How “Obliquity” – Pursuing Goals in a Roundabout Way – is Better for Business and for an Innovative Economy
Good economics is often seen as maximizing efforts in specific directions. John Kay, Visiting Professor at the London School of Economics and Financial Times columnist, makes the paradoxical case in this INET interview that the meandering route often proves to be best – particularly when applied to innovation. He argues that the most profitable companies are not ones that focus primarily on profit maximization and the happiest people are not those focused on pursuing happiness.
Kay gives the example of the transition of the British chemical industry into a pharmaceutical industry after World War II. One chemical company pursued research for 20 years before getting a breakthrough drug, but then that drug became far more profitable than the chemical business. Kay likens business to NASA missions: the most favorable path to observe Mercury is roundabout, not straight. He uses the term obliquity for this route to success in the title of his new book: “Obliquity: Why our Goals are Best Achieved Indirectly.”
Kay also points out that, just as in the Brecht play “Galileo,” when defenders of the earth-centered universe in the Church refused to look through Galileo’s telescope, many economists today continue to cling to models with “rational expectations” and not look at the evidence that clearly undermines those models.
He also talks about the difference between solar systems and social systems. The positions of the planets in the solar system can be predicted a thousand years in advance, and they do not change through human interaction. Predicting the motions of the economy, however, is more elusive. This calls for an inductive method of inquiry, Kay argues. Only by observation and experience will the researcher learn to choose the model that fits best to the particular situation at hand.
You can engage all these ideas and more by watching a full version of the interview on video or watch individual segments on each idea. We also invite you to give your own answers as comments below to our question:
John Kay talks about the benefits of pursuing goals indirectly. Do you find his argument convincing? In what environment do you think obliquity will succeed?
Comments
Indeed, transformations in emerging markets can tell us more than any dry textbooks by economists defunct or not. For example, current Arab Spring transformations would tremendously benefit from the juxtaposition (via a comparative knowledge management in a sort of social lab or think tank, etc) of the post-Soviet and Chinese models of development: what works in real-life and what does not!
Val Samonis, Toronto
how is this definition made functional? need to listen/read to his ideas before further comments but Qs. in certain areas obliquity could make for dispersion rather than concentration of effort and in particular technical innovations may require opposite of obliquity- technical innovations are growth hormones of the economy for long run sustained robust growth
I was lucky to study economy up to a master’s degree, from 1967 to 1972 in a small French university: Nice France.
There in the late 1960s and very early 1970s I had a professor who managed to induce academic authorities to accept "Economic Psychology" as a full-fledged university discipline. He developed his courses around the psychological aspects of various economic agents decision processes, already questioning the sacred agent economic rationality principle, dear to classical and newly re-born neo classical economists who started then in the mid-seventies, to put again up front pure market economy principles...
This professor explained that if there was rationality in economic agent’s decision processes, it was far more complex than a pure maximization of gains against a maximum reduction of costs. Complex psychological phenomenons were influencing economic agents decision making at all levels. From consumers to employees in various businesses up to all management levels, all of their decisions were influenced by more complex rationality processes than simple economic rationality.
This professor also developed a course on the "Firm strategy" that included much wider vision of the firm decision making processes.
Note that during that period several economists were also working in that domain: Vance Packard famous "Hidden persuaders" and "The waste makers" expended on other rationality processes than basic profit maximization and were showing the limits of such strategies. I think it is worth reading or reading again authors like Herbert Simon, Katz and Lazarfed, Frank Knight on uncertainty and profit, James March on organizations.
My second luck was to be able to test all these teachings through a long career as a market analyst and product forecaster with IBM. I could observe how much human relations were influencing decision making inside the firm. Later on, activities in the NGO environment at the European level lead me to other observations about not for profit organizations and their role in economic and law making processes, through complex interactions between grassroots members, NGO governing bodies and European governance authorities.
All these experiences confirmed the content of John Kay’s paper, very often short term profit maximization processes lead to disastrous consequences I’ve seen that In IBM as well as in NGOs. Actually the IBM success in its early phases came from entrepreneurs who had the talent to motivate people towards excellence and also the capability to make bets on the future… When the famous IBM 360 series was launched many a business specialist were very doubtful of its success… Yet it was the series which made IBM’s success throughout the seventies and even the mid-eighties with the IBM 370 series…
Paul Trehin (paul.trehin@orange.fr)
Now retired but still active (I hate when retired people are called “inactive”…)
Interesting, and sounds very pertinent. Assuming rationality from humans is bizarre, when we have ample evidence to the contrary.
One wonders what economics would be if irrationality, unpredictability, and instability of dynamic trajectories of the system were assumed to be basic. I think looking at many of the underlying assumptions behind many 'models' of economics would reveal many were not only unrealistic but verging on useless, even if mathematically very ornate and baroque.
It always seems that economics might have some potential until the all too frequent bubbles burst all the orthodoxy about 'free' markets and the like.
Wish you well in all your endeavours, and hope you discover some basic principles soon.
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