Support 100 years of independent journalism.

  1. Business
  2. Economics
22 March 2012updated 07 Sep 2021 11:12am

Failure, the awkward truth of economic growth

For Silicon Valley's "fail faster" read "too big to fail" in the City.

By Tim Harford

In 1982, In Search of Excellence was a blockbuster business book. The authors, Tom Peters and Robert Waterman, studied the world’s most excellent companies in search of wider lessons.

Yet a couple of years after the book was published, BusinessWeek weighed in with a simple cover story: “Oops! Who’s Excellent Now?” Thirteen of the 43 companies that Peters and Waterman had praised as paragons of excellence had fallen into serious financial trouble.

I’ve discovered that this sudden outbreak of failure isn’t some kind of “curse of Tom Peters”. It’s an unavoidable part of the way economic growth happens.

Around 10 per cent of American companies disappear every year – that’s not a recession year, it’s an average. They are constantly being replaced by rivals who through good management – or, often, good fortune – have figured out a way to provide a service or a product that is better and cheaper.

And this constant churn of success and failure is actually good news for the economy as a whole – compare Silicon Valley (“fail faster”) with the City (“too big to fail”). Academic work also suggests that creative destruction is real, and healthy.

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. A weekly newsletter helping you fit together the pieces of the global economic slowdown. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.

Now this is an awkward truth. The consensus in British politics today remains that government needs to learn lessons from the private sector, but we continue to draw the wrong lessons: that success comes from the profit motive, incentive-based targets, or the brilliance of business leaders.

In fact, success comes from the evolutionary process of trial and error. Outside the Darwinian world of the free market, that means rapid prototyping and piloting, carefully controlled experiments, or a more informal culture of trying new things and being prepared to acknowledge that there will be many small and awkward failures for every big achievement.

Content from our partners
How to create a responsible form of “buy now, pay later”
“Unions are helping improve conditions for drivers like me”
Transport is the core of levelling up

This is a lesson we can apply in education and policing, in fighting climate change or fighting in Afghanistan. It’s even a lesson we should take to heart in our own lives. But it’s not easy.

We voters won’t get politicians who are willing to experiment unless we show that we aren’t interested in being presented with a veneer of infallibility, covering a stagnating policy environment. As the mathematician Goro Shimura once commented, “It is very difficult to make good mistakes.”

Tim Harford will be speaking about his book “Adapt: Why Success Always Starts With Failure” at the Oxford Literary Festival (24 March – 1 April) as part of the Leadership Series supported by HSBC Premier. For more information go to www.oxfordliteraryfestival.org. The book has just been published in paperback by Abacus.