Paradigms, ways of seeing the world and learning to cope with economic uncertainty
Whilst attending a business conference in California on quality management in the very early 1990s I was struck by the fact that the word 'paradigm' was ubiquitous.
Almost every presenter talked about the importance of being able to engender new ways of considering approaches to producing improvement.
In my own reading whilst conducting research into quality management I had become aware that the word paradigm was increasing used by writers, especially Americans, who believed that the threat from the Far East, most notably Japan, required radically altered ways of both thinking and working.
Given the current economic climate it seems that we urgently need to rethink the paradigms we use to both contemplate and manage the world.
The word paradigm is not new. Whilst its origin can be traced to third century Greece as a term used by authors as a technical word to denote rhetoric, and post-classical Latin scholars adopted it during the middle ages, its popularity in contemporary terms is, intriguingly, due to the publication of The Structure of Scientific Revolution by Thomas Kuhn in 1962.
For those who work in or, in my case, study, management, organisations, business and economics, there is curious relationship - perhaps a better word is juxtaposition - with the world of science.
I studied all of my post-school qualifications in engineering institutions and have done my fair share of what a former colleague, an engineer and statistician, used to describe as "hard sums!"
Engineers are driven by the laws that exist within the sciences of mathematics, physics and chemistry. What could these laws tell managers who work in organisations consisting of irrational and sentient human-beings?
Among a good many academics there is still a belief in the importance of numbers. Indeed, there are still many departments that offer management in ways that utilise assumptions based on what is known as 'scientific method'.
After all, science, offered the belief that with sufficiently dedicated and rigorous study, through 'scientific method', it was possible to discover and subsequently the truth concerning phenomena.
Until Thomas Kuhn published his book scientific theory had a very long tradition and revered reputation based on the immutable belief that theory developed on constant and continuous development through, for example, experimentation based upon hypotheses.
Kuhn in his book took a more philosophical stance in that he challenged the belief of continuous development.
Rather, Kuhn asserted, his analysis of the progress of developing scientific knowledge showed that discontinuities during which normality' were regularly interspersed with 'revolution'.
During periods of normality, the community have a shared intellectual framework (paradigm). Anything that is shown by experimentation to be anomalous to the accepted way of thinking is resolved by alteration in an incremental way.
As Kuhn argued in his book, during these periods the intention is deliberately not innovative but merely advancing in a way that follows expected conventions.
Periods of revolution are caused by inconsistencies and anomalies getting to the point whereby existing paradigms are seriously questioned. Kuhn believed that his analysis of historical development of science showed that some are willing to consider new ways of thinking in such a way as to create a radically alternative was of thinking.
If what is being proposed by the 'revolutionaries' is such that it resolves the inconsistencies and anomalies, it will then become accepted; even though there will be inevitable tension and angst.
As such, a paradigm shift will have occurred that will provide radical opportunities for solutions and, in turn, provide a catalyst for novel research.
What seems so utterly radical about what Kuhn was proposing in The Structure of Scientific Revolution fifty years ago is that he recognised the importance of the intellectual climate in which the scientists he was considering worked in.
More particularly, and whist some saw it as being heretical, Kuhn explicitly recognised the importance of humanity and its inherent irrationality in the way that we phenomena; how 'things' happen.
Equally importantly, Kuhn's influence was seen through the willingness of other researchers to engage in interpretation rather than mere acceptance.
So, what does this tell us about the current world in which we operate; most especially with respect to economic theory?
Given the crisis we are currently in maybe, as Kuhn recommended, we need some radical and revolutionary thinking that will create a paradigm shift.
As last week's figures for government borrowing show, the mess we are currently in shows no sign of improving anytime soon.
According to the Office for National Statistics there was a £600 million gap between spending and revenue in July compared to a £2.8 billion surplus last year.
Many commentatots argue that the economic paradigm this country is pursuing is not doing what is required; the anomaly in increasing employment aside.
Writing recently in The Guardian Larry Elliott, its economics editor, suggests that there is a serious problem with the current way that economic theory is considered, taught and applied.
Elliott uses the example of the 1980s Latin American debt crisis to suggest that unless we rethink percieved wisdom - the current paradigm - we will repeat the problems experienced by Latin America and the Eurozone will not emerge from the current crisis.
His view is shared by many economists who believe that what is needed is to change the 'medicine' being applied to the UK economy.
There is an increasing view that economic policy based on cuts is making matters much worse than might otherwise be the case and is severely undermining the chances of recovery; to the extent that austerity could last for the remainder of this decade.
Elliott explains that the 'reckless' lending that went occurred in the last decade - most notably in America to fund sub-prime mortgages - and which has caused the current financial problems major western economies, has similarities to the economic which Latin American governments in the 1970s found themselves in.
And exactly like European countries such as Greece which currently cannot repay its debts, this was the fate of the Latin American countries that needed International Monetary Fund (IMF) assistance.
Significantly, Elliott identifies that the draconian conditions imposed by the IMF, which they considered necessary to avoid what is called 'moral hazard', were considered necessary as it was believed that leniency allow governments in debt to simply borrow more.
However, Elliott argues that for many Latin American countries the consequence of the stringent conditions imposed by the IMF was a lost decade between 1980 and 1990 leading to high employment, reduced output and greatly increased poverty.
In particular he cites the case of Mexico's economy which effectively collapsed.
As it became increasingly apparent that squeezing countries with bankrupt economies was counter-productive, it was decided that there should be some relaxation through 'debt amnesties'.
Fascinatingly, that these amnesties showed was that 'moral hazard was', contrary to perceived wisdom, not a problem.
Significantly, Elliott contends, the banks were not held to account for their role in the Latin American debt crisis.
Indeed, he thinks that they became emboldened and, encouraged by deregulation and financial liberalisation became bigger, developed more power and, of course, engaged in behaviour which contributed to the problems we are currently beset by.
Put simply, banks remain the problem and, as Elliott argues, whatever happen in the immediate to medium-term future, the fact that they remain 'unreformed and unpunished', makes a another future debt crisis all too likely.
Moreover, because collective memory is short, the current crisis will fade and there will be a temptation to once again take risks.
Therefore, and with resonance to what Kuhn explained in The Structure of Scientific Revolution, Elliott suggests that we urgently require a new economic paradigm both in terms of what is considered to be important in economic theory and the way it is taught.
He recommends that there must be cognisance of the importance of historical perspective rather than 'messianic belief in abstract and failed models' and draws attention to two new books that appear to provide essential reading if we are really serious about avoiding future financial crises.
The first is What's the Use of Economics?which is collection of edited papers (by Diane Coyle) and will be published by London Publishing Partnership in September.
Based on a conference held in February this year, there are a number of papers written by eminent authors that examine how economics can be taught in universities in a way that more readily recognises how the world really works.
One of the papers emphasises the importance of being more inductive in discovering economic reality (in addition to being traditionally deductive), and the need for both lecturers and student to be critically aware.
For example, Andrew Haldane, one of the contributors to the conference, believes that the most recent crisis was caused by an analytical failure or an intellectual virus in which everyone became blind to the risks that were being taken.
So, as Kuhn posited, there is a need to break out of the stranglehold that believes knowledge accumulation is a continuous evolutionary process.
As I will continue to argue with my colleagues who put their faith in econometrics and the use of mathematical and stochastic models, rather than avoiding financial crises in the past, they contributed to their occurrence.
The second book recommended by Elliott is The Endless Crisis: How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China by John Bellamy Foster and Robert W. McChesney to be published by Monthly Review Press.
This book makes the point that the current economic period that we are undergoing across the world - such as slow growth, high unemployment, stagnant wage growth and, especially in certain European countries, endemic poverty - will become the norm.
Accordingly, Foster and McChesney suggest, we have entered into a period of 'Great Stagnation'.
Moreover, they believe, the fact that the world tends to be increasingly dominated by a handful of global 'players' (companies or industries), has caused a situation whereby capital is increasingly concentrated in the hands of a few.
Indeed, they contend, potential investment opportunities in 'real' industries which create sustainable jobs are severely reduced.
Foster and McChesney believe that past experiences of how economic crises were dealt with will not provide any guide to the future.
In particular, the growth experienced in the post-war period, which provided opportunities for investment, were stimulated by investment in infrastructure projects, increased car ownership, military spending and financing of welfare 'projects'.
But as they argue, these opportunities have significantly decreased.
Indeed, Foster and McChesney suggest, it was the lack of 'traditional' investment opportunities that made banks so increasingly desperate to seek return from the likes of financial services and property and which have left us with the financial mess.
Further, they believe, the absolute scarcity of investment opportunities similar to those that were stimulated by development created after the second-world-war period are very likely to mean the current era of 'austerity economics', leading to stagnation, will continue for quite some time.
From a UK perspective we know that George Osborne is under increasing pressure to reconsider his paradigm for economic recovery.
However, any change is unlikely and he appears to be following the Margaret Thatcher's mantra of 'There is no alternative'.
The reality of change by osborne is very remote.
One BBC commentator suggested that any change to his economic policy would represent the 'mother and father of U turns' and he has staked his political reputation on austerity being the strategy (paradigm) he believes will work.
Others disagree with his view that austerity is the best way to solve this country's economic problems.
Those expressing doubts include nine of the 20 economic experts who signed a letter in February 2010 supporting austerity as the only way for the UK to solve its financial problems.
There is also the Institute of Directors who polled their members. This poll showed that two-thirds of IoD members have little or no confidence that this country will emerge from recession this year.
It increasingly seems that this country's economy will remain critical for many years to come and begs the question of how much damage Osborne's economic policy based on austerity will do in the long-term.
The thing is, unlike Margaret Thatcher's government in the 1980s, we do not have the huge oil reserves that funded the rapid rise in employment that followed the level of cuts that were implemented then.
Remember, the cuts that are being proposed now - many of which still have to take place - will be far more severe.
It strikes me that someone should recommend Osborne reads Kuhn's book in order that he appreciates that sometimes the really brave thing to do is to think radically.
One thing that he might actively consider is the formation of a British Investment Bank that would provide finance to the sort of small businesses that would assist in the creation of jobs in industries such as manufacturing; as happens in Germany.
Business Secretary Vince Cable has suggested that RBS could be used to achieve growth in a way that the coalition's economic policies are not achieving.
Perhaps it is worth reconsidering my experience of what I thought was the over-use of the word paradigm at the quality management conference in California in the early 1990s.
The makers of cars and electronic products had become aware that customers were deserting them and were willing to buy alternatives manufactured in Japan where standards of production were far superior to that being achieved in the West.
Those in industry recognised that traditional methods of production were no longer sufficient to compete. As a consequence there was need for radical alteration both production techniques and the way in which employees were incorporated into processes.
As the argument went, unless manufacturers were willing to adopt the new paradigm, and get better, they would get beaten.
Kuhn's belief that times of revolution cause radical shifts in thinking was proved to be correct.
Like the period of apparent crisis in the 1980s faced by manufacturers of cars and electronics, we urgently need to adopt radical and innovative solutions and these need to be supported by a new economic paradigm.
For everyone's sake, we should demand adventurous economic thinking by both politicians and those who influence the thoughts of future generations; academics.