Psychology in the city

Growing pains.

In these times of global financial crisis and banking scandals, some understanding and solutions may come from the science previously frowned upon: psychology.

Since 2008 the financial world and banks in particular have been in crisis. The reaction in the public has been fierce, angry and accusing. Bankers are now shamelessly being called all sorts of names, even in the quality press. The man in the street feels dissociated with people in banking as they perceive them. That uncomfortable feeling of dissociation is a normal coping strategy where understanding fails. “These people aren’t like us,” most seem to feel. A lot of people are now looking at psychology to help them understand.

The question of what was going on and what the people in banking are like is a very valid one, but one that will take a long time to answer. The answer will evolve with time and perspective. Right now, arrows are pointing at a few individuals: the big bosses with big bonuses. They came under scrutiny in the first round of this on-going crisis and it seems that many didn’t understand the prevailing mood building up against them. That led to speculations of many of them being psychopaths. There is in fact quite a bit of scientific research to support that thesis. Several scientists have found similarities in personality traits between psychopaths in hospitals and prisons and top executives. Some personality disorders were found to be even more common in managers than in criminally or psychiatrically monitored psychopaths: histrionic PD (using superficial charm, being insincere, egocentric and manipulative), narcissism and compulsive PD (being perfectionist, rigid, stubborn and dictatorial). That makes nice headlines and always draws in lots of comments, but it is worth looking into it deeper. The scientist Hare has developed a questionnaire for measuring psypathology and found 1 per cent of the average population to show psychopathic tendencies. In executives it was 4 per cent. He presumes it might be a lot more in the financial world, but he has no data to back that up. He made a guess of 10 per cent.

It makes you wonder if only 4 to 10 per cent of a population can make such a difference. They can, with a majority of people being of a more neurotic disposition and therefore enjoying being shown the way. We have few leaders; but leaders have many followers. It is just how it is; it has always worked like that. Outspoken leaders, decision makers, trendsetters, psychopaths: they show a doubting crowd how things should be done and they have an impact. In a corporate world they set the tone for culture and competition. If 20 colleagues fight for one promotion, and one of the colleagues gets the knifes out, the others are likely to follow. However, having worked as a coach and employee wellbeing professional for nearly two decades it is my observation that such corporate culture is still strongly dictated from above. The knife-fighters make promotions more easily; the corporate arena has been moulded around ruthless fighting. The competition between companies was and is a hard-fought and ruthless one; that favours ruthless personalities inside the company.

Top-bankers have been called all possible insults, but we do need to take a step back. This hard-paced competitive world of banking did manage to get the absolute most out of people. With their locomotive pulling power they did manage to keep economies thriving. Progress and developments have been made in the financial world. Moreover, it is not unusual to find surprising and frightening character traits in groups of perfectly integrated and non-criminal people. Typically surgeons and butchers could find in their jobs outlets for a deeper rooted aggression. Extreme personality traits can therefore be applied perfectly functional and acceptable. In psychology we call it sublimation. No one less than Friedrich Nietzsche came up with the term first; Freud and Jung developed the concept further.

Our financial world is certainly driven by success. It feels however like things have gone too far and that shouldn’t surprise. Success breeds the desire for more success. Neuroscience teaches us how success heightens the release of testosterone in brain, which in turn hightens the release of dopamine. Dopamine triggers the reward centre in the brain. No wonder they now call it casino banking: people on a winning streak in the casino turn into strange creatures as well, just like some of your relatives do when playing certain board games. In the past I have raised the argument for having both a reward and punishment system for our top executives. One does not work without the other, major psychologists like Pavlov and Skinner teach us. It seems there are too many rewards for the top guys, and not enough punishments foreseen in their contracts. A reward-only system will breed greed, and I believe that is exactly what people perceive in bankers right now.

In the very competitive lower echelons of financial institutions and certainly on the trading floor, employees are approved of on the basis of how much money they bring in rather than how they behave. Such lack of control invites border-crossing behaviours. People are a lot more likely to do the wrong thing or eat the sugary bun when they think or know nobody is watching. And when they are ordered to hurt others, many are likely to obey that order, we know from the very famous Milgram experiments. We now know that orders were giving by executives operating in a psychopath-dominated environment. The ones that got hurt, I guess, are the customers and even whole national economies. I feel absence of supervision works a silent approval of behaviours that are potentially damaging to others.

Companies are money-making machines; talent is their fuel. They have learned over the years to use the ultimate strategies to get the talent in and to get most out of talents. Up until recently they gambled massively on satisfaction. It was a game of seduction, lust and gratification. The carrot on the stick was the Ferrari-and-champagne-lifestyle, the ultimate almost mystical goal the boardroom. Since the crisis, I see in more and more companies how that strategy has made way for one of fear. Many people have been sacked and anyone can be the next one at any time. As such, our companies play on what Freud found to be the two main drives of humans: libido and fear of death, Eros and Thanatos. Cunningly they play on insecurities and family-relationships as they lure highly talented people at the end of university time and offering them a chance to show mum and dad they can stand on their own two feet. Parents are constantly worried about how their kids will survive after they are gone; they are seeking proof that their kids will be all right. Our big financial centres offer that. That the reality for these young people often turns out quite differently is a message that can difficulty be disclosed to anyone, let alone the home-front.

No crisis is endless, and we will get out of this complicated cluster of crises too. And as with every crisis, we will come out damaged but stronger, better, smarter and more mature. We will not have a revolution; I don’t feel we are ready for that nor need that. Revolutions are too often sign of immaturity. Through all the criticism the British and global financial world have been bestowed upon The City in the past few weeks, it is all too easy to lose track of the fact that the financial heart of London has been a trendsetter in corporate culture for decades. Through the avalanche of criticism, that is made to sound like a bad thing. It isn’t. Through the competition driven evolutions of the past decades, also technical ones, we have developed a banking sector that has been propelled forward in complexity but also ability. Our financial sector and corporate world are now advanced and outstanding; it will take us some time to learn to manage and control it efficiently. The desire to just get rid of the existing system is a kneejerk reaction, a flight reaction. We are going to make do with the one economic system we’ve got and the millions of bright, talented and righteous people working in it. We will have to learn and live with it, even though right now many of us have lost sight of how excellent it all is. It is through the basic psychological drives upon which our economy has played so cunningly that a more mature personality develops. It is probably that more mature personality our corporate world is searching for now.

Our professional sectors will come out changed; I feel it will all be less extreme, a bit more boring. There will be more morals and less champagne, more mainstream and less party. The economy is a long winding road. Going too fast, we seem to have run off the road –again. On a very bendy road, even with a Ferrari, it is better to slow down and stay in the middle of the road as much as you can. It takes you to through the curves and to your destination much faster and much safer.  As with all evolving sectors in our day and age, the economy will find inspiration for growth in non-economic fields like philosophy, psychology, mathematics, physics, biology, electronics provided they accept those sciences for what they are. As a psychologist, I feel the corporate world has not always wanted to understand and correctly implemented my beloved science. They seem sometimes to have opportunistically tamed psychology and created a processed version, foregoing many potential benefits of such rich and innovative science. Incorporating insights from non-economic fields in an open and accepting way will reconnect the financial and hard corporate world with a wider socio-economic and global reality, sense of which appeared to have been lost.

The fact that the pimple burst so publicly in London could prove to be the best news for London in the end. It may not look good right now, but London will hopefully see itself forced to become the most ethical and trustworthy financial centre in the world. The others will be lagging behind. If London gets this exercise right, it will remain the most important financial centre in the world for decades to come. But the exercise might hurt a lot: growing pains.

City workers in london. Photograph: Getty Images.

Peter Sioen is a career & management coach and psychologist working for Mvantage Ltd in London; and international TV, radio & news media commentator with a self-coaching book in preparation. Blogging on http://petersioen.tumblr.com/

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR