Challenger, Three Mile Island and the Financial Crisis
"When I quote others, I do so in order to express my own ideas more clearly," French Renaissance writer Michel de Montaigne has written. I could not help but recall this idea as I read Malcom Gladwell's "Blowup." In this essay, published fourteen years ago, Gladwell explains with astonishing clarity exactly my thoughts on the tiresome financial and economic crisis blame game that still(!) remains fashionable. The essay is a preemptive argument against the scapegoating we have seen, and is so relevant to today's situation it's amusing. Unsurprisingly, perhaps, it turns out the world proceeds unnoticing of the argument, which he sums up in his subtitle: "Who can be blamed for a disaster like the Challenger explosion? No one, and we'd better get used to it."
"We'd better get used to it." But I suppose it goes against the coping needs of human nature to accept that the blame for some bad things just can't be assigned.
In "Blowup," Gladwell examines the cases of the explosion of the Challenger space shuttle in 1986 and the near-disaster at the Three Mile Island nuclear power plant in 1979 to illustrate that big "accidents" don't always have clear causes—that they may in fact be inherent in high-complexity systems.
The near-meltdown at Three Mile Island mirrors and provides good perspective on the meltdown we saw in the financial system:
Here…was a major accident caused by five discrete events. There is no way the engineers in the control room could have known about any of them. No glaring errors or spectacularly bad decisions were made that exacerbated those events. And all the malfunctions—the blocked polisher, the shut valves, the obscured indicator, the faulty relief valve, and the broken gauge—were in themselves so trivial that individually they would have created no more than a nuisance. What caused the accident was the way minor events unexpectedly interacted to create a major problem.
That is not to imply that bad decisions and glaring errors were not made during the financial crisis—surely they were—but these specific instances of fraud and other breaches of the rules did not cause our problems. Our "modern-day" Three Mile Island was the result of the same unexpected convergence of the effects of disparate situations—brought about by people acting rationally and without malice—in an extremely complex system. The government had kept interest rates too low for too long; rising property values encouraged mortgage terms that allowed traditionally risky borrowers to own a home; investment banks, ratings agencies, investors and regulators alike did not understand the risk in certain pools of assets; mark-to-market accounting rules facilitated a downward spiral in banks' capital positions; and the list goes on. Congress, the Obama Administration and the media continue to channel public anger to Wall Street (therein, by the way, one can see clearly the exploitation of a scapegoat—the amorphous idea of "Wall Street" is used just as, in other times, the amorphous concept of "The Jews" may have been), how in the world can we cast blame for a systemic problem?
Paraphrasing sociologist Charles Perrow, Gladwell writes:
Modern systems…are made up of thousands of parts, all of which interrelate in ways that are impossible to anticipate. Given that complexity…it is almost inevitable that some combinations of minor failures will eventually amount to something catastrophic.
We unfortunately encountered such a catastrophe just about two years ago.
Gladwell also quotes an analysis of the Challenger situation (in which a rubber O-ring on the casing of a rocket booster failed to seal in the hot gasses during launch), which concludes:
It can truly be said that the Challenger launch decision was a rule-based decision…but the cultural understandings, rules, procedures, and norms that always had worked in the past did not work this time. It was not amorally calculating managers violating rules that were responsible for the tragedy. It was conformity.
The responsibility for the decision to launch still lies with the organization; however, although there was surely a great deal of finger-pointing in the incident's aftermath, in the end it was the system (that is, the design of the organization) that needed to be changed. Like the NASA employees on the Challenger launch, who acted as would be expected leading up to the unfortunate end result, the "sub-prime" borrower seeking a home, the mortgage salesperson, the investment banking analyst, the Federal Open Market Committee member all acted as one would expect (again, barring the specific cases of misconduct). They did not fail. The system failed.
Of this kind of disaster, Gladwell said, "We'd better get used to it."
But perhaps we don't have to be so complacent. Let's stop the tantrum and the finger-pointing and try to make the system better. Let's prosecute those instances of misconduct, but let's not project blame where it does not belong. The challenge and the opportunity we face represent something profoundly important, and we owe it to ourselves to be thoughtful.
To that end, Michael Watkins is furthering the conversation on "systems leadership" here and here at HBR. In what situations have you seen effective leadership of complex systems?
Photo credit: Matthew Simantov
