I am about to do something rash, which is to disagree with Lucy Kellaway. Last week, the fearless observer of business follies went too far: she called for PowerPoint to be banned.

The prosecution’s argument is simple: many PowerPoint presentations are very bad. This is true but it hardly makes the case for a ban. Serviceable tools can produce awful results in the wrong hands, as anyone who has seen me put up shelves can attest. Banning the screwdriver is not the answer.

So it is with PowerPoint. It’s an unromantic, practical piece of kit. It is often used poorly. It is not the most elegant tool, but botched jobs must be blamed on the workman. Many of the bad presentations people deliver with the help of PowerPoint would have been bad presentations in any case. Would it have been better to hear the impromptu ramblings of a nervous speaker in total cognitive meltdown? Or to watch a piece of professionally produced but irrelevant film, in the dark? Many readers will remember corporate life before PowerPoint. It was no lost Eden.

PowerPoint is not the world’s most wonderful piece of software. The built-in templates have long been ugly, the clip-art tacky and the animations risible. As if determined to deliver on the name, it inserts bullet points into text with little provocation. It is harder than it should be simply to make all the letters line up. (I am still using PowerPoint 2003. By all means dismiss this column as the ranting of a corporate shill.)

Yet for all its flaws, PowerPoint performs two useful tasks well enough. It quickly allows one to compose speaking notes and to create slides showing images and graphs. The trouble starts when people confuse the two jobs.

There is nothing wrong with jotting down speaking notes as a memory aid. PowerPoint is as good a way of doing this as any, especially if you have handwriting like mine. For the vast majority of speakers, such speaking notes are preferable to the alternatives, including memorising, ad-libbing on the spot or writing the whole speech out and reading it in a wooden monotone.

The problem is that for some baffling reason, many speakers decide to project their speaking notes on to a wall rather than printing them out, postcard size, and sticking them on to 3×5 inch cards. I often sketch out my speeches with the help of PowerPoint. I just prefer to keep the slides to myself.

The second use of PowerPoint is to project visual aids on to a screen. This it does perfectly well – and the clichéd clip-art of yesteryear is now almost extinct. These days people “borrow” cartoons from Dilbert, or grab photos from the web. The effect is often pleasing enough.

It would be better if people learnt a bit about fonts, and better still if they learnt that by pressing “B” they could temporarily blank the screen. But one cannot have everything.

Lucy approvingly mentions a famous condemnation of PowerPoint by the brilliant information designer Edward Tufte. Professor Tufte attacks PowerPoint partly for its “relentless sequentiality, one damn slide after another” and partly for the asymmetric relationship between speaker and “followers”.

This is odd because Tufte does not acknowledge that he is really assaulting the idea of public speaking itself. What could be more relentlessly sequential than a speech? One damn word in front of another. If you hate the very idea of a speech, fine. But say so.

It would take little to improve greatly the quality of most people’s PowerPoint presentations – far less than it would take to improve the quality of corporate Newspeak. So why call for a ban?

The true problem is far more troubling. It is that in a corporate environment, we are asked to read prose by people who cannot write and watch performances given by people with neither the talent nor the training to perform. For some reason these amateurs are better paid than most writers and performers. There is something depressing about all this, but the blame cannot be pinned on PowerPoint.

I cannot finish without confronting the greatest sin in my version of PowerPoint: the “AutoContent” function, which sketches out a speech if you cannot do it yourself. AutoContent, The New Yorker once reported, was named as a joke, in “outright mockery of its target customers”. The very idea of the function is pernicious indeed but the real horror is that it was created to satisfy a demand.

Fortunately, that demand may have worked itself out, too: AutoContent was discontinued in 2007.

First published in the Financial Times, 25 July 2011

Can failure really be a spur to success? By Tim Harford and Emma Jacobs
First published in FT Magazine 4 June 2011

One June evening in the summer of 2002, the Shubert Theatre in Chicago played host to a new ballet/musical, Movin’ Out. The show was an unlikely collaboration between Twyla Tharp, a dynamic and challenging choreographer, and the songwriter Billy Joel. It was scheduled to open on Broadway that October, but the critics hated it, offering reviews varying from “stupefyingly clichéd and almost embarrassingly naive” to “pile-driving and ill-conceived”.
So enthusiastic was the criticism that the New York paper Newsday broke with tradition to reprint one of the choicer reviews, well in advance of the Broadway opening. It was left to Twyla Tharp, who had dreamed up the project and directed and choreographed it, to somehow fix the multi-million-dollar mess.
Tharp’s experience, as related in her book The Creative Habit, exemplifies the textbook response to failure: she took the criticism on board, made the necessary changes to her show, and opened on Broadway to glowing reviews. The show won two Tony awards, one for Tharp’s choreography.
The story of Movin’ Out is striking not just because it offers an inspiring narrative of adversity and triumph, but because this sort of transformation is unusual. The idea that one should bounce back from failures is an old one. King Robert the Bruce’s eventually successful war against the English is said to have been inspired by a persistent spider spinning a web in the cave where he was hiding. This was eight centuries ago, yet suddenly the idea seems fashionable – perhaps because there is a lot of failure to go round these days.
In the abstract, learning from your mistakes is an easy and uncontroversial idea. In practice, the whole, facile concept is shot through with difficulty. Who is to say that a mistake has been made? Are the lessons to be learnt really so obvious?
We approached public figures – entrepreneurs, artists, politicians and, of course, bankers – associated with spectacular setbacks of one form or another, asking them to explain what effect the failure had had on them. There were few takers, and one of the refusals – from the former chief executive of a failed bank – was particularly colourful. It seems that these redemptive stories of “learning from mistakes” are less inspiring from the wrong end of the steamroller.
. . .
Put yourself in the shoes of Gerald Ratner. Two ill-judged jokes about his jewellery empire, and it had gone. Ratner says he learnt nothing from this. At first that seems outrageous – but on reflection it is hard to see what he might have been expected to learn, beyond the narrow fact that he shouldn’t sneer about his own products in public. His later, more modest, success with a chain of health clubs didn’t reflect the lessons he had learnt but his proven gifts as an entrepreneur, and they had been there all along.
Twyla Tharp learnt more from her failure in part because she was operating in an environment designed to allow that learning process. The out-of-town tryout is a well-established theatrical institution, and there is an honourable history of rewrites in musicals. (A Funny Thing Happened on the Way to the Forum was first staged, unsuccessfully, without its opening number, “Comedy Tonight”.) Tharp masterminded a more profound and successful transformation of her work than is usual, but this is a difference in degree rather than a difference in kind.
Prototypes – the pre-Broadway run; the focus group; the beta release – are an essential business tool. But they would not have saved Gerald Ratner’s empire, and there are many situations in which prototyping simply cannot help. What exactly is the right way to test a safety system in a nuclear power station, for example? Or, for that matter, a credit default swap on a package of subprime loans? (In fact, nuclear power stations make extensive use of simulators to train their operators – a good idea, but only as good as the simulator itself.)
An important principle of safety engineering, now making its way into banking regulation, is to decouple a complex system so that small parts can fail without destroying the whole. This is wise but it is not always easy. If the mistake is catastrophic enough, learning lessons will be futile.
Ernst Malmsten, the co-founder of Boo.com, a notorious dotcom flop, has reached the conclusion that sometimes it’s not what you do but whether you do it gradually or at a gallop. Boo.com was a fashion retailer, but the manner of its collapse foreshadowed the likes of Northern Rock: the proximate cause of its implosion was the sudden refusal of lenders to back its aggressive business model. There was no off-Broadway tryout here: Boo launched on a grand scale with an expensive 3D website that was way ahead of what surfers on dial-up lines were ready to view. Modest errors in the design of the site were magnified by the ambitious scale of the launch. Malmsten says he has learnt to take things slowly.
The interviewees on this page had one thing in common: their woes became impossible to ignore. Ernst Malmsten watched financiers suddenly pull the plug; Ratner’s gaffe was hurled back at him by the newspapers; Lucy Prebble got to read the obituary of her play in The New York Times, “factitious, all show (or show and tell) and little substance” and the show folded shortly afterwards. Twyla Tharp, too, could hardly deny the message of the critics.
Of course, a person who vehemently denies that he failed is hardly likely to agree to a newspaper interview on the subject of that failure. There are exceptions: witness Donald Rumsfeld’s “Lunch with the FT”, in which he briskly justifies the botched invasion of Iraq, dismisses the missing weapons of mass destruction as bygones, and waves away criticism of his management style (“I don’t give it a lot of credence”).
Rumsfeld is a fascinating character in the study of failure. His refusal to listen to warnings from his own generals – well documented in histories of the Iraq war such as The Gamble and The Fourth Star – is striking. In one infamous press conference, near the height of the insurgency in Iraq, he took the Orwellian step of forbidding his most senior general, Peter Pace, to use the word “insurgent”.
. . .
Yet Rumsfeld’s powers of denial are not terribly unusual. The social psychologists Carol Tavris and Elliot Aronson, authors of Mistakes Were Made (but Not by Me), explain that we are easily sucked into a cycle of self-justification. Once a detective has made up his mind about a guilty man, or a chief executive has set out a bold new strategic direction, contrary evidence is highly discomfiting and will often be rejected out of hand. This “cognitive dissonance” can be extremely powerful, and some of the resulting miscarriages of justice described by Tavris and Aronson beggar belief. When DNA testing was introduced, several prosecutors were confronted with evidence that the semen found on the body of, say, a murdered rape victim did not match the DNA of the man they’d put behind bars. In some cases prosecutors went through extraordinary contortions to explain how this state of affairs might have arisen – rather than accept the painful but overwhelmingly likely conclusion that they had made a mistake.
Tavris and Aronson also reinterpret Stanley Milgram’s notorious “obedience” experiment, in which Milgram’s subjects often showed themselves willing to administer apparently fatal electric shocks. The experiment is usually interpreted as showing that some people will do anything if an authority figure tells them to do so. But there is something else going on: the shocks were very gradually increased in intensity from trivial to dangerous. There was no obvious point at which an experimental subject would find a reason to refuse to continue, because each new shock was similar to the previous one. Tavris and Aronson point out that the moment of quitting is also the moment of recognising that the previous shock had been a mistake. It is very hard to admit such an error to ourselves – we would rather repeat it, in an act of self-justification.
The everyday rituals of life are carefully designed to ensure that people experience the painful sensation of failure as rarely as possible. Think of that trustworthy tactic of office life, the “praise sandwich”. The praise sandwich is a criticism made palatable because it is concealed between two scrumptious slices of praise: “I think this is really good, creative work. It would be wonderful if you could [insert important feedback here]. But overall, as I say, it’s really very good.”
The praise sandwich works because of what the behavioural economist Richard Thaler calls “hedonic editing”. Because losses are far more painful than gains, it’s worth bundling losses together with larger gains – if I receive a tax refund of £150 but lose £10 in the street, hedonic editing is the process of rolling the two together for a net £140 gain. The praise sandwich deploys the same principle: it allows people to save face. Yet as a feedback technique it is risky: the sandwiched-between praise may be lost in the whole. You say, “It’s excellent, but you need to fix …”. I hear “It is broadly excellent”. I feel better, but I will not become better. This will not do, but what is the solution?
There are some people who seem to have an unblinking ability to analyse their mistakes and learn from them. Most of us are not in that category, however. General David Petraeus, celebrated for his achievements in Iraq, was notorious as a young officer for being unable to admit that he was ever wrong: it was the dark side of a brilliant, indefatigable perfectionism. But in 1981, one of the young Petraeus’s first commanders, Major General Jack Galvin, installed Petraeus in the role of official critic. “It’s my job to run the division, and it’s your job to critique me,” insisted Galvin over Petraeus’s protestations. Galvin well understood that not only can we not afford to ignore criticism, we must often go out of our way to solicit it.
Gerald Ratner’s experience is revealing here. Before he gave his fateful speech to the Institute of Directors, he consulted the public relations expert Lynne Franks and explained that he was going to go with the self-deprecating jokes that he was using with some success on the after-dinner circuit, including the “total crap” line. Franks told him to give a speech about ethical business instead. He ignored her. He also ignored his wife’s advice and even that of the woman operating the autocue.
A textbook example of dismissing good advice? Unfortunately it’s not so clear-cut. Ratner asked his company accountant, a trusted associate, who told him to put in riskier jokes. Ratner recalls that his friend Michael Green, of Carlton Communications, thought the speech was fine. So did Charles Saatchi. (All the female critics were correct; all the men were wrong. It is not clear whether this is a pattern that we can rely upon. Perhaps.) In short, you can get good advice, but you still have to decide whose advice to take.
Failure isn’t going away. The economist Paul Ormerod points out (in a book called Why Most Things Fail, of course) that more than 10 per cent of American companies disappear each year. Failure is ubiquitous, which suggests that managing failure is an important skill. We are probably not very good at it. One of the earliest findings in the now red-hot field of behavioural economics was the existence of “loss aversion” – that is, we seem to care more about losing what we have than we care about gaining something new. More recent research into stock market trading, professional poker and even the daytime television sensation Deal or No Deal suggests that we react poorly to the prospect of losses, taking unwise risks in an attempt to recoup what we should regard as gone.
When Ernst Malmsten says he never recognised that failure was possible, this is not how most people think. The typical person – at least in the laboratory games of psychologists and economists – is too conservative, too afraid of failure. Malmsten, however, is a serial entrepreneur; after losing $130m of investors’ money, he says, “I’m more afraid of failure now”. He should be.
Lucy Prebble is perhaps in the strangest position of our three survivors: she wrote one play and received two very different critical and commercial responses on opposite sides of the Atlantic. No wonder she feels “distanced” from the play’s British success. It’s a reminder that success and failure are sometimes separated by the smallest accidents.
And yet they will always feel very different. As motivational posters remind us, Rudyard Kipling urged us to “meet with triumph and disaster and treat those two impostors just the same”. It’s an unlikely thought. Some people can flourish in the wake of disaster; others merely drag themselves on to whatever comes next. But to treat triumph and disaster just the same? That sounds suspiciously like Donald Rumsfeld.
………………………………………….
Lucy Prebble
Writer of Enron – a West End hit and Broadway flop
At 28, playwright Lucy Prebble became the darling of British theatre critics for doing the unthinkable – making a drama out of accountancy. Her musical, Enron, which charted the rise and fall of the Texan energy company, became a sell-out in London in 2009-2010. Broadway beckoned, and in April 2010 the show opened at the Broadhurst in New York.
Then came the reviews – or rather, one in particular. Ben Brantley, theatre critic of The New York Times, who wields huge influence over Broadway, decried Enron as a “flashy … laboured economics lesson”. In May 2010, a month after opening, the final curtain came down.
Prebble had her suspicions that the play might receive a poor critical reception in America: “It had followed a long preview period in which we had a sense that something was wrong.” There were some “very good reviews”, she points out, just not in “the publication that mattered”. However, it was the picture in her mind of her family reading the criticism that made Prebble cry. “Knowing the anxiety and disappointment that they would be feeling on my behalf … I found that very upsetting.”
The criticism hurt “both more and less” than she had expected: “Less,” she says, “in that it’s a group endeavour, and you feel much more the innate kindness and decency in people when they support each other in failure.” But it hurt more because she felt bad for the cast and crew, who became unexpectedly unemployed. Prebble felt guilty, and also responsible – for making people look foolish.
She accepted some of the criticism: “There were a few things mentioned about the writing that I had always quietly thought, but much of it I didn’t recognise as being the show we had made; some of it felt like it was about something else.” She regards criticism and failure as slightly different animals. “Failure is easier to discuss and more interesting, because obstacle is interesting. Failure serves as a very powerful tool, narratively.” But as she points out, the actor who happily recounts the tale of onstage disaster generally does so from a position of having left such times behind. “We all like it best when someone fails but eventually succeeds.” She finds criticism harder to discuss, “because it’s specific and personal, and the spirit in which it’s given varies so wildly. As writers, we are by nature too sensitive, too inward-looking. I try to take what I can learn from critics and leave the rest.”
Did Prebble’s failure in America change how she viewed her success in the UK? “I felt more grateful for it and also, sadly, more distanced from it.” But her New York experience did not affect the way she saw her play: “There are bits of my writing I cringed at and bits I was proud of. I always thought the production was fantastic.” Unexpectedly, it helped her identify with Jeffrey Skilling, the former chief executive of Enron, who is serving a 24-year jail term for fraud. “Underlying some of the criticism was a notion that: how could this British girl claim to know anything of international enterprise, of greed, business, of America, of this man who lost the people around him millions of dollars and saw all his work crumble in a few weeks? And the effect of that criticism [was that] I learnt the truth of the story I had been trying to tell.”
………………………………………….
Gerald Ratner
After-dinner speaker and former jeweller
Gerald Ratner transformed his family’s struggling business into the biggest jeweller in the world, with 2,500 shops. Then, seven years after he took over Ratners, he killed it. With just two jokes. In a speech he made in 1991 to the Institute of Directors, the north Londoner quipped that one of his products was “total crap”, and boasted that some of Ratner’s earrings were “cheaper than a prawn sandwich”.
The speech was splashed across the tabloids and wiped an estimated £500m from the company’s market value. Ratner left the following year and his name was excised from the company in 1994. Two decades after one of the biggest corporate gaffes in history, “Doing a Ratner” is firmly in the vernacular.
As Ratner gave his speech, he had no idea of the impact it would make. “When I read about it in The Sun and The Mirror the next day, I realised it was a story,” he says, “but [thought] it would blow over. The first set of sales I got after the speech were 4 per cent down, but I was pretty confident that would reverse.” If only. In fact, the opposite happened. When Ratner realised the extent of the mess he “felt sick to the stomach”.
Today, Ratner maintains that “it was a stupid thing for me to say, but the reaction was completely over the top”. Context is all, he says – blaming the furore on the recession Britain was suffering at the time. “The press were looking for scapegoats, just as they are with bankers now. And there I was – as they saw it, a multimillionaire making jokes about his customers who were struggling with money.”
Ratner’s spectacular fall from grace triggered what he calls his “seven wilderness years”. Friends offered help, but “I was depressed,” he says. He hoped to reinvent himself, but “the elephant in the room” put people off: no one could think of his successes, just this one gaffe. A psychiatrist prescribed antidepressants, “which took away the heavy feeling but made me more withdrawn. I didn’t speak – I was silent in meetings.” He gave up the pills for cycling, and it was this that proved his salvation – it left him “euphoric”. Today, he cycles 25 miles every day.
It was only after he set up a chain of health clubs, which he sold for £3.9m in 2001, that Ratner felt able to tackle his demons and even joke about the collapse of his family business. He insists he learnt nothing from failure. “The opposite. I learnt from success – while I was successful, I learnt from new opportunities and challenges, I gained confidence. With failure, you lose your confidence.”
Nonetheless, he is grateful for a few things – cycling, and a new career in after-dinner speaking. “The speeches are therapeutic. It’s better to talk about the episode. People are generally sympathetic. I think they worry I’m going to be miserable but I cheer people up – it chimes with others, as it makes them think there’s light at the end of the tunnel.”
The failure also taught him to appreciate his new business, the jeweller Gerald Online. “I’m more grateful for my success the second time around.” Before, his attitude to money was “pathetic”, he says. “If the seat was too far back in first class, it wasn’t good enough.” He is a more patient person now, yet that is scant compensation. “People ask me if I’m glad I said what I said. They’re ridiculous. How could I be grateful? I lost everything.”
………………………………………….
Ernst Malmsten
Co-founder of Boo.com
In 2000, Ernst Malmsten made a desperate plea for money. “Unless we raise $20m by midnight, Boo.com is dead.” The Swedish co-founder of the European online fashion retailer failed to find the funds. The next day, on May 18 2000, less than a year after its launch, Boo.com collapsed. The site, once a posterchild for the dotcom boom, became a symbol of its excesses, burning $130m of investment.
“We weren’t in denial that it was collapsing,” Malmsten recalls, “that’s why we were raising funds. But when it collapsed it was a shock, like a sudden death.” He felt hollow. “I never felt relief that it was over. I know some people feel liberated [when their company folds]. I didn’t. I felt emptiness. I loved the business and was so proud of it. We thought we were unstoppable.” He does concede that this may have been proof of the board’s naivety.
Nonetheless, there was solace to be drawn from the fact that Boo.com’s demise was part of a worldwide phenomenon, the bursting of the dotcom bubble – for this meant that the failure did not feel so personal. And the publicity that the company’s demise attracted was a boon, says Malmsten. “Because we were so high-profile it was easier.
Our failure was very public, so friends and family knew to rally round us. If it had been private failure and we were isolated, we might not have got that much personal support.”
Malmsten credits his robustness to his upbringing. “I never felt there was an expectation on me to succeed,” he says. “Knowing that my family would always support me helped – I knew that there was always a place to go to make me feel safe.” Malmsten believes that this security protected him from depression, and says that “I think I coped well.” After the shock, he says, he analysed what went wrong and then “moved on”. While he does not accept all the criticism flung at him at the time
(“We could never have lived up to the hype”), he acknowledges that he can’t minimise the failure.
“At the end of the day, we were trying to build an empire and it fell apart.”
Malmsten had feared his high-profile business collapse would make people steer clear of him. In fact, he says, “It doesn’t put people off. They think it is fascinating that I was a young person at the centre of a business phenomenon.” He also claims that he has not been short of job offers. Today, as chief executive of Lara Bohinc, the UK-based accessories designer, in which he has a 40 per cent stake, he says he is more cautious. “Boo.com made me more risk averse … We were young then and didn’t think of failure as a possibility. I’m more afraid of failure now, as I understand that businesses can fail, whereas before, I don’t think I did.” In fact, Malmsten admits to having been reluctant to venture into e-commerce again. “We have been slow to launch a website at Lara Bohinc. We could have done it earlier but I wanted to take time … we [did] a lot of beta testing.”
As a European, he says, he feels more comfortable discussing failure than success, because “in Britain and Scandinavia we’re more modest [than in America]”. People in European cultures, he says, are much more honest and analytical about failure than success. “Are you really going to [confess that your success] is due to screwing someone over?”

Interviews by Emma Jacobs

Twitter’s top 10 economists (17 May 2011) (previously)
@CMEGroup Chicago Mercantile Exchange 783,327 followers
@NYTimesKrugman Paul Krugman, Nobel Laureate & columnist 594,331 followers
@andrewrsorkin Andrew Ross Sorkin, NYT Dealbook 372,242 followers
@freakonomics The Freakonomics blog 331,018 followers
@WSJ_Econ Real Time economics from the Wall Street Journal 214,778 followers
@planetmoney NPR’s Planet Money 191,244 followers
@umairh Umair Haque, HBR 146,450
@Richard_Florida Richard Florida, Urbanist 122,963
@PKedrosky Paul Kedrosky, Financial commentator 120,287 followers
@nouriel Nouriel Roubini, Economic forecaster 49,501 followers

Or follow the full Top 10 at this list.

Honourable mentions:
@dambisamoyo Dambisa Moyo, Aid Sceptic 43,063 followers
@evanHD Evan Davis, formerly BBC economics editor 30,500 followers
@DavidMcW David McWilliams, Irish popular economist 32,442 followers
@jeffdsachs Jeffrey Sachs, Columbia University 25,283 followers
@FelixSalmon Felix Salmon Finance blogger, Reuters 25,190 followers
@TimHarford Tim Harford, Undercover Economist at the Financial Times, 19,323 followers (that’s me)
@Paulmasonnews Paul Mason, economics editor of BBC Newsnight 14,029 followers
@Bill_Easterly Bill Easterly, New York University 13,947 followers
@danariely Dan Ariely, Behavioural psychologist 12,393 followers
@tylercowen Tyler Cowen, curator of Marginal Revolution 9,551 followers
@DavidMWessel David Wessel Wall Street Journal’s Economics Editor 9,867 followers
@crampell Catherine Rampell, Economix Blog editor 6,755 followers
@EconEconomics Economics news from The Economist 7,725 followers
@ritholtz Barry Ritholtz, blogger 7353 followers
@DLeonhardt David Leonhardt, New York Times columnist 5,246 followers
@EconTalker Russ Roberts, econ professor and host of EconTalk 3,761 followers
@cblatts Chris Blattman, Political scientist 3,934 followers
@B_Eichengreen Barry Eichengreen, economics professor 3,423 followers
@plegrain Philippe Legrain, author 2,323 followers
@diane1859 Diane Coyle, The Enlightened Economist 2,025 followers
@AndrewSimms_NEF Andrew Simms, New Economics Foundation 1,613 followers
@dsmitheconomics David Smith, Economics editor, Sunday Times 1,444 followers
@joshgans Joshua Gans, Professor of Economics and author of Parentonomics 987 followers
@dismalscientist Tweets from Moody’s Analytics, 943 followers
@tutor2u_econ Resources for economics teachers 849 followers
@leighblue Leigh Caldwell, behavioural economist 735 followers
@OlafStorbeck Olaf Storbeck, Economics editor, Handelsblatt 560 followers

Feel free to email [undercovereconomist AT gmail] or tweet [ @timharford ] with further suggestions. I’ll update this post from time to time. Comments are open.

===

Update: Can’t incorporate them all immediately but I have received these recommendations:
@deankarlan @rodrikdani @Shanta_WB @m_clem @BBCStephanie @ayittey @gdemom @delong @l_haddad @charlesjkenny @dannyquah @andypsumner @moss_d @vijramachandran @altmandaniel @went1955 @markthoma @mattbish @jodiecongirl @jappleby123

I wrote this essay for the Freakonomics blog.

In the spring of 1980, President Jimmy Carter gave the go-ahead for a daring special-operations mission calledEagle Claw. Fifty-two American hostages had been trapped for months in Tehran under a newly hostile revolutionary government, and negotiations appeared to have broken down. The operation called for helicopters and refueling aircraft to fly into the Iranian desert at night, under the radar screen, rendezvous in the middle of nowhere, refuel, and hide during the daylight hours. The helicopters were then to fly into the heart of Tehran. Special forces were to kill or subdue resistance, liberate the hostages, and then – via another desert refueling rendezvous – escape to the USS Nimitz, an aircraft carrier off the Iranian coast. The operation suffered bad weather, bad luck – a busload of Iranian travelers blundered into the rendezvous point against all odds – and arguably bad decision-making. The mission was aborted half way through, a helicopter and a refueling aircraft crashed into each other at the rendezvous, and eight soldiers died.

The counterinsurgency specialist Andrew Exum drew my attention to the Eagle Claw failure after special forces killed Osama bin Laden: the circumstances were superficially similar but the results were very different.

“I’m thinking Tim should add our special operations forces as a case study in time for the paperback,” Exum wrote, nodding toward my book. “You cannot understand why the U.S. military was able to execute this extraordinary operation deep in the heart of Pakistan without first understanding the failures of Iran in 1980.”

And Exum is surely right. After the disaster of Eagle Claw, the U.S. established a unified command for special operations, and a specialist special-ops helicopter unit, the 160^th special operations aviation regiment. The failures of the rescue mission were exhaustively studied.

But the message of Adapt isn’t really “practice makes perfect,” or even “learn from your mistakes,” at least not as a straightforward self-help cliché. It’s about building systems – whether markets, businesses, governments or armies – that solve complex problems. And it turns out that complex problem-solving usually means experimenting, quickly discovering what works and what doesn’t, and somehow letting what’s working replace what isn’t.

My military case study was the turnaround in the War in Iraq. I didn’t want to go over the post-invasion fiasco, the mysteriously elusive weapons of mass destruction, or the timing of the withdrawal: that’s for other writers and other books. But I was horribly fascinated by the initial refusal to learn from what was going on, and later at the military’s ability to learn and to adapt.

The key lesson is that this adaptation was a bottom-up phenomenon. (Perhaps it’s more accurate to call it “middle-management”: some of the key actors were colonels.)

At the time Donald Rumsfeld, then Defense Secretary, was holding press conferences and announcing that he didn’t even want to hear the word “insurgent” being used, troops on the ground were fighting a vicious three-sided insurgency. (To pick one horrifying incident amongst many, police recruits in the town of Tal Afar were murdered when somebody with explosives strapped all over their body walked into their midst. It wasn’t a suicide bomber, but a mentally disabled 13-year old girl, accompanied by a toddler whose hand she had been asked to hold as she walked towards the line of recruits.)

The soldiers on the front line had to figure out their response without calling their superiors’ attention to the fact that they were doing anything of note. Tips were circulated via email or even PowerPoint presentations, such as the wonderful “How to win the war in Al Anbar by CPT. Trav.” which used stick-figure drawings to convey vital information that the men at the top seemed to be ignoring.

All this, of course, was decision-making at far higher stakes than those we economists usually study. The creator of the “CPT. Trav.” slide deck, Captain Travis Patriquin, was killed in 2006 three weeks before Christmas, leaving behind his wife and three children. He was so respected in Al Anbar that the local sheiks turned out in force at his funeral.

So this is partly a story about how quickly good ideas spread when they have to: one British general told me, with an air of resignation, that the junior ranks quickly adapted to new challenges and new lessons because doing so saved lives, but the most senior officers tended to learn very slowly.

It is also a story about the role of technology in decision-making. The U.S. military placed increasing emphasis on the use of “effects based analysis of operations” – using massive amounts of data and computing power to allow commanders at headquarters to absorb information and react quickly, moving units around like chess pieces. Such techniques are hugely useful in some circumstances – a “shock and awe” campaign – but even then they do not always perform as advertised. We’re now discovering that in many campaigns, it is the decision maker on the ground – a captain or even a regular soldier – who has the information that counts and the ability to use it.

We’re also discovering that communications technology can be more effective at distributing information than at collating and centralizing it. This isn’t just a lesson for counterinsurgency campaigns but for businesses. The economists Julie Wulf and Raghuram Rajan have found evidence that businesses are increasingly decentralising their decision making, while Lorin Hitt and Erik Brynjolfsson showed a decade ago that information technology worked much better when combined with this kind of decentralisation.

Meeting some of the soldiers who fought in Iraq and Afghanistan was a sobering experience for me. It was fascinating to discover how the U.S. military adapts. It was awful to read and hear about some of the atrocities committed in Iraq, and wonder about how things might have gone differently. And it was hard to forget the conversations with these soldiers. Experimenting, learning, and adapting is inescapable in a complex world. But rarely has it mattered so much to find the right answers as quickly as possible.

In 1931, the British Air Ministry sent out a demanding new specification for a fighter aircraft. It was a remarkable document for two reasons. The first was that throughout its existence the Royal Air Force had been dismissive of fighters. The conventional wisdom was that bombers could not be stopped. Instead, foreshadowing the nuclear doctrine of mutually assured destruction, the correct use of air power was widely presumed to be to build the largest possible fleet of bombers and strike any enemy with overwhelming force. The second reason was that the specification’s demands seemed almost impossible to meet. Rather than rely on known technology, the bureaucrats wanted aviation engineers to abandon their orthodoxies and produce something completely new.The immediate response was disappointing: three designs were selected for prototyping, and none of them proved to be much use. The Air Ministry briefly went so far as to consider ordering aircraft from Poland.Even more remarkable than the initial specification was the response of the ministry to this awkward failure. One of the competing firms, Supermarine, had delivered its prototype late and well below specification. But when Supermarine approached the ministry with a radical new design, an enterprising civil servant by the name of Air Commodore Henry Cave-Browne-Cave decided to bypass the regular commissioning process and order the new plane as “a most interesting experiment.” The plane was the Supermarine Spitfire.

Continued at Slate – or find out more about the book.

New York Times Magazine – 15 May 2011 – Graphic by CÉSAR A. HIDALGO and ALEX SIMOES

These diagrams are the early fruits of a new approach to the most important unsolved problem of the last century: how to make a rich country out of a poor one. Development economists have many theories about how the trick is done but few proven answers. A compelling solution would be useful closer to home, too: understanding the process of economic development would help us work out whether it matters that service jobs are replacing manufacturing ones or whether there is anything the government can and should do to stimulate new industries like biotechnology or green energy.
Strip away the mathematical language of economists, and conventional theories of economic growth are rather crude. Economies produce “stuff,” and if you want more stuff to come out of the process, put more stuff in (like human capital, say). Yet economies do not produce stuff so much as billions of distinct types of goods — perhaps 10 billion, according to Eric Beinhocker of the McKinsey Global Institute — ranging from size 34 dark stonewash bootcut jeans to beauty therapies involving avocado. The difference between China’s economy and that of the United States is not simply that China’s is smaller; it has a different structure entirely…

Continued on NYTimes.com

FT Comment – 13 May 2011
Higher inflation and lower growth: the Bank of England’s latest economic forecasts, delivered one day before the UK coalition government’s first anniversary, cannot have been a terribly welcome gift. Like any well brought-up recipient of a hideous hand-knitted cardigan, George Osborne, the chancellor of the exchequer, smiled through gritted teeth and pronounced himself well pleased. Faced with this troubled economy, what should the coalition do next?
Politically, I have no idea: the British are not used to coalitions government, and they have not looked kindly on its junior partners. Having handcuffed himself to David Cameron, the Liberal Democrat leader Nick Clegg has found the prime minister walking safely on the political pavement while he trudges sadly through the gutter, splattered by the muck of every controversy. It seems only a matter of time before the leader of the Lib Dems is flattened by a metaphorical bus.
The macroeconomic situation is scarcely more promising. There is a bright spot: in spite of rapidly rising national debt, international investors have been far more forgiving than former Lib Dem voters. They think Mr Osborne and his successors will pay their debts. They are probably right – although Ireland began this crisis with far higher growth and with less government debt and has shown that trouble can come calling with surprising speed.
Mr Osborne claims some credit for this international confidence and is right to do so, since he looks determined to adjust government spending to suit the UK’s detumescent economy. The Lib Dems also appear willing to take a bullet in defence of the austerity plans.
Ed Balls, shadow chancellor, claims that such austerity is a macroeconomic disaster, and the government should stimulate the economy by keeping spending up. Politically, Mr Balls sounds plausible: his plan to halve the deficit within four years seems responsible to the ordinary voter. But since we would expect the deficit to be approximately halved simply by the process of gradual economic recovery, the implication is that if Mr Balls had his way, the government would spend an entire parliament doing almost nothing to restrain spending. Even recognising a case for stimulus spending this year, this is recklessness.
Most economists would accept that there are circumstances in which government spending can stimulate an economy. There is less unanimity about whether the UK fits those circumstances so well as to make a continued splurge necessary. Even Mr Osborne’s austerity package calls for public sector net borrowing of 6.2 per cent of gross domestic product in 2012-13; we’re a long way from paying off the nation’s credit card, as the chancellor so irritatingly terms his project.
Unemployment is high and output is well below pre-crisis levels, suggesting that there may be some slack that government should take up. And yet the UK is an open economy with a floating exchange rate, an inflation problem and interest rate rises on the horizon. It is perfectly possible that a government attempt at stimulus would be largely exported to others, or offset by tighter money.
Mr Balls is an ambivalent figure in this debate. He is now a powerful voice for counter-cyclical spending – and yet his record as Gordon Brown’s right-hand man is one of pro-cyclical policy, running large deficits in the middle of an economic boom and a financial bubble. The most generous reading of this record is that counter-cyclical fiscal policy is easier to demand than to deliver.
And Mr Osborne? His own plans are hardly beyond criticism. Somehow, he has managed to launch deep cuts in departmental spending – what most people regard as public services – with only modest plans to cut overall government spending. Partly this is the result of a greater burden of debt service; partly it has been a rising pension bill. Demographics will not help the UK’s long-term fiscal stability – but neither will the coalition’s proud “triple-lock” on the state pension, which is doomed to increase costs. The “we’re all in this together” line does not seem to apply to pensioners.
From a macroeconomic perspective, Mr Osborne would have done better to make larger cuts, later. That would also have made administrative sense: with more notice, lower spending could have been delivered with less vandalism.
The calculus seems to be purely political: if not now, then never. And there is something contagious about that idea, because the whole government seems to be in an awful hurry to deliver its reforms. The irony is that a reform programme that is all about pluralism and local adaptation is being pushed through like a Soviet five-year plan. Whether cutting the deficit or reorganising the NHS, the government should learn to make haste a little more slowly.

I wrote this essay for the Freakonomics blog.

In 1982, the management consultants Tom Peters and Robert Waterman published In Search of Excellence, a colossally popular business title. The book aimed to learn lessons from the world’s best companies, and Peters and Waterman produced a list of 43. But just a couple of years after In Search of Excellence had been published, BusinessWeek ran a cover story with the simple title: “Oops! Who’s Excellent Now?” Almost a third of the companies singled out for praise by Peters and Waterman were in financial trouble.

My aim isn’t to mock Peters and Waterman, but to point out that the rise and fall of business models is an unavoidable part of economic growth. In a complex world, things fail – a lot. According to the economist Paul Ormerod, 10 percent of U.S. firms go bankrupt every year. Ormerod – an iconoclastic figure who enjoys beating fellow economists at their own game, mathematics – has studied the statistical patterns that emerge from these bankruptcies. He thinks they suggest that failure and success in business are far more random than our culture of CEO-worship would have us believe.

The curious thing is that these individual failures need not be a problem for the economy as a whole. Far from it. There are good reasons to believe that more successful economies play host to more failures. To get an instinctive grasp of this, just compare the astonishing failure rate of Silicon Valley firms with the situation of the Big 3 in Detroit, who seem to be in a perpetual state of slow-motion failure without ever quite leaving the economic stage.

A more rigorous attempt to look at this question, a study by Kathy Fogel, Randall Morck,and Bernard Yeung, found statistical evidence that economies with more churn in the corporate sector also had faster economic growth. The relationship even seems causal: churn today is correlated with fast economic growth tomorrow. The real benefit of this creative destruction, say Fogel and her colleagues, is not the appearance of “rising stars” but the disappearance of old, inefficient companies. Failure is not only common and unpredictable, it’s healthy.

But if this is true, it makes nonsense out of much of the way we approach complex problems in the world – anything from fighting wars to fighting poverty.

For one thing, where’s the churn in education policy or healthcare policy or policing? These are difficult problems. Why would we expect them to be solved the first time? They are surely no simpler than the business problems which seem so prone to experiment and error.

When the pizza chain Sbarro’s filed for bankruptcy in April, one journalist called it “America’s least essential restaurant.” The likely result is that one way or another, the chefs and locations and ingredients that used to be turned into bland pizzas will now be used to make something that people actually want to pay for. Good.

But in politics, where are the bad ideas that have been tested, found wanting, and replaced with something better? It’s rare – but not unheard of – for politicians to seriously test out their policies, perhaps because they realize that we voters pay more attention to soundbites. And so there’s rarely a really good evidence base to shut down failing policies and replace them with something else.

I’m not sure I’d blame the politicians. Not many people want to vote for a candidate who says, “I really am not sure how to improve schools in our area, so I plan to pilot half a dozen ideas, and we’ll keep the one or two that we can prove to have worked.” But the other guy – the one who claims he does know – isn’t telling us the truth about uncertainty and failure. He’s just telling us what we want to hear.

Ideally, I’d like to see many more complex problems approached with a willingness to experiment. The process has three components: first, try lots of different things; second, make sure the experiments are at a small scale so that when things go wrong, it’s not a catastrophe; and third, make sure there’s a reliable way to tell the difference between success and failure.

Governments often fall down on all three: they have a particular ideology and so push a single-minded policy; they bet big; and they don’t bother to evaluate the results too carefully, perhaps through overconfidence.

But markets can fail badly too, and for much the same reason. Just think about the subprime crisis. It failed the same three tests. First, many big banks and insurance companies were taking similar bets at similar times, so that when subprime loans started to go bad, much of Wall Street started struggling simultaneously. Second, the bets were gigantic. Fancy derivatives such as credit default swaps and complex mortgage-backed securities were new, rapidly growing, and largely untested. And third, many investment bankers were being paid large bonuses on the assumption that their performance could be measured properly – and it couldn’t, because profitable-seeming bets concealed large risks.

I’ve been studying how these processes of experimenting and adapting have worked, or failed to work, in dealing with some of the important problems we face today, from promoting innovation to preventing future financial meltdowns. And I’ve also been exploring our psychological responses to failure – why we fear even small setbacks, and how we can over-react when things are going badly. I’ve concluded that adapting in the face of failure is absolutely vital – and a more painful challenge than I at first expected.

Nowhere is that more true than on the battlefield, and in my next post I’ll be exploring how the military learns from failure – from the Vietnam War to the hunt for Bin Laden.

George Osborne, we were told, would be offering a “Robin Hood” budget. It is a bold piece of branding, ranking alongside Jeremy Clarkson’s heartfelt environmentalism. In most ways after all, the chancellor with his privileged upbringing is an unlikely Robin Hood.

But Mr Osborne is trying to tap into something rather deep in the nation’s psyche: the idea that the country is stuffed full of super-rich bankers, tax-evading multinationals and Lear-Jet-riding non-doms, and that he, Mr Osborne, is keen to rob from them to give to the rest of us.

Movements such as UK Uncut argue that if only Mr Osborne had the courage to play Robin Hood, the deficit could be banished without the need for cuts or tax rises for ordinary voters. About £80bn a year should do the trick. But are £80bn a year of easily harvested tax revenues simply sitting there, begging for Mr Osborne to collect them?

It seems unlikely. According to the comprehensive Mirrlees Review produced recently by the Institute for Fiscal Studies, most corporation tax ultimately translates into lower wages rather than lower returns for shareholders. This is because investors with overseas options – that is most of them – will be tempted only by higher pre-tax returns. They will invest less, and with less capital per worker, wages will be lower. The attractions of corporation tax are mostly political ones – voters fondly assume that corporation taxes are a free lunch.

But leaving that to one side, the sheer magnitudes involved don’t add up. Corporation tax revenue peaked at £46bn just before the crisis, and according to a recent report from Oxford university’s Centre for Business Taxation, more than four-fifths of this is raised from the top 1 per cent of companies. The Robin Hood fantasy is that these revenues can be almost tripled on a sustainable basis – through a combination of tighter tax rules, more vigorous enforcement, and higher rates of corporation tax on large companies. Mr Osborne thinks otherwise, and proudly announced that corporation tax rates would be reduced faster than previously planned.

Mr Osborne is on the right side of this argument. Corporation tax revenue, relative to the size of the economy, has for three decades tended to be higher than in Germany, France and the US, in spite of lower headline rates of tax. Also, while headline rates have plummeted from more than 50 per cent in 1982 to less than 30 per cent today, corporation tax revenue has barely budged relative to gross domestic product.

Mr Osborne might claim that lower headline rates of corporation tax lead to higher tax revenues. That is unclear. But all the Merry Men in the world will not triple corporation tax revenue. If any government were to try, businesses would scramble to relocate their operations – or perhaps just their accounting profits – to somewhere a little bit less, um, Robin Hoody.

What, then, about income tax? The chancellor dramatically failed to rob from the rich here: his increase in personal income tax allowances will not benefit the poorest, who pay no income tax anyway, but it will give a welcome boost to those in the 40 per cent tax bracket, who have as much to gain as anyone from higher allowances. Could Mr Osborne have found treasure here and spared the country from ferocious spending cuts? It is hard to see how. The top 1 per cent of taxpayers pay about 27 per cent of income taxes, or roughly £35bn-£40bn. That figure could temporarily be raised, I am sure – but by how much and for how long? The prospects for finding £80bn a year as loose change behind the sofas of the country’s super-rich look rather dim.

This is not to suggest that Mr Osborne’s hands are tied. Cuts were always inevitable – Alistair Darling had plenty in mind as he presented his final Budget last year. But Mr Osborne could have taken things more slowly, and he could also have focused more on tax increases than spending cuts. However what he could not do – because it cannot be done – is solve the UK’s fiscal problems by squeezing a few fat cats. Robin Hood, alas, will never spring to the dispatch box.

FT Comment 24 March 2011

“This game is going to end up like the tortoise and the hare,” Michael Lewis declares, halfway through his inaugural game of Saint Petersburg. Lewis’s green wooden pawn is well ahead on the board, but he’s already picked up enough of the game to realise that – to paraphrase one of the characters he describes in his book The Big Short – he’s about to get his eyeballs ripped out.

It is hard to understand quite why Lewis has agreed that I will teach him an obscure modern German board game while he is interviewed. Poker would have seemed the obvious choice. Liar’s Poker, Lewis’s description of the surreal Wall Street world he inhabited for two years as a bond trader at Salomon Brothers, was definitive of an era and, to some extent, of Lewis’s own career as a narrative writer. But Lewis isn’t interested.

“I haven’t played poker since I was in high school,” he says. “It would be false to portray me as a gambler. It bores me. It’s always bored me.”

Was that why he left Salomon Brothers to become a writer? “No. It was fun gambling with other people’s money. I liked that.”

In a small meeting room in a Mayfair hotel, the logistics are awkward: I can’t take notes and it’s hard even to talk because we’re concentrating on the board. Even a simple game can be baffling to a first-timer, and Saint Petersburg is not a particularly simple game. It describes the building of the city by Peter the Great and his minions (but the theme is very loose: the artwork depicts Czarist Russia).

Players buy cards which provide a flow either of roubles – the currency to buy more cards – or of victory points, which advance the player’s pawn and bring victory closer. There are four types of cards: aristocrats, who supply money and victory points and a bonus at the end; buildings, which supply victory points; peasants, who supply money; and upgrades, which improve the other three types. Returns on investment are very high, but there are never enough roubles to buy all the bargains on offer.

I am about to offer some opening hints when Lewis cuts me off. “Don’t tell me tactics. You don’t have to tell me. I’ll screw up. I’d rather just get beaten, and learn that way.”

We play in fits and starts, for the first half hour talking only about the game and its rules, before switching to Lewis himself while the game is forgotten for a while.

I’ve been reading The Big Short, his account of the men who bet against the subprime bubble, and express my baffled admiration at his ability to get inside the heads of his characters. One, the hedge fund owner-manager Michael Burry, gave him access to every e-mail he had ever sent. “God’s gift to the narrative writer was Michael Burry’s e-mail trove. He lived his life via e-mail.”

But how does he persuade people to give him such access?

“I never really thought about it. I’ve had so many people enter into the spirit of the arrangement. It starts with the relationship before it becomes a literary engagement. It’s a very long-term investment.”

The only time he’s had someone pull out after beginning such a relationship was with George Soros, whom he had accompanied on a private plane all over eastern Europe in 1994. Lewis published a magazine piece which suggested that Soros’s qualities as a philosopher were overrated.

“He was furious with the piece. It just said what I thought. Is it my turn?”

“Your turn.”

Lewis is fascinated at the revelation that Germany is the world’s board-game heartland. “This game is all about trade-offs … it’s made for the Anglo-Saxon Protestant work ethic. The Greeks would never appreciate it.” He tries to persuade me to write a piece about the German response to the euro crisis, using board games as a motif.

Although I am building a winning position, producing a flow of roubles that will in due course allow me to buy what I need to overtake Lewis, he understands what is going on. He knows why he’s going to lose. After I reap a particularly profitable investment, Lewis expresses alarm.

“Sorry,” I offer.

“That’s OK.”

Talk turns to Lewis’s upbringing in New Orleans. His father had a largely hands-off philosophy, but begged Lewis not to turn down Princeton in favour of a life in New Orleans with his high-school sweetheart. “He went white and said, ‘I’ve never told you what to do, but don’t do this.’”

Lewis followed his father’s advice. “It was the right decision. But I really was in love with that girl, and it ended up ending our relationship. And I always felt I violated something in me, making that decision.” When the time came to quit Salomon, he steeled himself against any further paternal entreaties.

. . .

Explaining his decision to leave Salomon, he casually compares the $40,000 book contract to the $250,000 salary and potentially millions more – big sums in the late 1980s. But he insists that money does not motivate him.

“I grew up with a mother who came from a pretty wealthy family – in fact a very wealthy family by New Orleans standards – and my father was kind of a poor boy.” By the age of nine he’d abandoned any sense that money brought fulfilment, because “my father’s family was so happy and my mother’s family so miserable”.

Although there is outrage in Lewis’s descriptions of high finance, it is muted by the fact that he seems to regard much of life on Wall Street as risible. His former tutor at the London School of Economics, a certain Mervyn King, didn’t always see the funny side.

“Four or five months after I got the job at Salomon, the head of the London office comes over to me and says, ‘We’ve got this guy in the lobby. He’s the academic adviser to the new FSA, and he’s been sent in to see how the markets really work and nobody wants to sit with him. Could you sit with him?’ It was Mervyn.”

After three hours “listening to me selling people stuff”, King asked what Lewis was paid.

“It was two-and-a-half times what they were paying him to teach me at LSE. And he was, ‘This is just criminal, this is outrageous.’ He couldn’t believe it.”

I realise that Lewis has been hoping to overtake me, banker-style, by scooping a big bonus score at the last gasp, but he has missed a subtlety of the scoring and gets less than he hoped. He is, in any case, too far behind for any bonus to help him. The final score – 197 to 147 – is a comfortable win for me, but no disgrace to my pupil. We’ve been playing and talking for two hours.

“How do you feel?” he asks me.

“Pretty scummy, actually.”

“No that’s alright, that’s alright. I learned.”

…………………………………………..

Also published at ft.com.