The Donald Rumsfeld Effect
What causes investors to lose heart, innovators to stop risking and company leaders to hold off on making big plays or launching ambitious growth plans? Patrick Slovik, an economist at the OECD, makes the case that the biggest sources of market instability are unknown factors:
Signalling to markets not only what is understood but also what is not understood is necessary for markets to produce an optimal outcome. Bias towards promoting knowledge and not communicating lack of knowledge fools markets and leads to market excesses.
My three year old hates uncertainty. He likes to know what he’s doing today and where he’s going. Who he’s going to be with. What time I’m coming home. If I’m staying away or if I’ll be there when he gets up in the morning. So, we give him all the information we have. And that keeps him happy. Let’s be honest, I’m no different. It seems as though people in general are hardwired to hate uncertainty.
Public sector markets in employment and skills are all over the place at the moment. There are a LOT of unknowns.
I attended the Department for Work and Pension’s ‘market engagement event’ for the upcoming Work and Health Programme last week. Mostly, people left none the wiser. We know how much funding there will be available nationally as a minimum and, broadly, what kind of people we’ll be asked to support. Beyond that, we don’t know:
– how much funding will actually be available
– how many jobseekers the programme will support
– how many people it will be expected to move into work
– how many contract package areas there will be
– how big the contract package areas will be
– how many prime contractors there will be in each area
– how big (financially) each contract will be
Add in the fact that we don’t yet know what the Work and Pensions Green Paper will say in the summer or the impact of the EU referendum or…
Tendering for the Work and Health Programme starts in July. For some organisations, it’s existential – their livelihoods are at stake. For others, the temptation may become increasingly high to say – too much uncertainty, too much risk, not enough reward, not worth investing.
Without knowing the parameters within which they are expected to work, organisations are struggling to work out:
– whether or not they should bid
– how much they should bid for
– where they should bid
– how much resource they should allocate to their bidding efforts in the coming months
– what their service should look like
– what infrastructure they will need (and can afford)
– which staff they should be retaining (and which staff they can’t)
– what extra resource and expertise they will need (and whether they can afford it or not)
The list goes on.
Let’s not even start talking about Apprenticeship Reform – because I’m trying to keep the post short. But there’s another example of a market which has some information, but not all of the information it needs from government to make informed, rational decisions about what to do and how to transform their services, where to invest and innovate and what risks to take. And the future of vocational training, not to mention future productivity and wage levels, depend upon it.
Count the cost
This is not just bad for providers of services.
It’s bad for the people working in those organisations. They don’t know whether their company – or even their sector – will exist in anything like the same shape or form in 12 months time. They don’t know whether or not they’ll have a job and, if they do, what it will look like.
It’s really bad for government. They want ‘rich, diverse, competitive’ markets, delivering ‘high quality, high performing, personally tailored’ services to people. But they are creating an environment in which none of this is likely to happen. There’s not anything like enough known information for organisations to be investing in creative solutions right now. If they drop information on the market at the last minute, guess what? They’ll get a load of rush-jobs. And it’ll show.
And most of all, therefore, this is terrible for the people who need these services. Individuals who – more than anything else – need the Work and Health Programme to do something different, to give them the personal, intense, expert help and support they need to get and keep a good job.
So, my message this morning to the DWP and the SFA is that there are really clear practical, economic, policy and political reasons why you need to end the uncertainty and get information out into the market. There is also a really big moral one. Getting this right is about people’s futures – about changing them demonstrably for the better.
It’s time for government to show some real market stewardship.
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