Sapiential Economics

from Robert Locke

Neoclassical economists insist that the formal system of knowledge they create takes precedence over what we learn through experience, on the grounds, as Erich Schneider wrote, “that the sea of facts is dumb and can only be forced to reveal interconnections when properly queried.  Intelligent [sinnvoll] questions can only be derived from theoretical formal analysis.” (Bomback and Tacke, 37)  But what if it were the other way around that formal knowledge systems are dumb if they have no connection with the sea of facts, to experiential knowledge.

In Britain, the first modern industrial country, most skilled craftsmen behind the development of the productive force c. 1846 were not formally educated in science or engineering, but self-trained, or, rather, trained in apprenticeship or in a firm on the job.  Know-how was acquired primarily through tacit learning, intuitive and inarticulate, only through individual experience in the relevant context, where the knowing subject is involved, as opposed to explicit knowledge, codefiable, generated often through logical deduction, capable of being aggregated at a single location, stored in objective forms without the knowing subject being involved in the aggregation.  Legions of obscure engineers were trained this way.  Whitworth’s son noted that in his machine tool company,  

All our engineers have come up the ranks.  They entered here about age fourteen on the average.  They passed through all the workshops.  They learned all the techniques with their own hands.  As for their scientific instruction – nothing but what they could learn in night school.” (Quoted in Leclerc, 1917, 15)

Both the needed technical, as these citations indicate, and the commercial skills (bookkeeping) were learned privately tacitly on the job aided by short even school courses.  This did not matter because the training not only sufficed to produce a commercially and industrially dynamic Britain, but served as a source of Mental Capital internationally. It is the practical men we consult not the economists to get a handle on the state of Mental Capital in the age of the practical man.

At the beginning of the 20^th century, people still thought that the best education occurred through tacit learning, intuitive and inarticulate.  The German Commission on Technical Instruction (DATCH) insisted (1912) on the importance of apprenticeship training. A Mr. James Patterson, before an assembly of accountants in 1911, put it this way:

I think and I think it is the experience of all who have carefully examined the cases that came under their notice, that a student who has been in a good office…makes a better accountant than a man who starts off with the halo of a University education.” (Nelson, 20)

This attitude persisted in UK accounting society’s right up though WWII.  Only in 1947 did eleven of the larger universities, by agreement with accountancy bodies, beginning accounting degree programs. (Locke, 1984, 139).  In 1950, the vast majority of accounting students in the British Isles prepared for their examinations while working as ‘articled’ clerks in an accountant’s office.

The shift from tacit to explicit education and training occurred in the United States post WWII.  Rakesh Khurana’s From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and thee Unfulfilled Promise of Management as a Profession (PUP) describes the transformation of US business schools into centers of explicit education (see chapter, Disciplining the Business School Faculties, 233-90).  H. Thomas Johnson describes how this explicit knowledge shaped people working in business and industry:

“Successful [US] managers believed they could make decisions without knowing the company’s products, technologies, or customers. They had only to understand the intricacies of financial reporting … [B]y the 1970s managers came primarily from the ranks of accountants and controllers, rather than from the ranks of engineers, designers, and marketers. [This new managerial class] moved frequently among companies without regard to the industry or markets they served … A synergistic relationship developed between the management accounting taught in MBA programs and the practices emanating from corporate controllers’ offices, imparting to management accounting a life of its own and shaping the way managers ran businesses.” (Johnson and Bröms, 2000, 57)

He despised these lifeless pyramidal structures imposed on work processes and managed by computer-oriented production control experts:

“At first the abstract information compiled and transmitted by these computer systems merely supplemented the perspectives of managers who were already familiar with concrete details of the operations they managed, no matter how complicated and confused those operations became. Such individuals, prevalent in top management ranks before 1970, had a clear sense of the difference between “the map” created by abstract computer calculations and “the territory” that people inhabited in the workplace. Increasingly after 1970, however, managers lacking in shop floor experience or in engineering training, often trained in graduate business schools, came to dominate American and European manufacturing establishments. In their hands the “map was the territory.” In other words, they considered reality to be the abstract quantitative models, the management accounting reports, and the computer scheduling algorithms. (Johnson and Bröms, 2000, 23)

After studying the Toyota Production System, Johnson concluded that Management Accounting’s Control Systems that he had formerly praised, what he calls Management by Results, were responsible for the decline of U.S. manufacturing, especially automobiles. He recommended instituting Management by Means (the cultivation of inter-personal relationships on the shop floor). (See Johnson and Bröms (2000) and Rother, 2010). One could, Johnson claims, if work processes are properly organized, dispense with these U.S. management control mechanisms and get far better results.

With Johnson, the analysis of organizational management culture has comes full circle back to firm centered tacit on-the-job training like Whitworth’s machine tool firm had in the 19^th century from top down formal financial control reporting systems, codified in business schools outside the firm.

Johnson’s  view has been explored by production engineers. Mike Rother and his team spent five years investigating the Toyota Kata (2004-2009), a system of “unseen management routines and thinking” through which the investigator has to find his way “along unpredictable paths through a systematic process of discovery and adjustments.” This became particularly challenging to this group of management consultants when they tried to teach Management by Means in Western firms whose executives have a command and control mindset. Rother ran into the difficulty especially when teaching Western managers about empowerments.  « A command and control approach] is insufficient for tapping the brainpower inside an organization in a purposeful way. If people in organizations are expected to make decisions and navigate rapidly at their level, rather than waiting to be told what to do, they need to be taught effective skills for how to do it” (Rother, 2014, 4).

To appreciate management by means requires the historian’s investigative methods not just those of a mathematically shaped scientific paradigm codified and taught in departments of economics and business schools. To teach the Toyota kata within firms where the mindset is formed by management by results-oriented codified and explicit systems of knowledge is extremely difficult.  Jeffrey K. Liker, points this out in “Building CI habits through practices: Lean is about a fundamental change in thinking.  How do we teach our brains to make the change;” he reaches back to William James’ 1890 essay “Habit,” to make the point: “A tendency to act only becomes effectively ingrained in us in proportion to the uninterrupted frequency with which the actions actually occur, and the brain ‘grows’ to their use.”

Liker is talking about how the teaching of Toyota production systems, the Toyota KATA, discussed generally under the rubric “lean production,” engages a different part of the brain from the usual classroom instruction:  “One thing that is clear is that changing mindsets is more about forging new neural pathways in practicing a new way, which in times replaces the old pathways, than just trying to erase old ways of thinking. .. This raises the bar about educating people to think lean… We cannot attach the subroutines etched in the hidden past of our brain with information and reasoning alone.”

These insights apply to the teaching of economics, which must engage parts of the brain that includes historical and cultural thinking of generated tacitly as well as explicit knowledge.  But brain research suggests that the same resistance that explicit knowledge presents to the teaching of the Toyota Kata in production facilities, occurs elsewhere, for, in the findings presented at Neuroscience 2013, the annual meeting of the Society for Neuroscience, one researcher reported that  “mindfulness (explicit knowledge) may help prevent formation of automatic habits — which is done through implicit learning.”

The history of economics varies considerably according to whether it is defined in terms of explicit knowledge, as the neoclassical economists have done, or implicit know how, as the heterodox economists do.  Explicit knowledge is codified and formal in the shape of mathematical and axiomatic thinking, and it does not tolerate the inclusion of implicit know how in the economist’s bailiwick, because of its pretended lack of rigor.  Explicit knowledge of neoclassical economics has shaped the discussion about what economics is (micro and macroeconomics, orthodox and heterodox, etc.) In it, critical factors that are entwined with the economy, i.e., legal. educational, and democratic institutions (laws on co-determinatiion, works, councils, supervisory boards, business schools, firm governance) in their diverse manifestations are ignored.

It is imperative for the story of economics to be properly told, that the explicit and implicit be given equal weight in the telling.

References

Johnson, H. Thomas and Bröms, Anders (2000). Profits Beyond Measure: Extradordinary Results from Attention to Process and People. Boston

Leclerc, Max. (1917).  La formation des ingénieurs à l’éetranger et en France. Paris.

Jeffrey K. Liker (2017). “Building CI habits through practices: Lean is about a fundamental change in thinking.  How do we teach our brains to make the change,” Target, AME, Fall 1917.

Locke, Robert (1984).  The End of the Practical Man : Entrepreneurship and Education in Germany, France, and Great Britain, 1880=1940). JAI Press.

Nelson, C. Hewetson (1911).  « Professional education, » The Incorporated Accountants Journal. 23, October.

Rother, Mike (2010).  Toyota Kata : Managing People for Improvement, Adaptiveness, and Superior Results. New York.

_________________(1914).  About the Toyota Kata Research. Ann Arbor.

 

Vogt, ‘Winfried.  Erich Schneider und die Wirtschaftstheorie,” in Gottfried Bombach and Michael Tacke (eds) (1980) Erich Schneider 1900-1970 Gedenkband und Bibliographie,