Embracing Uncertainty Rather than Whining About it

Justin Fox is editorial director of the Harvard Business Review Group and author of The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

2:10 PM Friday August 6, 2010  | Comments (View)

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American business leaders have been complaining a lot lately that uncertainty is keeping them from investing and the economy from fully rebounding. Partly this is a political complaint, with the somewhat less-than-politically-neutral U.S. Chamber of Commerce taking the lead. The argument is that the ambitious legislative agenda of the Obama administration and the Democratic Congress are making it hard for businesses to know what sort of environment they'll be operating in a couple years down the road.

It is true that a government that is constantly changing the rules makes it harder for businesses and individuals to make investment decisions. But when a party takes control of the White House and both houses of Congress for the first time in 16 years, in the aftermath of an epic financial crisis, you've got to expect a certain amount of rule changing — and what we've gotten so far certainly isn't more ambitious than what an informed observer would have forecast in autumn 2008. Plus, the really big uncertainties facing the economy at the moment — are we about to fall back into recession? will housing prices ever start rising again? — aren't directly the doing of lawmakers.

The economic outlook is extremely uncertain. I've heard the we-don't-know-which-way-things-are-headed gripe recently from executives who don't have any political axe to grind. Making things even harder at many big companies are directors who, with the Lehman and AIG debacles fresh in their memories and the Enron and Worldcom ones far from forgotten, have become extremely risk averse.

And the current economic turmoil may be just the beginning. I sat in on a discussion on climate change at the Techonomy conference in California Thursday morning, and the possible medium-term scenarios bandied about ranged from a tropical planet with crocodiles at the North Pole to a new ice age brought on by pumping too much sulfur into the upper atmosphere in an attempt to cool the climate. Now that's uncertainty.

So yes, there's an awful lot that's unknown out there. But think about the feelings of relative economic certainty and confidence that prevailed in 2006, or in 1999. They turn out to have been entirely misplaced. It's the investments made in boom times like that which end up losing people the most money and sending the most companies into Chapter 11. Investing right now may seem scary and dangerous, but chances are that it's a lot less dangerous than investing three or four years ago.

Plus, investing in the face of uncertainty is what entrepreneurs do. In economist Frank Knight's classic account, this is the only sustainable source of profit in a competitive economy. More uncertainty = more potential for big profits.

That's the general attitude at Techonomy, a new event in the mountains north of Lake Tahoe that has attracted an impressive crowd of technologists/optimists, some of them multi-billionaires thanks to their past boldness (or obliviousness, if you prefer) in the face of uncertainty. Their techno-utopianism can come across as naive and on occasion a little silly — an attendee at one session on bio-engineering said the general tone reminded her of the "atoms for peace" enthusiasm of the 1950s. But it's a lot more attractive (and economically useful) than whining about uncertainty.

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var facebookXdReceiverPath = '/hbrg-main/resources/html/disqus_xd_receiver.html'; var disqus_identifier = 'http://blogs.hbr.org/fox/2010/08/embracing-uncertainty.html'; Comments Embracing Uncertainty Rather than Whining About it American business leaders have been complaining a lot lately that uncertainty is keeping them from investing and the economy from fully rebounding. Partly this is a political complaint, with the somewhat less-than-politically-neutral U.S. Chamber of Commerce taking the lead. The argument is that the ambitious legislative agenda of the Obama administration and the Democratic Congress are making it hard for businesses to know what sort of environment they'll be operating in a couple years down the road. It is true that a government that is constantly changing the rules makes it harder for businesses and individuals to make investment decisions. But when a party takes control of the White House and both houses of Congress for the first time in 16 years, in the aftermath of an epic financial crisis, you've got to expect a certain amount of rule changing — and what we've gotten so far certainly isn't more ambitious than what an informed observer would have forecast in autumn 2008. Plus, the really big uncertainties facing the economy at the moment — are we about to fall back into recession? will housing prices ever start rising again? — aren't directly the doing of lawmakers. The economic outlook is extremely uncertain. I've heard the we-don't-know-which-way-things-are-headed gripe recently from executives who don't have any political axe to grind. Making things even harder at many big companies are directors who, with the Lehman and AIG debacles fresh in their memories and the Enron and Worldcom ones far from forgotten, have become extremely risk averse. And the current economic turmoil may be just the beginning. I sat in on a discussion on climate change at the Techonomy conference in California Thursday morning, and the possible medium-term scenarios bandied about ranged from a tropical planet with crocodiles at the North Pole to a new ice age brought on by pumping too much sulfur into the upper atmosphere in an attempt to cool the climate. Now that's uncertainty. So yes, there's an awful lot that's unknown out there. But think about the feelings of relative economic certainty and confidence that prevailed in 2006, or in 1999. They turn out to have been entirely misplaced. It's the investments made in boom times like that which end up losing people the most money and sending the most companies into Chapter 11. Investing right now may seem scary and dangerous, but chances are that it's a lot less dangerous than investing three or four years ago. Plus, investing in the face of uncertainty is what entrepreneurs do. In economist Frank Knight's classic account, this is the only sustainable source of profit in a competitive economy. More uncertainty = more potential for big profits. That's the general attitude at Techonomy, a new event in the mountains north of Lake Tahoe that has attracted an impressive crowd of technologists/optimists, some of them multi-billionaires thanks to their past boldness (or obliviousness, if you prefer) in the face of uncertainty. Their techno-utopianism can come across as naive and on occasion a little silly — an attendee at one session on bio-engineering said the general tone reminded her of the "atoms for peace" enthusiasm of the 1950s. But it's a lot more attractive (and economically useful) than whining about uncertainty. var disqus_url = 'http://blogs.hbr.org/fox/2010/08/embracing-uncertainty.html'; var disqus_title = document.getElementById('disqus_post_title').innerHTML; var disqus_message = document.getElementById('disqus_post_message').innerHTML; Please enable JavaScript to view the comments powered by Disqus.

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