Think Quick

Many people in the organisational development community in Melbourne, Australia will know Frank Connolly from his excellent work as coordinator for the Victorian Public Sector Continuous Improvement Network (VPS CIN) over the last several years.

Frank has started a new initiative, and central to these efforts is his new Think Quick blog.

Good luck Frank with your new initiative and helping people 'Think Quick'!

Rethinking Economics

As someone who received his Ph.D from an Economics Department (but who in no way considers himself an economist!), I continue to watch with interest how the recent Global Financial Crisis is continuing to cause a rethink of the economics profession. A major focus of current interest was one of the subjects of my thesis: economists' excessive reliance on mathematics, regardless of the validity of the assumptions used by the mathematical models. Economists' assumptions for their mathematical modelling are typically things like "assume that people have infinite knowledge of the past, present, and future" or "assume that people make decisions according to an algorithm (like a computer) and this algorithm represents maximising behaviour reflecting greed, but no altruism or social conscience". That is, economists assumptions are typically completely untrue in the real world, and therefore of a substantially different nature to models in physics which have a good level of correspondence to the real world.

Geoffrey Hodgson, an institutional economist with an interest in economic realities, has been following this and has recently posted to his email list along the following lines:

On 2nd September 2009, Nobel Laureate Paul Krugman wrote in the New York Times that in the run-up to the 2008 financial crash “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” More specifically:

"Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy ... the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth ... economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations ... Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets – especially financial markets – that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation. ... When it comes to the all-too-human problem of recessions and depressions, economists need to abandon the neat but wrong solution of assuming that everyone is rational and markets work perfectly." (New York Times, September 2nd, 2009.)

Krugman joins a line of Nobel Laureates, including Ronald Coase, Wassily Leontief and Milton Friedman, who have argued that economists has become largely transformed into a branch of applied mathematics, with inadequate contact with the real world. The narrow training of economists – which concentrates on mathematical techniques and the building of empirically uncontrolled formal models – has been a major reason for the failure of the economics profession to appreciate market vulnerability and warn of the serious risks in the financial system. In their pursuit of tractable models, economists have made over-simplified and misguided assumptions concerning of human agents, markets and other institutions, rather than engaging adequately with the complexities of the real world. Mathematics is very important and useful, but it should be a servant to economics, and not its master. Real-world substance should prevail over mathematical technique. To help avoid further failings, governments in the USA, Europe and elsewhere should look into the state of economics and the way economics is taught.

An online declaration in support of Krugman’s article has received over 2000 signatures in little over a month. This is already higher than all earlier appeals for the reform of economics, since and including the June 2000 petition by students at the École Normale Supérieure (France's premier institution of higher learning) protesting against the excessive mathematical formalisation of their curriculum and its neglect of economic realities. This petition received 1545 signatures and prompted the French Minister of Education to set up a formal enquiry.

Of the 2000-plus signatories of the current online appeal, 62% have PhDs, 20% are from the USA, and 10% from the UK.

As well as Nobel Laureate Douglass North, other prominent signatories include leading international academics and researchers such as Masahiko Aoki, Tony Aspromourgos, Michael Bernstein, Margaret Blair, Mark Blaug, Daniel Bromley, John Cantwell, Ha-Joon Chang, Victoria Chick, Keith Cowling, Kurt Dopfer, Gregory Dow, Ronald Dore, Giovani Dosi, Jean-Pierre Dupuy, Peter Earl, Jan Fagerberg, Olivier Favereau, Duncan Foley, John Foster, Geoffrey Harcourt, Arnold Heertje, Joseph Henrich, Stuart Holland, Will Hutton, Peter Kellner, Arjo Klamer, Mark Lavoie, Richard Lipsey, Brian Loasby, Mark Lutz, Ronald Martin, William McKelvey, Deirdre McCloskey, Stanley Metcalfe, Julie Nelson, Richard Norgaard, Luigi Pasinetti, Peter Richerson, Erik Reinert, Barkley Rosser, Kurt Rothschild, Bridget Rosewell, Robert Rowthorn, Malcolm Rutherford, Paolo Saviotti, Malcolm Sawyer, Esther-Mirjam Sent, Mark Setterfield, Gerald Silverberg, Laurence Shute, Robert Skidelsky, Peter Skott, Ronald Stanfield, Arthur Stinchcombe, Thomas Weisskopf, Sidney Winter and Stefano Zamagni.

You can sign the online petition here.

Organisational Fairy Tales

I was recently given a review copy of Andrew Rixon's new book, Opening Up: Creative Storytelling at Work. Andrew is an expert in applying complexity theory and storytelling within organisations to facilitate consensus and change.

One of the intriguing contributions of this book is Andrew's idea of organisational fairy tales. By constructing a fairy tale around the issue or problem we wish to describe or address, we can liberate ourselves to talk about the issue in a different and more mythic way. The twist, however, comes when the facilitator asks the audience hearing a fairy tale constructed by a member of the organization to describe what they think the story meant. The interpretations the audience puts on the organizational fairy tales can be quite different to the original meaning intended by the author, and the genre opens up a rich and textured discussion regarding what is going on in the organisation.

Andrew contributes to developing the theme that that we live in a complex world, which story can help us make sense of. In such a complex word, the journey to where we want to get to may be very nonlinear and unpredictable - we have to explore and make sense of ourselves and the world around us on the way. Andrew reminds us that "we don't change by being who we are not, but rather by becoming (more of) who we really are".

I also like Andrew's comment to the effect that "what we focus on becomes our reality." Andrew illustrates this with a story of two visitors to a small village in a foreign country. The first visitor meets an old man and asks "how are the people in your village?" The old man looks up and asks "how did you find the people in your village"? The traveller looked distraught and replied that his village was full of crime, hostility and violence and were not trustworthy. The old man sadly nodded and answered "I think you'll find people the same here too." The second visitor meets the same old man, and asks the same question, to which he gets the same question in reply. However, this traveller beams and answers how friendly, empathic and caring the people were in the his village. Again, the old man looks, up, this time smiles, and says to the traveller "I think you'll find people the same here too."

This is a great example of reflexivity, illustrated perfectly through story.

Andrew's book is quite compact at 90 pages, but there are plenty of insights from Andrew's rich consulting and facilitation experience and from relevant research literature woven in to the book for the reflective reader to digest.

Snorklers and Divers

I was speaking with Experiential Marketing expert and consultant Justine Haddrick recently regarding the idea of scanners vs. deep divers.

Justine mentioned that in their work responding to requests for information from clients, Justine and her team had developed a convention of asking whether someone requesting work was a snorkler - someone looking for an overview of options floating over them at a relatively high level - or a diver- someone wanting depth of insight and expertise regarding their very specific problem in the response.

It's important to tailor our responses to the needs of the individual asking for assistance. Do you know whether your clients or prospects are acting as snorklers or divers, and respond appropriately?

Sean Richardson on the 10% Rule

I was speaking with sports psychologist and high performance coach Sean Richardson today about the 10% rule.

Sean is an expert in sustaining physical and mental well being while performing at peak levels.

Sean mentioned the additional dimension that there is a phenomenon in sports psychology called periodisation - athletes can sustain peak workloads for 3 to 3 1/2 weeks. After this time they need a week of reduced volume and intensity of work and and an increase in activities that promote recovery. This period of recovery is required for athletes to recover physically and emotionally, and is an important phase of accommodating to increased levels of performance and growth. After this period of recovery, elite athletes can resume training again at their previous peak levels - plus an additional 10% workload

Because the stress under peak workloads is typically emotional and mental as well as physical (and potentially includes anything else happening in our lives from relationships to living arrangements to finances) the principles of periodisation can apply in our business and personal lives as well.

The lesson from the 10% rule is that we need to allow rest and recovery time, in addition to sustained peak effort or training or making significant changes, in order to accommodate and incorporate significant changes in our lives.

This lesson may be particularly relevant in high pressure and high performance environments such as Management Consulting or Sales where there is continued expectation and demand sustained over long periods of time.

The 10% Rule

I was talking to Andrew O'Brien, director of Organisations That Matter recently at an event about how he and his partner ran 8 marathon races together in 8 countries in 8 weeks earlier this year.

That's a pretty impressive effort in itself. It turned out afterwards that he had run the last 6 marathons with a broken leg. Ouch!

I asked Andrew how one can reach those kind of peak fitness levels without seriously injuring oneself. Andrew shared with me a secret that is apparently known to all elite long distance runners - the 10% rule.

The story goes: to reach peak levels of fitness and to run long distances, never increase your exertion too much in any one go. Put your exertion up by a manageable amount - say 10% - and then stay at that level for a period (for example two weeks) to let yourself accommodate and adjust to the new level of exertion before pushing on to the next level. Repeat, and you and your body can safely reach new levels.

This got me wondering about to what extent the 10% rule applies in our personal and business success. If we go for too much - more than we can accept and accommodate in to our lives - perhaps we risk 'injury'. Perhaps it's better to target achievable milestones and accommodate the results in to out lives. But others will say unless we set high goals and pursue great dreams - Big Hairy Audacious Goals - we will never achieve our full potential. Maybe both are true. Maybe we can reach our BHAGs by taking steps we can realise and accommodate in to our lives?

Gordon Gecko as a role model - 'Greed is Good'

I was watching Michael Douglas on the Dave Letterman Late Night Show the other night (season 17, episode 3181). There was a great interchange between Dave and Michael.

But first: Michael Douglas was talking about how a sequel to Wall Street - the famous role were he acted as Gordon Gecko and delivered the famous 'greed is good' speech - is in the works.

For those who haven't seen the original speech recently, here it is:

Now, here is the clanger! Dave Letterman was talking to Michael Douglas, and observing that it's a different (financial and economic) environment for the sequel than it was for the original Wall Street movie in the 1980s. Then the exchange went something like this:

• Dave Letterman (DL): In that community, certainly, you're still closely associated with that role. Do you still get people talking to you?
• Michael Douglas (MD): I do! Probably more than any role I have ever had! But usually it's some very drunk Wall Street guy saying "You're the man! You're the man! You're the reason I got into Wall Street!" I say "But I was the bad guy!". They say "Yeah, yeah, yeah yeah, no, no" [totally dismissing the concern, it doesn't matter].
• DL: Wow! Maybe you started everything! [the global financial crisis!]
• MD: Yeah, yeah.
• DL: That's a pretty heavy responsibility!
• MD: It's a heavy responsibility, yeah.

It's a really interesting example of reflexivity - art imitating reality in the 1980s (a caricature of a financial market machine with particular values), with the reality then imitating the art as the art then became a role model for people who pushed those values further and further to greater and greater excesses. See also the previous post on how Jack Bauer and torture on the TV series 24 may have influenced public attitudes to torture in the USA.

Gordon Gecko's speech was great public oratory. But from our current perspective, the word "greed" should be replaced with "desire", and we need a framework of institutional checks and balances to ensure that that desire is expressed in a constructive way that works to everybody's advantage. Which, of course, was the point of the original movie!

Why Economic Science Could Not Predict The Global Financial Crisis

Modern economics has become intensely mathematical in nature. To pursue economics as an undergraduate or graduate programme of study today requires significant mathematical skills.

The real world, however, is composed of people and of social systems.

In order to make people, culture and institutions fit in to mathematical equations, economists make assumption, many or most of which are simply not true.

Accordingly, various branches of alternative ("heterodox") economic thinking have developed, where those economists take seriously aspects of reality neglected by mainstream mathematical economics such as consumer psychology, or economic and social institutions.

One such heterodox economist is Professor Geoffrey Hodgson, who works in the area of recognising the importance of social and economic institutions.

Professor Hodgson recently forwarded the below email making important points about the nature of the economics profession and the need to educate economists more broadly.

At a time when we are questioning the nature of our economic and financial assumptions this is an extremely important message to take on board. We need to think differently - and more realistically - about the economic system which is fundamentally by its nature a social system.

The full text of Professor Hodgson's message follows. Let's make sure it's heard - because economics needs to be understood more broadly and more correctly than the mathematically focused economics typically taught in University Undergraduate and MBA courses.

“Mathematical technique should not dominate real-world substance.”

During a visit to the London School of Economics in November 2008, the Queen asked why few economists had foreseen the credit crunch. Dated 22 July 2009, she received an answer from Professors Tim Besley and Peter Hennessy. This was widely quoted in the British press.

Ten leading British economists – including academics from top universities, three Academicians of the Academy of Social Sciences, academic journal editors, a former member of the Monopolies and Mergers Commission and the Chief Economic Advisor the Greater London Authority – have responded by writing their own response to the Queen. They note that the letter by Professors Besley and Hennessy fails to consider any deficiency in the training of economists themselves.

Following similar complaints by Nobel Laureates Ronald Coase, Wassily Leontief and Milton Friedman, the ten economists argue that economists has become largely transformed into a branch of applied mathematics, with little contact with the real world. The letter by Professors Besley and Hennessy does not consider how the preference for mathematical technique over real-world substance diverted many economists from looking at the whole picture.

The ten economists uphold that the narrow training of economists – which concentrates on mathematical techniques and the building of empirically uncontrolled formal models – has been a major reason for the failure of the economics profession to give adequate warnings of the economic crises in 2007 and 2008.

The ten signatories also point out that while Professors Besley and Hennessy complain that economists have become overly ‘charmed by the market’, they mention neither the highly questionable belief in universal ‘rationality’ nor the ‘efficient markets hypothesis’, which are both widely taught and promoted by mainstream economists.

The ten economists call for a broader training of economists, involving allied disciplines such as psychology and economic history, as well as mathematics.

For more information please contact:

Professor Geoffrey M. Hodgson

www.geoffrey-hodgson.info

The Business School, University of Hertfordshire, Hatfield, Hertfordshire AL10 9AB