The collapse of South Canterbury Finance and related entities has lead to an interesting exercise in blame attribution - and there are reasons we should care about what happened even if we weren’t directly affected. SFC is only one of a number of finance companies which failed in the last few years, and as Brian Gaynor points out in the NZ Herald, banks – particularly the big four Australian ones - have increased their dominance in the financial sector in New Zealand. The estimate he provides is that banks will account for over 80% of the total financial assets here after the effects of the failures are fully accounted for. He also states that as banks are risk averse when it comes to lending, it means bad news for higher risk and innovative projects.
We have often been told these projects are the key to our economic growth. In Scale and Scope: The Dynamics of Industrial Capitalism Chandler hypothesised that the most important reason Britain lost out in the second industrial revolution is that there was an emphasis on a large and stable income over risky investments – and these are characteristics of the banks dominating this sector of our economy, a sector on which all the others depend.
I’m not an economist or accountant, nor do I have any special knowledge of the circumstances around the SCF failure, only what has piqued my interest enough to read in the mainstream media. The main purpose of this post is to analyse common reactions based on the psychology of blame.
In general our viewpoint is deterministic. When we see an effect we assume it has a cause, and we will often look human agency as the reason - if there is a loss, we look for the person or persons responsible to attribute fault to. Whether we do that, and who we blame, depends both on our individual nature and on the situation.
There are a few blessed -or irrational, depending on your point of view - individuals who always see the benefit in any situation - “yes, some good will come of it!”, “others have lost so much more!”, and the almost ubiquitous business mantra “it's not a problem – it's a challenge!”.
People also vary in their locus of control – the external; “the examiners were at fault, it was too hard and was unfair”, the internal; “It's me - I'm just not smart enough to understand the subject”, and hopefully a few more balanced; “The exam was harder than expected so I need to adjust my study and exam technique to do better next time”.
The non-blamers don't interest us here, as journalists and reader comments have given both the affected and non-affected plenty of opportunity to give their point of view we are only going to look at those peoples reactions.
One of the big determinants on whether we look for a cause is the size of the loss - the more severe the outcome the more effort will go into seeking out a culprit. This is a given for SCF – the loss was large and affected many people, and blame is being attributed. The blame can be generally be characterised as either incompetence e.g. poor record keeping, inadequate risk management, dysfunctional company structure; or conspiracy e.g. the company wouldn't have failed but “people” were jealous of the success and/or wanted the assets and conspired to cause the failure.
The three factors I believe driving these attributions are;
· perceived authority and knowledge
· personal relationship
· proximity to the failure
Much of the blame has fallen on Alan Hubbard, the founder of the company, and in attributing responsibility to him much debate has centred on how much control – or authority – he had at the time of the failure. His record in amassing individual wealth and in building his businesses indicate good investment knowledge, so some people are attributing responsibility based on the company performance in light of this expertise.
There is a geographical bias in people choosing not to blame him. In the US where personal injury claims are common there is a bias towards suing strangers e.g. in a vehicle accident a passenger is more likely to sue the driver of the other car rather than the driver of the car they were in. Mr Hubbard is well known in South Canterbury, and if not known personally most people would know someone who does or has been helped by him. We also tend to accumulate knowledge of high status individuals (something we share with other hominids), leading to an assumption of greater familiarity than with other strangers - and Mr Hubbard had a high status within the region. How well we know a person affects how much we will blame them.
If we don't want to attribute responsibility for one of the above reasons, but are looking for a human agency as the cause of the failure, then that really only leaves the Government officials that have stepped in. That causes a problem. For someone to be responsible they had to have some proximity to the failure, and time wise the officials didn't. The answer is that while the company had some problems, it actually wouldn't have failed until the intervention – proximity problem solved! Why did they step in? Maybe incompetency, but more popularly it was a conspiracy.
South Canterbury residents protest over SFO investigation - photo: TV3 News
South Canterbury Finance is atypical of the finance company failures such as Hanover, in that there hasn't been any pointing to greed on the part of the company owners and managers – a popular blame attribution - playing a part in the collapse.
So, the divergent views on the cause of the failure we have heard so far, actually tell us more about the people expressing them than about the failure itself. The problem with this is that, in the words of Dale Carnegie “no one ever wins an argument”. Entering the argument by publicly expressing a point of view forces the participant to defend, justify and therefore invest in it more; so the early very public and vocal expressions of support and blame in the SCF failure will mean that when the investigation into it is complete, many people will never accept the outcome if it differs from their already expressed opinion.
No comments:
Post a Comment