Wednesday, December 14, 2011

Ratings agencies, standards & the gridlock of the past

Weather started nice, but is overcasting again. Summer, where are you when I need you!

The main post that I am working on today is on economics and will appear on the Managing the Professional Services Firm blog. Here I just want to record a few random jottings.

At the end of November in Ratings agencies & market instability I expresses my continuing concern about the way those agencies had become such important players. My Armidale Express column of 30 November, Belshaw's World - ratings madness, expressed similar concerns.

I see that Australian Treasury Secretary Martin Parkinson shares at least some of my views. I quote:

Dr Parkinson, the Secretary to the Treasury, also took a swipe at ratings agencies he said were trying to overcompensate for past mistakes. ''They are becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm. If you've got a small checklist of indicators and you bang through it, you never really understand the circumstances.''

Dr Parkinson is right, but he would be in a stronger position if his boss, Australian Treasurer Swan, did not quote Australia's ratings from those agencies with such approval. 

We use the term institutionalised to describe the way that welfare recipients or prisoners can become captives of the system. One of the things that I think is insufficiently understood is that this term also applies more broadly.

The impact of the ratings agencies is so pernicious just because their role and judgements have become institutionalised in just the same way.

I find it ironic that  I used to be such a strong supporter of what is known as standards based approaches. I never realised, although I should have, that such approaches would become so entrenched, so institutionalised, that they would exert similar distortions to those arising from the ratings agencies. After all, what is a rating but some form of proclaimed benchmark or standard?

Silly me. Now when I look at the stagnation in public policy, at the way that policy has converged around the interlinked concepts of standards, benchmarks and key performance indicators, I shudder.

Don't get me wrong. I am still a supporter of standards based approaches, but only in their place.

The ratings agencies once performed a useful role, but this dropped away as their ratings were institutionalised. Standards in service delivery once played a useful role, but this fell away as the standards process became institutionalised, focused on a narrow range of measures on one side, a tick process on the other.

I have got to the point now that as soon as someone uses the word standard I shudder. Concepts such as standards and quality accreditation have become a barrier to new thought, a barrier to real improvement. They lock in the past.

One of the reasons why there is presently such a strong official focus on innovation lies in the way innovation is so clearly in decline.

By its nature, innovation is messy. It challenges the status quo. Yet how do you challenge the status quo in a world in which everything you do has to be related to standards and measures based on the past? It can't be done.

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