I was born in Edinburgh, Scotland in 1948, and completed my schooling and undergraduate education in that city. My mother continued to live in Edinburgh and when she died at the end of 2006 I thought my visits to Scotland would become less frequent. But when Alex Salmond became First Minister of Scotland after the election in May 2007 he invited me to join the Scottish Government’s newly established Council of Economic Advisers, and this has meant more contact with my Scottish roots. I am fortunate to have lived most of my life in beautiful places. I went to the University of Edinburgh to study mathematics. But, after taking a subsidiary course in economics, I decided that I wanted to be an economist.
The notion that one might understand society better through the application of rigorous and logical analysis excited me – and it still does.
After graduating, I went to Nuffield College, Oxford. I worked there under James Mirrlees, who was in due course to win the Nobel Prize for his contributions to economic theory. On Mirrlees’ advice, I applied for and to my astonishment got a permanent teaching post in the University of Oxford at the embarrassingly early age of 21. Oxford is a collegiate university – members of the faculty generally have both University and College appointments. This post carried with it a fellowship at St John’s College, an association which I have maintained and enjoyed ever since.
Through the 1970’s I developed a conventional academic career, publishing in academic journals, and writing my first book Concentration in Modern Industry (with Leslie Hannah, an economic historian colleague). My particular interests were in public finance and industrial organisation. But my rationale for studying economics had, from the beginning, been concerned for application. My career began to change direction when I was asked to join a group to review the structure of the British tax system. This group was established under the auspices of a newly established think tank, the Institute for Fiscal Studies, and was headed by James Meade, another economist who had achieved the ultimate distinction of a Nobel prize. Meade’s rigour was as demanding as that of Mirrlees, (both delivered it with considerable personal charm). But the most important effect of my experience with the Meade Committee was that I began to develop a taste for the popular exposition of economic concepts.
In this vein, I wrote (with Mervyn King, now Governor of the Bank of England) a more personal account issues in taxation, The British Tax System which ran through five editions. Pursuing these interests, I moved from Oxford and joined the Institute for Fiscal Studies as its first research director. Soon after I became Director of the Institute. IFS developed into (and remains) one of Britain’s leading think tanks, respected and feared by policymakers and journalists for its fiercely independent analysis of fiscal issues.
After seven years, I decided it was time to move on. The success of IFS had been built on serious economics accompanied by a commitment to popularisation and application. If this could be done for public policy issues, could the same be done in the area of business policy? This was the thinking that led me to accept a chair at the London Business School in 1986 and, at the same time, to establish a consulting company, London Economics.
Over the next few years, the application of economics to business issues became my intellectual focus. During this period, London Economics grew rapidly, largely on the back of the wave of privatisation and regulatory change in Britain in the 1980’s. By 1991, managing the company had become a major responsibility. I revised my arrangements with London Business School. My new contract was as Visiting Professor but my job as executive chairman of London Economics took the larger part of my time. London Economics grew until, by its tenth anniversary, its annual turnover exceeded £10m with offices in three continents and assignments in over sixty countries.
London Economics gave me insights into the business world. These came both through consultancy work with major corporations and first hand observation of the growth and development of a small business.
Other activities have enriched my more scholarly work by broadening the experience on which it draws. I have been a director of several investment companies, and was for nine years a director of Halifax plc, one of the largest retail financial services businesses in Europe (and left the board well before the events which led to its disastrous collapse in 2008). Other tasks have included membership of the task force which began the process of reviewing the Lloyds insurance market, acting as a director of the Investors Compensation Scheme, and being a member of the steering group for the government’s review of company law.
What I write and think today is a product of a combination of this practical knowledge of the business world and an academic training in industrial economics. (Although the industrial economics of today is very different from that which I learned as a student: oddly both more relevant to business problems and more distant from them.) Some of the results of this can be found in Foundations of Corporate Success (1993) (an American version is Why Firms Succeed (1995)) and The Business of Economics (1996). And in the column which I have written for the Financial Times since 1995. Since 2004 this has been a weekly op-ed piece, which currently appears on Wednesdays.
In 1996 I was attracted by the idea of going back to Oxford to help establish a new business school there and gave up the Chairmanship of London Economics to take the Directorship of the newly created Said Business School. So I became, improbably, Professor of Management at the University of Oxford. And when, in 1997, I became the first Professor of Management to be elected a Fellow of the British Academy, it became possible to believe that the study of business was, even in Britain, achieving intellectual respectability.
The last decade has been a bizarre period in which to be a business economist and never more so than in 1999 and early 2000, when the greatest speculative bubble in economic history expanded far beyond reason – and finally burst. Never were the principles of business economics so much on trial, as once serious commentators proclaimed that old principles of evaluation were redundant and the rules of business success had entirely changed. And, of course, these principles were vindicated in the end. The answer to those who shook their heads and told adherents of the old rules – like me – that they ‘just didn’t get it’ was that there was very little to get.
At the end of 1999 I became seriously ill and, although recovery from that seems to be complete, it left me with an ongoing determination not to do things that weren’t enjoyable and productive. Mostly, that has been popular writing with a serious theme. In August 2002 I completed The Truth about Markets, which was published in the UK and Europe in 2003 and as Culture and Prosperity in the United States in 2004. The book has now been translated into several other languages.
The core argument of The Truth about Markets was that although the evidence that the market economy was a superior model of economic organisation was overwhelming, the commonly presented description of how markets worked was a travesty. This account, which I described as ‘the American business model’ treated greed as dominant human motivation, emphasised a kind of market fundamentalism, and limited the role of the state to little more than the enforcement of property rights and contract, and perhaps the provision of a basic welfare safety net. This is not even a good account of the American economy: there are many different kinds of market economy, each the product of a particular social content. This argument has only been strengthened by subsequent events.
In 2004, I published a book of collected columns on economic subjects – Everlasting Light Bulbs – and in 2006 a selection on business issues – The Hare and the Tortoise. There were three major themes to reading, writing and reflection over that period: the relationship between business and society: the nexus between politics and society: and the ways in which we make decisions in a world characterised by fundamental uncertainty.
Obliquity originated as a long article I wrote in the Financial Times in 2004, on the theme that complex goals were rarely best achieved through direct pursuit: the happiest people were not those who pursued happiness, the wealthiest people not the most materialistic, the most profitable companies not the most profit oriented. Further reflection on the how and why of this thesis led to my latest book, Obliquity, published in the UK in 2010 and in the US in 2011.
The financial crisis of 2007-8 has dominated subsequent discussion of economic policy. In my view the responses are characterised by two widespread misunderstandings. The first mistake is to believe the crisis is an inexplicable, once in a lifetime, event, rather than another demonstration of an increasingly dysfunctional financial system. The second error is an extreme naiveté about what regulation can achieve. In various articles, and in an extended essay Narrow Banking, published in September 2009 by the Centre for the Study of Financial Innovation, I have tried to set out these views and their implications. The issues could hardly be more important. I also thought there was a need for a guide for bemused individuals who wanted to understand what was happening and get practical guidance as to how to steer through it. The theme of The Long and the Short of It published in January 2009 is how to take financial management into your own hands.
The crisis also raised questions about the nature and role of economics itself. I have been keen to take part in this debate, and among other initiatives have joined the advisory board of the Institute for New Economic Thinking established with a major donation from George Soros.
Today there are more subjects of urgent importance to write about than time to write. I plan to work on the economics of rents and rentseeking, present more material on the role of the financial sector, on Scotland, on Europe.