I am on a journey of learning, and also unlearning, many theories of economics and business management. My co-learners are a growing movement of young people, and also many older people who ‘have been there and done that’ successfully, who want to transform the world. They are not pursuing their rational self-interests as economic theory would expect them to. They are hearing another drum-beat calling them to care for nature and for all humanity. These irrational people are not turned on by the many millions of dollars they could make, or the expectation that their country will soon be a five trillion-dollar economy. Because their heart says, what about the millions still struggling to live in dignity? And their head questions, when India’s water needs are expected to become double of its depleting water resources within 10 years (according to the country’s national planning institution), what use will a five trillion-dollar economy be? Are we not like Nero fiddling in our palaces while Rome burns around us, they wonder?
What turns on my co-travellers is an aspiration to change the shape of the system, to make it more just for everyone, and more ecologically sustainable too. We need a new ethical toolkit, founded on principles of benefits for others, not material self-interest, and benefits for our grandchildren in the future, not gratifications in the next quarter or even in our own life-times. The new toolkit includes three disciplines: systems thinking, ethical reasoning, and collaborative enterprise design.
The European Enlightenment began a scientific revolution in the seventeenth century. Scientific knowledge advanced with objective examination of the facts and insights into the fundamental particles that constitute matter. It advanced through specialisations. In the study of the material world, about physics, biology, chemistry, geology, astronomy, etc. In the study of human society, into specialisations about economics, sociology, anthropology, psychology, etc. As science advanced further, these fields have broken into sub-specialisations, with more experts who know more and more about less and less. Universities have broken into siloes of thought, and governments and large organisations into silos of functional disciplines.
The huge problems that are now stirring up movements for change are systemic problems
The huge problems that are now stirring up movements for change are systemic problems that require knowledge of all parts of the system to be combined. Solutions to environmental problems will require combinations of knowledge from many physical sciences. Solutions to problems of human development and unequal opportunities require combinations of knowledge from many social sciences. Indeed, environmental problems and human development problems cannot be isolated from each other. Therefore, combinations of physical and social sciences are required to solve the huge problems that are laid out in the 17 Sustainable Development Goals.
Humpty Dumpty had a great fall with the scientific revolution. The unintended consequence of the advance of the scientific way is fragmentation of knowledge about the whole system: about how the parts fit together and work together. Now, all the King’s horses and all the King’s men must put Humpty Dumpty together again. For which, a science of ‘whole systems thinking’ must be learned, taught, and applied, along with siloed expert knowledge.
With rapid advances in the material sciences over the past two centuries, Man has acquired great abilities to harness Nature. He believes he can command the tides, which King Canute could not because Canute did not have the technology required. Man has discovered how to release the power within tiny atoms with which he can destroy the Earth if he wills to. With great power over Nature has come great hubris too. With evidence that Man’s footprint on the Earth is becoming too heavy, and that the hydrological system of the Earth will not provide the water that Man has assumed will always be abundantly available, he assumes he can find another technological solution. Or, he could develop a rocket to take him away from his destruction of the Earth to another planet with water.
With wider application of mathematical tools in sciences, scientific thinking has become confused with mathematical analysis, and the language of quantities has been privileged over the language of qualities. Economics suffers from physics envy. Economists seem to relish writing mathematical equations to explain richly qualitative phenomena such as human feelings and social interactions. They have to strip humans of emotions and sentiments to fit them into their mathematical equations. Whereas mathematics has enhanced the ability of physical sciences to understand the material world, excessive mathematisation has reduced the ability of economists to explain the social world.
The Golden Rule of human civilization, taught by all religions, is to do unto others as you would have done unto yourself. It is not ethical to use a common resource for your personal needs in a manner that would deprive others, in the present or in the future, of what they need. Contrarily, Economics 101 says that human beings must pursue their self-interests, and that it is ‘rational’ to do so. It says that if everyone looks after himself then some ‘invisible hand’ will ensure that everyone will be better off. So, it is good to be selfish.
Humans have beliefs that go beyond the facts. In fact, they will deny facts that do not fit their beliefs, because they want to believe what they believe. The primacy of beliefs over facts is evident in the increasing divisiveness within modern ‘post truth’ society. With the ubiquity of information—true and false—being spread over social media, people can easily find facts to support what they believe while shutting off any contrary evidence.
Even economists are humans after all and have beliefs that compel them to choose facts that support what they believe. Jonathan Aldred’s License to be Bad: How Economics Corrupted Us is a powerful account of how the erroneous supposition that human beings are purely rational and self-interested has shaped mainstream economics and also infected public policy.
The theoretical foundations of faith in privatisation and market mechanisms rests on the curious case of the Coase Theorem. Ronald Coase won a Nobel Prize in Economics in 1991. The Coase Theorem derives from his paper, ‘The Problem of Social Cost’ which he wrote in 1966 at the University of Chicago, based on stripped down theoretical cases. Milton Friedman, Gary Becker, and other Chicago economists used Coase’s Theorem to support their free market and anti-government ideologies. However, Coase insists he was misunderstood. He wrote in The Firm, the Market, and the Law in 1988, “My point of view has not in general commanded assent, nor has my argument, for the most part, been understood.”
Many ‘theories’ of economics are based on theoretical experiments, like the Coase Theorem was. The pioneers of game theory, John von Neumann and John Nash, assumed for the sake of their mental experiments that people are always selfish. Nash’ equilibrium idea, for which he won the Nobel Prize, essentially implies that if everyone else is behaving selfishly, you should do so too.
If economists were playing games only in their labs, mismatches between their theories and reality would not matter
If economists were playing games only in their laboratories, the mismatches between their theories and reality would not matter. However, economists have acquired great influence over public policies that affect everyone.
New technologies derived from scientific insights can provide powerful means to do things which Man could not do before. Sadly, they do not come with prescriptions of whether these things should be done. Man can genetically engineer many plants and small animals. He is on the threshold of creating a genetically engineered human being. Should he do it? What will be the unintended consequences of releasing the genie from the bottle?
The ability to release energies within tiny atoms provides clean energy. It also provides the means to destroy civilizations. Almost a century after atomic bombs were invented, and their power demonstrated by the bombings of Japanese cities, humanity is still struggling to prevent further misuse of the power of nuclear technology. The questions are, who should be allowed to own this power? Can they be trusted to use it responsibly? And, how will the use of this power by anyone who owns it be regulated by the community? These are ethical (and political) questions for which technology itself does not provide answers.
The ideology in economics that private ownership is good and government regulation is bad, which has been on the ascendant for the past half century, makes it harder to find collective solutions to such issues. In this ideology, knowledge is private property and its owner should have the freedom to reap its benefits. It side-steps questions of how the knowledge was actually developed, in many steps, and with input from many people and many organisations. Very often, large, early stage, risky investments in the development of new technologies, such as new drugs and the internet, were made mostly by governments with public money, as Marianna Mazzucato reveals in The Value of Everything: Making and Taking in the Global Economy. Yet, the system of intellectual property rights has allowed private corporations (and individuals) to grab these technologies and convert them into private monopolies. The internet is the latest example of a powerful technology whose ownership humanity is trying to take back from private owners to harness for the collective good.
Humanity’s ability to do more, with new innovative technologies, has out-stripped humanity’s ability to collectively address ethical issues about the purposes to which technology should be applied.
Collaborative Enterprise Design
Just as any well-designed product must be fit for its purpose, an enterprise must be designed to fulfil its purpose. The pursuit of self-interest has been institutionalised in the design of the capitalist business corporation. Its board is legally bound to protect its own investors’ interests rather than the concerns of others. The ethics of the business corporation have been strongly influenced by the ideas of economists, especially Milton Friedman who declared that the business of business must be only business. When combined with other policies that favour private interests excessively over the public good, such as the prevalent system of intellectual property rights, these ideologies are resulting in a ‘tragedy of the commons’ and the destruction of the natural system that supports life.
Sustainable progress of humanity requires the development of enterprises designed for the needs of diverse stakeholders, not just their investors, and enterprises that respect the environment which gives us life. Concepts of ‘social enterprises’ are emerging to meet these needs.
These new forms of enterprise require disciplines of systems thinking to design their programmes and to understand their impact on the sustainability of the whole system. For example, well intended aid programmes to deliver food to poor African countries, that did not understand the whole system, had the unintended consequence of reducing local production capabilities and increasing dependence on external assistance.
The democratic principle is that an enterprise for the people must be of the people and governed by the people too
The design of the governance of social enterprises requires the discipline of ethical reasoning. The democratic principle is that an enterprise for the people must be of the people and governed by the people too. In an enterprise governed by the principle of property rights, it is just that one dollar invested gives one vote and ten dollars gives ten. Whereas in a democratic enterprise, every human in the endeavour is equal with an equal vote. Therefore, all stakeholders must be included in the governance of social enterprises. Good governance requires the ability to listen to diverse views and arrive at consensual decisions that benefit all stakeholders. Good governance would give a veto to the poorest if they fear the enterprise will cause them harm, and not just a right to the wealthy to decide what is good for the poor, while pursuing their own satisfaction of scaling up their own social enterprises, and the glory of increasing the national GDP while water disappears.
(This essay is based on Arun Maira's latest book, Transforming Systems: Why the World Needs a New Ethical Toolkit.)