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Financial 2008 meltdown foreseen in a prophetic 1991 book
The CCPA Monitor, July/August 2009

The New Bureaucracy: Waste and Folly in the Private Sector, speaks to the present almost two decades after publication.

An accidental friend, a Texas multimillionaire from Dallas taken refuge in British Columbia, was going on about the "sociopaths" and "criminals" who had perpetrated the subprime mortgage fiasco.  He then said a few colourful words about Bernard Madoff, only to move on quickly to denounce the extraordinary compensation that corporate executives were siphoning from their companies.....stopping only to catch his breath before discoursing on the trillions and trillions of dollars of dubious commercial paper out there in the financial ether.   

"Nobody has any idea of how much of it there actually is," he went on to lecture me.  "And nobody knows what anything is worth any longer.  How can a bank lend money in a situation like that?"

He was quite heated about it while I, the democratic socialist whom one might expect to be indignant, was amused and blasι. 

I picked up on his comments, however, about executive compensation.  I mentioned that I had explained it all a long time ago, in a book covering the private corporate sector.  I ended up giving him a copy, more in jest than anything else, to see what he would say. 

The book was The New Bureaucracy: Waste and Folly in the Private Sector, which came out in 1991. 

A couple of days later he responded.

"You were a prophet," he said enthusiastically.  "You got it right long before anyone else."   

This was from someone who spends much of his time managing his assets and who tracks financial and commodity markets assiduously.  He also keeps in regular touch with sources of market information in the U.S.   In other words, he's somebody you would normally think of us a pure laine right-wing capitalist, and right-wing reviewers of the book, when it was published, went ballistic over it.  I knew, though, he was a bit of a maverick, so his remark wasn't altogether surprising.

His assigning a prophetic quality to the book, however, did catch my attention.  It got me thinking about where the book's prophetic edge came from.  

The New Bureaucracy, for those not familiar with it, covered the gamut of the private corporate sector, based on what was happening in the 1980s.  It detailed corporate executive suites run amuck with inflated compensation and indulgences; stock market analysts gone zany with fanciful elaborations; investment bankers generating M&A activity to keep their outsized fees rolling in; traders devising synthetic financial concoctions on a seemingly never-ending binge, and all kinds of other weird and wonderful things.   

There were also chapters on the New Bureaucracy's advertising and marketing branch, with its brand-name propaganda – a classic propaganda system - and another chapter on the dogma and media branch, with its cadres of dogma workers, viz. economists, "think tanks," and related nomenklatura.

The book introduced two general ideas.  First, the private corporate sector for the most part wasn't a case of adventurous capitalists astride the world like colossi, but of a self-inflating bureaucracy.  Second, this bureaucracy, and its indulgences and power, were protected by an ideological screen just as surely, indeed more surely, than communist ideology protected the entrenchment of the old Soviet bureaucracy with its commissars and apparatchiks. 

In the case of the New Bureaucracy, the ideological screen was free enterprise.  It was an ideology that was supposed to be anti-bureaucratic, which, as I wrote, made it "the finest bureaucratic protection of all." 

I had originally begun work on the book with Canada in mind, with the intention of touching on the United States and other countries only peripherally.  Quite early in my research, however, I became engrossed in the American scene – it was so much more outlandish and bizarre - and the book ended up being largely about the U.S.  This only made sense.   Free enterprise ideology – the ideological screen - was altogether unchallenged in the U.S., unlike Europe with socialism in its history or Japan with its quasi-feudal cultural ethos.  The ideological protection for the New Bureaucracy in the U.S. consequently was so pervasive and untempered that the bureaucratic entrenchment and folly could self-inflate with impunity, in ways that if they had happened in the old bureaucracy – public administration – would have generated massive dark headlines and screams of denunciation.

For me, it was like discovering a zoo.  I was so fascinated by what I found that I ended up writing twice as much as my contract with McClelland & Stewart allowed, and it took not one but two editors in series, which I had to pay for myself, to get the manuscript down to size.  The first editor fell in love with my colourful material just as I had, and gave up her cutting with 35,000 words to go.

As I completed the book, I knew I was on to something.  I had no idea, however, that almost 20 years later stock markets would be knocked for a loop, investment advisors would hide their heads in shame, and business-media gurus would be altogether discredited.  Nor did I predict the subprime mortgage scandal.   I wasn't Nostradamus.

The prophetic element in the book lay elsewhere – in its prediction of One Big Bureaucracy, what is euphemistically known today as globalization but was really creeping and then accelerating bureaucratic expansion – private-sector bureaucratic expansion.  

I can remember the very moment of making the prediction.  I had charted in the last chapter how the New Bureaucracy in the U.S. had been replicating itself in other countries by sheer bureaucratic weight.  Outrageous executive compensation, the drowning of television with commercials, puffing up of stock markets, the M&A capers, flogging of synthetic financial instruments, the proliferation of lobbyists – you name it, they were making their way into countries where they had never been, led by American apparatchiks and examples.    

I asked myself if this new bureaucracy could possibly continue to inflate into the future.  The prospect of its doing so seemed incredible to me, because the inflation I had documented was already so astonishing.  I hesitated. 

You have to remember, though, that The New Bureaucracy: Waste and Folly in the Private Sector wasn't an offhand commentary or speculative essay.  It was an intensively researched, intricate look at how this bureaucracy had developed in the U.S. and, to a lesser extent, in Canada and was jam-packed with illustrations and syndromes drawn almost entirely from the American business press itself and follow-up inquiry.  These syndromes were structural, not incidental.  In my experience, structural forces counted in the end. 

So, reflecting on how to wind up my manuscript, I decided to follow reason rather than feeling, and reason told me that such forces would metastize further.  "Stop by the Paris Bourse," I wrote, "walk down a street in Taipei, watch an American television channel.  It touches everything, watches over everybody – One Big Bureaucracy."

I proved to be right.  The New Bureaucracy grew in territory, reach and excesses, following the pattern.

It's true this expansion was more graphic than even I could imagine back in those days long gone, the 1980s, spectacular as they were.  It was an expansion of degree, though, rather than of kind.  When my Texas friend called the perpetrators of the current mess "sociopaths" and "criminals," he meant it literally, not figuratively.  For me, on the other hand, they were simply parts of a larger bureaucracy doing what that New Bureaucracy has been doing for decades.  That Bernard Madoff broke the law and defrauded people of billions is interesting, but less interesting than the wider culture in which he did it, which already had a history. 

Remember, too, that most of those behind the current meltdown didn't break the law. Those AIG executives, collecting extravagant bonuses simply to stay around after leading their company into massive bankruptcy, and those failed, exiting CEOs given huge golden handshakes, were just following established convention.  In the New Bureaucracy, such compensation contracts, bonuses and pay-offs are perfectly in keeping.

What I had done in the book was to look behind the ideological curtain to see the private corporate sector in all its bureaucratic nakedness, just as it is.  In those terms, what has been happening recently – or, more important, what has been seen to happen because it could not be glossed over – fits naturally. 

Where does that leave us today?

Notwithstanding all of the brouhaha, I don't expect much of a check on future waste and folly, because the ideological screen behind which this bureaucracy self-inflates is still intact.  Its syndromes, consequently, are largely intact as well.  This is particularly so in the United States, regardless of the shake-up in banking that's occurring.  There are still vastly overpaid CEOs, fatuous stock analysts, overweening M&A cadres, ubiquitous lobbyists, incessant and pervasive marketing cadres and all the rest of those many branches of the wasteful and often silly New Bureaucracy I documented.

When the book came out, in 1991, I speculated what would happen if the phrase, "the new bureaucracy," became common intellectual parlance.  If it ever did, I thought, the private-sector bureaucratic entrenchment I described, and the waste and folly that went with it, would finally lose its ideological cover.  Needless to say today, it didn't happen.  The phrase never made headway. 

Maybe it was too far ahead of its time.   Maybe it's still too far ahead of its time.  Or maybe my speculation was just author's fantasy.   

Too bad, though.  As long as the waste and folly can hide behind ideology, nothing much will change.

Copyright © Herschel Hardin 2005
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