Like most country dwellers, I have a sneaking admiration for the fox but for the hedgehog I have real affection. So I was entertained to find references to these creatures which might help Downing Street decide who to appoint to the governorship of the Bank of England, for which applications close on Monday. Both draw on the philosopher Isaiah Berlin’s categorisation of great thinkers according to a fragment from the ancient Greek poet Archilochus: ‘The fox knows many little things, but the hedgehog knows one big thing.’
In The Signal and the Noise, published this month, the US political forecaster Nate Silver argues that ‘hedgehogs’ with big, fixed ideas make lively pundits but are very often proved wrong, while ‘foxes’ who rely on empirical evidence from multiple sources are more likely to make accurate predictions. A second reference cropped up in a recent speech by Bank of England executive director Andrew Haldane: ‘Historically, financial supervision has been long foxes and short hedgehogs,’ he observed, but crucial to the development of a better oversight system than the one that allowed the banking crisis to happen will be ‘well-honed rules of thumb’ rather than layer upon layer of complexity: ‘That means having staff with a nose for a crisis (like a hedgehog) as well as ears and eyes (like a fox).’
So there you have it: the hedgehog driven by what Berlin called a ‘universal, organising principle’ makes a better regulator; the fox capable of ‘seizing upon the essence of a vast variety of experiences’ makes a better forecaster. The Governor needs to be both, but which is more important? Sir Mervyn King — who we might characterise for this purpose as an increasingly prickly old fox — has given a clue by dismissing financial prediction as ‘a mug’s game’ and ‘a stab in the dark’, particularly amid current euro-turmoil. Similarly, Haldane points out that the dominant factor in today’s financial system is not risk which can be modelled but uncertainty which cannot — and that the answer to uncertainty is simplicity. That means strong structural rules, like the separation of retail and investment banking, which cannot be manipulated or overwhelmed by markets. Such a regime requires, at its apex, a governor whose principled and experienced overview remains unswayable by changing forecasts or political whims.
How does the shortlist divide? Lords O’Donnell and Turner are technocratic foxes. Among the hedgehogs, Sir John Vickers is perhaps better habituated to the gardens of academe, but Lord Green and deputy governor Paul Tucker (still well-favoured by those who know him, despite his Libor banana-skin moment) have seen the world and look more robust. Meanwhile, readers who doubt the validity of this analysis might be persuaded by another literary reference: Terry Pratchett’s Discworld character Nanny Ogg sings a drunken ditty called ‘The Hedgehog Can Never BeBuggered At All’. Enough said.
Keep it simple
The reforms of Libor proposed by Martin Wheatley of the FSA offer a classic case of the need for simplified rigour in preference to all-too-flexible complexity. It was not necessarily wrong in the first place to give the banks’ own lobby group, the British Bankers’ Association, oversight of a system of multiple submissions from market participants, or to put the mechanics of the averaging process that generated benchmark rates into the hands of the information provider Thomson Reuters. No doubt when that structure was set up, potential problems it might encounter were foreseen as purely technical, rather than ethical. But when the submissions process was casually corrupted by bank traders, and ‘Libor’ itself became meaningless after many banks stopped lending to each other during the 2008 crisis, no one held the moral authority to put it right.
Wheatley’s proposal for an independent authority, a reduced number of daily fixings and ‘an overarching set of principles’ to be applied to benchmark rates around the world, will surely be an improvement on what went before. But what also has to happen — by the threat of criminal penalties if necessary, but preferably by a stronger, straighter management culture within the banks themselves — is the eradication of both the incentive and the opportunity for bonus-hunters to ‘game’ rule -systems so complex that even the rule–setters themselves can lose their way.
Small is beautiful
In urgent need of a portrait photo of a very precise size for a visa application, I pop into one of those keys-cut-shoes-repaired-while-you-wait shops that we all walk past a dozen times a day. A man with bottle-bottom glasses and a livid facial birthmark does the job courteously and with evident pride of workmanship within three minutes, while I read posters on the wall that tell me what it’s like to work here: this company supports various charities; it holds up ‘Mr Keen’, ‘Miss Skilful’ and ‘Mrs Happy’ as cartoon role models; all its ‘colleagues’ are entitled to use a selection of holiday homes for free. Like you, perhaps, I have never bothered to look at the name above the door of this useful but humble enterprise, which turns out to be Timpson.
I decided to find out more. Founded by William Timpson in Manchester in 1865, this used to be one of Britain’s best-known shoe chains, but when cheap supermarket shoes and trainers from Third World sweatshops killed that business it reinvented itself as a locksmith, key-cutter, dry cleaner, -holiday-snap developer and heel bar. It has 900 outlets and is still run by William’s fourth- and fifth-generation descendants, according to a principle they call Upside Down Management: ‘colleagues have the freedom to do their job the way they choose… no boxes to tick… bosses don’t issue orders… Head Office is a helpline.’ In the search for enlightenment and human kindness in capitalism, the little Timpson kiosk may have lessons to teach the giant corporation next door.
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