Small Is Beautiful: A Study of Economics as if People Mattered (28 page)

Crude methods of forecasting - after the current picture has been corrected for abnormalities - are not likely to lead into the errors of spurious verisimilitude and spurious detailing - the two greatest vices of the statistician. Once you have a formula and an electronic computer, there is an awful temptation to squeeze the lemon until it is dry and to present a picture of the future which through its very precision and verisimilitude carries conviction. Yet a man who uses an imaginary map, thinking it a true one, is likely to be worse o~ than someone with no map at all; for he will fail to inquire wherever he can, to observe every detail on his way, and to search continuously with all his senses and all his intelligence for indications of where he should go.

The person who makes the forecasts may still have a precise appreciation of the assumptions on which they are based. But the person who uses the forecasts may have no idea at all that the whole edifice, as is often the case, stands and falls with one single, unverifiable assumption. He is impressed by the thoroughness of the job done, by the fact that everything seems to 'add up', and so forth. If the forecasts were presented quite artlessly, as it were, on the back of an envelope, he would have a much better chance of appreciating their tenuous character and the fact that, forecasts or no forecasts, someone has to take an entrepreneurial decision about the unknown future.

Planning

I have already insisted that a plan is something essentially different from a forecast. It is a statement of intention, of what the planners - or their masters

- intend to do. Planning (as I suggest the term should be used) is inseparable from power. It is natural and indeed desirable that everybody wielding any kind of power should have some sort of a plan, that is to say, that he should use power deliberately and consciously, looking some distance ahead in time. In doing so he must consider what other people are likely to do: in other words, he cannot plan sensibly without doing a certain amount of forecasting. This is quite straightforward as long as that which has to be forecast is, in fact, 'forecastable', if it relates either to matters into which human freedom does not enter, or to the routine actions of a very large number of individuals, or to the established plans of other people wielding power. Unfortunately, the matters to be forecast very often belong to none of these categories but are dependent on the individual decisions of single persons or small groups of persons. In such cases forecasts are little more than 'inspired guesses', and no degree of improvement in forecasting technique can help. Of course, some people may turn out to make better guesses than others, but this will not be due to their possessing a better forecasting technique or better mechanical equipment to help them in their computations.

What, then, could be the meaning of a 'national plan' in a free I society? It cannot mean the concentration of all power at one point, because that would imply the end of freedom: genuine planning is co-extensive with power. It seems to me that the only intelligible meaning of the words 'a national plan'

in a free society would be the fullest possible statement of intentions by all people wielding substantial economic power, such statements being collected and collated by some central agency. The very inconsistencies of such a composite 'plan' might give valuable pointers, Long-term Forecasts and Feasibility Studies

Let us now turn to long-term forecasting. by which I mean producing estimates dive or more years ahead. It must be clear that, change being a function of time, the longer-term future is even less predictable than the short-term. In fact, all long-term forecasting is somewhat presumptuous and absurd, unless it is of so general a kind that it merely states the obvious. All the same, there is often a practical necessity for 'taking a view' on the future, as decisions have to be taken and long-term commitments entered. Is there nothing that could help?

Here I should like to emphasise again the distinction between forecasts on the one hand and 'exploratory calculations' or 'feasibility studies' on the other. In the one case I assert that this or that will be the position in, say, twenty years' time. In the other case I merely explore the long-term effect of certain assumed tendencies. It is unfortunately true that in macro-economics feasibility studies are very rarely carried beyond the most rudimentary beginnings. People are content to rely on general forecasts which are rarely worth the paper they are written on.

It may be helpful if I give a few examples. It is very topical these days to talk about the development of underdeveloped countries and countless

'plans' (so-called) are being produced to this end. If we go by the expectations that are being aroused all over the world, it appears to be assumed that within a few decades most people the world over are going to be able to live more or less as the western Europeans are living today. Now, it seems to me, it would be very instructive if someone undertook to make a proper, detailed feasibility study of this project. He might choose the year 2000 as the terminal date and work backwards from there. What would be the required output of foodstuffs, fuels, metals, textile fibres, and so forth?

What would be the stock of industrial capital? Naturally, he would have to introduce many new assumptions as he went along. Each assumption could then become the object of a further feasibility study. He might then find that he could not solve his equations unless he introduced assumptions which transcended all bounds of reasonable probability. This might prove highly instructive. It might conceivably lead to the conclusion that, while most certainly there ought to be substantial economic development throughout the countries where great masses of people live in abject misery, there are certain choices between alternative patterns of development that could be made, and that some types of development would appear more feasible than others.

Long-term thinking, supported by conscientious feasibility studies, would seem to be particularly desirable with regard to all non-renewable raw materials of limited availability, that is to say, mainly fossil fuels and metals.

At present, for instance, there is a replacement of coal or oil. Some people seem to assume that coal is on the way out. A careful feasibility study, making use of all available evidence of coal, oil, and natural gas reserves, proved as well as merely assumed to exist, would be exceedingly instructive.

On the subject of population increase and food supplies, we have had the nearest thing to feasibility studies so far, coming mainly from United Nations organisations. They might be carried much further, giving not only the totals of food production to be attained by 1980 or 2000, but also showing in much greater detail than has so far been done the timetable of specific steps that would have to be taken in the near future if these totals are to be attained.

In all this, the most essential need is a purely intellectual one: a clear appreciation of the difference between a forecast and a feasibility study. It is surely a sign of statistical illiteracy to confuse the two. A long-term forecast, as L said, is presumptuous; but a long- term feasibility study is a piece of humble and unpretentious work which we shall neglect at our peril.

Again the question arises whether this work could be facilitated by more mechanical aids such as electronic computers. Personally, I am inclined to doubt it. It seems to me that the endless multiplication of mechanical aids in fields which require judgment more than anything else is one of the chief dynamic forces behind Parkinson's Law. Of course, an electronic computer can work out a vast number of permutations, employing varying assumptions, within a few seconds or minutes, while it might take the non-electronic brain as many months to do the same job. But the point is that the non-electronic brain need never attempt to do that job, By the power of judgment it can concentrate on a few decisive parameters which are quite sufficient to outline the ranges of reasonable probability. Some people imagine that it would be possible and helpful to set up a machine for long-range forecasting into which current 'news' could be fed continuously and which, in response, would produce continual revisions of some long-term forecasts. No doubt, this would be possible; but would it be helpful! Each item of 'news· has to be judged for its long-term relevance, and a sound judgment is generally not possible immediately. Nor can I see any value in the continual revision of long-term forecasts, as a matter of mechanical routine. A forecast is required only when a long-term decision has to be taken or reviewed, which is a comparatively rare event even in the largest of businesses, and then it is worth while deliberately and conscientiously to assemble the best evidence, to judge each item in the light of accumulated experience, and finally to come to a view which appears reasonable to the best brains available. It is a matter of self-deception that this laborious and uncertain process could be short-circuited by a piece of mechanical apparatus.

When it comes to feasibility studies, as distinct from forecasts, it may occasionally seem useful to have apparatus which can quickly test the effect of variations in one's assumptions. But I have yet to be convinced that a slide rule and a set of compound interest tables are not quite sufficient for the purpose.

Unpredictability and Freedom

If I hold a rather negative opinion about the usefulness of 'automation' in matters of economic forecasting and the like, I do not underestimate the value of electronic computers and similar apparatus for other tasks, like solving mathematical problems or programming production runs. These latter tasks belong to the exact sciences or their applications. Their subject matter is non- human, or perhaps I should say, sub-human. Their very exactitude is a sign of the absence of human freedom, the absence of choice, responsibility and dignity. As soon as human freedom enters, we are in an entirely different world where there is great danger in any proliferation of mechanical devices. The tendencies which attempt to obliterate the distinction should be resisted with the utmost determination. Great damage to human dignity has resulted from the misguided attempt of the social sciences to adopt and imitate the methods of the natural sciences.

Economics, and even more so applied economics, is not an exact science: it is in fact, or ought to be, something much greater: a branch of wisdom. Mr Colin Clark once claimed 'that long-period world economic equilibrium develop themselves in their own peculiar manner, entirely independently of political and social changes;

On the strength of this metaphysical heresy he wrote a book, in 1941, entitled The
Economics’ of 1960.'
It would be unjust to say that the picture he drew bears no resemblance to what actually came to pass; there is, indeed, the kind of resemblance which simply stems from the fact that man uses his freedom within an unchanged setting of physical laws of nature. But the lesson from Mr Clark's book is that his metaphysical assumption is untrue; that, in fact, world economic equilibria, even in the longer run. are highly dependent on political and social changes; and that the sophisticated and ingenious methods of forecasting employed by Mr Clark merely served to produce a work of spurious verisimilitude.

Conclusion

I thus come to the cheerful conclusion that life, including economic life, is still worth living because it is sufficiently unpredictable to be interesting.

Neither the economist nor the statistician will get it 'taped'. Within the limits of the physical laws of nature, we are still masters of our individual and collective destiny, for good or ill.

But the know-how of the economist, the statistician, the natural scientist and engineer, and even of the genuine philosopher can help to clarify the limits within which our destiny is confined. The future cannot be forecast, but it can be explored. Feasibility studies can show us where we appear to be going, and this is more important today than ever before, since 'growth' has become a keynote of economics all over the world.

In his urgent attempt to obtain reliable knowledge about his essentially indeterminate future, the modern man of action may surround himself by ever-growing armies of forecasters, by ever-growing mountains of factual data to be digested by ever more wonderful mechanical contrivances: I fear that the result is little more than a huge game of make-believe and an ever more marvellous vindication of Parkinson's Law. The best decisions will still be based on the judgments of mature non-electronic brains possessed by men who have looked steadily and calmly at the situation and seen it whole.

'Stop, look, and listen' is a better motto than 'Look it up in the forecasts'.

Sixteen

Towards a Theory of Large-Scale Organisation

Almost every day we hear of mergers and takeovers: Britain enters the European Economic Community to open up larger markets to be served by even larger organisations. In the socialist countries, nationalisation has produced vast combines to rival or surpass anything that has emerged in the capitalist countries. The great majority of economists and business efficiency experts sup- ports this trend towards vastness.

In contrast, most of the sociologists and psychologists insistently warn us of its inherent dangers - dangers to the integrity of the individual when he feels as nothing more than a small cog in a vast machine and when the human relationships of his daily working life become increasingly dehumanised; dangers also to efficiency and productivity, stemming from ever-growing Parkinsonian bureaucracies.

Modern literature, at the same time, paints frightening pictures of a brave new world sharply divided between us and them, torn by mutual suspicion, with a hatred of authority from below and a contempt of people from above.

The masses react to their rulers in a spirit of sullen irresponsibility, while the rulers vainly try to keep things moving by precise organisation and co-ordination, fiscal inducements, incentives, endless exhortations and threats.

Undoubtedly this is all a problem of communications. But the only really effective communication is from man to man, face to face. Franz Kafka's nightmarish novel,
The Castle,
depicts the why. He tries to get his position clarified, because the people he devastating effects of remote control. Mr K, the land surveyor, has been hired by the authorities, but nobody quite knows how and meets all tell him: Unfortunately we have no need of a land surveyor. There would not be the least use for one here.'