The financial crisis and global recession have made many commentators ask, "Are the prevailing business models bust?" Twenty years after the fall of Communism in Europe, has the last nail been put in the coffin of the market as the organising principle of civil society?
In a recent edition of The Bottom Line, executives of three companies reflected on how to plan for the long term in the face of the recession and the possible upturn. Simultaneously, a number of influential bodies, including the Engineering Employers Federation (EEF), are calling for the establishment of a national investment bank. Is planning back in fashion and will we see Indicative Planning regain favour? Furthermore, are there lessons to be learned from GOSPLAN, the Soviet Union’s economic planning committee?
Is planning back in fashion?
The recent dominance of financialisation, with its accompanying short-termism and reification of shareholder value, is deemed to be fundamental to our present difficulties. Not all sectors of the economy can plan for the longer term. Mining; oil and gas exploration and refining; engineering and industrial and commercial construction; project management and so on are subject to indivisibilities and long lead times, so planning in a technical sense is a must. The challenge is whether planning can be scaled up to the aggregate level of the economy in order to provide the critical mass on which business models can be built and sustained.
Herbert Hoover during his time at the US Department Of Commerce.
Indicative planning involves co-ordinating the private and public sector’s investment and output plans, on the basis of forecasts and targets. It is most strongly associated with the development of the French economy in the post-War era, but its lineage can be traced back to the influence of Herbert Hoover in 1920, when he was US Secretary of Commerce. Today, one can see versions of indicative planning (in the form of sectoral targets) in the emerging economies, influenced perhaps by the organisational underpinnings of a number of advanced Asian economies.
In some senses, these later versions of indicative planning are voluntary versions of GOSPLAN, whose targets and plans were implemented using input-output analysis. Input-output models were invented by the Nobel Prize winning economist Wassily Leontief. They link the outputs of different industries in the economic system to show how change in one part affects all other parts. Perhaps, if the leading economies of the world had embraced indicative planning using similar analysis and decision-matrix techniques, some of the worst aspects of the economic and financial crisis may have been avoided.
This matrix approach is at the heart of Scenario Planning, which was developed by Herman Kahn to model the likelihood of thermonuclear war. It can also be seen as part of Indicative Planning and related to input-output analysis. It was versioned for large industries and organisations to undertake long-term flexible planning, based on a range of plausible scenarios.
...hoping for a return to normal based on "business as usual" appears to be very short-sighted, even for sectors whose market horizons are quarterly or seasonal.
It could be argued that the credit crunch and global recession are akin to a thermonuclear shock to the world economy. In this scenario, hoping for a return to normal based on "business as usual" appears to be very short-sighted, even for sectors whose market horizons are quarterly or seasonal. This response is about survival rather than sustainability. The cost of this survival is borne by the whole economy. There may be a revival of faith in induction (generalising from an individual perspective to make sense of the whole) but, in a complex system, one organism doesn’t account for everything.
John Maynard Keynes.
[image in the public domain, owned by the IMF, accessed from Wikimedia Commons]
For the guests appearing on The Bottom Line, with their businesses in large-scale project management (trucks; and plumbing and piping), discussing the long-term did not engage with the epigram of the economist John Maynard Keynes from his masterly Tract on Monetary Reform of 1923: “In the long run we are all dead”. The full quote gives Keynes’s intention to show that the current state of affairs is no guide to the future
“The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again”.
The insights of great economists notwithstanding, if businesses don’t attempt to plan and we have an economic system that appears indifferent to the future, then we all will have shorter life spans.
Find out more
These Open University Business School courses will help make your planning sharper:
Image of John Maynard Keynes [© Wikimedia Commons]