Lately I’ve noticed that there’s a significant, negative value judgment attached to being “reactive”, with the preferred mode of behaviour being “proactive” as a matter of course. In this discourse, those who act reactively seem to suffer from a lack of attention, confidence, system understanding, and foresight. And no doubt there ARE many situations where being proactive rather than reactive is a good thing – preventing problems before they arise in well-understood systems is likely to be less costly than waiting for corrective actions after the fact. But is this universally the case?
There’s a danger in generalising from this intuition and arguing that being proactive is ALWAYS the best approach. As with everything in life, we need to carefully examine our assumptions and not let ideology and dominant discourse lead us to take approaches that could, in reality, be ineffective or even exacerbate the problem.
George Cooper in his excellent book “The Origins of Financial Crisis“, pointed out one example of the dangers of proactivity in terms of macro-economic management.
The primary example here is in the demand management function of central banks. It has been widely argued that the Fed’s self-confessed “proactive” management of economic demand through interest rate manipulation contributed to the recent financial crisis. Cooper points out that the US Federal Reserve aimed to prevent recessions in the aftermath of LTCM and the dot-com crash, so “proactively” lowered interest rates to try and keep the effects of what were sector-specific bubbles from impacting demand in the broader economy. In this case, the Fed was proactive in that they weren’t responding a drop in demand in the economy after it occurred, but instead anticipating such a drop and acting before the data displayed the trend.
Unfortunately, like almost all system interventions, this produced a range of unintented consequences, most notably by continuing to encourage the expansion of private debt and thereby contributing to the US housing bubble and widening current account deficit.
The lesson here is that being proactive in systems which we don’t fully understand can dangerous – and in some circumstances more dangerous than letting the system run and reacting accordingly.
People will argue that the issue here wasn’t with proactivity per se, but with the core assumptions that guided the Fed’s actions – namely, that if inflation was low, maintaining low interests rates posed little or no danger to the economy. We now know that inflation-targeting in a world of global imbalances and low-cost exports from the emerging economies produced a blind-spot for systemic fragility associated with asset-price bubbles.
But this proves my point – when the system is misunderstood, proactivity (much like regulation) is dangerous, for it provides a false sense of security and can do real damage while failing to achieve its broader goal.
An interesting, although slightly different example of the same idea was given by Spyros Makridakis from INSEAD at the World Economic Forum on the Middle East last week in relation to healthcare. Spyros argued that research shows that it is counterproductive for men to proactively check for prostate abnormality and then routinely undergo treatment in the form of surgery or chemotherapy.
The counterintuitive point here comes from statistics that show that a very large percentage of men who die from other causes also are found to have abnormal prostates – implying that there is very little benefit from undergoing painful (and possibly impotence-producing) interventions when the statistics say you will very likely die from something completely unrelated in any event. A contentious argument, I know, but it goes to the point that focusing on proactive management of one part of a larger system (the human body) could actually undermine the broader goal (long-term health and happiness in a holistic sense).
Perhaps, as my expert partner suggested, we should drop the “proactive v reactive” dichotomy in favour being “responsive”. This is a concept that is more thoughtful and considered than being “reactive”, but yet doesn’t imply that the best approach is to pre-emptively intervene in complex systems. Among other things, this is a lesson that the US should have learned from the global financial crisis and, now I think about it, the Iraq war.