The American System Is Cracking
Promoting diversity over competency does not simply affect new hires and promotion decisions. It also affects the people already working inside of America’s systems. Morale and competency inside U.S. organizations are declining. Those who understand that the new system makes it hard or impossible for them to advance are demoralized, affecting their performance. Even individuals poised to benefit from diversity preferences notice that better people are being passed over and the average quality of their team is declining. High performers want to be on a high-performing team. When the priorities of their organizations shift away from performance, high performers respond negatively.
This effect was likely seen in a recent paper by McDonald, Keeves, and Westphal. The paper points out that white male senior leaders reduce their engagement following the appointment of a minority CEO. While it is possible that author Ijeoma Oluo is correct, and that white men have so much unconscious bias raging inside of them that the appointment of a diverse CEO sends them into a tailspin of resentment, there is another more plausible explanation. When boards choose diverse CEOs to make a political statement, high performers who see an organization shifting away from valuing honest performance respond by disengaging.
Some demoralized employees—like James Damore in his now-famous essay, “Google’s Ideological Echo Chamber”—will directly push back against pro-diversity arguments. Like James, they will be fired. Older, demoralized workers, especially those who are mere years from retirement, are unlikely to point out the decline in competency and risk it costing them their jobs. Those who have a large enough nest egg may simply retire to avoid having to deal with the indignity of having to attend another Inclusive Leadership seminar.
As older men with tacit knowledge either retire or are pushed out, the burden of maintaining America’s complex systems will fall on the young. Lower-performing young men angry at the toxic mix of affirmative action (hurting their chances of admission to a “good school”) and credentialism (limiting the “good jobs” to graduates of “good schools”) are turning their backs on college and white-collar work altogether.
This is the continuation of a trend that began over a decade ago. High-performing young men will either collaborate, coast, or downshift by leaving high-status employment altogether. Collaborators will embrace “allyship” to attempt to bolster their chances of getting promoted. Coasters realize that they need to work just slightly harder than the worst individual on their team. Their shirking is likely to go unnoticed and they are unlikely to feel enough emotional connection to the organization to raise alarm when critical mistakes are being made. The combination of new employees hired for diversity, not competence, and the declining engagement of the highly competent sets the stage for failures of increasing frequency and magnitude.
The modern U.S. is a system of systems interacting together in intricate ways. All these complex systems are simply assumed to work. In February of 2021, cold weather in Texas caused shutdowns at unwinterized natural gas power plants. The failure rippled through the systems with interlocking dependencies. As a result, 246 people died. In straightforward work, declining competency means that things happen more slowly, and products are lower quality or more expensive. In complex systems, declining competency results in catastrophic failures.
To understand why, one must understand the concept of a “normal accident.” In 1984, Charles Perrow, a Yale sociologist, published the book, Normal Accidents: Living With High-Risk Technologies. In this book, Perrow lays out the theory of normal accidents: when you have systems that are both complex and tightly coupled, catastrophic failures are unavoidable and cannot simply be designed around. In this context, a complex system is one that has many components that all need to interact in a specified way to produce the desired outcome. Complex systems often have relationships that are nonlinear and contain feedback loops. Tightly-coupled systems are those whose components need to move together precisely or in a precise sequence.
The 1979 Three Mile Island Accident was used as a case study: a relatively minor blockage of a water filter led to a cascading series of malfunctions that culminated in a partial meltdown. In A Demon of Our Own Design, author Richard Bookstaber added two key contributions to Perrow’s theory: first, that it applies to financial markets, and second, that regulation intended to fix the problem may make it worse.
The biggest shortcoming of the theory is that it takes competency as a given. The idea that competent organizations can devolve to a level where the risk of normal accidents becomes unacceptably high is barely addressed. In other words, rather than being taken as absolutes, complexity and tightness should be understood to be relative to the functionality of the people and systems that are managing them. The U.S. has embraced a novel question: what happens when the men who built the complex systems our society relies on cease contributing and are replaced by people who were chosen for reasons other than competency?
The answer is clear: catastrophic normal accidents will happen with increasing regularity. While each failure is officially seen as a separate issue to be fixed with small patches, the reality is that the whole system is seeing failures at an accelerating rate, which will lead in turn to the failure of other systems. In the case of the Camp Fire that killed 85 people, PG&E fired its CEO, filed Chapter 11, and restructured. The system’s response has been to turn off the electricity and raise wildfire insurance premiums. This has resulted in very little reflection. The more recent coronavirus pandemic was another teachable moment. What started just three years ago with a novel respiratory virus has caused a financial crisis, a bubble, soaring inflation, and now a banking crisis in rapid succession.
Patching the specific failure mode is simultaneously too slow and induces unexpected consequences. Cascading failures overwhelm the capabilities of the system to react. 20 years ago, a software bug caused a poorly-managed local outage that led to a blackout that knocked out power to 55 million people and caused 100 deaths. Utilities were able to restore power to all 55 million people in only four days. It is unclear if they could do the same today. U.S. cities would look very different if they remained without power for even two weeks, especially if other obstructions unfolded. What if emergency supplies sat on trains immobilized by fuel shortages due to the aforementioned pipeline shutdown? The preference for diversity over competency has made our system of systems dangerously fragile.
Americans living today are the inheritors of systems that created the highest standard of living in human history. Rather than protecting the competency that made those systems possible, the modern preference for diversity has attenuated meritocratic evaluation at all levels of American society. Given the damage already done to competence and morale combined with the natural exodus of baby boomers with decades worth of tacit knowledge, the biggest challenge of the coming decades might simply be maintaining the systems we have today.
The path of least resistance will be the devolution of complex systems and the reduction in the quality of life that entails. For the typical resident in a second-tier city in Mexico, Brazil, or South Africa, power outages are not uncommon, tap water is probably not safe to drink, and hospital-associated infections are common and often fatal. Absent a step change in the quality of American governance and a renewed culture of excellence, they prefigure the country’s future.
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Harold Robertson is an asset class head and institutional investor at a multi-billion dollar pool of capital. You can follow him here.
