Tuesday, 21 August 2007

Lessons for business!

 

Why Rorty's search for what works has lessons for business


19 June 2007 Financial Times
What mattered to Richard Rorty was not the search for what is true, but the search for what works. And that is what economists can learn from him. The test of a model, a way of thinking, or a theory, is not truth, but usefulness.
When a student of business and economics wants to ponder the conceptual foundations of these subjects, Richard Rorty, who died on June 8, is the modern philosopher I recommend. This suggestion would have surprised Rorty. He was the archetypal American liberal, with no time or regard for the world of business and finance. His most important work, published 30 years ago, was Philosophy and the Mirror of Nature, which debunked the notion that scientists could succeed in a search for the mirror of nature, the truth about "The Way the World Is".

Rorty was not a relativist who believed that all opinions were equally valid. He called the leftwing postmodernists of American humanities departments, who parroted phrases from the continental European philosophers he admired, creeps. Rorty was a modern representative of the American pragmatic tradition, associated with John Dewey and William James. By claiming that philosophical distinctions mattered only if they made a difference to practice, Rorty distanced himself from recent analytic philosophy. What mattered to him was not the search for what is true, but the search for what works. The test of a model, a way of thinking or a theory is not truth but usefulness.

Many of Rorty's philosophical critics claimed he was attacking a straw man, arguing that no one really believes they know, or might know "The Way the World Is". But I have met people who believe they know "The Way the World Is", in executive suites, on trading floors and in investment banks. I know consultants who are employed to report on "The Way the World Is". To be sure, there is an element of pragmatism in their approach. What better demonstration of their insight into "The Way the World Is" than their exalted positions and extravagant bonuses?

The academic search for truth, for scientific rather than commercial knowledge of "The Way the World Is", has different motives. The modern economist is driven by physics-envy. Physicists have the best claim to hold a mirror to nature: their models have proved so useful that no one would think about heat, pressure or motion in any other way. Many people claim this is because these theories are true.

The pragmatic Rorty argued that to say the theories are true adds nothing to the observation that the models are useful. This claim, applied to hard science, is a subject of continuing disagreement. But Rorty's perspective is surely right for complex and fluid situations whose outcome depends on human interaction. The soldier's war stories give insight into "The Way the World Is", but in a very different way from the models of quantum physics. No individual soldier – no general – ever sees the whole picture; no one can ever, in this sense, hold a mirror to nature. The best accounts will eventually come from the military historian or the novelist who pieces together – and manufactures – a narrative from fragments of information and experience. There can be many such accounts, some better than others, none representing a unique correspondence with the truth.

And so it is with business and finance. I have often given an account of an event in business history and been confronted by a participant who offers an account of "The Way It Was". But all he offers is an account of the way it was for him. Even an aggregation of such accounts can provide only a partial and controversial description of the whole. Economists often assert that economic theory says this or predicts that. But economic theory will never hold a mirror to nature. Good economic arguments are specific to their context. There are no universal economic laws, only trends and tendencies.

Yet business journalists continue to believe that chief executives can tell them "The Way the World Is" at their companies. Professional modellers imagine that by adding ever more realism and complexity to their black boxes, they come closer to describing "The Way the World Is". Visionary leaders imagine they can reconstruct industries through rationalist knowledge of "The Way the World Is".

Rorty's pragmatism can save us from these errors. His philosophy meets his own test: an understanding of it should change how we behave.




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