The Spanish economist Luis Garicano, who had a short-lived political experience in the failed political party Ciudadanos, has an excellent academic article in the Journal of Economic Literature with the title “Why Organizations Fail.” The title is an analogy with the famous book “Why Nations Fail,” previously writen by Acemoglu and Robinson.
Certainly, not only nations fail, organizations also fail. It is common among economists to study market failure, but it was less common to study the failures of whole nations or organizations. Governments also fail, as communities do. Needless to say, all these mechanisms of resource allocation may also succeed. Good economists, like Garicano or Acemoglu, are good at identifying reasons for success and failure.
In his article on organizational failure, Garicano mentioned among others two usual reasons for it, namely shortcomings in the allocation of talent and mistakes in allocating resources among the short run and the long run. Good organizations allocate well their scarce talent, and do a good job at attracting and retaining it at the relevant jobs. They also manage well short run problems, at the same time that they devote resources to innovation and to thinking about their future.
These two basic ideas have come to my mind recently on occasion of the decline of FC Barcelona, my soccer team, arguably the best team in the world between 2005 and 2015, the years of Leo Messi, Andrés Iniesta and others. The rise and fall of the club are very well described in the book by Simon Kuper about it. But this distinguished journalist left the story before it emerged that the club had been paying more than 7 milion euros to the vice-president of the committee in charge of allocating referees to games and to categories, and the subsequent PR campaign of the current President, Joan Laporta, to reject any responsibility and couter-attack with a populist campaign blaming rivals Real Madrid and the Franco regime (yes, that military dictatorship that finished almost 50 years ago).
Barça does a very bad job at allocating talent. The president is elected by the members and operates in a framework of no checks and balances. The current one lacks any management skills and any self-discipline. The club officials around Mr. Laporta are their friends or even relatives, and there is currently no professional structure of experts in organizational turnarounds. However, there is no shortage of experts in communication, starting with Laporta himself, who takes any problem, not as a management challenge, but as a communication challenge, not unlike Boris Johnson or Donald Trump.
The club not only has failed to prepare for the future in its good years, but is now obsessed with the past, blaming the Franco regime, and trying to revive the recent good cycle by trying to sign again an ageing Leo Messi. And it is basically giving up on the future, by paying for current signings with the revenues obtained by selling money-making assets.
This (and Garicano’s reasons for organizational failure) begs the question of what are the factors that facilitate organizational failure. In this case, the populism of a democratic club with no checks and balances plays in my view an important role. Barça is too important to fail, and like many top football clubs it will be bailed out before it disappears (football clubs do not disappear, as explained by Kuper and Szymanski in Soccernomics). A consequence of this is moral hazard in the behavior of club officials, as they don’t face the full consequences of their incompetence (or worse). Other clubs have similar characteristics, but for reasons that deserve further study, the case of my club is an extreme one. However, since the team will not disappear, we can always hope that another lucky shock is around the corner, in the form of another generation of great players.
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