by Mario Fabbri
A’s explanations are simple and concrete; B’s are of necessity very subtle and complex… The amazing thing is that A does not simply shrug off B’s explanations as unnecessarily complicated or even absurd, but is impressed by their sophisticated ‘brilliance’. A tends to feel inferior and vulnerable because of the pedestrian simplicity of his assumption, and the more complicated B’s delusions, the more likely they are to convince A.3
The experiment was then repeated and the result was paradoxical: B continued, of course, not to distinguish the healthy cells from the sick, but A’s scores worsened because instead of continuing to use only his own effective but ‘too simple’ ideas, he was also trying to take into account the complex, and therefore intellectually prestigious, fantasies of B.
We would note in conclusion that a consequence of increasing complexity is that it becomes difficult to acquire true expertise in the many, often harebrained, new roles and jobs that keep appearing and disappearing: this causes a general increase in technical incompetence, even for positions and people for whom such a possibility would seem implausible.
1 ADAMS, Complexity is a Good Thing for Wally, dilbert.com/strip/2016-05-12.
2 DUPUY, Lost in management, p. 122.
3 WATZLAWICK, How Real Is Real, p. 49. Bavelas did not publish an article: cf. TABATABAI, Effects of Category Structures on Learning and Communication of the Learned Categories, p. 98.
21. The micro-macro fallacy
When reflecting about the economy one must avoid what in La fabbrica delle illusioni I have referred to as the micro-macro fallacy,1 namely the tendency to extrapolate the behaviour of the economy as a whole (macro) from mechanisms that are only valid at local level (micro).
This quite common fallacy is perhaps the main obstacle to the understanding of economic logic.
For example, from the micro evidence that a man with a great deal of money can live comfortably, many 16th and 17th century authors concluded that, in order to be prosperous, a country also needs to hold a great deal of gold and silver within its borders.
Now, money is extremely important for the individual because if he has more than others, he can jump the queue and take what he wants from the goods available.
But if we want not one individual but ‘everyone’ to enjoy more goods, then what is needed is that more goods be produced in the country, as Adam Smith points out when he advocates the expansion of the production system.
The micro-macro fallacy is insidious, and even someone who identifies it in the ideas of his adversaries can himself fall into the trap when setting out his own ideas.
So Smith himself, having observed that in 18th century Britain many private individuals were getting rich by promoting productive activities, concludes that to enrich the whole country it is sufficient for there to be a general commitment to extending these activities.
He does not see that this recipe, effective in the micro context, can come up against a macro limit of weak consumer demand on the part of society, as noted by Malthus.
Even Keynes, founder of “macroeconomics” and accustomed to looking at the dynamics of the economic system as a whole, falls prey to the fallacy when, examining investment for the economy of a country, he applies to it the “marginalistic” logic that at business schools is deemed suitable for the investment decisions of individual companies.2
And perhaps an attentive reader may be able to find even in this text some micro-macro error that has similarly escaped my notice.
From a general perspective this fallacy is the result of a restricted viewpoint that causes us to base our reasoning on what is close to us and we can clearly see, overlooking what takes place beyond our ‘horizon of visibility’.
This leads us to evaluate as a beneficial creation or a detrimental destruction of resources what is just a displacement between a place that we see and one we do not.
Smith, for example, has before his eyes a producer who sells his goods profitably, but not his competitors, whose sales, if the market has reached its absorption limit, will decline by the amount the producer has increased his.
Imagine now that a national law, with the intent of expanding employment, were to oblige every manufacturing company to hire a work psychologist for every 100 employees.
Assume that this measure does not improve company efficiency in any way, so that these new jobs only have the effect of distributing income and are part of the imaginary economy.
But from the viewpoint of the company, having work psychologists on the payroll is essential for production, because, in order to operate the company must respect the law. Which means that, in its micro view, those work psychologists are absolutely productive.
So, as productive macro unproductivity can correspond to micro productivity, when assigning the qualification ‘productive’, we must specify in which micro or macro context we are making our evaluation.
And in the micro context, there may be several domains among which a distinction must be made. For example, the work of any worker, even within the imaginary economy is always ‘productive’ as far as he himself is concerned because it brings an income, namely material goods for his personal micro sphere.
Secretaries like Jane are initially not productive for companies, but they become so when having no secretary becomes so abnormal that the company’s image is damaged vis-à-vis the surrounding environment.
On the macro level of the economy as a whole, however, work psychologists and secretaries must be always qualified as unproductive and true exponents of the imaginary economy.3
The distinction between micro and macro also clarifies why our arguments here are simpler than normal situations, complicated as they are by the usual considerations about money, interest rates… and by the need to clearly separate nominal and real values.
The fact is that money creates huge differences in the micro but is almost always4 irrelevant on the macro plane: so ignoring it eliminates many complications that are unnecessary to those looking at the economy as a whole.
1 Cfr. Fabbrica delle illusioni, p. 39 ff.
2 Cfr. KEYNES, General Theory, p. 135 ff. and Fabbrica delle illusioni, p. 228.
3 In the same logic, the Fabbrica delle illusioni notes that the concept of ‘capital’, while it is well usable in the micro plan – the capital of a company, the capital of a person – is not at all in the inconsistent macro form of ‘capital of an entire country’, introduced into economic thought by Adam Smith in the Wealth of Nations.
4 Exceptions are deflations and hyperinflations, where the working of the economic system are hindered, in the same way (!), by shortage of circulating money, cf. Fabbrica delle illusioni, pp. 35-39.
22. The inexhaustible sources of unproductive labour
In certain emergencies, in order to keep production in line with consumption, we fall back on shamelessly infringing the celebrated principle of the efficient usage of resources.
We have pointed out, for example, that sometimes, in order to avoid a collapse in the prices of agricultural products, the excess (!) crop is destroyed, or that agreements are stipulated among countries to prevent the construction of new steel plants that are too efficient.
But it is usually the imaginary economy that guarantees a scandal-free shrinkage of production, by creating a sufficient quantity of jobs that on the macro plane are unproductive but in the micro are/seem to be productive.
And the crucial incongruity between micro and macro views ensures that the macro unproductivity of many activities remains beyond the horizon of visibility of micro observers: whether ordinary people or economists.
To make this logic clearer let’s now examine some cases where the macro unproductivity is invisible or neglected.
Here we are interested not only in totally unproductive activities but also in simple inefficiencies, because inefficiencies too are useful for restricting production and
keeping it in line with consumption.
A critical passage that creates lots of inefficiencies is that one from ends to means: when we want to achieve a certain end, perhaps in itself useful for production, and to achieve it we select a means which consumes an amount of resources disproportionate to the productive utility of that end.
State or company regulations readily achieve this effect because a norm that has been issued in accordance with the prescribed rituals becomes something ‘absolute’ to be obeyed without question, without it necessarily having anything to do with the practical end the norm had originally been conceived for.
This is a minor case but it casts light on this logic:
among the rules issued to ‘monitor’ the financial system – a patchwork of institutions and activities officially deemed essential to productive activities – an obligation is added for some companies to send in a monthly, data-packed report from their computers, to allow authorities to analyse their situation in detail in view of possible interventions.
One day, a company that has been sending in these reports for years receives a communication alleging that one of the data fields in the report has never been filled in. So, in addition to correcting future reports, it is required to amend and resubmit those of previous years.
The item in question was the nominal value of specific stocks, i.e. something in the public domain unrelated to the company’s specific operations and therefore inconsistent with the purpose the reports had been set up for.
But from a regulatory perspective this inconsistency has no significance: once a rule is in place any considerations on its practical utility become irrelevant. The only thing that matters is to restore the situation to the way the regulations say they have to be.
Retrieval of past data is therefore a duty, even if it certainly entails work that is macro-unproductive like so many other jobs created by laws and regulations.
Another great creator of inefficiencies is the pursuit of ‘security’.
While reducing risk can be, up to a point, a logical aim, even striving to “reduce it as much as possible” is an indefinite concept that authorises the burning of resources at will, without any relationship to the benefits obtained, and without ever, of course, attaining the mythical zero risk dreamed of by the most insecure.
Concerns about the presence in food or the environment of very small doses of chemicals known to be harmful to health when present in much higher doses are very similar.
So, as chemical analysis improves, components are detected in foods or the environment, that previously were not reported, even as traces. And public opinion is easily alarmed.1
This can generate the severest of norms and activities but almost without any measurable effects. Not to mention the fears for dangers that are impossible to measure because they do not exist.
To create a horizon of visibility that disconnects the benefit of ends from the cost of the means employed to realise them, the human inclination to attribute paramount importance to the subject which at the moment happens to be in the spotlight, is very effective.
Being able to wholly focus on what we have before our eyes, disregarding everything else, is an innate skill in man because in certain situations it may even be essential for survival.
But in others it can lead us to spend a disproportionate amount of energy and resources on minor matters.
In all these cases the pursuit of efficiency requires a dispassionate comparison of the possible uses of available resources to decide which is best.
We stop here, trusting that the reader might be persuaded that the creation of unproductive or inefficient activities that do not seem to be so, is by no means difficult and cannot set limits on the indefinite development of the imaginary economy.
1 These irrational arguments, and above all the anxiety that is the prime mover of many developments of this kind, appear on the rise in recent decades. The first of the two phenomena we will discuss below, while this is not the place to delve into the second.
23. The low visibility and normal ineliminability of inefficiencies
This proliferation of unproductive activities and inefficiencies that we know to be indispensable in the macro plane clashes with operators striving to discover and eliminate them to increase their profits at micro level.
They are obviously unable to remove inefficiencies from the economic system as a whole. But they can shift them elsewhere.
In fact, a company that becomes more efficient and sees its profits boom, typically depresses those of competitors who become less efficient, as is more visible in a stagnating market.
Or the company may end up increasing its own excipient costs, creating fresh inefficiencies that are different from the previous ones.
But, apart from the impossibility of removing them from the macro plane, at the micro level too, inefficiencies are difficult not only to remove but even to identify, as they are primarily hidden by familiarity.
In fact a fresh inefficiency remains visible for a while: for as long as the previous, more efficient, situation ‘persists in the eye’. But after it has been around for some time, it becomes normal and moves out of the attention area.
On these topics distinction should be made between big and small companies.
Small businesses are often very efficient because it is easier to understand and manage a small organisation and because we learn to be efficient by fighting difficulties, and this ‘apprenticeship by hardship’ is more present in small companies than in bigger ones.
But efficient, small companies are very often suppliers of the unproductive activities of inefficient, big companies…
Imagine a member of the Organisation department of a big company, who has remained in that job for many years:
He has lived through several reorganisations of structures and procedures, and has been able to see in these a curious cyclical component that reveals their substantial uselessness…
“We must go from a centralised structure to a more decentralised one… go back to a more centralised one… we decentralise again… We must focus on the functional links… then the hierarchical ones… the functional… the hierarchical…”
And what about the large unfinished projects, which began with high expectations and died out along the way but, after a few years, cyclically re-emerge for lack of other ideas to give a meaning to the staff’s work?
“We must redo our coding system… this time we will really fine-tune the management accounting… we need an effective planning system… we have to redo the codes… we need a timelier reporting system…”
Reflecting on such cycles, the organiser of the big company might, perhaps, sense the futility of many ventures that have taken up a great deal of time and energy while producing only modest results or no result at all.
He could reach this conclusion because he has been observing the situation for many years.
He could hardly have done so when, as a young inexperienced organiser, he threw himself bravely into his first projects, which he expected would really change the situation, bringing important ‘competitive advantages’ to the company.
And the proprietor of the small consultancy firm involved in some of the many organisational projects that took place in the big company would be even less aware of, or anyway worried about, the futility of all these activities.
He and his staff have worked hard to collect data, to interview people, to produce presentations with graphs and well-documented arguments, to train company personnel in upcoming novelties, and to draw up reports on results…
From the micro perspective of the small consultancy firm, when the big company’s manager declares himself satisfied and pays the fee, the work has been officially a success.
In a big company, many inefficiencies escape the attention of its employees, because the employees have only a limited knowledge of
its fragmented and complex environment and are forced to conjecture – often wrongly – about what lies beyond their restricted horizon of visibility.
For example, a unit may find itself writing and sending reports it considers useful to another unit which instead lost interest in them some time before but has not bothered to say so.
The time dimension must be included within the horizon of visibility concept: if a job is one stage of many, we must consider how it develops right to the end.
Imagine a marketing unit planning new ventures.
It makes a big difference if the projects it is working on are then implemented or remain mere trial runs that are never followed up.
In the second case, the activities of the marketing unit must be included in the imaginary economy, even if, seen on their own, they are indistinguishable from those of the first case.
If the company managers were really aiming to maximise profits, the marketing unit that is just wasting time would be rapidly identified and restructured or eliminated.
But if the company is economically sound and improving the bottom line is not a pressing concern, its managers, who are also subject to the pressure of complaisance, will have little interest in bringing to light and removing inefficiencies that complexity and familiarity have already made hard to see.
However, when the big company finds itself in real trouble, and is forced to undertake a painful reorganisation, the huge number of managers and white-collars that it is able to get rid of, without sales falling correspondingly, gives us a fleeting idea of some of the inefficiencies that were previously hidden in complexity.
Even the activities designed to raise technological productivity – from Taylorism to the latest fashions of today – cannot always have been part of the real economy, namely the sector that produces material goods.