The Turn to Business History and the Shaming of Economics

18 09 2011

Kevin Tennent, a lecturer at the York School of Management, has posted something on his blog that got me thinking about the recent turn towards historical analysis by people in business and management schools.

Scholars in business schools draw on a wide variety of disciplines and paradigms in understanding how firms operate in the real world. This eclecticism is, of course, a good thing, since no single discipline can provide all the answers. However, I think that it is safe to say that until recently, business history occupied a much smaller place in the toolkit of business scholars than economics.

There has, recently, been a shift away from the largely deductive approach of the economists towards the inductive approach favoured by historians. Indeed, narrative approaches to studying organisations have been adopted by scholars in business schools. (See here).

Dr Tennent has given us an update on the business history papers presented at the recent British Academy of Management conference. Tennent and John Wilson, Professor of Strategy at the University of Liverpool Management School, have been able to revive the Business and Management History track within the BAM Conference at Aston Business School.  Dr Tennent informs us that there will be a sessions devoted to business history at the next BAM Conference, which will be held in Cardiff in 2012.
The BAM conference just concluded featured a session on international retail history, organised by Professor Andrew Godley from Henley Business School at Reading. Nicholas Alexander of Lancaster University Management School made an enjoyable contribution contrasting ‘globalisation era 1’ (i.e. 1870-1929) international retailers to ‘globalisation era 2’ (1970-present) retailers. There was also a workshop on the use of archives by management scholars. This session was introduced by Dr Terry Gourvish in his guise as Chairman of the Business Archives Council, who introduced the concept of archival research and some of its advantages first.

It’s nice to see that management scholars, at least those in Britain, are turning to historical analysis. Aside from the hard work by Tennent and John Wilson in organizing these sessions, one can attribute the growing interest in business schools in the discipline with the increasingly evident problems in the discipline of economics. The serious limitations of neoclassical economics have been highlighted by the 2008 crisis.

As Roger Backhouse showed in his recent book The Puzzle of Modern Economics: Science or Ideology? the financial crisis has caused many academics to question the descriptive and predictive value of economics and the assumptions (e.g., the rational actor theory) under which mainstream economists operate.

As Professor Geoffrey Hosking noted in a recent paper on the History and Policy website,

There is a widespread feeling that the science of economics has lost its way. Its current orthodoxy is a belated child of nineteenth century Utilitarianism. It is trapped in a narrow and misleading view of human nature which regards human beings as individuals motivated by material self-interest and making rational choices with a wide range of good information normally available to them. Most economists seem to believe the aim of economic policy should be to promote growth through the medium of markets – which by nature are self-correcting, tend towards equilibrium, assess risk better than any government agency, and ensure the most efficient allocation of resources.

 

The current economic crisis has cast fundamental doubt on all of this. It has shown that markets do not assess risk well, do not allocate resources efficiently and, when unrestrained, tend towards the unstable disequilibrium of boom and bust. But where are we to look for more reliable guidelines? George Akerlof and Robert Shiller have accused economists of ignoring the vital input of ‘animal spirits’, a term they borrow from John Maynard Keynes. Similarly, according to the Financial Times, at a recent gathering of leading economists in Cambridge to discuss the failures of economics, ‘One of the central conclusions was that economists and market traders alike need to devote far more time to human psychology, rather than just the raw economic numbers beloved of many policy wonks.’

Indeed, the economics profession has lost the respect of much of the broader culture as a result of the 2008 GFC. Prior to 2008, books that purported to use economics to explain everything, such as Freakonomics, became best sellers. Since 2008, there has been far more scepticism about whether economics can even explain how financial markets work.  In 2009,  Queen Elizabeth, who was cutting a ribbon of a new building at the London School of Economics, asked a group of economists why nobody in the economics profession had seen the financial crisis coming. The failure of the economists to answer this innocent question in a satisfactory way has undermined the credibility of their discipline in the eyes of the general public and, I think, academics in the various disciplines clustered together in management schools.

It should be noted that books on business-historical topics, such as The Match King: Ivar Kreuger and the Financial Scandal of the Century: Ivan Kreuger and the Financial Scandal of the Century and This Time It’s Different have also sold well in the aftermath of the GFC. There is a real appetite for historical analysis out there.


Disciplines such as history and psychology may be able to fill the vacuums in both academic and popular discourse that economics has vacated.   It remains to be seen, however, whether this trend continues.

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