- The Washington Times - Sunday, August 28, 2011

ANALYSIS/OPINION:

More than a hundred years ago, the brilliant philosopher and father of modern psychology William James warned his American compatriots against “scientism.” James saw an increasing tendency to extend the then-budding scientific method of controlled experiments in the physical sciences to intractable social and political problems. He warned it would not work, a conviction based perhaps as much on psychological understanding as philosophical logic; as the old saying goes, people will be people.

Not too many listened to James then — or since. The old logical flaw has taken on vast new proportions since the invention of the computer and the incredible ability to accumulate virtually limitless numbers as well as “soft” information. Now the digital revolution has given us the capacity to do virtually unlimited mathematical calculations. Listen to that fountain of politically correct wisdom, National Public Radio, almost any morning or afternoon, and you will hear another long dissertation on some social or political issue, usually foisted on us by the tenurati, backed up by voluminous, often irrelevant, statistics.

Nowhere has the disease taken root more than in the business schools, spread there by management experts, often practitioners of what has been termed “the dismal science” but is more accurately characterized as the pseudoscience. A few years ago, I was flattered to be asked to lecture a class at the prestigious University of Virginia business school. A professor had somehow learned I had written a popular (not so popular as I would have wished) biography of Soichiro Honda, the Japanese inventor and industrialist.

I sat in on the tail end of the professor’s presentation of Honda as “a case study.” I was worried the gentleman might fall off the edge of his lecture platform when, spelling out Honda’s success by writing a formula across the blackboard, he began to run out of space. Luckily, he left the room after introducing me. I picked up the monologue, telling my young audience I would possibly be going off on a different tangent since I had written an anecdotal book. There were, I must say, a few knowing smirks, indicating I had underestimated the students, if not the professors, in their preference for forging networks of future acquaintanceship in these courses rather than for “learning” in the classical sense.

I had had considerable exposure to the company and, luckily, despite corporate antagonism toward my project, through a shinseki (a “relative,” the nakahodo or “in- between-person” who had arranged the marriage of Honda’s eldest son), direct exchanges with Honda himself. I found Honda a mechanical genius, but no businessman. The company had repeatedly been almost bankrupted when he went chasing sometimes valuable, sometimes moonbeam inventions. (Honda, for example, was virtually the only automobile company to attempt its own automatic gear transmission, later to be abandoned.)

At a certain point in time, as the lawyers say, the Ministry of International Trade and Industry, the all-powerful Japanese bureaucracy then overseeing Japan, Inc., intervened. MITI anointed a production-line genius from the wartime Hayakawa aircraft to take over Honda’s “business side.” The rest, as they say, is history. The gentleman in question was an eccentric — a devoted Wagner fan, he annually took a troop of young men to the Bayreuth Festival.

But sitting through several drunken evenings in his little gazebo in a palatial house garden hidden away in Tokyo’s Akasaka-mitsuke neighborhood, I learned many of the company’s “proprietary” secrets. (I have been amused to see him quoted extensively in more recent books on Honda, as he died shortly after our meetings. But then, Ouija boards are a common utility in the book-writing profession.)

All this came flooding back when the Financial Times recently warned of new problems despite all the huffing and puffing over the Dodd-Frank financial overhaul law, the latest attempted reform of Wall Street sponsored by two legislators who themselves were linked to questionable financial dealings. According to the FT, regulators are already warnings that “moves to safeguard against systemic risks posed by the vast [$6 trillion] over-the-counter derivatives market risks being undermined by potential ‘data gaps’ in the information warehouses that store details on trades.”

Hmmm. A good, old and close friend, an economics professor but luckily not employed in a business school, tells me: “These models tend to ‘work’ until there is some kind of structural shift.” English? “These models tend to work until they don’t work.” Hmmm.

Dr. James, here we go; 2007-08, here we come again!

Sol Sanders, a veteran international correspondent and analyst, writes weekly on the intersection of politics, business and economics. He can be reached at solsanders@cox.net.