Knowledge Can Be Dangerous
It would be nice to think that there were technical reasons for them missing the tell-tale signs, that the nasty bank CEOs managed to hoodwink them or that it was as the result of foreign governments failing to declare the facts accurately. Unfortunately no such excuses exists, their explanation was that it was the result of “a failure of the collective imagination of many bright people" and that the "feel-good factor" masked how out-of-kilter the world economy had become.
In other words, the very people who are supposed to be challenging, probing and asking searching questions were swept along in the same forces that hood-winked the Financial Services Authority, the non-executive directors of most financial institutions, the institutional shareholders, the Government and many other people. The sad thing is though that although no one predicted the precise nature of the events of the Credit Crunch, the signs of impending doom were all around.
For example, as long ago as 2003 the economist Roger Bootle was forecasting a 40% fall in house prices, in November 2007 Alan Sugar said that “now was not a good time to invest in property”, in 2008 the legendary investor Warren Buffet said that he was not investing in companies at that time as “shares are over-valued” and, closer to home, the elderly mother of a good friend of mine asked “where does all this money come from?”
So if all of these people had spotted that all was not well, how was it that the alarm bells were not ringing loud and clear for “the experts”?
I believe the answer lies deep within our psyche. Humans are naturally pack animals and we therefore feel safe when “running with the pack”.
There is plenty of evidence for this – just look at how many people carried on investing in internet companies during the .com boom, even though common sense said they were over-valued and the bubble would burst some time. Away from finance, look at how the psyche of a whole nation can be gripped by the hatred of another group of people or how a crowd can easily turn into a mob when whipped up by a few malicious people or by external events.
It is at times like these that leaders are needed. Leadership is about change and what sets leaders apart from other people is their ability to set themselves apart from the crowd, to look at the world with a fresh pair of eyes and to be willing to express views that may not be what others either expect or want.
In these terms, the little boy in Hans Christian Andersen’s story “The Emperor’s New Clothes” who pointed out that the Emperor was in fact naked was a leader – although that is not the way the story is told. Rather, the message of the story is about the innocence of youth. And in this context the word ‘innocence’ means lack of both knowledge and experience - which brings me back to the point of this article.
The fact that the great and the good of business, government and academia did not stop to ask ‘where is all this money coming from?’ in the same way as my friend’s mother is not simply down to the “feel-good factor” or the “herd mentality”, it is also down to the fact that they had the knowledge and experience to delude themselves into thinking that everything was OK.
American thinker J K Galbraith once said: “Faced with the choice between changing one's mind and proving there is no need to do so, almost everyone gets busy on the proof”. The great and the good had the ability to do this in spades.
Knowledge then should not be considered the great panacea it was once thought to be and leadership skills should be valued much more highly. Sadly though I believe it will take more than the current recession for this message to sink in.
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