Miscellaneous Ramblings

Alasdair White is a business school professor based in Brussels, Belgium where, for 20 years, he has taught management from a behavioural perspective with, he has to admit, a bit more than a passing nod towards free-market economic theory.

A little over 100 years ago, the world of science was faced with a radical challenge to its most basic and fundamental belief: that the laws of physics were Newtonian and immutable. For nearly 250 years, the law of gravity and all that Newton and others drew from it had ruled the scientific world and to seriously question those laws was to invite ridicule, disbelief, and charges of scientific heresy. But that’s exactly what a number of scientists were doing at the begining of the 20th century.

Through careful thought and analysis they concluded that while the rules of Newtonian physics were true and immutable, they were ONLY true and immutable in certain circumstances, and that they did not apply – indeed, could not apply – at the sub-atomic level. As a result, quantum mechanics (or quantum physics) was born. It is interesting to note that they were not claiming that the laws of Newtonian physics were wrong but that a different, parallel set of laws applied as the mass of any body became smaller and more fundamental.

This idea that the two sets of laws of physics were so radically different but equally true was almost unthinkable, and many initially argued that somehow the laws of microphysics, such as quantum mechanics, could be aligned with and explained by the ‘more robust’ laws of Newtonian physics. But this was soon shown to be wrong: microphysics was engaged with matter at a very different and more fundamental level; a level at which Newtonian laws were an over-simplification. Now, a hundred years later, the education system is still teaches Newtonian physics as though it were the only truth, rather than one of a number.

I believe that something similar is about to happen in the world of economic theory.

What was first called political economy by Adam Smith way back in 1776 when it was the study of how economic agents interacted to create the ‘wealth of nations’, economics has become one of the most powerful areas of study, one that its practitioners claim affects every aspect of our lives, but one that is profoundly flawed.

In the 250 years since Newton, scientists have unravelled the secrets of the universe with surprising accuracy and with profound impact on everything we do and use in our lives. They have examined the universe all the way back to its origins, they have examined matter down to the fundamental particles that make up everything around us, they have used that knowledge to create things for both good and evil, and few, if any, now question the ideas that once appeared so radical. (Einstein showed that space and time curve and are relative to each other and to the speed and position of the observer, Heisenberg showed in his uncertainty principle that one cannot at the same time define exactly where something is now and where it will be in the future, while particle physicists at the Large Hadron Collider at the CERN Laboratories in Switzerland have shown that some fundamental particles can be in two places at the same time.)

In the 250 years since Adam Smith, on the other hand, economists have done little to explain how the economic activity of the world is organised. They have invented, proposed and imposed a huge number of theories that have rapidly been shown to be incomplete, inaccurate or plain wrong; and they have based it all on the fundamentally flawed idea that the macro and microeconomic world operates with the same rules: that there is only one economic truth. Economic discourse, certainly at a political, financial and commercial level, is littered with statements that start with “Of course …” followed by some wild idea presented as an absolute truth.

In the last 50 years, we have had Marxism, Keynesian economics, monetarism, and free-market economics, and while they may all shed some light on how the economy works at a macro level, they are none of them wholly correct, but neither are they wholly wrong – although the adherents of each school will vehemently promote their own theory and decry those of others. However, what bothers me is this: none of the theories makes any rational sense when the economy of the world is considered at a micro level – the level of the individual man, woman or child.

In the next few blogs we’ll explore these ideas further and look at the underlying fallacy of most economic theory – the subject of full knowledge and rationality – the behavioural aspects of microeconomics and whether business schools are partially to blame for the current economic problems by teaching, without critical analysis, theories based on fundamentally flawed ideas.

Alasdair White, as part of his portfolio of academic and publishing activities, has taught undergraduate business studies students for the last twelve years. His courses are behavioural and focus on doing business in an increasingly hyper-connected and ICT dependent world.

As the second annual European e-Skills Week comes to end, it is interesting to reflect on some of the learning points that have come out of the various discussions around the subject. One such point should be phrased as a major question: are we actually ensuring that young people have the ICT and e-skills that they really need to obtain, hold and succeed in a job in the current business world?

Based on my twelve years experience of teaching undergraduate business studies students, I feel that the answer is (a) on the whole, no we are not, and (b) we should be doing a lot more.

In a recent article for the New European, John Vassallo, vice president for EU affairs at Microsoft, wrote: “Right now there are 5.5 million young people under the age of 25 who are unemployed. In Europe the youth unemployment rate has just reached a historic high at 22.4% … Not only does this concern low-skilled young people having left school early, but there are more and more university graduates who also cannot secure work.” This, of course, raises all sorts of issues about the curriculum in schools, colleges and universities but when a recent finding by the IDC (International Data Corporation – a research unit) that 90% of all jobs will require technology skills by 2015 is added to the mix, we have a point of focus: we need to do more to ensure that pupils and students have the ICT knowledge and e-skills needed for the real world. As Vassallo adds, “…the digital competencies that we associate with the young generation, for instance when using a phone application or social networking site like Facebook, are very different to the ICT skills in demand for getting a job in 2012 and beyond.” (my emphasis) Read the rest of this entry »

Do the public really care about the banking crisis and the fact that governments are using tax-payers’ money to bail out the financial institutions?

The instinctive response is: YES, they do care and they resent the fact that banks are being rescued having lost a lot of money. But the counter-intuitive response is rather different.

Over the last fifteen years or more, the populations of the developed economies have been saving less and spending more than they can afford. Saving rates in places like the UK and the USA have fallen to virtually zero – well below a healthy savings rate of about 5-7% of disposable income. One explanation for this is simply that interest rates are so low that the saver gets little or nothing for their prudence and with inflation rates almost matching interest rates, the real return is either zero or negative. Combine that with the taxation that is levied on the interest earned and there is absolutely no incentive to save anything. Read the rest of this entry »