Our economy these days seems to be in free fall – we hear one bad new story after another, and at the end of all those stories are ordinary people, fearful of the future and in many cases, devoid of hope. I like to remind people that this is not a natural disaster – there was no earthquake, flood or drought. No, rather this was a failure in our collective thinking. I live in the beautiful city of Vancouver, and for the past 5 years or so I have heard many people (mostly home-owners) declare that Vancouver property “just goes up and up”. Talk of a bubble was immediately dismissed – how can there be a bubble after all? – this is one of the world’s most desirable places to live!

In mid-2005 The Economist’s main story was entitled “After the fall”, and the cover showed a falling brick inscribed with the message “house prices”. In this article they pretty much predicted that house prices would eventually crack worldwide and that it would lead to the current state of world affairs, which is still unfolding. The only problem is far more people chose to believe what was mainstream and convenient at the time, versus trying to get their head around a technical article like that. Most people don’t realise that in inflation adjusted dollars, North American house prices were essentially unchanged from 1890 to 2001, as evidenced by the Case-Schiller home price index.

This is how thinking failures occur. People have a natural tendency to focus on the short term versus the long term, and fail to anticipate what is around the corner and over the horizon. It is far easier to believe what is mainstream and in many cases convenient.

Being able to anticipate events and to understand connections between seemingly disparate data is actually a leadership skill. Some call it strategic thinking, while others call it critical or systems thinking. Leaders who have this competency are more likely to do the right things over the long term. In fact studies have shown that this ability is more highly correlated with successful leaders than any other competency. It can be learned, but only by those who have self-awareness (like any other leadership skill). To understand to what extent you are able to think strategically, ask yourself:

a) Did you believe that Vancouver’s rise in housing prices would continue, or “stabilize” at some value at over 2.5 times the 2003 prices?

b) Did you anticipate the impact of the bursting asset bubble on your own business?

c) Do you believe that human needs can be fulfilled in the long term through trading off and our environmental heritage?

I’ve asked these three questions for some good reasons. The first question concerns our ability to think strategically and critically, versus “following the herd”. The second question concerns our ability to adjust our plans to cope with anticipated events – the more change can be anticipated, the less painful the adjustment.

The third is the ultimate test – we are often told that environmental considerations must be subservient to immediate human needs such as jobs, putting food on the table and paying the mortgage. Systems thinking theory tells us that human well-being will become progressively worse if the environment continues to deteriorate, so that environmental concerns actually do need to come first. What is bad for the fish is ultimately bad for the fishermen too.

Russel Horwitz, Principal