Panopticon by Ben Hunt of Salient Partners
Panopticon schematic, 1791
The Panopticon: a new mode of obtaining power of mind over mind, in a quantity hitherto without example.
– Jeremy Bentham, founder of modern utilitarianism (1748 – 1832)
But the guilty person is only one of the targets of punishment. For punishment is directed above all at others, at all the potentially guilty.
– Michel Foucault, “Discipline and Punish: The Birth of the Prison”
Visibility is a trap.
– Michel Foucault, “Discipline and Punish: The Birth of the Prison”
There is little doubt that hedge funds have entered a new era of transparency and public openness – a transformation that I believe will benefit investors, the public, and regulators… One immediate benefit of this requirement to your industry should be that transparency will enable you to shed the secretive, “shadowy” reputation that some would say has unfairly surrounded you.
– Mary Jo White, SEC Chair, speech to Managed Funds Association, October 18, 2013
The advance of civilization is nothing but an exercise in the limiting of privacy.
– Isaac Asimov, “Foundation’s Edge”
Whatever games are played with us, we must play no games with ourselves, but deal in our privacy with the last honesty and truth.
– Ralph Waldo Emerson (1803-1882)
In 1791, Jeremy Bentham published a book describing what was clearly a revolutionary design for prisons, factories, schools, hospitals – any institutional building where a few administer instruction, discipline, or care to the many. This design, what Bentham called a Panopticon, was trumpeted as “Morals reformed — health preserved — industry invigorated — instruction diffused — public burdens lightened — Economy seated, as it were, upon a rock — the Gordian knot of the poor-law not cut, but untied — all by a simple idea in Architecture!” No shrinking violet here, but the booming, confident voice of the father of utilitarianism, a man who wrote 30,000,000 words in a lifetime of social activism.
A Panopticon has a large circular watchtower in the middle of a larger circle of cells or offices or classrooms or whatever functional task space is appropriate for the building at hand. The outer circle of cells has inner walls and doors made of transparent windows, and the reverse is true of the central watchtower, which is completely opaque as seen from the outside. From the watchtower you can see perfectly into every cell, but from a cell you can see nothing in the watchtower. Importantly, any occupant of a cell can see pretty much every other occupant of every other cell.
The beauty of the Panopticon, per Bentham, was that the occupants of each cell would soon come to police themselves. That is, the only thing necessary to create the perception of being watched and monitored and punished for bad behavior was the constant possibility of being watched and monitored and punished for bad behavior, together with the communal witnessing of your fellow prisoners behaving as if they were watched and monitored and punished for bad behavior. It’s not necessary for a guard or overseer to watch each prisoner at all times; what’s necessary is for each prisoner to live in a perfectly transparent cell, so that each prisoner thinks that he is being watched at all times. As Bentham wrote, the Panopticon design was a means of controlling the minds of prisoners or workers through mental force, as opposed to the traditional goal in 18th century prisons and workhouses of controlling bodies through brute force.Just like the warden in Cool Hand Luke, just like Dick Clark with American Bandstand, Bentham understood the enormous power of the crowd seeing the crowd. What he added to the calculus of social control was the important catalyst of transparency.
Thinking of transparency and openness as an instrument of social mind control is a hard pill to swallow in an era of social media and reality TV. So many of us embrace personal openness and the sharing of our thoughts…so many of us, as Christopher Hitchens ruefully noted about himself, run towards a camera instead of run away…that it seems almost un-American, rather impolite, and certainly anti-modern to maintain privacy and secrecy in our social relationships. We live in an age where transparency is lauded as a personal virtue and touted as a hallmark of liberty, where public confession is a celebrated ritual and a trusty engine of popular entertainment, where our employers expect as a matter of course that our private lives will merge with our business lives to allow constant access and attention. We live in an age where government requires disclosure of private investment strategies and holdings under the guise of “risk management”, where failure to disclose a private opinion on public securities can be a crime, where – as Dave Egger’s chillingly writes in The Circle – “Secrets are Lies”, “Sharing is Caring”, and “Privacy is Theft”.
Transparency has nothing to do with freedom and everything to do with control, and the more “radical” the transparency the more effective the control…the more willingly and completely we police ourselves in our own corporate or social Panopticons. This was Michel Foucault’s argument in his classic post-modern critique Discipline and Punish: The Birth of the Prison, which – just because it was written in an intentionally impenetrable post-modernist style, and just because Foucault himself was a self-righteous, preening academic bully as only a French public intellectual can be – doesn’t make it wrong. The human animal conforms when it observes and is observed by a crowd, at first for fear of discipline but ultimately because that discipline is internalized as belief and expectation.
To be clear, I’m not saying that transparency is a bad thing for the society or institutions that enforce it. I simply want to call it by its proper name…an extremely powerful instrument of social control, not a “benefit” for the watched. Firms like Bridgewater that famously require a culture of transparency are, I believe, far more efficient and robust than their competitors that don’t. To take a trivial example apropos in mid-March, do you think that a lot of time is wasted at Bridgewater during work hours by employees sending around NCAA tournament brackets? Yeah, right. Not because there’s some “rule” against researching your NCAA bracket while at work, but because it would be unthinkable (and I mean that in a purely literal sense of the word) to do so within the glass walls of an effective Panopticon. A Panopticon crushes any sense of complacency in its residents, and that’s a really big plus for a modern institution. For the residents themselves, of course, that lack of complacency may manifest itself as a wee bit of constant stress. Or to take an example from the investment industry as a whole, SEC Chair Mary Jo White is absolutely right when she says that transparency is good for regulators. Heck, it’s great for regulators. But she’s entirely disingenuous when she touts the removal of secrecy as a good thing for private investment funds.
What’s my investment point in this little diatribe? As investors in highly regulated public markets we are all operating within a Panopticon of sorts. Some of us more obviously than others, but we’re all similarly situated to a rough degree. It’s critical to understand the dynamics of the crowd watching the crowd within a regulatory environment of forced transparency so that we can have a