---
created_at: '2016-11-05T16:57:29.000Z'
title: A Country Is Not a Company (1996)
url: https://hbr.org/1996/01/a-country-is-not-a-company&cm_sp=Article-_-Links-_-Top%20of%20Page%20Recirculation
author: seanalltogether
points: 67
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num_comments: 23
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objectID: '12880598'

---
![JAN15\_22](/resources/images/article_assets/1996/01/JAN15_22.jpg)

Carlo Giambarresi

College students who plan to go into business often major in economics,
but few believe that they will end up using what they hear in the
lecture hall. Those students understand a fundamental truth: What they
learn in economics courses won’t help them run a business.

The converse is also true: What people learn from running a business
won’t help them formulate economic policy. A country is not a big
corporation. The habits of mind that make a great business leader are
not, in general, those that make a great economic analyst; an executive
who has made $1 billion is rarely the right person to turn to for advice
about a $6 trillion economy.

Why should that be pointed out? After all, neither businesspeople nor
economists are usually very good poets, but so what? Yet many people
(not least successful business executives themselves) believe that
someone who has made a personal fortune will know how to make an entire
nation more prosperous. In fact, his or her advice is often disastrously
misguided.

Many people believe that someone who has made a personal fortune will
know how to make an entire nation more prosperous.

I am not claiming that business-people are stupid or that economists are
particularly smart. On the contrary, if the 100 top U.S. business
executives got together with the 100 leading economists, the least
impressive of the former group would probably outshine the most
impressive of the latter. My point is that the style of thinking
necessary for economic analysis is very different from that which leads
to success in business. By understanding that difference, we can begin
to understand what it means to do good economic analysis and perhaps
even help some businesspeople become the great economists they surely
have the intellect to be.

Let me begin with two examples of economic issues that I have found
business executives generally do not understand: first, the relationship
between exports and job creation, and, second, the relationship between
foreign investment and trade balances. Both issues involve international
trade, partly because it is the area I know best but also because it is
an area in which businesspeople seem particularly inclined to make false
analogies between countries and corporations.

## Exports and Jobs

Business executives consistently misunderstand two things about the
relationship between international trade and domestic job creation.
First, since most U.S. business-people support free trade, they
generally agree that expanded world trade is good for world employment.
Specifically, they believe that free trade agreements such as the
recently concluded General Agreement on Tariffs and Trade are good
largely because they mean more jobs around the world. Second,
businesspeople tend to believe that countries compete for those jobs.
The more the United States exports, the thinking goes, the more people
we will employ, and the more we import, the fewer jobs will be
available. According to that view, the United States must not only have
free trade but also be sufficiently competitive to get a large
proportion of the jobs that free trade creates.

Do those propositions sound reasonable? Of course they do. This sort of
rhetoric dominated the last U.S. presidential election and will likely
be heard again in the upcoming race. However, economists in general do
not believe that free trade creates more jobs worldwide (or that its
benefits should be measured in terms of job creation) or that countries
that are highly successful exporters will have lower unemployment than
those that run trade deficits.

Why don’t economists subscribe to what sounds like common sense to
businesspeople? The idea that free trade means more global jobs seems
obvious: More trade means more exports and therefore more export-related
jobs. But there is a problem with that argument. Because one country’s
exports are another country’s imports, every dollar of export sales is,
as a matter of sheer mathematical necessity, matched by a dollar of
spending shifted from some country’s domestic goods to imports. Unless
there is some reason to think that free trade will increase total world
spending—which is not a necessary outcome—overall world demand will not
change.

Moreover, beyond this indisputable point of arithmetic lies the question
of what limits the overall number of jobs available. Is it simply a
matter of insufficient demand for goods? Surely not, except in the very
short run. It is, after all, easy to increase demand. The Federal
Reserve can print as much money as it likes, and it has repeatedly
demonstrated its ability to create an economic boom when it wants to.
Why, then, doesn’t the Fed try to keep the economy booming all the time?
Because it believes, with good reason, that if it were to do so—if it
were to create too many jobs—the result would be unacceptable and
accelerating inflation. In other words, the constraint on the number of
jobs in the United States is not the U.S. economy’s ability to generate
demand, from exports or any other source, but the level of unemployment
that the Fed thinks the economy needs in order to keep inflation under
control.

That is not an abstract point. During 1994, the Fed raised interest
rates seven times and made no secret of the fact that it was doing so to
cool off an economic boom that it feared would create too many jobs,
overheat the economy, and lead to inflation. Consider what that implies
for the effect of trade on employment. Suppose that the U.S. economy
were to experience an export surge. Suppose, for example, that the
United States agreed to drop its objections to slave labor if China
agreed to buy $200 billion worth of U.S. goods. What would the Fed do?
It would offset the expansionary effect of the exports by raising
interest rates; thus any increase in export-related jobs would be more
or less matched by a loss of jobs in interest-rate-sensitive sectors of
the economy, such as construction. Conversely, the Fed would surely
respond to an import surge by lowering interest rates, so the direct
loss of jobs to import competition would be roughly matched by an
increased number of jobs elsewhere.

Even if we ignore the point that free trade always increases world
imports by exactly as much as it increases world exports, there is still
no reason to expect free trade to increase U.S. employment, nor should
we expect any other trade policy, such as export promotion, to increase
the total number of jobs in our economy. When the U.S. secretary of
commerce returns from a trip abroad with billions of dollars in new
orders for U.S. companies, he may or may not be instrumental in creating
thousands of export-related jobs. If he is, he is also instrumental in
destroying a roughly equal number of jobs elsewhere in the economy. The
ability of the U.S. economy to increase exports or roll back imports has
essentially nothing to do with its success in creating jobs.

Needless to say, this argument does not sit well with business
audiences. (When I argued on one business panel that the North American
Free Trade Agreement would have no effect, positive or negative, on the
total number of jobs in the United States, one of my fellow panelists—a
NAFTA supporter—reacted with rage: “It’s comments like that that explain
why people hate economists\!”) The job gains from increased exports or
losses from import competition are tangible: You can actually see the
people making the goods that foreigners buy, the workers whose factories
were closed in the face of import competition. The other effects that
economists talk about seem abstract. And yet if you accept the idea that
the Fed has both a jobs target and the means to achieve it, you must
conclude that changes in exports and imports have little effect on
overall employment.

## Investment and the Trade Balance

Our second example, the relationship between foreign investment and
trade balances, is equally troubling to businesspeople. Suppose that
hundreds of multinational companies decide that a country is an ideal
manufacturing site and start pouring billions of dollars a year into the
country to build new plants. What happens to the country’s trade
balance? Business executives, almost without exception, believe that the
country will start to run trade surpluses. They are generally
unconvinced by the economist’s answer that such a country will
necessarily run large trade deficits.

It’s easy to see where the business-people’s answer comes from. They
think of their own companies and ask what would happen if capacity in
their industries suddenly expanded. Clearly their companies would import
less and export more. If the same story is played out in many
industries, surely this would mean a shift toward a trade surplus for
the economy as a whole.

The economist knows that just the opposite is true. Why? Because the
balance of trade is part of the balance of payments, and the overall
balance of payments of any country—the difference between its total
sales to foreigners and its purchases from foreigners—must always be
zero.1 Of course, a country can run a trade deficit or surplus. That is,
it can buy more goods from foreigners than it sells or vice versa. But
that imbalance must always be matched by a corresponding imbalance in
the capital account. A country that runs a trade deficit must be selling
foreigners more assets than it buys; a country that runs a surplus must
be a net investor abroad. When the United States buys Japanese
automobiles, it must be selling something in return; it might be Boeing
jets, but it could also be Rockefeller Center or, for that matter,
Treasury bills. That is not just an opinion that economists hold; it is
an unavoidable accounting truism.

So what happens when a country attracts a lot of foreign investment?
With the inflow of capital, foreigners are acquiring more assets in that
country than the country’s residents are acquiring abroad. But that
means, as a matter of sheer accounting, that the country’s imports must,
at the same time, exceed its exports. A country that attracts large
capital inflows will necessarily run a trade deficit.

A country that attracts a lot of foreign investment will necessarily run
a trade deficit.

But that is just accounting. How does it happen in practice? When
companies build plants, they will purchase some imported equipment. The
investment inflow may spark a domestic boom, which leads to surging
import demand. If the country has a floating exchange rate, the
investment inflow may drive up the currency’s value; if the country’s
exchange rate is fixed, the result may be inflation. Either scenario
will tend to price the country’s goods out of export markets and
increase its imports. Whatever the channel, the outcome for the trade
balance is not in doubt: Capital inflows must lead to trade deficits.

Consider, for example, Mexico’s recent history. During the 1980s, nobody
would invest in Mexico and the country ran a trade surplus. After 1989,
foreign investment poured in amid new optimism about Mexico’s prospects.
Some of that money was spent on imported equipment for Mexico’s new
factories. The rest fueled a domestic boom, which sucked in imports and
caused the peso to become increasingly overvalued. That, in turn,
discouraged exports and prompted many Mexican consumers to purchase
imported goods. The result: Massive capital inflows were matched by
equally massive trade deficits.

Then came the peso crisis of December 1994. Once again, investors were
trying to get out of Mexico, not in, and the scenario ran in reverse. A
slumping economy reduced the demand for imports, as did a newly devalued
peso. Meanwhile, Mexican exports surged, helped by a weak currency. As
any economist could have predicted, the collapse of foreign investment
in Mexico has been matched by an equal and opposite move of Mexican
trade into surplus.

But like the proposition that expanded exports do not mean more
employment, the necessary conclusion that countries attracting foreign
investment typically run trade deficits sits poorly with business
audiences. The specific ways in which foreign investment might worsen
the trade balance seem questionable to them. Will investors really spend
that much on imported equipment? How do we know that the currency will
appreciate or that, if it does, exports will decrease and imports will
increase? At the root of the businessperson’s skepticism is the failure
to understand the force of the accounting, which says that an inflow of
capital must—not might—be accompanied by a trade deficit.

In each of the above examples, there is no question that the economists
are right and the business-people are wrong. But why do the arguments
that economists find compelling seem deeply implausible and even
counterintuitive to businesspeople?

There are two answers to that question. The shallow answer is that the
experiences of business life do not generally teach practitioners to
look for the principles that underlie economists’ arguments. The deeper
answer is that the kinds of feedback that typically arise in an
individual business are both weaker than and different from the kinds of
feedback that typically arise in the economy as a whole. Let me analyze
each of these answers in turn.

## The Parable of the Paralyzed Centipede

Every once in a while, a highly successful businessperson writes a book
about what he or she has learned. Some of these books are memoirs: They
tell the story of a career through anecdotes. Others are ambitious
efforts to describe the principles on which the great person’s success
was based.

Almost without exception, the first kind of book is far more successful
than the second, not only in terms of sales but also in terms of its
reception among serious thinkers. Why? Because a corporate leader
succeeds not by developing a general theory of the corporation but by
finding the particular product strategies or organizational innovations
that work. There have been some business greats who have attempted to
codify what they know, but such attempts have almost always been
disappointing. George Soros’s book told readers very little about how to
be another George Soros; and many people have pointed out that Warren
Buffett does not, in practice, invest the Warren Buffett Way. After all,
a financial wizard makes a fortune not by enunciating general principles
of financial markets but by perceiving particular, highly specific
opportunities a bit faster than anyone else.

A corporate leader succeeds by finding the right strategies, not by
developing a theory of the corporation.

Indeed, great business executives often seem to do themselves harm when
they try to formalize what they do, to write it down as a set of
principles. They begin to behave as they think they are supposed to,
whereas their previous success was based on intuition and a willingness
to innovate. One is reminded of the old joke about the centipede who was
asked how he managed to coordinate his 100 legs: He started thinking
about it and could never walk properly again.

Yet even if a business leader may not be very good at formulating
general theories or at explaining what he or she does, there are still
those who believe that the businessperson’s ability to spot
opportunities and solve problems in his or her own business can be
applied to the national economy. After all, what the president of the
United States needs from his economic advisers is not learned tracts but
sound advice about what to do next. Why isn’t someone who has shown
consistently good judgment in running a business likely to give the
president good advice about running the country? Because, in short, a
country is not a large company.

Many people have trouble grasping the difference in complexity between
even the largest business and a national economy. The U.S. economy
employs 120 million people, about 200 times as many as General Motors,
the largest employer in the United States. Yet even this 200-to-1 ratio
vastly understates the difference in complexity between the largest
business organization and the national economy. A mathematician will
tell us that the number of potential interactions among a large group of
people is proportional to the square of their number. Without getting
too mystical, it is likely that the U.S. economy is in some sense not
hundreds but tens of thousands of times more complex than the biggest
corporation.

Moreover, there is a sense in which even very large corporations are not
all that diverse. Most corporations are built around a core competence:
a particular technology or an approach to a particular type of market.
As a result, even a huge corporation that seems to be in many different
businesses tends to be unified by a central theme.

The U.S. economy, in contrast, is the ultimate nightmare conglomerate,
with tens of thousands of utterly distinct lines of business, unified
only because they happen to be within the nation’s borders. The
experience of a successful wheat farmer offers little insight into what
works in the computer industry, which, in turn, is probably not a very
good guide to successful strategies for a chain of restaurants.

The U.S. economy is the ultimate conglomerate, with tens of thousands of
distinct lines of business.

How, then, can such a complex entity be managed? A national economy must
be run on the basis of general principles, not particular strategies.
Consider, for example, the question of tax policy. Responsible
governments do not impose taxes targeted at particular individuals or
corporations or offer them special tax breaks. In fact, it is rarely a
good idea for governments even to design tax policy to encourage or
discourage particular industries. Instead, a good tax system obeys the
broad principles developed by fiscal experts over the years—for example,
neutrality between alternative investments, low marginal rates, and
minimal discrimination between current and future consumption.

Why is that a problem for businesspeople? After all, there are many
general principles that also underlie the sound management of a
corporation: consistent accounting, clear lines of responsibility, and
so on. But many businesspeople have trouble accepting the relatively
hands-off role of a wise economic policy-maker. Business executives must
be proactive. It is hard for someone used to that role to realize how
much more difficult—and less necessary—this approach is for national
economic policy.

Consider, for example, the question of promoting key business areas.
Only an irresponsible CEO would not try to determine which new areas
were essential to the company’s future; a CEO who left investment
decisions entirely to individual managers running independent profit
centers would not be doing the job. But should a government decide on a
list of key industries and then actively promote them? Quite aside from
economists’ theoretical arguments against industrial targeting, the
simple fact is that governments have a terrible track record at judging
which industries are likely to be important. At various times,
governments have been convinced that steel, nuclear power, synthetic
fuels, semiconductor memories, and fifth-generation computers were the
wave of the future. Of course, businesses make mistakes, too, but they
do not have the extraordinarily low batting average of government
because great business leaders have a detailed knowledge of and feel for
their industries that nobody—no matter how smart—can have for a system
as complex as a national economy.

Still, the idea that the best economic management almost always consists
of setting up a good framework and then leaving it alone doesn’t make
sense to businesspeople, whose instinct is, as Ross Perot put it, to
“lift up the hood and get to work on the engine.”

## Going Back to School

In the scientific world, the syndrome known as “great man’s disease”
happens when a famous researcher in one field develops strong opinions
about another field that he or she does not understand, such as a
chemist who decides that he is an expert in medicine or a physicist who
decides that he is an expert in cognitive science. The same syndrome is
apparent in some business leaders who have been promoted to economic
advisers: They have trouble accepting that they must go back to school
before they can make pronouncements in a new field.

The general principles on which an economy must be run are different—not
harder to understand, but different—from those that apply to a business.
An executive who is thoroughly comfortable with business accounting does
not automatically know how to read national income accounts, which
measure different things and use different concepts. Personnel
management and labor law are not the same thing; neither are corporate
financial control and monetary policy. A business leader who wants to
become an economic manager or expert must learn a new vocabulary and set
of concepts, some of them unavoidably mathematical.

That is hard for a business leader, especially one who has been very
successful, to accept. Imagine a person who has mastered the
complexities of a huge industry, who has run a multibillion-dollar
enterprise. Is such a person, whose advice on economic policy may well
be sought, likely to respond by deciding to spend time reviewing the
kind of material that is covered in freshman economics courses? Or is he
or she more likely to assume that business experience is more than
enough and that the unfamiliar words and concepts economists use are
nothing but pretentious jargon?

Will a business leader want to review material taught in freshman
economics courses?

Of course, in spite of the examples I gave earlier, many readers may
still believe that the second response is the more sensible one. Why
does economic analysis require different concepts, a completely
different way of thinking, than running a business? To answer that
question, I must turn to the deeper difference between good business
thinking and good economic analysis.

The fundamental difference between business strategy and economic
analysis is this: Even the largest business is a very open system;
despite growing world trade, the U.S. economy is largely a closed
system. Businesspeople are not used to thinking about closed systems;
economists are.

Even the largest business is a very open system; a national economy is a
closed system.

Let me offer some noneconomic examples to illustrate the difference
between closed and open systems. Consider solid waste. Every year, the
average American generates about half a ton of solid waste that cannot
be recycled or burned. What happens to it? In many communities, it is
sent somewhere else. My town requires that every resident subscribe to a
private disposal service but provides no landfill site; the disposal
service pays a fee to some other community for the right to dump our
garbage. This means that the garbage pickup fees are higher than they
would be if the town set aside a landfill site, but the town government
has made that choice: It is willing to pay so that it won’t have an
unsightly dump within its borders.

For an individual town, that choice is feasible. But could every town
and county in the United States make the same choice? Could we all
decide to send our garbage somewhere else? Of course not (leaving aside
the possibility of exporting garbage to the Third World). For the United
States as a whole, the principle “garbage in, garbage out” applies
literally. The country can make choices about where to bury its solid
waste but not about whether to bury it at all. That is, in terms of
solid waste disposal, the United States is more or less a closed system,
even though each town is an open system.

That’s a fairly obvious example. Here is another, perhaps less obvious
one. At one point in my life, I was a “park-and-ride” commuter: Every
morning, I would drive to a large parking garage and then take public
transportation downtown. Unfortunately, the garage was not large enough.
It consistently filled up, forcing late commuters to continue driving
all the way to work. I soon learned, however, that I could always find a
parking space if I arrived by about 8:15.

In this case, each individual commuter constituted an open system: He or
she could find a parking space by arriving early. But the group of
commuters as a whole could not do the same. If everyone tried to get a
space by arriving earlier, the garage would only fill up sooner\!
Commuters as a group constituted a closed system, at least as far as
parking was concerned.

What does this have to do with business versus economics?
Businesses—even very large corporations—are generally open systems.
They can, for example, increase employment in all their divisions
simultaneously; they can increase investment across the board; they can
seek a higher share of all their markets. Admittedly, the borders of the
organization are not wide open. A company may find it difficult to
expand rapidly because it cannot attract suitable workers fast enough or
because it is unable to raise enough capital. An organization may find
it even more difficult to contract, because it is reluctant to fire good
employees. But we find nothing remarkable in a corporation whose market
share doubles or halves in just a few years.

By contrast, a national economy—especially that of a very large country
like the United States—is a closed system. Could all U.S. companies
double their market shares over the next ten years?2 Certainly not, no
matter how much their managements improved. For one thing, in spite of
growing world trade, more than 70% of U.S. employment and value-added is
in industries, such as retail trade, that neither export nor face import
competition. In those industries, one U.S. company can increase its
market share only at the expense of another.

In industries that do enter into world trade, U.S. companies as a group
can increase their market share, but they must do so by either
increasing exports or driving down imports. Any increase in their market
share would therefore mean a move into trade surplus; and, as we have
already seen, a country that runs a trade surplus is necessarily a
country that exports capital. A little arithmetic tells us that if the
average U.S. company were to expand its share of the world market by as
little as five percentage points, the United States, which is currently
a net importer of capital from the rest of the world, would have to
become a net exporter of capital on a scale never before seen. If you
think this is an implausible scenario, you must also believe that U.S.
companies cannot increase their combined share of the market by more
than a percentage point or two, no matter how well run they are.

Businesspeople have trouble with economic analysis because they are
accustomed to thinking about open systems. To return to our two
examples, a businessperson looks at the jobs directly created by exports
and sees those as the most important part of the story. He or she may
acknowledge that higher employment leads to higher interest rates, but
this seems an iffy, marginal concern. What the economist sees, however,
is that employment is a closed system: Workers who gain jobs from
increased exports, like park-and-ride commuters who secure parking
spaces by arriving at the garage early, must gain those positions at
someone else’s expense.

And what about the effect of foreign investment on the trade balance?
Again, the business executive looks at the direct effects of investment
on competition in a particular industry; the effects of capital flows on
exchange rates, prices, and so on do not seem particularly reliable or
important. The economist knows, however, that the balance of payments is
a closed system: The inflow of capital is always matched by the trade
deficit, so any increase in that inflow must lead to an increase in that
deficit.

## Feedbacks in Business and Economics

Another way of looking at the difference between companies and economies
may help explain why great business executives are often wrong about
economics and why certain economic ideas are more popular with
businesspeople than others: Open systems like companies typically
experience a different kind of feedback than closed systems like
economies.

This concept is best explained by hypothetical example. Imagine a
company that has two main lines of business: widgets and gizmos. Suppose
that this company experiences unexpected growth in its sales of widgets.
How will that growth affect the sales of the company as a whole? Will
increased widget sales end up helping or hurting the gizmo business? The
answer in many cases will be that there is not much effect either way.
The widget division will simply hire more workers, the company will
raise more capital, and that will be that.

The story does not necessarily end here, of course. Expanded widget
sales could either help or hurt the gizmo business in several ways. On
one hand, a profitable widget business could help provide the cash flow
that finances expansion in gizmos; or the experience gained from success
in widgets may be transferable to gizmos; or the growth of the company
may allow R\&D efforts that benefit both divisions. On the other hand,
rapid expansion may strain the company’s resources, so that the growth
of widgets may come to some extent at the gizmo division’s expense. But
such indirect effects of the growth of one part of the company on the
success of the other are both ambiguous in principle and hard to judge
in practice; feedbacks among different lines of business, whether they
involve synergy or competition for resources, are often elusive.

By contrast, consider a national economy that finds one of its major
exports growing rapidly. If that industry increases employment, it will
typically do so at the expense of other industries. If the country does
not at the same time reduce its inflows of capital, the increase in one
export must be matched by a reduction in other exports or by an increase
in imports because of the balance of payments accounting discussed
earlier. That is, there will most likely be strong negative feedbacks
from the growth of that export to employment and exports in other
industries. Indeed, those negative feedbacks will ordinarily be so
strong that they will more or less completely eliminate any improvements
in overall employment or the trade balance. Why? Because employment and
the balance of payments are closed systems.

In the open-system world of business, feedbacks are often weak and
almost always uncertain. In the closed-system world of economics,
feedbacks are often very strong and very certain. But that is not the
whole difference. The feedbacks in the business world are often
positive; those in the world of economic policy are usually, though not
always, negative.

Again, compare the effects of an expanding line of business in a
corporation and in a national economy. Success in one line of business,
which expands the company’s financial, technological, or marketing base,
often helps a company expand in other lines. That is, a company that
does well in one area may end up hiring more people in other areas. But
an economy that produces and sells many goods will normally find
negative feedbacks among economic sectors: Expansion of one industry
pulls resources of capital and labor away from other industries.

There are, in fact, examples of positive feedbacks in economics. They
are often evident within a particular industry or group of related
industries, especially if those industries are geographically
concentrated. For example, the emergence of London as a financial center
and of Hollywood as an entertainment center are clearly cases of
positive feedback at work. However, such examples are usually limited to
particular regions or industries; at the level of the national economy,
negative feedback generally prevails. The reason should be obvious: An
individual region or industry is a far more open system than the economy
of the United States as a whole, let alone the world economy. An
individual industry or group of industries can attract workers from
other sectors of the economy; so if an individual industry does well,
employment may increase not only in that industry but also in related
industries, which may further reinforce the success of the first
industry, and so on. Thus if one looks at a particular industrial
complex, one may well see positive feedback at work. But for the economy
as a whole, those localized positive feedbacks must be more than matched
by negative feedbacks elsewhere. Extra resources pulled into any one
industry or cluster of industries must come from somewhere, which means
from other industries.

Businesspeople are not accustomed to or comfortable with the idea of a
system in which there are strong negative feedbacks. In particular, they
are not at all comfortable with the way in which effects that seem weak
and uncertain from the point of view of an individual company or
industry—such as the effect of reduced hiring on average wages or of
increased foreign investment on the exchange rate—become crucially
important when one adds up the impact of policies on the national
economy as a whole.

## What’s a President to Do?

In a society that respects business success, political leaders will
inevitably—and rightly—seek the advice of business leaders on many
issues, particularly those that involve money. All we can ask is that
both the advisers and the advisees have a proper sense of what business
success does and does not teach about economic policy.

In 1930, as the world slid into depression, John Maynard Keynes called
for a massive monetary expansion to alleviate the crisis and pleaded for
a policy based on economic analysis rather than on the advice of bankers
committed to the gold standard or manufacturers who wanted to raise
prices by restricting output. “For—though no one will believe
it—economics is a technical and difficult subject.”3 Had his advice
been followed, the worst ravages of the Depression might have been
avoided.

Keynes was right: Economics is a difficult and technical subject. It is
no harder to be a good economist than it is to be a good business
executive. (In fact, it is probably easier, because the competition is
less intense.) However, economics and business are not the same subject,
and mastery of one does not ensure comprehension, let alone mastery, of
the other. A successful business leader is no more likely to be an
expert on economics than on military strategy.

The next time you hear business-people propounding their views about the
economy, ask yourself, Have they taken the time to study this subject?
Have they read what the experts write? If not, never mind how successful
they have been in business. Ignore them, because they probably have no
idea what they are talking about.

A version of this article appeared in the [January–February
1996](/archive-toc/3961) issue of Harvard Business Review.
