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The economic consequences of Face-Saving

Miguel Verzbolovskis / Apr 2021

Photo: Shutterstock

 

Picture the following counterfactual: it is June 2018, two years after the Brexit vote, and Prime Minister Theresa May, having acknowledged its economic implications and explained them to the public, decides to abandon her own program to leave the European Union, instead rallying a House of Commons majority into revoking Article 50, thus overturning the result of the referendum.

Now consider the reality of Brexit, as bleakly assessed in February 2019 by Gertjan Vlieghe of the Bank of England: “…since the vote in June 2016, [the UK has] lost 2% of GDP relative to a scenario where there had been no significant domestic economic events.  That amounts to around 40 billion pounds per year, or 800 million per week of lost income for the country as a whole.”

What accounts for such negligence displayed by the leadership of a major power?  Several factors – a belief that theirs is the right way forward, ideological rigidity, partisan politics – certainly play a role.  Underpinning these and other explanations, however, is the need to save face.

Face-saving is defined by the Cambridge Dictionary as that which is “done so that other people will continue to respect you” and as an act that “helps a person not to look stupid or not to appear to be giving in”.  At its most innocuous, it offers a non-humiliating way to correct course without having to admit error.  At its most perverse, it compels you to double down on an enticing but erroneous path leading to foregone profits, livelihoods, economic growth and even lives. Ultimately, this path ends up shattering the reputation you sought to protect.

Most of us have experienced face-saving.  My own stint in diplomacy taught me about the time and energy often spent – unnecessarily – on finessing the wording in official declarations in order to portray compromises as unequivocal wins.  But what happens when the preservation of dignity interferes with responsible decision-making?  What is its cost?  Through a rudimentary extrapolation, Brexit offers us one plausible answer: had Theresa May’s fictional policy reversal actually taken place, in the time elapsed since June 2018 Britain might have avoided losing over 100 billion pounds, or about 140 billion US dollars, not to mention the uncertainty that continues to mire its politics, undermine its trade prospects and imperil its unity, casting a shadow over its international standing that will last for generations. And then there is the question of responsibility attached to democratic choice: if a country’s citizens are to vote on matters that impact nearly everything in the public sphere – as Brexit certainly does – then their leaders owe them the full, complex, truth about what that vote entails, before and after it has occurred.   

The historical and literary record, from antiquity to the present, is replete with examples of disaster courted, rather than averted, by individuals sticking to a face-saving stance in order to preserve honor.  In the History of the Peloponnesian War, Thucydides dramatizes the Athenians’ warning to the soon-to-be-conquered Melians as follows: “Do not be led astray by a false sense of honour – a thing which often brings men to ruin when they are faced with an obvious danger that somehow affects their pride.”

J.M. Keynes similarly criticized the proceedings at the 1919 Paris Peace Conference as politics taking precedence over economics and, in The Economic Consequences of the Peace, foresaw catastrophe stemming from the Allied Powers’ prideful impulse to punish a vanquished Germany without minding the long term.

As in statecraft, the world of business is also filled with instances of leaders pressing ahead with fanciful projects or ignoring game-changing trends, even after their folly has been exposed by contemporary observers.  In their 2017 article Stop Doubling Down on Your Failing Strategy, London Business School professors Freek Vermeulen and Niro Sivanathan refer to six feeders of face-saving that keep people from cutting their losses early and moving on from futile endeavors: 1) the sunk-cost fallacy, or the fear of not recovering past costs; 2) loss aversion; 3) the illusion of control over one’s future; 4) the preference for completing a task at any price; 5) pluralistic ignorance, or scattered, silent dissent; and 6) personal identification with a specific commitment.  Mitigating these biases, they observe, requires companies to design mechanisms that decentralize decision-making, rendering it more objective, democratic and protective of dissenting opinion.

I would go further and argue that the economics of face-saving should be brought out of academic obscurity and studied systematically, ideally as part of the core curricula at business schools and public affairs programmes.  These lessons would seep into the management cultures of public and private institutions, gradually changing them so that leaders are increasingly encouraged to say, “I was wrong, now let’s change course”. Refusing to recognize failure is itself an opportunity cost.

Boris Johnson indeed fulfilled his promise of leave means leave, but rigid, binary sloganeering is the opposite of sound policymaking: the UK-EU trade agreement signed last December has not yet settled the mutual rancour, instead adding further layers of confusion that continue to weigh down on the British economy, particularly its services sector.  In other words, doubling down on a winning tactic but failing strategy, where the cost of pride is sunk and unrecoverable, with losses worth tens of billions brought about by years of make-believe at the highest levels of government.  Think of the billions more lost yearly from the aggregate of reckless, foolhardy decisions made to save face at the expense of everything else.

 

Miguel Verzbolovskis

Miguel Verzbolovskis

April 2021

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