Why are some foresight tools more equal than others?

My work has recently brought me into contact with the world of academic foresight. The group I am working with includes not only futurists, but also people from other disciplines. The focus of the work is on foresight, so those from other disciplines are asking the not unreasonable question of foresight is about? One answer placed me in contact with Popper's Foresight Diamond (see picture), which, I have to admit, I had never encountered prior to this work. I'll leave why that is as a question for later. My first reaction to the analysis was one of deep unease.

This was followed by reference to a piece that suggested that the point of foresight was to predict change (don't agree with that) and how foresight tools are useful for thinking about the future (agree with that). In this particular piece, the author then goes on to reference the Three Horizons Model and Causal Layered Analysis. This left me deeply dissatisfied and extremely uncomfortable. It is worth tracking the source of this discomfort.

The second piece gave me a better clue to the source of the discomfort than the first, but let's start a bit further back. What is the point of foresight? For the insights into a range of emergent futures that they can provide. How do we unlock those insights? By using a range of foresight tools developed for that purpose. The key point is the range of tools because that suggests an intention worth uncovering. Tools are used because they are useful. A tool that has little utility is a fairly poor tool. It follows that if the purpose of foresight is to be useful, then it needs to embrace tools that have a high degree of utility and to discard tools that have little utility. This is right to the point.

The second piece was binary. Only the 3H Model and CLA were mentioned. The two are not equivalent in practice. The 3H Model is encountered more frequently in practice nowadays, but, outside of the public sector and a few voluntary agencies, CLA is hardly encountered at all. In the private sector it is extremely rare to encounter CLA. Why is that? I think that it can be ascribed to three factors. First, there is the relative complexity of the competing models. CLA intentionally delves into complex layers of meaning and intention. This is intuitively difficult to grasp and needs a great deal of explanation just to arrive at the starting point of a project. The 3H Model is simple and intuitive as a descriptor of change. There is the present (Horizon 1), the future (Horizon 3), and the transition between now and then (Horizon 2). Nothing more complex is needed to understand the model and it can start straight away.

The second problem area relates to what the models are looking at, their strategic intent. CLA aims to examine deeper layers of meaning that most commercial organisations are uninterested in exploring. They take the view that Jungian archetypes and bedrock stories might be interesting conversations, but they aren't exactly on message for the future running of the organisation. The 3H Model, by way of contrast, has the strategic problem as the centre of the exercise. It focuses on the problems that are worrying those who commissioned the investigation. That speaks to the third problem area - the cost of project. Because of the developmental time involved and the breadth of the staff whose input is needed on a project, CLA is far more expensive to deliver a project than the 3H Model. If resources are constrained, then the uncertainty over whether or not a tool will deliver a useful result can be minimised by using the less expensive model. The cost of writing off a project that delivered no appreciably valid or impactful results is lessened.

This is why the foresight diamond makes me feel so uneasy. It identifies a large number of foresight tools, but then ascribes to them a degree of equivalence that I consider false. I appreciate that an academic work has to include all possible outcomes for the sake of completeness. I imagine the peer reviewers looking carefully at what had been excluded. However, the final result is misleading because not all tools have an equivalence. Perhaps that's why I hadn't encountered the foresight diamond before? As a practitioner, it has very little of use for me. 

If the foresight diamond were to be reworked as a word cloud, with the size of the entry determined by the frequency that it is encountered in practice, then I wouldn't mind betting that virtually all of the diamond would be occupied by the 2x2 Matrix. The 2x2 Matrix is by far the most commonly encountered foresight tool. It is easy to understand, it is quick to deploy, and useful results can be derived with fairly minimal cost. Whereas the 3H Model might yield useful results over an afternoon, the 2x2 Matrix can yield useful results over a cup of tea. If a 2x2 Matrix doesn't yield useful results, you will have lost a tea break. If a CLA project doesn't yield useful results, you will have lost a much greater sum of resources, be they time or money. This is why I am rebelling against the foresight diamond. It creates a false equivalence between foresight tools.

Coming back to the original question, why are some foresight tools more equal than others? One reason is that some foresight tools have a much lower cost to generate more useful results than others. These are the ones more frequently encountered in practice. This helps managing the uncertainty around the ability of different tools to generate useful results because the cost of a write off of results that aren't useful is much lower. I'm afraid to say that, at the end of the day, money talks.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Are we the architects of our own future?

There tends to be two extremes of thought when it comes to agency about the future. There are those who believe that the future just happens to us, that there is little agency in the future we experience, and that the future can almost be random at times. At the other end of the spectrum are those who take the view that we have an high degree of agency in creating our own future. We can see things coming and prepare for them, we can control the factors of our lives that influence our future, and we can exercise choice over the options in front of us. Is one of these views correct? Or can we reconcile the position so that both can be correct?

It is useful to distinguish between microfutures and macrofutures. Microfutures are those aspects of the future that can be controlled through a degree of personal agency. It generally involves a degree of personal choice and whilst some choices close pathways into the future, that is a choice in which there is a high degree of personal agency. This ensures that the spread of choice you face can be very wide indeed. For example, in thinking about a career path, you could choose to become a doctor or you could choose to become an accountant. However, there are very few doctors who are qualified accountants, which suggests that if you choose one course of action, then the other becomes closed to you. It's not impossible to re-train from the one to the other, but it is very lengthy and expensive, which is possibly why so few do. Either way, as the future is malleable, we can prepare and plan for it. In this sense, there is a point to the study of the future. 

Macrofutures are something yet again. These are those aspects of the future where you cannot change anything. They simply happen to you. There is very little personal agency over macrofutures because they are caused by factors beyond your control. This makes the choices available to you very limited. For example, you might decide to buy a property in London, and then find that your firm wants you to move to Newcastle. The choice you then face is almost binary - change jobs or move to Newcastle. You could try to add in extra options, such as exploring the commute to Newcastle or weekly lodging in Newcastle. However, that is an attempt to take a macrofuture - one that is handed to you - and convert it into a microfuture - one that you can create. With macrofutures, the future is one that is given, almost like fate. In this sense, there is no point to the study of the future from a personal perspective because it will happen anyway.

This raises an important question about our ability to create our own future and the role that luck plays in this. Lucky chance can help or impede one's future. It can blow events to your favour and it can blow them to your disadvantage. Placing chance in the context of microfutures and macrofutures is an interesting exercise. Chance in microfutures is an element that you can prepare for and anticipate, either to enhance a positive turn of events or to counter a negative turn of events. The impact of chance in macrofutures - to the degree that it cannot be controlled by your agency - is an altogether different matter.

In the environment of microfutures, a chance event can be moulded to suit your wishes. In a macrofuture environment, there is little you can do about it. You might want to insure against an adverse event, such as a fire or flood. Or you might want to ready yourself for an unfavourable event, such as your company moving production to the Far East, by staying attractive in the jobs market. In both cases, we are seeing again the conversion of a macrofuture into a microfuture. This is the process by which we can start to reconcile the apparent dichotomy between the two.

If we can adopt a process by which we convert macrofutures (things we can't control) into microfutures (things we can control), then we introduce a degree of agency to the process. It is in this way - the process of adaptation and preparation - that we can become the architects of our own future.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Carry On Spending

When I was growing up, an extremely popular sequence of films were the 'Carry On' films. They included a cast of staple actors, playing broadly similar characters, in mildly differing situations. They were a product of their times, and as a child I found them hilarious. In the humourless world of today, the films are denounced as misogynistic, racist, and homophobic - mainly because they are. However, they do occupy a niche in British folk memory that leaves them cherished by many. I was reminded of the Carry On films as I listened to the recent Chancellor's Budget speech.

As an economy, we are in trouble. Activity is currently in deep freeze. We are in yet another lockdown, with the prospects of relaxation not being fulfilled for some months to come. The scientists are warning of further waves of infection, which means that further lockdowns can't be ruled out. The vaccine roll out is going much better than we could have hoped for, but we don't know for how long it remains effective. These are not attractive prospects.

The fiscal response has been to provide financial support to households and businesses. This has been reasonably generous in historical terms. A furlough scheme has been introduced where 80% of salary has been funded by the state. For businesses, a series of very soft loans and grants of 80% of profits have been provided from public funds. And for those who have been made redundant, there has been an uplift to out of work state benefits for the crisis period. There have been some constituencies for whom the support has been less generous - company directors who pay themselves through dividends spring to mind - but there are very few who have received no support at all.

All of this funding was due to expire on March 31st. Many pointed to the sudden end to the support, especially as the country is still in lockdown and the ability to earn is very restricted. The Budget announced that most of the support will be extended into the autumn. This fits nicely into an official future in which all lockdown restrictions will be relaxed during the summer. The plan is to have the adult population vaccinated against the virus by the end of summer, allowing a relaxation of the economic restrictions. This will be followed by a short period in which levels of activity return to normal, and at the end of that, economic support will cease. That's the plan. Reality may turn out a bit different, but that's a conversation for another day.

As the Chancellor was rolling out this plan, many were asking how he intended the country to pay for it? And what would happen to the cost of public borrowing if inflation were to tick upwards in an appreciable way? The Budget went a little way to address these questions. A sequence of tax rises were announced - some explicit, such as a corporation tax rise, some stealthily, such as using fiscal drag to expand the tax base. Tucked into the small print were some proposals for public spending. There is, by and large, to be a public sector pay freeze for a number of years to come. This is using fiscal drag to achieve a reduction in public spending in real terms. 

There is a certain retro quality to the Budget. We are returning to the use of fiscal drag and cash limits, last seen in the 1980s, to restrain the public finances. As prices and salaries rise, and as the threshold at which tax is paid remains constant, and as the amount of public sector pay remains constant in cash terms, the politicians need do nothing. Inflation will impose the fiscal squeeze. The system has inflation at 2% built into it though the mandate for the Bank of England. But what if inflation takes off at an appreciable rate in excess of the policy target?

In many respects, the Chancellor has gambled that this happens. If inflation rises appreciably above the policy rate, the impact of the fiscal drag on taxation and cash limits on public spending will be that much more pronounced. It will help to pay down the public debt that much sooner. Of course, it will have a consequential impact on the cost of servicing that debt if interest rates are also forced to rise, but that may be a problem for another day. The average outstanding term for UK debt is 11.5 years. Rising interest rates are only a problem for future issuance, which is, on average, half a generation today.

And so we have returned to the Carry On farce of Treasury operations. We have a Budget that spends oodles of money immediately (Hooray!), that places tax increases on the villainous corporate sector (Hooray!), that introduces a stealth tax on the general public (Boo!), and which reduces public sector salaries in real terms in future years (Boo!). To top it all, the cost of this largesse is palmed off onto future generations through potentially higher borrowing costs (Aah!). Sometimes, politics is nothing more than a pantomime.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

How do you stop foresight from becoming wishful thinking?

The world of the futurist is dominated by the five 'Ps' of the futures cone. We have the projected and probable futures that describe a limited state of future outcomes. These are knowable futures which belong to the world of risk. 'Small world futures' as described by John Kay and Mervyn King in their book 'Radical Uncertainty'. There are a limited set of outcomes in a determinate future that occurs in a world where there is a large base of information about previous outcomes to draw upon. You flip an unbiased coin and expect a head or a tail. 

Opposite small world futures are 'large world futures'. In these, the future states are primarily unknowable. There is a very large range of potential outcomes with a very limited, or non-existent, information base to draw upon previous experience. You flip an unbiased coin and you have no idea what the outcome might be. The coin may land on it's side. Or it could fall down a drain. Or it could be intercepted in the air and doesn't land at all. There are many potential outcomes here. This is the world of uncertainty, which is dominated by possible futures and plausible futures. 

These distinctions - between projected, probable, plausible and possible futures - matter because over this structure lies any number of preferable futures. Preferable futures provide the point at which foresight becomes wishful thinking. However, it is worth reaching that point the long way round because it allows us to see what is going on here.

Preferable futures are unambiguously normative. They describe what we want to see happen in the future. Some observers position projected futures as a polar opposite to preferable futures. It is argued that a combination of observation and quantification adds a degree of objectivity, which contrasts with the essential subjectivity of preferable futures. However, upon closer examination, this might not be entirely the case. When we drill into the probabilities that underpin the case for the objectivity of  projected futures, we find all manner of subjectivities that can enter into  seemingly objective exercise. There is the question of what is being measured. The basis upon which it is measured. The interpretation of the results. And so on, and so on. Whilst some futures can be numerical, that does not mean that they are entirely objective.

This is where wishful thinking enters the picture. An essential part of wishful thinking is the focus upon the future that we want to happen. We may have a particular end in mind, but that might not be the only possible outcome. For example, in the game 'Monopoly', two dice are thrown to determine how far a player progresses around the board. We play the rule that a double six gives a player an additional turn. The player may want to throw a double six (because that will help them progress round the board), but that desire doesn't exclude the possibility of throwing any number between two and eleven. It is only when the player is adamant that they will throw a double six that we have entered the realm of wishful thinking.

This is important because it enters into our analysis of the future. In 1941, Stalin convinced himself that Hitler wouldn't invade Russia, despite the contrary evidence of Chamberlain being equally wrongly convinced in 1938 about Poland. Both Stalin and Chamberlain were engaged in wishful thinking to the exclusion of all other possible futures. Whenever we undertake a futures exercise, we bring to bear a number of assumptions about the future. It is the potential inaccuracy of these assumptions that give rise to various possible futures, and the uncertainty inherent within that structure. This is where we can begin to prevent foresight from becoming wishful thinking.

A really important aspect in the study of the future is to identify the assumptions, both explicit and implicit, within the study. That is an argument for plurality. If the team undertaking the study has a degree of diversity, shows differences of opinion, and argues the point a lot, then you can have a greater degree of confidence in the resulting study. To put it another way round, if you want to stop your foresight from becoming wishful thinking, go out and argue with people different to you. Do it with an enquiring mind and accept that you might be wrong. That way, your work will naturally improve.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Why do we bother about the future?

A question that has intrigued me recently concerns at what point in the human story we started to become concerned about the future? I think that the answer to this question might suggest why the future is a topic of interest. It is easy to be blithe about the question and simply state that we have an innate desire to know what comes next. But why do we have that desire? And when did we acquire it? Even more importantly, how does that affect us today?

Part of the answer to the question can be found in the treatment of risk and uncertainty. The two concepts are often confused in ordinary conversation, but there is a strict distinction between them that is worth teasing out. Risk refers to a knowable world, in which the future range of outcomes can be identified, even if we don't know exactly which outcome will be experienced. Risk readily lends itself to probabilities and an assessable future. 

Uncertainty, on the other hand, refers to an unknowable world in which the future range of outcomes cannot be readily identified. Uncertainty lends itself to a world of possibilities and plausibilities that are not readily quantifiable. Any probabilities provided for an uncertain world are necessarily subjective. This is the world of preferred futures, which can degenerate into an exercise in wishful thinking. We'll put preferred futures aside for another day and just focus on risk and uncertainty.

I often wonder if early man worried about the future? In a state of hunter gathering, I can see that there would have been a lot of risk, but would there have been much uncertainty? There would have been the risk of encountering a higher predator - such as a sabre tooth tiger - whilst out hunting. Or there would have been the risk of a collectable food source - such as berries - being eaten by birds before they could be gathered. These are risks that would have been known to early man. But what about uncertainty? Would early man have unknowable futures? And would it have bothered them much?

I think that the advent of agriculture is the point at which uncertainty enters the story. As early tribes settled and started to cultivate the land and husband their flocks, they would still have encountered risk. However, they would have also encountered uncertainty as well. The risks would be reasonably well known, such as a poor harvest or sickness amongst their various flocks and herds. Some of these risks could be mitigated and some couldn't. However, they were knowable and manageable.

One of the features of agriculture is the surplus in production. Cultivation, in particular, introduces a time lag between planting and harvest. We can think of this as an investment lag. However, early farmers have to eat during that period, so there has to be a surplus that carries them from one harvest to the next. This surplus is vulnerable to the predation of those who are still in the hunter gather mode. To protect their surpluses, villages, towns and cities emerged. Communal enterprises - such as common defence features - arose, leading to the diversion of some of the surplus into a common fund through early forms of taxation.

This fairly simplistic model is the point at which uncertainty becomes a greater factor. As the complexities of society grew, so did the variety of unknowable factors that could impact upon society. We find this process still at work today. The growth of complex financial instruments has led to a far more uncertain financial environment. When those complexities become too much to resolve, the financial system boils off a degree of complexity through a financial crash. We know the possibility of that, but we are uncertain exactly where it will originate, where it will unfold, and when it all will happen.

This is the key to why we bother about the future. The future contains elements of risk that are concealed from us in the present and uncertainties that originate in an unknowable future. We have a desire to plan and prepare for those eventualities as part of our innate survival strategies. We want to see what is just down the road, or just over the horizon. Partly for comfort, but mainly to be satisfied that we are unlikely to encounter an existential threat in the immediate future. We bother about the future because that is part of the human condition. It's an aspect of our shared humanity.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Have We Seen The End Of Sound Money?

'Sound money' has been a key policy objective in the UK for over 150 years. What this means in practice is a combination of relative household thrift (savings being slightly larger than consumption), public sector thrift (taxes running slightly ahead of government expenditures), a slight positive external balance, and corporate investment just running ahead of corporate profits. This policy, given shape by Gladstone in the nineteenth century, has been the cornerstone of public finances ever since. There have been deviations from this policy over the years, but it has always been the guiding principle to which we have aspired to return when conditions allow. 

Is that still the case? The pandemic has swollen the levels of public borrowing to levels that are very high by historical standards. Borrowing at current levels are normally associated with wartime levels of expenditure. The gap between tax receipts and public expenditures is something that has the potential to destabilise the system. One wonders how they have been funded? By and large, the public debt has been funded by household savings exceeding consumption expenditure  - at least, the household savings of the wealthy and employed - and the business profits - of those businesses still operating - running ahead of business investment. We have achieved temporary stability like this, but it does not augur well for the future.

At some point in the near future we can expect the household savings glut to fall away. A combination of resumed discretionary consumption and a softening of household incomes - as the present levels of disguised unemployment become apparent - will reduce the levels of household savings. The anticipated reduction in the level of business activity is likely to reduce the level of business profitability, putting a dent into corporate savings. That creates a perilous future for public sector finances.

If the private sector is running at a lesser surplus, then only two possibilities can result. Either overseas lenders make good this reduction of funds or the public sector reduces its need for funding. The reliance upon overseas sources of funding creates an internal pressure for the exchange rate to appreciate. An appreciating exchange rate may create a need to adjust interest rates upwards to compensate overseas lenders for the reduction in the base capital value of their lending. This could have problems of its own.

Alternatively, the government could hope to reduce the need to borrow. There are two traditional routes here - tax increases and reductions in public spending. Together these are known as austerity. However, austerity can be self defeating, as we saw between 2010 and 2015. Austerity may attempt to place a cap on deficit financing, but it also reduces levels of economic activity that seriously impairs the tax base.

This leads us to a very interesting place. On the one hand, a return to sound money would suggest a period of austere conditions. Profits would be low, incomes constrained, and expenditures subdued. The political appetite for this future is very restricted. The austerity of the Osborne years is now seen as a mistake not to be repeated. On the other hand, the present policy of an expansive public sector, fuelled by borrowing, is one that resonates politically. Sadly, this leaves us vulnerable to the vagaries of overseas funders and a hostage to domestic inflation. If either of these were to occur, then we would be forced back onto a policy of sound money.

It may appear that we have abandoned sound money as a way to organise our affairs. If this could be a long term solution, then I am sure that it would be satisfactory. The problem is whether it could be a long term stable solution. On this, the jury is out. Despite appearances, it is probably too early to take the view that we have seen the end of sound money.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

The Return Of Inflation?

We think that we can see the shape of the post-pandemic economy emerging. We expect levels of economic activity to be lower than before the pandemic and for rates of activity to be subdued. In the course of the series of lockdowns, the more affluent households have retained a good portion of their cash balances, whilst those businesses that continued to trade profitably have balance sheets swollen with cash. What happens next is likely to be determined by how these economic agents act.

Some households have done very well during the pandemic. If their income has held up - either through continued activity or through governmental support - the imposition of restrictions on many aspects of consumer activity have led to rather large cash balances being accumulated. The closure of non-essential retailers and much of the hospitality sector has ensured that this household disposable income has no natural outlet. How much of that will come back once lockdowns end? 

This critical uncertainty gives rise to two schools of thought. In one school of thought, it is held that this money is seen by consumers as spending money. Once they are able to go shopping again, and once consumers feel safe to do so, then there is likely to be a sharp rise in consumption, possibly triggering a bout of mild inflation. The other school of thought has it that households face considerable uncertainty over the future at the moment and that they are increasing their precautionary balances to counter this uncertainty. In this case, a relaxation of lockdowns is not likely to lead to a spending spree. Both arguments have merit. What we are likely to see is a bit of both happening, but we can't be sure of where the balance between the two will lie.

If households have this quandary, what about the corporate sector? Companies face three possibilities over the cash on their balance sheets. The first option would be to return the cash to shareholders, either as dividends or through share buy backs. Many listed companies have reduced their dividends during the pandemic. There is likely to be some shareholder pressure to restore them, particularly if corporate bonuses start to rise again. A second option would be for the companies to invest the cash in future profits. This is only likely to happen if household demand strengthens and if inflation starts to tick upwards. It is the lack of prospective demand that has held back investment for the past decade. Finally, companies can continue to sit on the cash as a policy of 'wait and see'. This has been the predominant policy over the past decade. We are likely to see a combination of each of these possibilities in practice, with, again, the key point being where the balance lies.

At present, the economy is on life support provided by the government. There has been a significant fiscal expansion, financed by the printing of money under QE. Most governments have found the magic money tree and are picking the fruit as it ripens. If households sit on their precautionary balances and if the corporate sector adopts a policy of 'wait and see', then this could be a reasonably stable outcome. The consequence would be low productivity, low growth, relative stagnation, much as we have experienced over the past decade. This is not a recipe for a dynamic economy and the pathway to increased prosperity.

If, on the other hand, the economy experiences something of a bounce back - an even greater government fiscal stimulus, an increase in household consumption, and an increase in corporate investment - then a different result could arise. Stronger demand could suck in imports and weaken the Pound. Both internal and external factors would then lead prices to harden and for inflation to start to tick upwards. At this point, the policy response is critical. If the monetary authorities respond with a monetary tightening, then inflation could abate, pushing the economy back downwards again, much as happened in the Eurozone in 2011, when the ECB tightened far too soon. If the response is not to tighten, then there could be spurt of real economic growth to close the output gap. This could continue for some time if inflation expectations don't rise too fast. The size of the output gap is such that a dramatic increase in the underlying rate of inflation is unlikely for some time to come.

The current inflation expectations are for a rate of about 3% in five years time. That would be within the collar set to the Bank of England, but at the upper end of tolerance. Would the monetary authorities be comfortable with this? Past experience - coming out of the lobal financial crisis - suggests that they would be. A short period of over-shooting the inflation target was accepted as the price for stability in the longer term. There is nothing to suggest otherwise as we emerge from the pandemic.

If all of this is close to correct, then what we can expect to see in the next year or two is an uptick in the headline inflation rate whilst the economy remains overall subdued. This inflation is likely to be temporary in nature owing to technical factors in the calculation of the headline rate. This suggests that a modest inflation may return for a while, but it will be nowhere near as high as the money hawks suggest. 

Stephen Aguilar-Millan

© The European Futures Observatory 2021