By John Richardson
It is never easy to admit you are wrong because of the loss of “face” (and for me “face” is just as much an issue in the West as it is in Asia. It just presents itself in different forms in different countries and regions). Everyone worries that their standing with their peers will suffer – and, of course, losing face goes to the very core of what keeps each of us on a psychological even keel, which is our sense of self-worth.
Then there is economic security. What is your boss going to think if you are proved wrong? Might you lose your job, your pension, your healthcare coverage etc. and what would this mean not only for you, but crucially also for your family?
There is also a second category of people out there. These are the ones who know they are peddling a set ideas that don’t make long-term sense, but don’t care because their objective is to make quick and easy money. Commodity markets, including oil and chemicals, often move on sentiment and so do equity markets. All that matters when you take this approach is that you move in and then out of these markets at the right time, before your arguments about what has driven prices or shares higher or lower are proved to be a load of bunkum.
I do worry, also, that the same applies even to planning chemicals projects. Yes, the life of a project is 20 years or more, and so it is supposed to produce returns over that period that make sense in terms of how much capital has been employed. In the perfect world, this should mean a rigorous planning process. But as a contact told me many years ago, “Before I walked into the room, where the final decision was going to be made on our polyethylene (PE) project, I knew it had already been made. The reason was that too many people had staked their careers and their reputations on it going ahead. The project proved to be a disaster.”
Is this just the way of the world? Should all of therefore just knuckle down, wise up and get on with it as we can never change any of this? Should I give this advice to my son when he has grown up, who is only eight at the moment, and so has other things on his mind right now such as Minecraft?
No, and here is why:
- This approach to the world was fine during the economic Supercycle because mistakes were more than balanced out by successes. The reason was the boost given to demand by favourable demographics in the West and in China. Commodity and equity markets, whilst always obviously erratic, were generally moving in positive directions. Volatility was there, true, but it was also manageable. And even when demographics started to worsen in the West and China, central bank economic stimulus meant that the cracks were papered over – i.e. demand was just as robust and as predictable as during the Supercycle.
- This also meant that apart from the disastrous PE project mentioned above, most chemicals and projects produced at the worst reasonable-enough, and sometimes quite spectacular, returns. So what if you brought the project on-stream 12 months too late or too early, or that it was slightly too big in scale? Getting your planning wrong didn’t really matter because, as I said, demand was both robust and for most of the time very stable.
- But all the evidence points to a very different world today. The “Black Swans” that I discussed last week were not Black Swans at all, but were predictable and interconnected events that have as much economic, social and political significance as the events that led up to both the First and Second World Wars (I pray and hope, for the sake of my son, that history doesn’t repeat itself).
- This means we have entered a period of exceptional volatility in oil, chemicals and other commodity markets, and an era where both the strength and nature of demand growth are undergoing profound long-term changes. You only have to look at what is happening in crude markets today to get my point.
- There is, as a result, no commercial room anymore for people who won’t admit when they are wrong. Of course I don’t have all the answers – and of course will continue to get lots of things wrong. But that’s the detail. The key is not losing sight of the headline drivers behind today’s New Normal, as we constantly research and revise our understanding of all the details.
I must also stress there are millions of brilliant, hardworking people out there – probably the majority – who have thought through the issues, but who simply don’t buy the New Normal.
To me, this third growth are like all those people who thought that Dr John Snow was wrong when, in 1854, he said that cholera was a water-borne disease. He didn’t get rattled when he was ridiculed, which was no easy task, but instead stuck to his calm, analytic approach, his data, and was proved right after his death. Sandra Hempel’s fantastic book on this subject is well worth reading.
If any of this comes across as arrogant – especially this last point – and so annoying, apologies. But take a deep breath. It is just that I have never been move convinced of anything else in my professional life than the New Normal.
I am here to be challenged, to be convinced that I am wrong, and I am happy to engage constructively with anyone on this subject.