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Aug 14 2004

http://www.timesonline.co.uk/article/0,,482-1215771,00.html

There is an alternative to rule by the bean-counters

MATTHEW PARRIS

BRITAIN’S gas and oil reserves are running out. News this week that contracts are being secured for the purchase of huge quantities of frozen gas from Indonesia, ship-delivered over the coming decade, will come as no surprise to anyone in the business, nor in government. When gas and oil were first discovered around us, nobody knew quite how long they would last; but everybody knew they were finite. Let us tot up just a selection, a sample, of those things that nobody knows. Nobody knows how the prices of different sources of energy will move against each other in the years ahead; the higher the prices the more furiously we shall prospect for new reserves and the more worthwhile it will become to exploit existing reserves that are at present uneconomic or marginal. But one day — nobody knows when — there will be nothing left.

Nobody knows what alternative means of generating heat and power may be invented or developed, nor what breakthroughs in efficiency or cost-effectiveness may be achieved. Nobody knows how wars or civil commotions may distort or disable parts of the energy market. Nobody knows what warning we may get of any of this.

Nobody knows much. Key imponderables could wreck the most assiduously prepared spreadsheets. It is like British weather-forecasting. As any meteorologist will tell you, many variables are predictable in principle, but in practice the outcome — the weather — rides so delicately upon an interplay between so many fast-moving variables that the slightest inaccuracy in our guesses about any one of them can throw the whole forecast out.

So how do we prepare for the weather? Packing for an August week in Cornwall, do we study the forecast then on the balance of probabilities assume sunshine — or storm? No. We take sun-cream and an umbrella — and throw in the swimsuit just in case. We are all too aware, from personal experience, of how flimsy is human knowledge.

This is not anti-science, it is superior science: a calculation that gives proper weight to uncertainties, then balances the cost of providing for each possible outcome against the cost — should it occur — of having failed to provide for it. This is quite sophisticated reasoning but we engage in it, mostly unconsciously, all the time. It is common sense: perhaps the most important of all pieces of common sense: taking proper account of what we do not know.

I wonder whether the business and political culture of the century on whose threshold we stand is losing grip on this common sense: the weight we should attach to the gaps in our knowledge? J. K. Galbraith, in a new and lucid little book, The Economics of Innocent Fraud, puts it like this: “The financial world sustains a large, active, well-rewarded community, based on compelled but seemingly sophisticated ignorance, (who) . . . do not know and normally do not know that they do not know.”

I observe this to be a failing particularly prevalent among accountants. Theirs is a career at whose centre are pieces of paper or (these days) screens. On the screens are columns and boxes. Against the columns, or in the boxes, figures have to be placed. Mathematics is then performed upon the figures; and “bottom lines” are derived.

Heartsinking for an accountant are two kinds of default: a blank box, or figures that do not add up. Either default spoils his spreadsheet, and does so in a way which is straightforward, demonstrable and evident at once to his bosses and peers. There may be other people (perhaps in the world beyond his business) who might question the contents of one or another of the boxes, or prefer that it be left blank because it is uncertain, but that is only an opinion: the accountant may feel that it is not quite his concern. A spreadsheet in which no entry is left blank and everything adds up is much to be preferred to something with white spaces all over it and no bottom line.

Thus is presented a document that gives every appearance of good information and sound numbers. Of course even this will in the end be tested against reality: bankruptcy is also part of an accountant’s experience. But when that happens an accountant’s instinct will often be to conclude that the world has failed his spreadsheet rather than the other way round. One of his neat boxes was badly let down by something — a war, a flood, an economic downturn — which nobody could have predicted. Too bad.

An engineer’s existence has at its centre something quite different. Damns can break, bridges can fall, planes can crash, power can fail. When this happens it is often, immediately (and sometimes dramatically) the engineer’s fault. Engineers use spreadsheets too, but if an empty box on a spreadsheet cannot be filled without guesswork then the engineer feels a more lively sense of dread than the accountant.

We live in a world of boardrooms where, in authority if not in numbers, the accountants have taken over from the engineers. The bean-counters rule.

I offer energy as an example. Any fool can see that enormous uncertainties attend Britain’s (and the West’s) future supplies of hydrocarbons. “Alternative” has such a silly ring these days, suggesting yoghurt and Morris dancing, so let us say “other”: any fool can see that in a broad and general sort of way, for broad and general sorts of reasons, we should be pushing urgently ahead with the development and use of other sources of power.

We fools cannot point you to the box, or the number in the box, that clinches our case. No single calculation clinches our case. Just at present, the accountants’ case against wind power is quite strong, but who knows what economies of scale and the refinement of technology may do to alter that? The accountants argue that nuclear power has been, in accountants’ terms, a disappointment, but who knows how fast (in an oil crisis) the real bottom line would emerge as being not kilowatts-per-dollar, but the availability of any power at all.

In the ancient house in Catalonia, l’Avenc, which my family and I are restoring, we are experimenting with solar power (photovoltaic panels) and wind power, starting with the first, which has proved an unexpected success, efficient and reliable even in winter. We have no doubt at all that when the capital cost of our “green energy” project is finally summed, we shall find it would have been cheaper to bring in the pylons and the national grid; but the company installing our system has never had a job like this before and little of what we need is mass-produced. We are paying — as this generation should pay — for the groundwork.

That is so often how things start. The first householders to install electricity for domestic use will have paid much more for their systems than the generality then reliant on coal and gas. The first cars were not as good as horses. The first passenger flights were fraught with more risk, bother and expense than ocean liners. Nobody could have known whether or how fast the balance could change, but it did.

I am proud that, with new ways of generating electricity, we at l’Avenc are among the thousands of pioneers. Perhaps that is because my father (long retired) is a power engineer. He belongs to a generation of businessmen who found the challenge of meeting public (and national) demand exciting in itself. Dad was proud of projects (such as bringing power from the Kariba Dam in Central Africa) as projects, not just as contributors to British Insulated Callenders Cables ’s balance sheet.

I think of my father whenever I read that, yet again, the Transport Department has stalled the go-ahead for London’s Crossrail project on the ground that the “business case” people have not yet been able to get their numbers pointing the right way. In the end their “numbers” are speculation piled upon speculation. We know that they do not know. Modern politicians babble ceaselessly about “vision”, but a Cabinet minister with real vision would sweep the spreadsheets from his desk and look out of his window at what he does know: that Tube stations are now being shut regularly “due to overcrowding”; that the Central Line on the Underground is already a nightmare for hundreds of thousands; that London is developing fast to its east; and that congestion charging is pushing more former car-commuters towards public transport . . . and conclude that it should be our starting point, not our possible conclusion, that London urgently needs a new east-west tunnel for railway services.

Sod your calculations. Nobody knows when our metropolis’s daily mini-crises on the Underground will turn into a general seizure, but everybody knows that they will. Nobody knows when the crude oil will stop flowing, but everybody knows that it will. How dare Tory (or new Labour) Thatcherites prate about Victorian values as they configure and reconfigure themselves up their own spreadsheets? Our predecessors saw the primacy of grand design; they knew the secret softness of “ hard” figures. They did not lose too much sleep over spreadsheet projections. They guessed.

Most decisions turn out to have been based on wrong projections. It matters not. What matters is to make the right decision. We should not be ashamed to guess.