Repeated Financial Crises

One of the books I am reading just now, written in 1954 and revised in 1975, is J.K. Galbraith’s The Great Crash 1929. In the foreword, he described the resurgence of financial instability in the 1960’s as memories faded. Wall Street had a “day of reckoning” in 1970.

According to Professor Galbraith, leverage in both periods was “rediscovered and heralded as the financial innovation of the age”. Specific conditions “kept leverage from being used so extravagantly” in the 1960s. Market decline did not become accumulative and there was a far less severe effect on the economy than in the depression years. In the first slide of  Robert Peston’s Audio Slideshow we are told that leverage fueled the current round of economic turmoil.

Learning From The Past

Pondering these things brings me to a question that has bothered me. Why is there such a tendency for businesses to be so willing to be persuaded by novelty, while seemingly ignoring old insights that could be considered first principles of organising? Is there an inherent inability to learn from the past?

Thinking about the businesses I currently work with, and have worked with over the years – large and small from many sectors, nationally and internationally – they have not cared whether knowledge and methods are new or old. All they have wanted to know is:

“Are the methods and knowledge you are showing us effective for what we need to do? And if they don’t work for us, have you got anything else you can show us?”

Keeping Memory Alive

Galbraith contends that regulation does not ultimately restrain financial imprudence and speculation. It is “the recollection of how, on some past occasion, illusion replaced reality and people got rimmed.”

Co-incidentally, keeping memory alive came up in a very recent email exchange, into which I have been copied. In the course of the conversation, someone denounced promoting the mythology of Deming. The claim is that Deming had nothing to do with workforce involvement, that is was entirely Ishikawa, and that it should have been Shewhart who was invited to visit Japan in 1949. Deming went in his place when Shewhart caught flu.

The person setting the record straight says:

“I am one of the very few left now who have first-hand experience of this and I feel a sense of responsibility to pass this on the next generation.”

Drawing It All Together

After all that, this is what I think:

• In the context of taking action at a particular point in time for identifiable purposes, it is both possible and profitable for businesses to learn from past insights. I say this from experience.

• Appropriate knowledge, old or new, brought to a specific business problem is applied within dynamic human networks of interactions. Just as with economies, organisations are complex, unpredictable, dynamic and highly inter-connected. There are no guarantees of successful outcomes. It is not that organisations are unable to learn (see Senge), it is that putting knowledge to work is not easy.

• Keeping memory alive is important so that due credit can be given to originators of ideas, to prevent wheels from being reinvented, and to ensure that the illusion of novelty does not replace the reality of creating the environments and setting the initial conditions needed to make knowledge actionable. Those of us who have been around the block a few times can pass on what we know to those just setting out.