Management and the Next Crash

The Chancellor of the Exchequer is generally pictured as commander of the economy, driving it through a dangerous jungle at the edge of Armageddon, threatened by mortal danger on all sides. Whether he is conceived of as a hugely intelligent and skilful driver, or an ill-informed purveyor of omnishambolic damage, is a matter of political belief. The fundamental error is in the estimation of his power to drive the economy. At most it extends to steering round relatively gentle corners and having some influence over speed. The effectiveness of these limited powers depends on the ability to see dangers far ahead and to make adjustments accordingly. The currently dominant economic ideology is a particular handicap to achieving such foresight. As Chicago Nobel laureate Professor Robert Lucas told the Queen, the best economic theory can do is predict that such events as the 2007-8 crash are unpredictable.

Lots of lessons have been relearned since Lehman??s bust, yet few substantive changes have been made. So it is predictable, and widely predicted, that there will in due course be another, most probably bigger crash than 2007-8. And after that, if no preventive actions are taken, there will be another. And another. Till the changes are made.
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Saving the Friedman Legacy

Just when all the financial excitement was beginning, Paul Krugman wrote an article for the New York Review of Books entitled ‘Who was Milton Friedman?’ Was he the economists’ economist, profound theorist, universally admired by professional economists? Or was he the simplistic ideologue, populariser and propagandist of monetarism and the free market doctrine, whose ideas proved unworkable in practice and whose intellectual honesty was at least questionable? Krugman’s answer was that Friedman was both of these.

The problem with this dichotomy was that Friedman, the simplistic populariser, gained huge credibility from Friedman, the profound theorist. And his intellectual dishonesty was evident in his populist exploitation of that credibility. For example, on 1st September, 1976, Friedman, addressed the Institute of Economic Affairs in London. The title of his talk was ‘The Road to Economic Freedom: The Steps from Here to There’. His prescription for Britain was the ’shock treatment’ of low flat rate taxes and wholesale privatisation, both of which a few years later the Thatcher government implemented.

His justification for privatising the provision of education and healthcare was simplistic in the extreme:

‘There is a sort of empirical generalisation that it costs the state twice as much to do anything as it costs private enterprise, whatever it is.’

Friedman didn’t actually have any data to support this contention, but added that,

‘My son once called my attention to this generalisation, and it is amazing how accurate it is.’

His argument for flat rate taxation was similarly limited.
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The Rise and Fall of Management: a brief history of practice, theory and context

Gordon Pearson 2009, Gower Applied Business Research, Paperback edition 2012 ISBN 978 1 4094 4829 7

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The Rise and Fall of Management examines the history of the practice of management, the accrual of knowledge and understanding, and the development of management theory. It examines the fall from those professional heights largely as a result of the almost universal adoption of inadequate theory. Also examines various means of management’s possible renewal. Insight into today??s economic and financial problems comes from an understanding of how and why the practice and teaching of management has developed as it has, under the malign influence of neoclassical economics.

From the early days of management as an autonomous discipline, the text examines how and why managers have struggled to achieve a tolerable balance of dissatisfactions among the various stakeholders with whom they interact. Gordon Pearson, who has spent equal parts of his long career as a practising manager and a management educator, clarifies through rigorous historical review the difficult issues around management with which we struggle today, such as why management custom and practice so often lead to contravention of the law.

This is a broad, practically informed, critical view of the subject that will be welcomed by any reader with a professional or academic interest in practice, theory, and context.


Simon Caulkin, former Management Editor of The Observer: ??Gordon Pearson??s new book fills an important gap. In the course of a careful and absorbing institutional history, he demolishes some of management??s pervasive and damaging myths. To reshape management for the future, we need to know how it developed and why. This is the place to start.??

John Hassard, Professor of Organizational Analysis, Manchester Business School ??This is an extremely insightful and challenging contribution to our understanding of management theory and practice. It offers a powerful and significant critique of the evolution of organizational life ? one that is particularly suited to the times.

Mihaela Kelemen, Professor of Management Studies, Keele University: a lively and provocative book that will make the reader question and rethink the ethos and morality of free market capitalism.

Martin Parker, Professor of Organisation and Culture, Warwick Business School: In this very readable book, Gordon Pearson reflects on his extensive practical and academic experience to explain what the problem is, and what can be done about it. This is a really provocative read for anyone who wants to understand what has gone wrong in the Business School, and the boardroom.??

E-Manager Book Review by Mike Turner, FInstAM: This book offers something that so many management texts fail to deliver – readability. With a succinct and easy to follow style, the author has produced a work, which is genuinely interesting to read. If you want to discover how management has developed over time, against a background of well-explained economic theory, this text is a must. Similarly, if you struggle to remember the key concepts upon which economic theory is built, and their relevance to business practice, this is a book well worth reading.

Management is discussed as an evolving process in the context of social and political developments. The result is an excellent mix of history and management practice.

Throughout the book, the author keeps in focus the practicalities of implementation. Stressing ??implementation?? as the key to successful management keeps the book firmly based on day-to-day needs.

I particularly liked the epilogue introduced as ??a broad account of past progress and mistakes??. But building on this, the author introduces realistic suggestions for future approaches that managers could adopt.

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Food Insecurity: Another Big Bubble

Neoclassical free market orthodoxy, by which the world is still ruled, makes no distinction between real and speculative markets. Both are granted maximum freedom to grow. Speculative markets started as a strand within the financial sector which itself was brought into existence to support investment in the first industrialisation. But while the size of real markets is limited by the ‘appetite’ of potential customers, speculative markets have no such limit. Their growth has been phenomenal; the market for derivative securities has already been estimated as close to the GDP of the planet and many times the value of the world’s stocks and shares. But that is only the start.

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The Ignorance of Economics

Despite their much vaunted economic expertise, the leading national and global institutions failed to prevent the financial and economic crisis they’re now arguing over how to clear up. The IMF’s Independent Evaluation Office (IEO) reported last month on why the IMF, as one such institution, failed to identify the risks and give clear warnings. The prime causes of that failure were identified as ‘analytical weaknesses’, which were actually shared by all relevant institutions. These analytical weaknesses included a tendency, among IMF economists, to be dominated by neoclassical free market dogma, and so to believe ‘market discipline and self-regulation’ would be sufficient to avoid financial disaster, and to trust the new mathematically based techniques for spreading financial risk, and to conflate the financial and industrial sectors, thus ignoring the influence of finance over the real economy. ‘Perhaps the more worrisome was the overreliance by many economists on models as the only valid tool to analyze economic circumstances that are too complex for modelling.’ (Paragraph 46).

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