The Insiders versus the Outsiders

Galbraith’s thesis was that skilled technocrats had established secure control over the large organizations in society. Moreover, these large organizations, from American manufacturers of automobiles or aircraft to the Soviet government, had the means to master their environment and to perpetuate their dominant positions.

As we know, Galbraith’s analysis, if it ever held, does not hold today. To understand why the mighty have fallen, and why the future holds dangers that Galbraith never would have imagined, we can turn to Gurri.

To articulate Gurri’s thesis about the current axis of conflict, I will use my own preferred jargon: insiders versus outsiders. (His terminology differs.) He argues that because of the democratization of information and communications brought about by the Internet and social media, the nature of authority has changed since the industrial apogee. The contemporary dynamic is undermining the legitimacy of the insiders, including academics, journalists, corporate leaders, and most especially political authorities.

Some of the differences between insiders and outsiders can be illustrated by comparing Galbraith and Gurri themselves. Galbraith was a professor at Harvard. Gurri is a former analyst at a little-known CIA-sponsored think tank. The New Industrial State was published by Princeton University Press. The Revolt of the Public was self-published. Potential readers became aware of Galbraith’s book by reading reviews in major print publications. Potential readers of Gurri’s book became aware of it through social media, blogs, and other Internet sources. I was alerted to it when I clicked on a link on Facebook to a column by Virginia Postrel that was posted on Bloomberg View.2

Even though it is not mentioned in Gurri’s book, one of the best examples for illustrating the effect of the democratization of information took place in September of 2004. The venerable CBS current-events program 60 Minutes carried a story that purported to show that George W. Bush had used political connections to evade real military service in the 1960s. However, an individual who participated in the far-right Internet discussion group Free Republic under the pseudonym “Buckhead” claimed that one of the documents used by CBS was fraudulent. He pointed out that the document used a proportionally-spaced font that was typically not available when the memorandum was supposedly written. Instead, it was likely typed on a computer using word-processing software from Microsoft that only became available decades afterward. His analysis quickly spread, causing what became known as “Rathergate,” which discredited CBS and its lead correspondent on the story, Dan Rather.

Before the Internet, ordinary individuals would not have had access to sufficient information to second-guess an investigation conducted by a major news organization. Nor would an individual lacking any sort of formal credentials have been able to disseminate his findings as widely and rapidly as they were disseminated in the Rathergate scandal.

Dan Rather was a classic insider. He held formal credentials as a journalist. His position as a CBS correspondent carried with it inherent authority. He had arrived there by competing for many years within an established system of selecting people to hold such positions.

“Buckhead” was a classic outsider. He had no formal credentials. His credibility was based solely on his ability to be persuasive within the specific context. He achieved instant fame and returned to obscurity just as quickly, once Rathergate was resolved and people’s attention shifted to other matters.

The financial crisis of 2008 provides another illustration of the rising power of outsiders relative to insiders. As those who have read Michael Lewis’ The Big Short or seen the movie know, none of the major Wall Street leaders or government regulators grasped the extent to which major financial institutions were exposed to the risks created by shoddy mortgage lending practices. However, a few outsider hedge fund managers were able to penetrate the financial fog, anticipating and profiting from the crisis. They obtained and processed information that had not made it through the institutional filters at the major banks and government agencies.

Gurri sees yet another illustration of the new axis of conflict in the Arab Spring. He highlights the roles played by outsider individuals and social media in fomenting the demonstrations that brought down governments in Tunisia and Egypt.

Gurri predicts that the outsider-insider conflict also will be felt increasingly in the United States. The 2016 Presidential campaign certainly bears out this prediction. Donald Trump, despite receiving no endorsements from major office-holders, has been able to mount a formidable bid for the Republican nomination, and now stands as its presumptive nominee.

In assessing the outsider-insider conflict, Gurri offers a detached assessment of the strengths and weaknesses of each side. He romanticizes neither the insiders nor the outsiders.

The insiders operate within formal organizational structures, such as corporations, universities, and government agencies. These organizations have regular processes for setting goals and making decisions. There is a formal hierarchy, in which people higher up in the organization have the ability to over-rule people lower down. A newspaper editor can order a reporter to change a story. A CEO can eliminate a department or kill a project. The head of an agency can refuse to approve a policy proposed by a lower-level task force, etc.

One’s position in the hierarchy is attained by a competitive process. Success in that process requires a combination of the right credentials, demonstrated performance in pursuit of organizational objectives, and mastery of organizational politics, which means being able to judge with whom to cooperate and with whom to compete in the endless variety of internal conflicts that I like to call the corporate soap opera.

The outsiders operate without formal organizational structures. They have no planning process. Their tactics are ad hoc. A group of outsiders will act improvisationally, without undertaking research, with no individual or body designated to evaluate options, and without taking a vote or making a formal decision.

The outsiders’ credentials, if they even have any, have little relevance. Like “Buckhead” in the Rathergate scandal, they obtain respect from other outsiders by being persuasive in what they say. There are no positions with titles for which to apply, and there is no need to navigate among competing coalitions.

The insiders’ advantages include institutional continuity, the ability to mobilize large resources, and experience at choosing strategy and tactics. The outsiders’ advantages include rapid evolution by trying many tactics and quickly discarding those that fail, the ability to use information that gets filtered out by insider institutional processes, and unshakable conviction in their cause.

A central point of Gurri’s analysis is that the Internet and social media have altered the balance between insiders and outsiders with respect to information. Fifty years ago, outsiders lacked access to a lot of the information that was available to insiders. As an example, Gurri cites the 1962 Bay of Pigs invasion, where insiders knew that the CIA was heavily implicated in the failed attempt to depose Fidel Castro. President Kennedy successfully navigated a press conference on the fiasco by adopting an absurdly contradictory stance, in which he accepted personal responsibility while denying American involvement. Gurri writes,

No member of the White House press corps mocked the fiction of non-intervention. No secret documents were published in the press exposing the depth of CIA involvement in the Cuba operation. Few if any media voices were raised to object that the secrecy blackout was politically self-serving.

The public was at a disadvantage with regard to information. People could not view photographs or documents that would have provided evidence against President Kennedy’s narrative.

Also fifty years ago, insiders had a near-monopoly on the means to broadcast to a mass audience. The only outlet for dissident employees was the corporate suggestion box, where today they have anonymous posts on blogs. People who differed with something they read in the newspaper could only send letters to the editor, where today they can comment on Twitter or Facebook. Politicians with the potential to appeal to alienated segments of the electorate had to first obtain high-profile endorsements from existing office-holders, where today they can reach voters through talk radio and popular web sites. Activists who wanted to foment demonstrations against the government had to form organizations and distribute newsletters, where today they can instigate flash mobs using text messages.

The outsiders’ tools of fifty years ago could easily be repressed by insiders. The suggestion box could be ignored. The letter to the editor could go unpublished. The rogue politician could be blocked from getting the nomination. Anti-government demonstrations could be thwarted by arresting key leaders or shutting down their communication outlets.

In recent decades, it is the loss of these informational advantages that has caused the balance of power to shift away from insiders and toward outsiders. The outsiders do not always win, but the insiders must rely less on trust and respect and instead have to resort increasingly to the use of formal authority and coercion.

Gurri elaborates on the distinction between the hierarchical insiders and the networked outsiders.

Where the [hierarchy] is slow and plodding, networked action is lightning quick but unsteady in purpose. Where hierarchy has evolved a hard exoskeleton to keep every part in place, the network is loose and pliable—it can swell into millions or dissipate in an instant.

In democratic countries, Gurri hints at a vicious cycle under way. Insiders, including elected leaders, fail to live up to the public’s unrealistic high expectations. This leads the public to lose trust in insiders. This distrust is fomented and exploited by outsiders, who charge insiders with incompetence and corruption.

To the insiders, the outsider challenge to their authority comes as a surprise and an affront. Their instinct is to see outsiders as illegitimate, lacking credentials, and not having gone through the organizational processes of information filtering and competition for position. However, the insider reaction comes across to the public as arrogant and repressive, and it often backfires. In desperation, insiders make more extravagant promises, reinforcing the phenomenon of expectations that are impossible to fulfill.

Democratized information plays a central role in this cycle. With more information sources available to the public, the flaws and failures of insiders are more exposed. Perhaps CBS actually was a more rigorous news organization in 2004 than in 1964, but its mistakes have become more evident.

Moreover, because outsiders now have access to tools for reaching a mass audience, the insiders have lost some of their ability to control the narrative. Imagine how the Bay of Pigs fiasco would have played out for President Kennedy had critics been able to employ outlets like the Huffington Post site or the Rush Limbaugh radio program.

How should we view the shift in the balance of power in favor of outsiders and the insiders’ loss of legitimacy? Should we cheer, or should we worry?

Gurri emphasizes the reasons to worry. His central concern is that outsider politics

… has driven the democratic process to the edge of nihilism—the belief that the status quo is so abhorrent that destruction will be a form of progress.

Insiders see the existing order as something to preserve and improve upon. Their proposals for reform are limited and specific. They take into account constraints imposed by economic and political realities.

Outsiders can only articulate what they are against. They can identify flaws in the existing order. But they lack a vision for reform or the skills to govern. Discussing the Occupy Wall Street movement, Gurri writes:

Anti-capitalism was never an alternative to capitalism. It was another path to negation—when pushed hard enough, to nihilism.

Through this lens, using the expression “sectarian Border” to mean what I have been calling outsiders, Gurri assesses the Obama presidency:

Barack Obama, I believe, represented a new and disconcerting development in democratic politics: the conquest of the Center by the Border, and the rise of the sectarian temper to the highest positions of power.

… the rule of the sectarian Border must mean the self-negation of government: the alienation of power from itself. To govern at the heart of this contradiction has been the essence of the Obama style. Failure was condemned pre-emptively, from the rooftops: failure of the previous political leadership, of outmoded economic theories, of the protection of basic rights, of “community values” and society as a whole. Condemnation served to prove the president’s good faith, and to rally the public—on, indeed, behind the institutions of the Federal government or the democratic process, but behind his administration and his person…

As for democracy, its value was made contingent on specific outcomes… the election of Barack Obama made democracy legitimate, rather than the other way around.

Gurri is suggesting that Barack Obama brought both the strengths and weaknesses of the outsider to the White House. He won election and re-election by identifying his opponents as representatives of a failed and corrupt order. Commentators have remarked that Obama continued to use outsider rhetoric well into his second term, denouncing Washington as if he were not part of it.

As President, Mr. Obama was unable to obtain broad support for his major initiatives or to implement those initiatives without suffering significant perceived failures, such as the launch of the bug-ridden web site for health insurance enrollment or the discredited forecast of the decline in unemployment that was supposed to follow the enactment of the stimulus package in 2009. Most important, the Obama Administration brought down the already-low public standing of major political institutions, including his own party, which was devastated by the mid-term elections of 2010 and 2014 (the latter taking place five months after the The Revolt of the Public appeared).

The relationship in a democracy between the governing elite and the mass public has been of interest to political scientists for at least 50 years. Two examples with which I am somewhat familiar, both of which appeared in 1964, are Philip Converse3 and Murray Edelman4.

Converse stressed that the mass public does not share the coherent ideology of elites. Instead, the typical voter relies on heuristics, such as perceived group interest (ethnicity, religion, economic class) or general satisfaction/dissatisfaction with the economy and the state of the world.

Edelman suggested that ideological conflict among elites was more apparent than real. It served to distract and placate the public. Meanwhile, within the hidden corridors of power, organized interests quietly bolstered and exploited their economic and political power.

For Gurri, today’s outsiders do not really equate to the mass public of either Converse or Edelman. They are not ignorant of ideology; nor are they ignorant of the gap between politicians’ pretensions and the reality of special-interest favoritism. Gurri’s outsiders are politically aware and are well endowed with information, if not with wisdom.

The 1960s also was a period characterized by important outsider phenomena, notably the Civil Rights movement and the Vietnam War protests. I find it interesting to consider the similarities and differences between that era and our own.

One similarity is that government failure was exposed, and this reduced the insiders’ legitimacy and caused the protests to mushroom. In that era, it was the rise of the medium of television that empowered the outsiders. Televised images of peaceful Civil Rights protestors and their vicious treatment at the hands of police forces in the South made continuation of segregation seem untenable to the vast majority of Americans. In Vietnam, the Johnson Administration’s upbeat assessment was contradicted by televised images suggesting an ugly stalemate, creating what was called the “credibility gap.”

An important feature of the 1960s is that key insiders took up the cause of the outsiders. A Democratic President, Lyndon Johnson, and a Republican Senate leader, Everett Dirksen, worked together to get Civil Rights legislation past the gauntlet of Southern Democratic opposition in the Senate. With respect to Vietnam, among those who came to doubt the wisdom of American intervention were the Secretary of Defense who had helped to orchestrate it, Robert McNamara, as well as many erstwhile Congressional supporters of the war effort.

The 1960s certainly did not produce a victory for nihilism. In the election of 1968, voters turned to a less-than-charismatic insider, Richard Nixon. Although he did not end the Vietnam War as he had promised, Nixon did reduce the number of American ground troops. This allowed him to end the draft, which had the effect of taking the energy out of the anti-war protests.

Nixon’s election also was attributed in part to “backlash” against the urban unrest that had erupted in 1965-1968. The expression “law and order” became a political code phrase signifying a disposition to punish rioters who engaged in violence and destruction under the banner of Civil Rights or Black Power.

A nihilistic fringe of the 1960s protest movements wound up as small cells committing empty acts of terrorism. However, the vast majority of the erstwhile outsiders ended up re-absorbed by mainstream institutions in government, academia, and business.

If Gurri is correct, however, then the current outlook is grimmer. In terms of game theory, the dominant strategies of insiders and outsiders will lead to an outcome in which government performance worsens, legitimacy declines, and conflict increases.

The dominant strategy of the insiders includes doubling down on their demands for authority, resources, power, and respect. It means making make ever-more extravagant and unrealistic promises.

The dominant strategy of the outsiders is to focus on the negative, exposing and denouncing the failures, imperfections, and corruption of the insiders. On the left, this means heaping blame on the institutions of capitalism and free markets. On the right, this means heaping blame on the institutions of government. Neither side will propose, much less implement, an effective reform agenda. Instead, the only thing that the outsiders can accomplish will be to undermine the trust in and effectiveness of both markets and government.

To avoid this tragic outcome, both insiders and outsiders will have to adopt different strategies. Insiders will have to address what I call the discrepancy between knowledge and power, meaning that centralized power is incongruous with democratized information.5 Insiders will have to cede authority, rather than seek to centralize and expand power. They will need to seek to devolve more decisions to local governments. Moreover, at the local level, existing governments will have to become willing to tolerate, and even to foster, competition from other institutions, such as charter schools, that are capable of providing government services.

Outsiders will have to change our strategies as well. We will have to temper our demands and our rhetoric. We must learn to accept that institutions can be flawed and yet be worthy of our respect. Imperfections and bad outcomes should not be taken as proof of conspiracy or evil intent. We should pay less heed to those who only can pour out condemnation and blame. We should instead give higher praise to those who seek ways to experiment and to fix.