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Klaus Schwab is the Sorcerer’s Apprentice

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The invaluable eugyppius has read Klaus Schwab’s latest epistle, so we don’t have to. Thanks! A great public service.

One thing that struck me in reading eugyppius’ review is that Schwab repeatedly says things like this:

A pandemic is a complex adaptive system comprising many different components or pieces of information (as diverse as biology or psychology), whose behaviour is influenced by such variables as the role of companies, economic policies, government intervention, healthcare politics or national governance … The management … of a complex adaptive system requires continuous real-time but ever-changing collaboration between a vast array of disciplines and between different fields within these disciplines. 

and:

[I]n global risk terms, it is with climate change and ecosystem collapse … that the pandemic most easily equates. The three represent, by nature and to varying degrees, existential threats to humankind, and we could argue that COVID-19 has already given us a glimpse, or foretaste, of what a full-fledged climate crisis and ecosystem collapse could entail from an economic perspective … The five main shared attributes are: 1) they are known … systemic risks that propagate very fast in our interconnected world and, in so doing, amplify other risks from different categories; 2) they are non-linear, meaning that beyond a certrain threshold, or tipping point, they can exercise catastrophic effects; 3) the probabilities and distribution of their impacts are very hard, if not impossible, to measure …; 4) they are global in nature and therefore can only be properly addressed in a globally coordinated fashion; and 5) they affect disproportionately already the most vulnerable countries and segments of the population. (p. 133f.)

There are additional examples, but these suffice to demonstrate the category error that is at the root of Schwab’s thinking (if you can call it that): He has a mania for controlling and managing complex, interconnected, nonlinear systems, via a global elite. But complex, interconnected, and nonlinear systems (emergent systems) are by their fundamental nature not subject to central control! “The world is really, really complex, in the technical sense of the word, therefore we the anointed need to control it” is the oxymoron to end all oxymorons. (Or the non sequitur of all non sequiturs.)

And for reasons Schwab himself states! I repeat: “the probabilities and distribution of their impacts are very hard, if not impossible, to measure.” 

So, genius, how are you supposed to control something where it is impossible to understand the distribution of impacts–or even the probability distributions of impacts? So Schwab apparently grasps the Knowledge Problem, but completely misunderstands its implications. Whereas Schwab believes that it implies the need for greater central control (on a global scale, no less), in fact as Hayek pointed out long ago it implies the utter futility–indeed, the destructiveness–of attempts at such control.

This is the mindset of the Sorcerer’s Apprentice, and the results would be exactly the same. 

Schwab is an archetype of what James C. Scott referred to as “high modernism” in his book, Seeing Like a State. The subtitle of Scott’s book couldn’t be more appropriate: “How Certain Schemes to Improve the Human Condition Have Failed.” They failed, Scott shows through numerous examples, precisely because these high modernist schemes (usually predicated on claims of scientific authority) represented attempts to control and manage complex, emergent systems.

To control the uncontrollable. Or worse: things that behave badly when you try to control them. 

Schwab’s main allies are in the managerial class; indeed, they are at the pinnacle of that class being the CEOs of massive corporations. But an organization–a business–is fundamentally different than an economic and social system, and the methods that work for an organization don’t work for a complex system in which formal organizations are just a part. This is why, for instance, avatars of high modernist management and engineering, like Herbert Hoover and Jimmy Carter, failed miserably as presidents.

Hence the category error. Viewing complex systems as things that can be managed, like organizations. They aren’t, and attempts to do so–especially on the grandiose scale envisioned by Schwab and his fellow travelers–are doomed not just to failure, but disaster, as James C. Scott so vividly demonstrates.

Author

  • Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.


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