the club med theory

excerpts from a forthcoming

I posted about this during the week, but the more I think about it, the more I think that considering the economic basis of all-inclusive holidays might be a good way in to what I’m currently writing about organisational decision making …

The modern all-inclusive holiday resort was invented in 1950, in Majorca, by a Belgian former Olympic swimming champion, Gérard Blitz. He partnered with a tent manufacturer called Gilbert Trigano and built a campsite near the beach which he called “Club Meditèranée”. Rationing had just been lifted in France, and the club was an immediate success; they had to turn away more than ten thousand customers in the first summer of operation.

Club Med has developed quite a lot through the years; it is no longer a mutual organisation owned by its “gentils membres” and today it’s a subsidiary of a Chinese comglomerate which operates resorts all over the world. But the initial insight of Gérard Blitz is still the basis of the entire industry. That is that what people seek from a holiday is not luxury or material comfort, but happiness. The point of an all-inclusive holiday is not really the potential to consume unlimited amounts of food and drink; it’s the relief from participation in the everyday economy.

In the original concept, the idea behind removing cash from the holiday camp was that it would blur social distinctions. Giving everyone the same access to food and drink would remove some of the visible markers of class and therefore some of the potential sources of anxiety. (In the first Majorca camps, the gentils membres were encouraged by the gentils organisateurs to sing songs around the campfire together; it was more like a childrens’ summer camp than the modern all-inclusive).

But the concept has caught on and persisted into a less class-conscious world because Blitz’s true genius was to understand that being in a market economy is stressful partly because of the cognitive demand that it places on you. Every transaction is a decision, and decisions cost energy. Removing the price mechanism, for a while, can be intensely relaxing.

This is quite difficult for people to understand if they have an economics degree. It might be argued the opposite way; that when you remove the price mechanism, you are destroying information and likely making things worse. If the restaurants in a resort are not competing for business and the staff are not motivated by tips, then standards are surely likely to slip; there is no incentive to provide good service.

But you can see what is wrong with this simply by looking at what happens, particularly in beach resorts where the all-inclusive model and the market model co-exist. The staff at the swim-up bar don’t necessarily have any reason to hustle; they might even be told by the management to slow things down, in order to keep costs (and the behaviour of the guests) under control. Meanwhile, beach vendors, masseurs and the sellers of excursions are in a situation of pure market competition. They live or die by their ability to persuade people to part with money in exchange for goods and services.

Which of these two categories of people are generally beloved by the guests, and which are considered pests? To ask the question is to answer it. There are a few things going on. One important point is that it’s not necessarily the case that the best way to sell something is to provide the customer with an enjoyable experience. Another strategy, as I learned when I was a stockbroker, is to pester them mercilessly until they pay you to go away.

A second issue is that people don’t necessarily consider the cumulative effect of the system which they are part of. If you were lying on the beach and one person came round once a day to offer you the opportunity to buy sunglasses, that might be quite nice. But it’s not an equilibrium in an unregulated market; there is no way to price the inconvenience of being woken from your nap, and so offers are made well beyond the point of diminishing returns.

Which is related to the real point, which economics has a tough time dealing with sometimes. And that is that choice is a mental effort. When economists model choice as having a cost at all, it’s usually in the sense that resources have to be spent on gathering information. The idea that dealing with the information itself might be unpleasant is much harder to model.

One of the few economists to take seriously the idea that mental torpor can be a pleasant state was JK Galbraith, whose contribution to a collection of beach-reading essays in 1963 said that “Total physical and mental inertia are highly agreeable, much more so than we allow ourselves to imagine. A beach not only permits such inertia but enforces it, thus neatly eliminating all problems of guilt.” Unfortunately, he never really extended this insight into a more general economic theory, but if he had done, he might have realised how important it was.

The psychological phenomenon which formed the basis of Gérard Blitz’s empire is called “cognitive load”. It’s a description of the amount of effort needed to deal with the big problem of life and economics, the conversion of information into decisions. The opposite of being in Club Med is the all too typical situation of a civil servant or middle manager, that of being cognitively overloaded. Either you have too many decisions to make, or too much information to process, or all too often both. As well as being quite viscerally unpleasant, this is a dangerous situation to be in. People burn out, and while they are doing so, they often make bad decisions.

In fact, making bad decisions is intrinsic to the management of cognitive load, because the only way that you can bring an excess of information into line with your capacity to process it is to throw some information away. This in turn promotes risk averse decision making; since you don’t know how important the information you are ignoring might be, it makes sense to assume the worst. It also promotes a bias against action, because in an environment of uncertainty it makes sense to preserve options rather than doing anything that is difficult to reverse. All the things which we considered in the previous chapter under the description of “career risk” can also be seen as coping strategies for the management of cognitive load. That is why they appear at multiple levels of organisation; whole departments and corporations can act like they fear career risk, even though a department can’t have a career.

This also casts a pessimistic light on the possibility of solution. If one thinks of career risk as a problem based in a gap between individual and group incentives, then it feels like there might be some way to realign those incentives to reward the right kind of decision making behaviour. If the problem is one of cognitive load, then clever engineering solutions are less available. Only the brute force approach of increasing the information processing capacity is going to work to bring the decision making system back into balance.