In the much-neglected final part of Small is Beautiful: Economics as if People Mattered, E.F. Schumacher included an essay entitled Towards A Theory of Large Scale Organisation. The essay was based on his experience at the National Coal Board during the 1950s and 1960s when coal was still being mined in the UK.

When Lord Robens and Fritz Schumacher first started to address the management problems of the largest organisation in Europe, they found themselves dealing with a typical first-generation company...defined in my radcon paper The Future for Large Organisations. These companies dominated the industrial life of the early and middle years of the 20th century and their names...Ford, Edison, du Pont, Unilever etc... were regarded as bywords for industrial efficiency.

Robens and Schumacher strongly disagreed and set about inventing something completely different. By the end of their time at the helm, the National Coal Board had been transformed into a Second-Generation Large Organisation. In North America much the same transformation took place at the General Electric.

Not everybody welcomed the shift. On Wall Street and in the City of London it gradually dawned on the Bankers and their Derivative Rrofessions that they were engaged in a fight to the death with the Industrialists for control of these Second Generation Large Organisations. By creating their own portfolios of strategic business units within their own organisation, Producing Companies can outflank the Moneylenders by effectively issuing their own currencies as transferable shares and bonds through the Stock Exchanges and through private placements through Nominee Companies and other legally sanctioned devices.

Future historians may view the shenanigans around the ignominious collapse of Pehr G. Gyllenhammer’s several attempts to merge Sweden’s Volvo Corporation with Norway’s Oil Industry as the crucial watershed in the battle between the power to organise the Means of Exchange and the Means of Production…two competing phrases introduced by Sidney Webb as Clause Four of the Labour Party Constitution. Bankers are redundant when they lose the power to deploy monetary patronage to create their own portfolios and effectively hire and fire the Producers.

Henry Ford was perhaps the first industrialist to recognize this soft underbelly in the seeming omnipotence of the Money Power. But many inventors…like Thomas Edison in the USA and Gustav de Laval in Sweden…had previously fallen fowl of the counter measures deployed by both the money and production powers to protect their special privileges from encroachment by either the personal or the common weal and were destroyed.

The current crop of Transnational Corporations sitting astride today’s world of globalisation are the survivors of these civil wars. After years of trench warfare an uneasy truce has settled over the battlefield. But during the past two decades a third-generation of large organisation has emerged unnoticed into this stand-off between money and know-how. They constitute a second front in what is effectively a continuation of the classic Marxist battleground for control of the Means of Production between Labour and Capital.

These Third Generation Large Organisations are the subject of the interim report of my study of Swedish IT firms. These often vast networks of inter-working firms and individuals come in two very different genres. Sometimes they out-source the products and services they need and put these through the books as Cost of Sales to generate enormous corporate incomes per employee. Sometimes they re-source the development of products and services by burning vast amounts of speculative money in selling Future Profit Dreams.

These large Network Organisations seem to take two forms. Either they are Barrow Boys selling dear and buying cheap...preferably in that order...or they are Boffins 'n Nerds fronted by private funds and venture capitalists. The profit and loss statements of the former appear to the world as all income with no expense while that of the latter are all expense with no income.

But a Fourth Generation is silently feeling its way into being…below the radar. Its deconstruction and description is just a glint in my eye. I believe it may have a historic provenance. But to understand this fourth form of organisation a third parameter is needed that deals with the form of organisation and cuts across the two-dimensional First, Second and Third-generation Large Organisations.

I speculate that there are three relevant organisational forms…the Hierarchic, the Hanseatic and the Holonic…and that over the thousand year period from 1200 to 2200 much of the world will have undergone a transition from the Holonic to the Hanseatic to the Hierarchic...and back again.

Human life in our North Atlantic Ocean Basin has seen fit to confine itself to the shallow regions around its rim. Because most of our ancestors came to where they are today by way of an extensive network of Water Trails, they tend to be huddled about the River Estuaries.

With the advent of telephony these families and clans are just a few seconds away from each other. And with low-cost air travel any place on the planet can be reached from any other place within a day. We can get up with family and go to bed in the evening with family. This Web of Interrelationships has the ability to reclaim the power leaked to the Impersonal Megamachine…and bring us Liberty.

Engineers are great testers. They like to build scale models and carry out tests. Non-destructive tests, destructive tests, wind tunnel tests, tensile strength tests...if you can wonder about it…Engineers have a test for it. Have you ever looked at a computer magazine? That's Engineers at work. Testing everything that moves…comparing this test with that test. Have you ever looked at the car magazines? Engineers again. Road tests, tyre tests, brake tests. Test. Test. Test.

Not so the Economists. The only tests they do are full-scale tests. Even the Military play a War Game or two before committing themselves to the real thing. Not that it helps much. Perhaps they should start stimulating disaster?

Professor Jay Forrester at MIT was one of those who pointed out the foolishness of this. Forrester tried to do what Engineers do. He didn't think up a theory and model it mathematically and call that Testing. He went out into the Real Economy and found out what people with real economic power were actually doing. He then went back to the lab and tried to build a computer model that would simulate various aspects of their behaviour.

After several years work and several thousand modifications to his model of the US economy, he went back out into the real world and spoke again to key players in the US economy.

'Tell me again what you do when you get this or that piece of information?' he would ask them.
'Well,' they would reply, 'Funny you should ask, because I used to do this, but now I do the opposite.'
'Fine.' Professor Forrester would say. 'Bear with me a moment while I just check this fuse. There. That's programmed in now. Let's see what happens. First we'll do what you used to do.'
'Well, goddam it,' would come the reply...Jimmy Carter was in the White House at the time so there were a lot of Southern drawls around Washington...'That's what the son of a bitch did. Would you believe it? Say, how come your box of tricks managed to do that? What sort of Economist are you, anyway? What's it doing now? Yeah. That's it. That's the way we like it? What d'yer do? You did what I do now, huh? Well I'll be damned!'

Forrester met this reaction so often that he coined the phrase the counter-intuitive behaviour of complex systems to explain what was going on. Soon they were asking him to bring his magic box to their Senate Committee Meetings.

'There's nothing magic about it,' he would assure them. 'I ask people what they're thinking of doing and the computer tells me the sort of things that will happen if they try it. I figured it makes more sense, costs a lot less money and gives you more precise answers a lot quicker than putting Legislation through Congress and testing a policy out on 250 million Americans.'
'Damn right! Why that crazy son of a bitch...'

And of course the bigger your economy, the more people will be engulfed by the main effects, the side effects, the after effects and all the unanticipated unfortunate effects of this Full-Scale Testing.

The Euro is unprecedented. Full-blown full-scale testing...of untested theory. Lunacy for short. But before you rush off to ask MIT to build a simulation model for the Euro there's one more thing you should know about Model Testing.

Engineers have discovered there's a lot of art and quite a bit of science to Scale Testing. You can't scale back your car to a sixteenth the size of the full-scale version and shove it in a wind tunnel. Or rather you can…but you'll get the wrong answers. You have to scale down in a way that reflects relationships between Cause, Model and Effect. Volume Effects for instance tend to be 'to the power of three'...Area Effects 'to the power of two'.

Twenty years ago Kirkpatrick Sale wrote a book entitled Human Scale. He didn't know anything about Scale Testing. But he knew why giants don't exist. Their legs could never support their weight. The strength of a giant's leg would obey a square law...the area of the bone's cross section. But the giant's weight would obey a cube law being proportional to volume. Six foot turns out to be quite a sensible size for a creature like man. Giants would crush their legs with their own weight.

Sixty years ago D'Arcy Thompson had reached similar conclusions and become intrigued by their implications. He explained his thinking in a book entitled Growth and Form.

When I was young I would often cycle to Eynsford, a small village in the Shoreham Valley about two hours away by bike. I usually went by myself. I spent hours in the river with water up to my knees filling a jam jar with tiddlers. I got to know the river quite well. I loved the way it would form itself into little eddies. These little vortices appeared suddenly out of nowhere and then quietly slipped away again as quickly as they had come.

One game I used to play was to look at a piece of water, concentrate hard, and tell it to eddy. I spent one morning trapping eddies and I almost believed I could catch eddies in my hand.

I have a peculiar brain. I am not good at remembering things. My brain doesn't organise itself that way. If I am to remember something I have to be able to work it out from first principles. I can learn things by heart...I remembered all my lines in Pinter's Dumb Waiter...but however many times I learn Wordsworth's I wandered lonely as a cloud or Coleridge's Rime of The Ancient Mariner it is not there a week later.

It was partly for this reason that I jumped at the chance to play a proper talking and singing role in The Pirates of Penzance. I wanted to see how I would cope...not whether but how. Yet I've always been very quick with numbers.

I have met my match only once. Les Smith...from a Jewish family in Manchester. He had worked the local markets with his father ever since he could hold a three-penny bit in his hand. We were in the middle of the Belgian Congo waiting for a bridge to be mended and organised a Grand Challenge. He definitely had the edge. There was only a split second in it. But it was a consistent edge.

I worked hard in my second and third years at Cambridge. After the fright at the end of my first year when I was nearly thrown out, I put in enough work for a good upper second and was a little disappointed to receive a lower second. Dick Tizard let me see the results of my various papers. There was hardly a second among them. I either got a first or a third. On Thermodynamics and Materials my marks were among the best in the university. On Applied Mechanics and Fluid Dynamics they must have been among the worst…I failed.

On Fluid Dynamics it was not quite Noll Poäng...but as near as dammit. I knew I had done badly. None of the right questions came up...I had spent a lot of time analysing previous years' questions and working through the books of model answers...and I could remember nothing that might help me cobble together some half sensible responses to the questions that did appear. This happened not once, but twice. In both the second year and the third year exams. Fluid Dynamics has intrigued me ever since. I read it as well as I studied any other subject. But the problem was that it was wrong.

Fish dart. A flick of the tale and they're a dozen yards away. You can't explain this in terms of Turbulent Layers and the Aerodynamic Theory of an aircraft wing. And Vortices? Not interesting. No use for them. Just cause problems for the Oil Industry. Electrical engineers know about eddies because their transformers melt unless they make them out of wafer-thin metal sheets to eliminate them. Leonardo da Vinci was fascinated by vortices. Pity electricity wasn't around in his day.

Then there's gyroscopes. Anti-gravity forces created by spin on an axis at right angles? What is this? What happens in other fluids than air? What about oil...or water...or out in the vacuum and weightlessness of space? These things interested me. But nobody wanted to know. Nobody had any theory about this. There were no formulas for students to learn by heart.

Fish, Gyroscopes and Eddies might have given me a first on Fluid Dynamics. But flow in pipes, Bernoulli’s Theory and the mechanics of plugholes were just not my scene. As I tried to go back to first principles I found either a void or a comedy of errors.

Let us consider the ideal situation where there is no this and no that and the moon is made of blue cheese. Then under this set of circumstances we can say that this force acting on that surface is represented by the equation F=ax +b where x is unknown and a and b depend on the time of the week. It set me up nicely for Economics though.

When I was very young I discovered our loft. Mother was at the shops. It was raining. And I was bored. In the corner was the biggest tank I had ever seen. Every English house has one of these and the bigger the house the bigger the tank. Somewhere in Cambridge there must be a mansion of such enormous dimensions as to boggle the Western Imagination. The tank was removed from its loft and bolted onto a concrete floor floated onto the Cambridge Fens.

As time went by a building grew up around the tank. High above where once there had been sky and clouds a delicate lattice of steel held aloft a roof.

One summer men arrived and by the autumn a road was rushing by. Then people started arriving. Hundreds and hundreds of them. Never the same faces from one year to the next. They were young. All of them. And there was not a woman among them. They all came to pay homage to the tank. They filled her up with water, pulled out her plug and then sat there quietly while her waters washed away back down into the Cambridge Fens. She wondered at their strange ways. But she kept her own counsel...and gurgled when it suited her.

To look into the great tank you climbed up a little step ladder. Chris Singleton was my Laboratory Partner. Chris and I devoted three days of our life to climbing up and down the step ladder. We got to know the Great Tank. And she got to know us. On the second day we introduced her to our bicycles. They rested contentedly against the cold cast iron sides of the Great Tank throughout the afternoon and well on into the evening.

Meanwhile we altered the rates of flow in and out of the Great Tank, attaching strange conical contraptions to the inlet and outlet, rigging up water heaters, wind generators and electric motors. We heated and cooled the water, cast storms upon the mighty lake, created whirlpools in its midst, battered its cliffs with waves, drove fast flowing rivers beneath its placid surface and swirled the waters away into the Cambridge Fens...first with this contraption in place and then with that channel replaced. Never had so much attention been showered upon the Great Tank.

On the afternoon of the third day the peace and serenity of the Cambridge Fens were shattered by the sound of angry voices. The uproar was coming from the Great Tank. A crowd had gathered round. In the middle stood a little man with glasses, a white coat and a clip-board, waving his arms, gesticulating wildly and yelling in an extremely agitated manner.

'You will do it all again. The whole experiment. And you will get the right result.' 'We will not', said Chris quietly. 'Those are our results. We have spent three days collecting them. And you will pass us on this course'.

With that, Chris turned away from the red-faced little man with the glasses, the white coat and the clip-board, gathered up his pencils and his notebooks and wheeled his bicycle out of the Cambridge Engineering Laboratories. My bike and I walked off into the sunset with him. This is one hard dude I said to myself. It was the start of a beautiful friendship. But it was a sad end to another. We never saw the Great Tank again...and never got to say goodbye.

In the Northern Hemisphere water runs out through a plughole anti-clockwise. In the Southern Hemisphere the opposite is the case. There is a theory to explain this. You need to do lots of trials and you need statistics to make a convincing case. But these have theories too. Eventually everybody finds this to be true. And eventually everybody passes the course and goes on to learn about Thermionic Valves and all the other things we can always use.

Our problem was that it wasn't true. We tried this height and that height. We even controlled the speed at which we pulled out the plug. We burnt a lot of midnight oil on the top floor of 67 Barton Road on the second night. 'It's no good,’ I said to Chris. 'It's random. There's no pattern to it. We'll wake Garnett up and tell him he's coming to the labs with us at eight.'

Robin had got the right result. 'Show us how you did it,' we said. He did. We thanked him…and sent him back to bed while we went across the road for some breakfast. 'That's what they're all doing,' I said.

Chris nodded. 'Yeah. They don't realise they're doing it. They're fiddling the results. Did you notice how Garnett always had a good explanation for what he'd done wrong when the water went the wrong way, but accepted the result when it went the right way.'

'Well I know one thing. If this course is about experimental method then we've learnt a thing or too. So OK. But I've got a party in Kensington tonight. I promised Johnny Watson. I've had enough of this tank. So what are we gong to do? Fiddle the figures like everybody else?' I had got use to that look by now.

'No way,' Chris said. 'You start writing up...you're good at that. I want to try those early trials again...the ones where everything is perfectly still. It should be quiet for an hour or so. But, yeah, I agree. We've done enough. That racing car constructor's course starts at Bromley Tech on Tuesday and we're not missing that. You're back Sunday night aren't you?' We were given a 'pass' on Experimental Design...our lab books approved without comment.

One day Economists will talk to Engineers. But such paradigm shifts take time. Old professors must die off or get discredited. Meanwhile a new kind of Systems Economics must be established and a very different kind of Economics Education developed. Younger economists are deeply disappointed in a field where abstract mathematics is considered more important than knowledge of the Real Economy. But only the most daring will break with their past.