Blaming Failure On The System Actually Does Have Some Benefits...

from the before-we-trash-everything-here... dept

Wed, Feb 4th 2009 4:30pm — Mike Masnick

A bunch of folks have sent in Daniel Gross' excellent review of the World Economic Forum in Davos last week, where he bemoans the fact that no one is willing to step up and take the blame (or even find people who should shoulder the blame) for the economic collapse we're all living through. He has a great line near the beginning:

Success is the work of Great Men and Great Women, while failure can be pinned on the system.

Indeed, in reading the article, I definitely agreed, and sometimes I find it troubling that we credit success stories to individuals who were often much more lucky than anyone cares to imagine, and when failure occurs, no one's willing to admit that they had any part in it. However, in thinking about it some more, I'm less and less sure that this is a bad thing. In many ways, it's actually an important part of creating future success stories.

If we went around blaming individuals for every failure, it creates tremendous incentives not to take on the necessary risk to create those next breakthroughs. The difference between success and failure is often such a fine line it's difficult to see. In almost every success story you hear of one or two minor things that could have brought the whole thing crashing down if things had gone differently. But in celebrating the "heroes" associated with success, we create incentives for others to experiment and take necessary risks. In not punishing the individuals behind the failures too harshly by calling them out for "blame" we don't create incentives to avoid those necessary risks. That's a good thing.

That isn't to say that we shouldn't look at what happened and why it went wrong, but it's right to look at the systems that went wrong and how to fix them, rather than calling out people to tar and feather. That's counter-productive and only makes it that much more difficult to encourage the next generation of entrepreneurs to take the necessary risks to create economic growth.

Of course, there is one additional point that needs to be made here. Despite what I said above, there is a significant problem when we interpret that initial sentence to mean we should then socialize the loss -- and pin the effects of it on taxpayers, which seems to be exactly what this country has done all too often.

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Filed Under: blame, davos, financial crisis, risk, world economic forum

13 Comments

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Anonymous Coward, 4 Feb 2009 @ 5:01pm

Bad part about blaming failure on the system is that someone here acted knowing what he was doing. Money was exchanged, there clearly where winners on this failure (there always are). Not looking for them to make them pay out is clearly wrong. Bailing them out with your money (I'm not US, luckily) is double wrong.
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Dan, 4 Feb 2009 @ 5:23pm

"Success is the work of Great Men and Great Women, while failure can be pinned on the system."

This is what those claiming credit for success would like all of us to believe. Examples: Bush and Cheney.
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Anonymous Coward, 4 Feb 2009 @ 5:54pm

Blame
I sure wish I could blame my failures on "the system". Instead, I usually catch it for mine as well as those above me. I guess it just all depends on how high up the ladder you are. As plumbers say, "shit flows downhill" and the people running the economy are too high up to get any on them.
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Anonymous Coward, 4 Feb 2009 @ 6:02pm

Burrocrats
Privatized Profits
and
Socialized Debt

I find it quite easy to point the finger at the fatass burrocrats who still do not get it. They seem to find nothing wrong with taking taxpayer money and wasting it on parties, airplanes, and who knows what else ....
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Jeff Rooks, 4 Feb 2009 @ 6:15pm

I hate to disagree, but I disagree
I'm really not sure how I feel about this. I totally get that constantly blaming an individual could cause individuals to stop taking risks that might pay off, but doesn't this really start us sliding down a slippery spiraling slope?

Aren't some of the risks that individuals took the cause of our current economic hardships? By not placing blame on someone, aren't we fueling riskier risk taking, without the fear of consequences?

It's easy to take a huge risk when you know there is no risk of repercussions. It's a lot harder to take a risk when you have a lot more to lose - when there is some level of accountability.
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Zim, 4 Feb 2009 @ 7:22pm

I don't buy it.
At least not with respect to the current situation. The system needs to be fixed, but what's happened to our country and economy is due to criminal greed, not a risk gone bad. Criminals should be punished... especially ones that betray the public trust for no reason other than their capitol gain.
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Michael Long, 4 Feb 2009 @ 8:42pm

Criminals
I agree with Jeff and Zim. Much of what was done was deliberate. The banking and investment houses even went to the extent of lobbying to ensure that no oversight or regulations covering their actions existed. They knew what they were doing, and did everything they could to cover their tracks.

It's one thing to make a mistake. It's another to take a risk. But criminal acts need to be punished.

Ignoring them, or simply slapping them on the wrist just encourages everyone to try it again...
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Back in the day, 4 Feb 2009 @ 8:51pm

Re: Criminals
They used to call them banksters
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ToySouljah, 4 Feb 2009 @ 11:55pm

Re: Burrocrats
Don't forget the high class prostitutes :)
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ToySouljah, 4 Feb 2009 @ 11:58pm

Re: Criminals
"Ignoring them, or simply slapping them on the wrist just encourages everyone to try it again..."

Actually, in this case they get rewarded with more of our money for them to spend. So yeah, it will encourage more of the same.
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Phil, 5 Feb 2009 @ 1:29am

Blaming Failure
Finding In political and governmental circles, finding someone to blame, usually, means deciding who to sacrifice as a scapegoat. A few of his partners will go down with him, but, if everyone involved in the "illegal activities", for which the scapegoat is accused, were to be indicted, MANY congressional offices would be left empty and create political havoc. Some of his cohorts, of necessity, would include banking interests, because that is the basis for almost all transactions.

I'm all for success, but not if it is unlawfully gained and acquired through the lose of homes, jobs, family settings and lives.

What I am speaking of, in particular, is planned failure. Failure of he nature that a few gain and many lose (like Anonymous Coward said: Privatized Profits and Socialized Debt). When it is discovered that illegal activity is being conducted by a person in public office and it is discovered that he and others conspired in such a way as to do the entire economy great harm, they cease to be "heroes." A lot of people in government do good works to cover, and hopefully overshadow, their evil deeds.
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sf suave, 5 Feb 2009 @ 3:11am

Rather than being blamed... They're being paid!
I saw a really disturbing news article this morning that advised that the head honchos of UK banks, that had recevied government bail-outs, are now to receive huge bonuses.

So, rather than being blamed, or even punished, for their failures, they are actually being rewarded. Am I the only one who can see a problem here?

It seems to me that because these institutions are vital to the economy, it does matter how badly they screw up. They still get paid.

I also read about Obama's suggestion that bonuses be capped at $500,000. I agree that a cap is a good idea, but seriously, on my current salary (including personal performance bonuses) I'd have to work (hard) for many years to earn what they are proposing can be paid to someone who mis-managed a company so badly that the government had to step in and buy them out!

Its all wrong in my opinion, senior figures in banking see their bonuses as being automatic. Even if they announce £8billion loses they still seem to think they are entitled to £800,000 bonus? If that same approach was applied to all workers in all industries how long would it take for a complete meltdown?
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Xiera, 5 Feb 2009 @ 12:56pm

Like a couple others who have posted comments, I'm a bit torn on this issue.

The economy is, in large part, driven by risk (though not as much as incentive). Risk can lead to innovation, it can lead to huge profits, or it can lead to massive failure.

I think there are several misconceptions in the comments. Firstly, while some people blatantly exploit others for personal gain and should therefore be considered criminals, it is not fair or accurate to say that all parties involved in the economic downturn were criminals.

Banks that provided risky mortgages, for example, did not all of a sudden conspire and decide that they would do so. It happened over time and was driven by government pressure (I'm looking at you, Barney Frank).

Furthermore, there was no previous evidence that bundling risky mortgages with safe mortgages would be problematic. In fact, this is a part of group health insurance, which is popular among businesses who buy health insurance for their employees. It was always an acceptable risk in the health insurance industry. Does that mean it should have been applied to the mortgage industry? Perhaps not, but there was no basis for making that assumption, so people decided to take the risk and they got burned. We *really* shouldn't be faulting them for that. Should they be accountable? Sure, but not criminally. What would that say to the next guy who wants to revolutionize an industry, "you can take that risk, but if you're wrong, we're going to publicly ridicule you"?

We need to draw a line somewhere, between encouraging risk-taking and accountability for those risks. If it were only one bank that decided to take the risk, there would be clear accountability (and the impact would be limited to the one bank); but when an entire industry thinks a particular risk is a good idea...? And then when the consumers of that industry support the risk...?

Unfortunately, this seems to be a bit of a paradoxical situation to me: the desirable situation for someone to take a risk would be on a small-scale, which also happens to be where they could and should be held accountable.

By the same token, it is undesirable for an entire industry to take an unproven risk, but it is much more difficult to hold certain people responsible when everyone involved appears to have approved of the risk.

The solution? I don't know.
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