Relativism rules

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Seemingly conflicting theories about economics and business may in fact just illustrate different aspects of an issue. It is often pointless to look for a single explanation of a successful business operation or economic behaviour in general. The post-modernist idea that scientific truths are not objective facts captures something very important about the nature of social science

I once organised a meeting between anthropologists and economists at which each group tried to explain their discipline to the other. We adjourned to the pub and, when someone bought a round of drinks, we speculated on the origins of this social custom.

For the anthropologists, the explanation was obvious. Buying a round was a manifestation of ritual gift exchange. They drew analogies with the “potlatches” of North American tribes, and explained how even today rulers would cement friendship between their peoples by offering each other symbols of esteem.

The economists took a different line. Buying rounds minimised transaction costs. Only one visit to the bar was needed to procure refreshment for the whole party. We subordinated our natural individualism for the sake of efficiency gains.

Impatient with this academic dispute, I suggested how it might be resolved. Did you feel victorious, or cheated, if you bought more drinks than were bought for you? The anthropological explanation implied that you would want to give more costly gifts than you received. The economic theory required you to maximise the difference between the benefits and costs of the evening.

The test did not work. The anthropologists, I learned, were temperamentally generous. The economists were naturally mean. That was why the economists were richer. But the anthropologists were nicer and more interesting people to share an evening with.

I now understand that I was pursuing a mistaken belief that there are true explanations of social phenomena. But still, the economic and the anthropological explanations are partly true. We seal relationships in commercial life as well as social life by exchanges of tokens. Practices – such as the custom of buying rounds – are more likely to survive if they are efficient than if they impose avoidable costs.

There are many ways of looking at our social institutions. We can take an economic or an anthropological perspective. Or we can adopt a literary or a political approach. All of these contribute something to our understanding, while none represent the complete truth. The post-modernist claim that scientific laws have no objective validity, that there is no truth outside expression, is absurd when applied to gravitation or calculus. But it is not absurd when applied to social sciences, including the study of economics and business.

As we unravel the genome, and advance in neurophysiology, we will soon have chemical and physical explanations of our behaviour. But this doesn’t explain why I bought the drinks any more than the economic or anthropological accounts do. All of these descriptions are simply another strand of meaning. When I describe a business case study, someone will often say ‘I was there and it wasn’t like that’. But almost always these comments add a perspective on events without changing the basic analysis. There is no ‘true’ story of how business develops.

Honda’s successful attack on the US motorcycle industry is one of the most famous cases in business history. There is substantial agreement on the facts. In the 1950’s motorcycles in the US were the prerogative of the mean-spirited leather-jacketed anti-heroes described in Marlon Brando’s The Wild One. Honda entered the US in 1959: within five years, almost one in two motorcycles sold was a Honda. Honda had redefined the market. Its best selling model was a 50 cc supercub. Many of its sales were through sports retailers and its advertising slogan was ‘You meet the nicest people on a Honda’.

There are conflicting accounts of this achievement. One represents it as a classic instance of Japanese penetration of western markets. Honda derived economies of scale in its domestic market and used this as a springboard for expansion first into California and then the entire United States.

Japanese managers responsible told a different story. They did not expect to sell their small bikes in the vast open spaces of the United States; they brought them to Los Angeles for personal transport because they were short of foreign exchange and had been told there was no public transport. Only after larger bikes revealed reliability problems, and people kept quizzing them in the street as they parked their Supercubs, did the Honda executives reassess their strategy. And the “nicest people” slogan was invented by a University of California undergraduate.

‘Which story is the true one?’ MBA classes always ask. But neither is true. Each of them illuminates elements of reality, and each of them is incomplete. Every successful business strategy is a mixture of accident and design, of planning and serendipity. Even if we administered truth drugs to Honda executives, we would not learn any more. Nor would we need to change the messages – understand your competitive advantages, design your distribution strategies around them – that Honda’s success has for other businesses.

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