The credit crunch and the disillusion with parliamentary democracy prove that there is a problem with the way we govern ourselves, as organisations and states. I would like to propose a solution which, if implemented, would go a long way to providing effective governance, economic growth, and social stability.

THE PROBLEM

All our existing institutions and regulations failed to prevent the credit crunch, the Madoff and Stanford frauds, the obvious risk of bankers lending to people who can’t afford to repay, and the collapse of numerous financial organisations. The banking crisis was caused by banks knowingly lending to people who couldn’t repay; therefore the crisis was predictable. So why did they do it? Because current governance processes don’t work. In both the public and private sectors they are unstrategic, disconnected, impersonal, inefficient and reactive.

Political governance

There is a problem with political governance in particular. We live in an oligarchy where our choice in who governs us is effectively restricted to two parties offering similar policies and similar incompetence to govern. We are impoverished by a government which steals taxes to pay the interest on the debt it has assumed without our consent. We are controlled by myriad rules and regulations about what we can say and write and do. Ronald Reagan’s criticism of the USA’s bureaucracy applies to our country: “If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidise it.”

What have we got in return for these intrusions on our freedom? Net debt of £742 billion (February 2010) and globally the Bank of International Settlements says that the value of outstanding derivatives is $1.114 quadrillion, or $190,000 for every person on the planet. These casino bets, with no underlying asset value, are completely dependent on confidence in the system, a confidence that can easily evaporate. If our governance apparatus doesn’t prevent these risks, what use is it? If our governors don’t prevent these risks, what use are they?

The response to the crisis

The response to the financial crisis has been to increase the same ineffective regulation and to lend public money to the people who caused the crisis without asking the people who own the money. Nothing significant has been put right. There has been no attempt to tackle the under-lying causes of the crisis, namely the lack of transparency and failure to predict the predictable.

In one desperate attempt to dodge the bullet the government has turned to outsourcing which rather than solve problems merely moves them. It saves money but by further separating organisations and processes it increases dysfunctionality and diminishes outcomes.

The response to the political crisis has been to tweak the existing system, typified by the document “The Governance of Britain”[1], which is presented as the first step to “forge a new relationship between government and citizen.” However the paper merely strengthens the present oligarchic system and by moving powers to Parliament disfranchises the electorate further. Politicians still seem to think of the electorate as children who need to be controlled and patronised.

The think-tanks agree that our present approach to governance is broken. Their analysis is impeccable but they lack sustainable solutions.

And solutions won’t come from the Civil Service. Lord Digby Jones, former director general of the CBI and Trade Minister, said of the Civil Service, “Frankly the job could be done with half as many. It could be more productive, more efficient, it could deliver a lot more value for money for the taxpayer. And the levers of change, the ability to affect change are so rare, because of the culture.” Waste abounds in the multiple tax, benefits and identification systems.

A SOLUTION

There is both an opportunity and a need to make fundamental changes in the way the public and private sector organisations are governed. The model proposed here is new and renders existing governance obsolete. It is derived from research of 500 private and public sector organisations.

An effective governance system

Organisational structures are inherently inefficient because they separate people, processes and information. In an effective governance system everything the organisation needs to do and employ to deliver its required outcomes is causally linked at all levels. Consequently, the probability of achieving the required outcomes is predicted and preventive action can be taken. Existing roles, products, processes and are simplified and costs are reduced.

Everyone is asked to state the measurable contribution they will make to the corporate outcomes. The voluntary approach increases commitment and makes use of unused ability. Everyone sets their own status and rewards through the significance of the outcomes they commit to deliver.

Anyone can see what contribution everyone is making towards the corporate outcomes, and their own progress. Knowing that one’s progress is visible to people up, down, across and outside the organisation is a powerful motivator. The transparency makes governance effective.

The consequent productivity increase creates a virtuous circle of happy shareholders, customers, employees and suppliers leading to further productivity increases, which translate into a sustainable 20% increase in stakeholder satisfaction and 20% reduction in costs.

Since none of the 500 organisations I have investigated operates in this joined-up way, the potential productivity improvement is immense.

The solution has been applied successfully to several public and private sector organisations.

There are four steps:

1. Agree a specific, measurable and joined-up picture of the future with the organisation’s leaders

   
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2. Using the picture of the future as a ‘zero-base’, align the current objectives, deliverables, processes, initiatives and costs with the required outcomes to mitigate the risk of non-delivery
3. Invite successive levels of the organisation to say how they will contribute to the future outcomes and deal with risks
4. Using the business management system[2], inspect the probability of realising the required outcomes and change processes and resource allocations if necessary

As well as delivering significant DCSF cost reductions, the approach would “make this the best place in the world for our children and young people to grow up.” (DCSF, The Children’s Plan: Building brighter futures) Improvements of this sort across central government would significantly increase the electorate’s satisfaction with government and reduce the net debt.

For example the 410 local authorities and 11,000 town, parish and community councils in England and Wales spend over £113 billion a year to carry out similar functions. Implementing the strategy described above would lead both to savings of at least £20 billion and an increase in stakeholder satisfaction.

If all public and private sector organisations were to implement this solution, there would be improvements in predictability, accountability, transparency, and reporting. The existing cumbersome, expensive and ineffective regulatory framework would be replaced by the business management system.

Making the UK a democracy

A new generation has come of age with the Web and is using its creativity and collaboration to address challenges facing our country and the world. The Facebook Causes application has more than 60 million registered users who are using the power of social networks to raise money for charity. Meetup.com helps interest groups formed on the Web to get together in person–and a remarkable number of groups do so for civic purposes. Twitter and YouTube played major roles in helping organize political protests in Iran’s election

Many government leaders recognize the opportunities inherent in harnessing a highly motivated and diverse population not just to help them get elected, but to help them do a better job.

President Obama exhorted Americans to rise to the challenge: “We must use all available technologies and methods to open up the federal government, creating a new level of transparency to change the way business is conducted in Washington, and giving Americans the chance to participate in government deliberations and decision-making in ways that were not possible only a few years ago.””[3]

We are connected like never before and have the skills and passion to solve problems affecting us locally as well as nationally. Effective governance provides us with the ability to govern ourselves and to get government information and services where and when we need them.

Politicians are the main barrier to this desirable scenario and social progress in general. Their hunger for power and lack of creativity stand in the way. Politicians and senior civil servants have proved their inability to run countries by allowing the credit crunch.

In this wiki age, it makes no sense for 646 Members of Parliament who cannot represent the varied views of millions of constituents to travel and sit together to watch the Cabinet’s will become law. Parliament is an anachronism. The internet is a more economic, efficient and effective way of gathering the views of the electorate.

Real democracy could take £200 billion (30%) off the cost of running the UK by replacing our unproductive politicians and senior civil servants by a few elected co-ordinators with emergency powers only. We would be better off in every way by representing and governing ourselves through effective governance. We would, however, need to guard against the folly of crowds, the tendency of human beings to act as herds and follow any leader.

Governance by all

In a BBC broadcast on 15 April 1957[4], Spedan Lewis, the founder of the John Lewis Partnership, said: “The present state of affairs is really a perversion of the proper working of capitalism. It is all wrong to have millionaires before you have ceased to have slums. Capitalism has done enormous good and suits human nature far too well to be given up as long as human nature remains the same. But the perversion has given us too unstable a society. Differences of reward must be large enough to induce people to do their best but the present differences are far too great. If we do not find some way of correcting that perversion of capitalism, our society will break down. We shall find ourselves back in some form of government without the consent of the governed, some form of police state…the general idea of substituting partnership for exploiting employment…makes work something to live for as well as something to live by. Here may be the new source of working energy of which our country is in such grave need.”

Include customers and suppliers in the partnership, and you have a governance structure which practically renders ineffective external governance redundant. The business management system is needed to balance the conflicting interests of these stakeholders since this isn’t possible manually.

Peter Bebb, PPE alumnus (1965),  is the director of Perendie (www.perendie.com), and author of Business Alignment and the Business Management System. He writes for Politics in Spires as a guest author in response to David Soskice’s article: ‘Nation States, Capitalism and the Crisis’.

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[1] http://www.official-documents.gov.uk/document/cm71/7170/7170.pdf

[2] The business management system links everything an organisation needs to do and employ to deliver its required outcomes at all levels across the whole value chain. This allows the organisation’s leaders to make and see the effect of a change in a target, activity, resource or budget immediately.

[3] http://www.forbes.com/2009/08/10/government-internet-software-technology-breakthroughs-oreilly.html

[4] http://www.johnlewispartnership.co.uk/Display.aspx?&MasterId=947efa13-8aac-47d9-b30a-e59a7bbca56c&NavigationId=548

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