Ever heard of him? I hadn’t, until I read Malcolm Gladwell’s review of a new biography of the late 20th century economist. Look:
“The Principle of the Hiding Hand,” one of Hirschman’s many memorable essays, drew on an account of the Troy-Greenfield “folly,” and then presented an even more elaborate series of paradoxes. Hirschman had studied the enormous Karnaphuli Paper Mills, in what was then East Pakistan. The mill was built to exploit the vast bamboo forests of the Chittagong Hill Tracts. But not long after the mill came online the bamboo unexpectedly flowered and then died, a phenomenon now known to recur every fifty years or so. Dead bamboo was useless for pulping; it fell apart as it was floated down the river. Because of ignorance and bad planning, a new, multimillion-dollar industrial plant was suddenly without the raw material it needed to function.
But what impressed Hirschman was the response to the crisis. The mill’s operators quickly found ways to bring in bamboo from villages throughout East Pakistan, building a new supply chain using the country’s many waterways. They started a research program to find faster-growing species of bamboo to replace the dead forests, and planted an experimental tract. They found other kinds of lumber that worked just as well. The result was that the plant was blessed with a far more diversified base of raw materials than had ever been imagined. If bad planning hadn’t led to the crisis at the Karnaphuli plant, the mill’s operators would never have been forced to be creative. And the plant would not have been nearly as valuable as it became.
“We may be dealing here with a general principle of action,” Hirschman wrote:
Creativity always comes as a surprise to us; therefore we can never count on it and we dare not believe in it until it has happened. In other words, we would not consciously engage upon tasks whose success clearly requires that creativity be forthcoming. Hence, the only way in which we can bring our creative resources fully into play is by misjudging the nature of the task, by presenting it to ourselves as more routine, simple, undemanding of genuine creativity than it will turn out to be.
And from there Hirschman’s analysis took flight. People don’t seek out challenges, he went on. They are “apt to take on and plunge into new tasks because of the erroneously presumed absence of a challenge—because the task looks easier and more manageable than it will turn out to be.” This was the Hiding Hand principle—a play on Adam Smith’s Invisible Hand. The entrepreneur takes risks but does not see himself as a risk-taker, because he operates under the useful delusion that what he’s attempting is not risky. Then, trapped in mid-mountain, people discover the truth—and, because it is too late to turn back, they’re forced to finish the job.
“We have ended up here with an economic argument strikingly paralleling Christianity’s oft expressed preference for the repentant sinner over the righteous man who never strays from the path,” Hirschman wrote in this essay from 1967. Success grew from failure:
And essentially the same idea, even though formulated, as one might expect, in a vastly different spirit, is found in Nietzsche’s famous maxim, “That which does not destroy me, makes me stronger.” This sentence admirably epitomizes several of the histories of economic development projects in recent decades.
Gladwell writes that in studying economic development in the Third World, Hirschman noticed that adversity created resilience, and eliminating adversity could be debilitating. Wrote Hirschman:
Law and order and the absence of civil strife seem to be obvious preconditions for the gradual and patient accumulation of skills, capital and investors’ confidence that must be the foundation for economic progress. We are now told, however, that the presence of war-like Indians in North America and the permanent conflict between them and the Anglo-Saxon settlers was a great advantage, because it made necessary methodical, well-planned, and gradual advances toward an interior which always remained in close logistic and cultural contact with the established communities to the East. In Brazil, on the contrary, the backlands were open and virtually uncontested; the result was that once an excessively vast area had been occupied in an incredibly brief time span the pioneers became isolated and regressed economically and culturally.
That insight might help explain why wealthy families often decline the further they get from the generation that made all the money.
Read Gladwell’s entire review. It’ll make you want to buy the new biography, Worldly Philosopher: The Odyssey of Albert O. Hirschman, by Jeremy Adelman, a Princeton historian.