Which leader of a large financial services company recently confessed to shareholders of “a very expensive business fiasco entirely of his own making”? The executives of many companies owe their investors that kind of apology. But mostly their statements make extensive references to unprecedented turmoil in the financial world, challenging market conditions and the dangers of historic errors of regulation. You will find an occasional expression of regret for what has happened. That is not quite the same as regret for what one has oneself done.
The company in question seems to have responded well to the challenging conditions. It is led, of course, by Warren Buffett. He has publicly admitted defeat in Berkshire Hathaway’s withdrawal from the credit card business after substantial losses.
The Sage of Omaha’s investment record, and the adulation of his supporters, is such that he could now own up to the assassination of Abraham Lincoln and be cheered to the rafters. You might think that past success makes it easier to admit present failure, but you more often find the reverse: many people in senior positions take the view that their past achievements simply confirm their own assessment of their extraordinary prescience.
Mr Buffett’s capacity to admit error predates his popular fame. The Berkshire Hathaway annual report of 25 years ago uses similar language to describe the company’s belated closure of the textile business whose name it still bears. “I was very wrong,” said Mr Buffett. “I ignored Comte’s advice – the intellect should be the servant of the heart but not its slave – and believed what I preferred to believe.”
George Soros is another celebrated investor ready to admit to being wrong: “With regard to events in the real world, my [forecasting] record is downright dismal. The outstanding feature of my predictions is that I keep on expecting developments that do not materialise.” This quotation dates from the 1980s, before Mr Soros became a household name. The ability to recognise errors seems more likely to be a reason for the success of these men than a product of it.
To learn from mistakes, you must first acknowledge them. One of Gordon Brown’s many problems is that a world in which no errors have been made in economic and fiscal policy since 1997 is so divergent from reality. The British prime minister’s evidence to the Iraq inquiry is succinctly summarised by the title of a fine recent book by the social psychologists Carol Tavris and Elliot Aronson: Mistakes Were Made (But Not By Me).
Ms Tavris and Prof Aronson document our susceptibility to confirmation bias. Like the Climategate scientists, we review the evidence not to search for the truth, but to support propositions we have already persuaded ourselves are true. Worse, we rewrite history to fit our current perceptions. As Nietzsche described it: “ ‘I have done that,’ says my memory. ‘I cannot have done that,’ says my pride, and remains inexorable.” We do not acknowledge our mistakes because we have genuinely persuaded ourselves we did not make them.
So Dick Fuld of Lehman Brothers can without irony assert that “based on the information that we had at the time, I believed that these decisions were both prudent and appropriate”. The furthest the chief executive of the bankrupt company would go was to acknowledge that “with the benefit of hindsight, would I have done things differently? Yes, I would have.” Alan Schwartz, former Bear Stearns chief executive, would not go so far: “I just simply have not been able to come up with anything, even with the benefit of hindsight, that would have made a difference.”
Throughout the credit crunch, mistakes were made, by bankers, politicians, regulators. But not by me. George Santayana, the Spanish philosopher, famously remarked that “when experience is not retained, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.” If we learn no other lesson from the events of the past decade, we will be fated to learn that one.