The Silo Effect

by Gillian Tett

  “The models failed at a time when we needed them most.”34

  Policymakers also tried to promote more joined-up thinking by implementing structural reform. In London, the British government announced that it would reverse the moves made back in 1997 to separate the task of running monetary policy and financial regulation. Instead, it wanted to combine these different functions, once again, into a single institution. So the Financial Services Authority was closed as an independent agency and its responsibilities handed to two new entities (known as the Financial Conduct Authority and Prudential Regulation Authority).The FCA operated under the oversight of the Bank and it was hoped that by restructuring the institutions in this way policy makers would be forced to think about micro-level financial issues alongside macro-economic goals, instead of keeping these in separate mental and bureaucratic buckets.35 A new “financial policy committee” was created to match the “monetary policy committee” that advised the Bank. The Bank quietly changed its recruitment policies: instead of just taking its staff from the economics departments of universities, it started to hire a few noneconomists too. “We know we need to get more diversity of thought,” explained Mark Carney, the man who was appointed to run the Bank of England in late 2013, replacing King. Then, in early 2014, Carney went even further and unleashed a wholesale restructuring of the Bank. The old departments were broken down, and the institution remodeled into a “one bank” structure.36 Haldane, the man who had been running the financial stability group, was moved to run the economics team. The idea was to force economic and financial analysis to coexist as a whole, at every level of the Bank.37

  Similar initiatives got under way on the other side of the Atlantic, albeit not quite as radical as in London. In 2010, the U.S. created the Financial Stability Oversight Council to coordinate how all the different American regulators operated.38 A new Treasury division known as the Office of Financial Research was established to monitor financial data in a holistic manner. To illustrate the mission, Richard Berner, an economist who was appointed to run the OFR, stuck a poster on his wall with a slash of red, like a traffic signal, that declared that silos were banned.39 “We are a silo free zone!” he liked to say. “We know that silos were a big problem before. But now we want to change!” It was the mantra of the post-crisis world.

  But would this dizzy list of reforms be enough to stop policymakers being as blind again? It was a question that Paul Tucker often asked himself. For him, the years after the crisis were bittersweet. In 2013, he was promoted to the post of deputy governor of the Bank of England and was perceived as the leading candidate to replace King when he retired in early 2014. But in late 2013, George Osborne, the Chancellor of the Exchequer, passed over Tucker and picked Carney instead. It was a bitter blow for Tucker, who had devoted his entire career to the Bank. However, it was also a sign of the degree to which the Bank’s leadership—along with the rest of the policymaking world and economics community—was perceived to have failed. Inside the City of London, Tucker was thought to have done a better job than many of his colleagues in spotting what was going wrong. But the leadership of the Bank was so tarnished that Osborne felt compelled to seek a new face.40

  From time to time, Tucker wondered what might have happened if he and others had spoken out more forcefully about his concerns. Might the Bank have been able to prick the bubble at an early stage? Could a few early, clear warnings have forced Greenspan or King to ponder what was going on, with their staff then forced to look beyond the macroeconomic statistics and their beloved models? Should they have peered closer at the grass roots of finance? If they had done that, would they have understood how much leverage, or debt, was in the system? Nobody could know. But what Tucker did know was that it would take more than a bureaucratic reshuffle or rhetorical declarations to fix the problem of silos. “It’s an issue of phenomenology, of epistemology,” he declared, using the ancient Greek word for a body of knowledge. He had first pondered epistemology—or what counts as knowledge—many years before, when he had studied philosophy after a degree in mathematics at Cambridge University. In the intervening decades he had moved away from those fields, burying himself in orthodox economics instead. The crisis, though, made him realize afresh the value of a liberal education.

  “Breaking down silos isn’t about series of actions but an attitude of mind—it’s about having curiosity and a generosity of spirit [to listen to others],” he explained. “In the past we had underlap because things fell between the cracks of what the regulators looked at. Today we have overlap, because we want to prevent silos. And because different subjects are connected overlap is inconvenient for bureaucrats. But underlap is dangerous for society.”

  That meant, Tucker concluded, that the real test would come in the future. “When things are working well, no one wants to know about silos. In fact overlap too easily becomes a turf war. Silos become an institutional equilibrium—people only notice silos when there are problems.” Or to put it another way, the really crucial time that a group of experts needs to start a debate about how they classify the world is not when there is a crisis. Instead it is at the moment of success.

  Could anybody, at the Bank or anywhere else, change that blindness? Tucker often asked himself that. He did not have any easy answers. But in the second half of the book I will now turn to this crucial question, looking at how some individuals and institutions have tried to avoid falling into the traps suffered by institutions such as UBS and Sony, or the wider economics profession. These narratives are not finished success stories. The stories include victories and failures. But what links them all is that individuals have recognised the dangers of silos and tried to respond in creative ways. Thus they offer lessons that we can all learn from. We shall look at how Facebook has tried to be an anti-Sony by introducing measures to stop its specialist teams from becoming too defensive and inward-looking. We explore how a hedge fund called BlueMountain Capital has tried to avoid falling into the type of silo mentality that has beset banks such as UBS and Citigroup, and actively exploit the weaknesses of big banks. We also look at how one team of professional experts, doctors at the Cleveland Clinic hospital in Ohio, have introduced measures to force themselves to question their classification systems, to become more innovative and freethinking. That tale sits a long way from the Bank of England. However, if the economics profession had employed some of the tactics used by the Cleveland Clinic doctors, the policymakers might have understood the financial system better before 2008.

  However, this account starts not with an institution but an individual: a geeky tech entrepreneur who decided to leave a comfortable job at the OpenTable Internet start-up and engage in a silo-busting mission of his own, working with the police in some of the toughest, most blood-spattered streets of Chicago.

  PART TWO

  SILO BUSTERS

  5

  GUN-TOTING GEEKS

  How Individuals Can Silo-Bust Their Lives

  “You can’t connect the dots looking forward. You can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future.”

  —Steve Jobs1

  BRETT GOLDSTEIN SAT IN HIS seat at the back of an airplane that was taxiing across the tarmac on Chicago Midway Airport. He felt a frisson of fear. It should have been an unremarkable day. Goldstein, twenty-six, had spent the previous two years running operations for OpenTable, one of the last of the Internet start-ups of 1999, which helped people book tables online at their favorite restaurants. As jobs went, it was a good fit at the time, the type of role that any young professional might dream of. Goldstein spent a great deal of time on planes, since the website was keen to expand its global footprint.

  But as Goldstein sat on the tarmac that day, September 11, 2001, he sensed that his cozy world was unraveling. Around him, cell phones and pagers were starting to buzz. A voice came over the intercom and told everyone to leave the plane. Baffled, Goldstein walked with a stream of passengers back into an u
nusually silent airport terminal, and saw crowds of people frozen around television screens. “It was a funny dynamic because usually at an airport everyone is going in opposite directions. But that day they were not,” he later recalled. Instead, they huddled, silently watching as a plane smashed into the World Trade Center. Confused and panic-stricken, he tried to call his wife at home in Chicago, and his colleagues scattered around the world, but the cell phones no longer worked. Eventually, he located a pay phone. “I was able to call 1-800-OpenTable, which was our call center number, and start checking all my employees, because we had a very large traveling staff,” he later recalled. “And I was able to get a message to my wife, and I was saying ‘I don’t know what to do here.’ ”

  Goldstein stumbled into a car, and asked it to head to the outskirts of Chicago where he lived. He heard the car radio declare that the World Trade Center had collapsed, a plane had crashed, thousands were dead. “It was a long car ride home,” Goldstein recalled. And then, as he sat listening to the radio, something inside him snapped. Until that moment, Goldstein had assumed his life was going well. But suddenly he felt dissatisfied. “Listening to NPR, and watching CNN, I realized that there were a lot of people doing really important things that day,” he explained. “So I asked myself: do I want my whole life story to be about building a large Internet network which allowed people to go out to dinner? I was helping the portion of the population that could afford to go out to nice restaurants, to go out better. It was a really good idea and I think we were doing it pretty well—but it dawned on me that I needed to do something that mattered.”

  It was not the first time that Goldstein had contemplated service; he had been a volunteer emergency medical technician in college and briefly contemplated medical school. But what could he do now? For the next few months, Goldstein went back to work as he and the rest of the country rebounded from the tragedy. OpenTable was expanding at a ferocious speed, and the travel and work kept him busy. But in his rare, quiet moments he kept tossing around ideas about what else he might do. He initially assumed the best way to give back would be to make a donation to charity, or do some community volunteering. That, after all, was the normal route that most people would take. “There was a local TV piece in 2002 or 2003 that talked about the Public Health Department needing volunteers to do winter checks on the elderly and homeless, and I’m like ‘that would be great, that would be reasonable.’ ” But it still left him dissatisfied. He had an urge that he could not quite articulate to make a substantial change. Then one weekend, as he flicked through the newspapers, he saw a piece about a new campaign to recruit white-collar professionals for police counterterrorism work in New York.2 Goldstein was intrigued. He did not want to move to New York from his home near Chicago. But could he replicate that idea with the Chicago police?

  When he floated the idea to his friends and family, most of them were bemused. Chicago is known for being one of the most violent cities in America. The FBI has dubbed it the “murder capital” of the United States, with the number of deaths per capita in some Chicago neighborhoods sometimes as high as those in a war zone.3 The city’s police force is (in)famous for being a rough, tough tribe too, which has been embroiled in scandals. They have long, proud traditions and do not take kindly to outsiders. Goldstein had grown up in a quiet suburb of Boston and attended “one of those private boarding school things” as he sometimes joked. He was thin and so shy that he got nervous when he had to make public presentations to his OpenTable colleagues. He had never touched a gun. Indeed, the nearest he had ever come to a patrol car was watching Hollywood movies. “My parents freaked out. No one understood why someone who had helped to grow OpenTable would want to be in the police. People were like ‘fine, if you want to go and do public service, great—but get an academic job or a job with RAND.’ ”

  The one person who was supportive, however, was Goldstein’s wife, Sarah. So he decided to persevere. He did some research and discovered that it could take five long years to actually join the Chicago Police Department. So he quietly registered to take the written examination, and shortly afterward went along to the cavernous UIC sports pavilion to take the test for the police, along with thousands of other hopefuls. He duly passed and was given a number in the application process. Then he waited.

  When they got his application, the police officers were almost as baffled as Goldstein’s parents. “There was a background check and a woman came over to interview me and my wife, Sarah,” Goldstein recalled. “She gave me this look, which said: ‘You’re sure you really want to be the police?’ ” But Goldstein insisted he wanted to join. At the back of his mind he had a fledgling idea: If he managed to be accepted onto the police force, could he put some of his professional experience to good use there? Could he find a way to serve, or even improve the system? He had little idea exactly how he might do that. But against the odds, and without quite realizing it, Goldstein was about to embark on an adventure that would not just change his life—but also illustrate a point about silos. Or, how we might fight them.

  In the first half of the book, I explained how humans tend to organize the world around them into mental, social, and organizational boxes, which can often turn into specialist silos. When these are rigid, they often cause people to behave in foolish or damaging ways; silos can make people blind to opportunity and dangerously unaware of risks. However, in the second half of the book I want to look not at the problem of silos—but some potential solutions to problems created by this silo effect. Some of these responses involve big strategies to change the culture of institutions or structure of groups. But before looking at institutions, it pays to think about individuals. After all, institutions are just gigantic collections of people and one of the most basic steps that we can make to fight the risks of silos starts not with a leadership committee or organizational chart or grand strategy plan, but inside our heads.

  Think back to the tale in Chapter One about the anthropologist Pierre Bourdieu. He used the experience of immersing himself in a different culture to get a new perspective on life. Plunging into another world not only enabled him to understand a different society, but also to look afresh at his own. That carries a wider lesson, namely that when we become insider-outsiders, like Bourdieu, and dare to jump across borders, we can escape from the prison of the classification systems that we inherit. This can break down tunnel vision and give us a powerful new insight on the cultural patterns that shape us, including those patterns that we usually barely notice. However, this point does not apply solely to anthropologists. Anybody who is willing to jump out of their silo and break down some boundaries in their own lives in unexpected ways can gain a new vision. Sometimes this produces immediate benefits, in the sense of inspiring innovations. Sometimes it takes years before the advantages appear. Take Steve Jobs. When he was at university, at Reed College in Portland, Oregon, he dropped out of his formal studies. However, he continued to hang around the campus and dipped into creative classes, including a course on Japanese calligraphy. At the time, it seemed to lack immediate benefit. But years later, when he was creating his designs for Apple computers, Jobs realized that he had created his winning designs by blending his training in information technology with the seemingly unconnected skills he had learned with Japanese brushstrokes. “If I had never dropped in on that single calligraphy course in college, the Mac would never have had multiple typefaces or proportionally spaced font,” Jobs told students at Stanford University.

  “You can’t connect the dots looking forward; you can only connect them looking backwards,” Jobs concluded, urging his students to take risks and “trust that that the dots will somehow connect in your future.” Or to put it another way, breaking down silos can spark innovation in unexpected ways. If people are willing to take risks by crossing boundaries in their own personal lives, this can deliver unexpected benefits. Even—or especially—in the case of a geeky tech entrepreneur who suddenly decides that he wants to join the Chicago police.r />
  THOUGH HE DID NOT know it, Goldstein’s decision to jump out of his safe world of OpenTable into the police came at an opportune time. In decades past, the Chicago Police Department has been renowned as being one of the largest and most tradition-infused forces in the country. Many of its 13,000 members have spent their entire lives working for the force, and their parents, grandparents, or even great-grandparents have often been policemen too. Unsurprisingly, the city’s police chiefs have almost always hailed from the ranks of this tight-knit tribe. The force is notoriously slow to trust anybody who is not one of their own, and many members of the Chicago police tribe are particularly suspicious of people from outside the area.4