Too big to fail

Size, as they say, isn’t everything.  Almost 50 years after the publication of Schumacher’s seminal work Small is Beautiful the debate about appropriate size is beginning to take root.  Actually, as with many debates about size, that statement is itself a bit of an exaggeration.   In reality, the current debate is more about whether capitalism has erred in allowing banks, and other institutions, to become too big to fail.  Whereas Darwinian economics allows for, say, Tesco to go to the wall, received wisdom was that the nature of our dependency on large banks was such that only by bailing them out with taxpayers’ (aka our grandchildrens’) money could a financial crisis be avoided. 

Similarly, the debate is also about the size of government.  The debt crisis in the UK and the problems in the Eurozone bring into sharp focus the merits of scale.  For some the solution to Europe’s problems is to increase the powers of the commission and the European Parliament over fiscal and social issues.  Only by becoming bigger, they say, can we become better. In the US the recent election could be characterised as a battle between the proponents of large and small government.  Here, behind the bluster of Autumn Statements and “events” there is a quiet ideological battle being whispered about whether the role of central government is to direct social change or to enable it.

Recently I went to hear the great Nassim Taleb (author of Black Swan) talk about his latest work Antifragile.  His central point is that the world is volatile and that if we are flexible then we can survive; but that if, as is mainly the case, we crave certainty then we will not survive the crisis that volatility will invariably present.  And to make matters worse, scale simply makes things worse: the bigger things are then the greater their exposure to risk.  That includes banks, businesses and buildings (perhaps economies of scale is yet another oxymoron, providing further reasons why so few M&As ever succeed).

It occurred to me that the problems of both craving certainty and too big to fail also apply to people.  I frequently encounter people who crave certainty in their lives.  The need for “security” of income, based on a complex formula incorporating the size of mortgage, school fees, fine wine, Arsenal season tickets, etc, mean that they have allowed themselves to become institutionalised and inflexible and, therefore, vulnerable to change.  Some have purposefully decided to postpone their real life until they have achieved a degree of financial security (remember the, probably apocryphal, merchant bank recruitment slogan: “you won’t know your children, but you’ll get to know your grandchildren really well”). Unfortunately these people often fail to be themselves; rather, they define themselves by what it says on their business cards. At the other end of the scale, many organisations find themselves with a too big to fail leader.  The celebrity CEO (Chief Entertainment Officer) whose self-created ego drives them to seemingly greater levels of super hero performance would be a good example.  However, their drive for growth often leads their organisation merely to become exposed to greater levels of risk.

Certainty and the desire for scale seem strange bedfellows but actually they are part of the same issue.  Many do seem to believe that there’s safety in numbers.  Our craving for certainty means that we often see being bigger and better as the way to achieve it.  But certainty is merely an illusion. To embrace risk and uncertainty is to embrace life.  And we should be aware of the lure of scale in our private lives, and watch out for the desire to become so big that we lose contact with both our true selves and with reality.  Hubris reminds us that no-one is too big to fail and ignore the words of the eminent psychiatrist, Dr Frasier Crane, who said: “Faust was a moron.  I’m going to become a star.”