATC) system used in the U.S. relies on an
intricate dance of visual or radar observation, transponders, and radio
communication, all with the incredible challenge of keeping thousands of
simultaneously moving planes from ever crashing into each other. Since
air controlling is one of the only jobs that pays more than $100,000 per
year and does not require a college diploma, it has been a popular
career choice for individuals without a degree who nonetheless have an
exceptionally good memory, attention span, visuospatial awareness, and
logical skills. The Air Traffic Selection and Training (AT-SAT) Exam, a
standardized test of those critical skills, was historically the primary
barrier to entry for air controllers. As a consequence of the AT-SAT,
as well as a preference for veterans with former air controller
experience, 83 percent of air controllers in the U.S. were white men as
of 2014.
That year, the FAA added a Biographical Questionnaire (BQ) to the
screening process to tilt the applicant pool toward diverse candidates.
Facing pushback in the courts from well-qualified candidates who were
screened out, the FAA quietly backed away from the BQ and adopted a new
exam, the Air Traffic Skills Assessment (ATSA). While the ATSA includes
some questions similar to those of the BQ, it restored the test’s focus
on core air traffic skills. The importance of highly-skilled air
controllers was made clear in the most deadly air disaster in history,
the 1977 Tenerife incident. Two planes, one taking off and one taxiing,
collided on the runway due to confusion between the captain of KLM 4805
and the Tenerife ATC. The crash, which killed 583 people, resulted in
sweeping changes in aviation safety culture.
Recently, the tremendous U.S. record for air safety established since
the 1970s has been fraying at the edges. The first three months of 2023
saw nine near-miss incidents at U.S. airports, one with two planes
coming within 100 feet of colliding. This terrifying uptick from years prior resulted in the FAA and NTSB convening safety summits in March and May, respectively. Whether they dared to discuss root causes seems unlikely.
Given the sheer size of the U.S. military in both manpower and budget
dollars, it should not come as a surprise that the diversity push has
also affected the readiness of this institution. Following three
completely avoidable collisions of U.S. Navy warships in 2017 and a fire
in 2020 that resulted in the scuttling of USS Bonhomme Richard, a $750
million amphibious assault craft, two retired marines conducted
off-the-record interviews with 77 current and retired Navy officers.
One recurring theme was the prioritization of diversity training over
ship handling and warfighting preparedness. Many of them openly admit
that, given current issues, the U.S. would likely lose an open naval
engagement with China. Instead of taking the criticism to heart, the
Navy commissioned “Task Force One Navy,” which recommended deemphasizing
or eliminating meritocratic tests like the Officer Aptitude Rating to
boost diversity. Absent an existential challenge, U.S. military
preparedness is likely to continue to degrade.
The decline in the capacity of government contractors is likewise
obvious, with the largest contractors being the most directly impacted.
The five largest contractors—Lockheed Martin, Boeing, General Dynamics,
Raytheon Company, and Northrop Grumman—will all struggle to maintain
competency in the coming years.
Boeing, one of only two firms globally capable of mass-producing
large airliners, has a particularly striking crisis unfolding in its
institutional culture. Shortly after releasing the 737 MAX, 346 people
died in two nearly identical 737 MAX crashes in Indonesia and Ethiopia.
The cause of the crashes was a complex interaction between design
choices, cost-cutting led by MBAs, FAA issues, the MCAS flight-control
system, a faulty sensor, and pilot training. Meanwhile, on the defense
side of the business, Boeing’s new fuel tanker, the KC-46A Pegasus is
years behind on deliveries due to serious technical flaws with the
fueling system along with multiple cases
of Foreign Object Debris left inside the plane during construction:
tools, a red plastic cap, and in one case, even trash. Between the
issues at ATC and Boeing, damage to the U.S.’s phenomenal aviation
safety record seems almost inevitable.
After government contractors, the next-most-affected class of
institutions are nonprofit organizations. They are entrapped by the
government whose policies they are subject to and trying to influence,
the opinions of their donor base, and lack of any profit motive. The
lifeblood of nonprofits is access to capital, either directly in the
form of government grants or through donations that are deemed
tax-deductible. Accessing federal monies means being subject to the full
weight of U.S. diversity rules and regulations. Nonprofits are
generally governed by boards whose members tend to overlap with the list
of major donors. Because advocacy for diversity and board memberships
are both high-status positions, unsurprisingly board members tend to
voice favorable opinions of diversity, and those opinions flow
downstream to the organizations they oversee.
Nonprofits—including universities, charities, and foundations—exist
in an overlapping ecosystem with journalism, with individuals tending to
freely circulate between the four. The activities of nonprofits are
bound up in the same discourses shaped by current news and academic
research, with all four reflecting the same general ideological
consensus. Finally, lacking the profit motive, the decision-making
processes of nonprofits are influenced by what will affect the status of
the individuals within those organizations rather than what will affect
profits. Within nonprofits, the cost of incompetent staffers is borne
by “stakeholders,” rather than any one individual.
While all businesses subject to federal law must prioritize diversity
over competency at some level, the problem is worse at publicly-traded
corporations for reasons both obvious and subtle. The obvious reason is
that larger companies present larger targets for EEOC actions and
discrimination lawsuits with hundreds of millions of dollars at stake.
Corporations have logically responded by hiring large teams of HR
professionals to preempt such lawsuits. Over the past several decades,
HR has evolved from simply overseeing onboarding to involvement in every
aspect of hiring, promotions, and firings, seeing them all through a
political and regulatory lens.
The more subtle reason for pressure within publicly-traded companies
is that they require ongoing relationships with a spiderweb of banks,
credit ratings agencies, proxy advisory services, and most importantly,
investors. Given that the loss of access to capital is an immediate
death sentence for most businesses, the CEOs of publicly-traded
companies tend to push diversity over competency even when the decline
in firm performance is clear. CEOs would likely rather trade a small
drag on profits margins than a potentially career-ending scandal from
pushing back.
Whereas publicly-traded corporations nearly uniformly push diversity,
privately-held businesses vary tremendously based on the views of their
owners. Partnerships such as the Big Four accounting firms and top-tier
management consultancies are high-status. High-status firms must
regularly proclaim extensive support for diversity. While the firms tend
to be highly selective, partnerships whose leadership is overwhelmingly
white and male have generally capitulated to the zeitgeist and are
cutting standards to hit targets. Firms often manage around this by
hiring for diversity and then putting diversity hires into roles where
they are the least likely to damage the firm or the brand. Somewhat
counterintuitively, firms with diverse founders are often highly
meritocratic, as the structure harnesses the founder’s desire to make
money and shields them from criticism on diversity issues.
The most notable example of a diverse meritocracy is Vista Equity
Partners, the large private equity firm founded by Robert F. Smith,
America’s wealthiest black man. Robert F. Smith is one of the most vocal
advocates for and philanthropists to historically black U.S. colleges
and universities. It would be reasonable to expect Vista to prioritize
diversity over competency in its portfolio companies. However, Vista has
instead been profiled for giving all portfolio company management teams
the Criteria Cognitive Aptitude Test
and ruthlessly culling low-performers. Given the amount of value to be
created by promoting the best people into leadership roles of their
portfolio companies, one might imagine this to be low-hanging fruit for
the rest of private equity, yet Vista is an outlier. Why Vista can apply
the CCAT without a public outcry is obvious.
The other firms that tend to still focus on competency are those that
are small and private. Such firms have two key advantages: they fall
below the fifteen-employee threshold for the most onerous EEOC rules and
the owner can usually directly observe the performance of everyone
inside the organization. Within small firms, underperformance is usually
obvious. Tech startups, being both small and private, would seem to
have the right structure to prioritize competency.
The American System Is Cracking
Promoting diversity over competency does not simply affect new hires
and promotion decisions. It also affects the people already working
inside of America’s systems. Morale and competency inside U.S.
organizations are declining. Those who understand that the new system
makes it hard or impossible for them to advance are demoralized,
affecting their performance. Even individuals poised to benefit from
diversity preferences notice that better people are being passed over
and the average quality of their team is declining. High performers want
to be on a high-performing team. When the priorities of their
organizations shift away from performance, high performers respond
negatively.
This effect was likely seen in a recent paper
by McDonald, Keeves, and Westphal. The paper points out that white male
senior leaders reduce their engagement following the appointment of a
minority CEO. While it is possible that author Ijeoma Oluo is correct,
and that white men have so much unconscious bias raging inside of them
that the appointment of a diverse CEO sends them into a tailspin of
resentment, there is another more plausible explanation. When boards
choose diverse CEOs to make a political statement, high performers who
see an organization shifting away from valuing honest performance
respond by disengaging.
Some demoralized employees—like James Damore in his now-famous essay,
“Google’s Ideological Echo Chamber”—will directly push back against
pro-diversity arguments. Like James, they will be fired. Older,
demoralized workers, especially those who are mere years from
retirement, are unlikely to point out the decline in competency and risk
it costing them their jobs. Those who have a large enough nest egg may
simply retire to avoid having to deal with the indignity of having to
attend another Inclusive Leadership seminar.
As older men with tacit knowledge either retire or are pushed out,
the burden of maintaining America’s complex systems will fall on the
young. Lower-performing young men angry at the toxic mix of affirmative
action (hurting their chances of admission to a “good school”) and
credentialism (limiting the “good jobs” to graduates of “good schools”)
are turning their backs on college and white-collar work altogether.
This is the continuation of a trend that began over a decade ago.
High-performing young men will either collaborate, coast, or downshift
by leaving high-status employment altogether. Collaborators will embrace
“allyship” to attempt to bolster their chances of getting promoted.
Coasters realize that they need to work just slightly harder than the
worst individual on their team. Their shirking is likely to go unnoticed
and they are unlikely to feel enough emotional connection to the
organization to raise alarm when critical mistakes are being made. The
combination of new employees hired for diversity, not competence, and
the declining engagement of the highly competent sets the stage for
failures of increasing frequency and magnitude.
The modern U.S. is a system of systems interacting together in
intricate ways. All these complex systems are simply assumed to work. In
February of 2021, cold weather in Texas caused shutdowns at
unwinterized natural gas power plants. The failure rippled through the
systems with interlocking dependencies. As a result, 246 people died. In
straightforward work, declining competency means that things happen
more slowly, and products are lower quality or more expensive. In
complex systems, declining competency results in catastrophic failures.
To understand why, one must understand the concept of a “normal
accident.” In 1984, Charles Perrow, a Yale sociologist, published the
book, Normal Accidents: Living With High-Risk Technologies. In
this book, Perrow lays out the theory of normal accidents: when you have
systems that are both complex and tightly coupled, catastrophic
failures are unavoidable and cannot simply be designed around. In this
context, a complex system is one that has many components that all need
to interact in a specified way to produce the desired outcome. Complex
systems often have relationships that are nonlinear and contain feedback
loops. Tightly-coupled systems are those whose components need to move
together precisely or in a precise sequence.
The 1979 Three Mile Island Accident was used as a case study: a
relatively minor blockage of a water filter led to a cascading series of
malfunctions that culminated in a partial meltdown. In A Demon of Our Own Design, author
Richard Bookstaber added two key contributions to Perrow’s theory:
first, that it applies to financial markets, and second, that regulation
intended to fix the problem may make it worse.
The biggest shortcoming of the theory is that it takes competency as a
given. The idea that competent organizations can devolve to a level
where the risk of normal accidents becomes unacceptably high is barely
addressed. In other words, rather than being taken as absolutes,
complexity and tightness should be understood to be relative to the
functionality of the people and systems that are managing them. The U.S.
has embraced a novel question: what happens when the men who built the
complex systems our society relies on cease contributing and are
replaced by people who were chosen for reasons other than competency?
The answer is clear: catastrophic normal accidents will happen with
increasing regularity. While each failure is officially seen as a
separate issue to be fixed with small patches, the reality is that the
whole system is seeing failures at an accelerating rate, which will lead
in turn to the failure of other systems. In the case of the Camp Fire
that killed 85 people, PG&E fired its CEO, filed Chapter 11, and
restructured. The system’s response has been to turn off the electricity and raise
wildfire insurance premiums. This has resulted in very little
reflection. The more recent coronavirus pandemic was another teachable
moment. What started just three years ago with a novel respiratory virus
has caused a financial crisis, a bubble, soaring inflation, and now a
banking crisis in rapid succession.
Patching the specific failure mode is simultaneously too slow and
induces unexpected consequences. Cascading failures overwhelm the
capabilities of the system to react. 20 years ago, a software bug caused
a poorly-managed local outage that led to a blackout that knocked out
power to 55 million people and caused 100 deaths. Utilities were able to
restore power to all 55 million people in only four days. It is unclear
if they could do the same today. U.S. cities would look very different
if they remained without power for even two weeks, especially if other
obstructions unfolded. What if emergency supplies sat on trains
immobilized by fuel shortages due to the aforementioned pipeline
shutdown? The preference for diversity over competency has made our
system of systems dangerously fragile.
Americans living today are the inheritors of systems that created the
highest standard of living in human history. Rather than protecting the
competency that made those systems possible, the modern preference for
diversity has attenuated meritocratic evaluation at all levels of
American society. Given the damage already done to competence and morale
combined with the natural exodus of baby boomers with decades worth of
tacit knowledge, the biggest challenge of the coming decades might
simply be maintaining the systems we have today.
The path of least resistance will be the devolution of complex
systems and the reduction in the quality of life that entails. For the
typical resident in a second-tier city in Mexico, Brazil, or South
Africa, power outages are not uncommon, tap water is probably not safe
to drink, and hospital-associated infections are common and often fatal.
Absent a steep change in the quality of American governance and a
renewed culture of excellence, they prefigure the country’s future.
Harold Robertson is an asset class head and institutional investor at a multi-billion dollar pool of capital.
