Reworking Capitalism for People
Our economic crisis has called into question our current form of capitalism. Since the days of Reagan, the orthodox belief has been the market always worked better than government. Even more pernicious was the belief that the society worked best when the best were given free reign to accumulate more wealth. In fact, the bottomline for how our society was doing was based on how many billionaires we had because they were the cream of the society. So even while the United States was touted as the richest country in the world, for the bottom 50% of Americans, their lives were becoming harder as they paid more for everything that mattered: their housing, their food, their healthcare, their education, and their time. And for most Americans, if they were unlucky, they could lose everything if someone in the family got sick. But you know, we don't have to worship the false god of wealth trumping all other values.
Financial Times has an in depth discussion going on of what capitalism should look like in the future. One of the articles says it's time to have a less selfish capitalism, because the type of capitalism that has brought the world to this point was based on the belief that selfishness ("self-interest") should be the crowning value.
What is progress? The Organisation for Economic Co-operation and Development has been asking this question for some time and the current crisis makes it imperative to find an answer. According to the Anglo-Saxon Enlightenment, progress means the reduction of misery and the increase of happiness. It does not mean wealth creation or innovation, which are sometimes useful instruments but never the final goal. So we should stop the worship of money and create a more humane society where the quality of human experience is the criterion. Provided we pay ourselves in line with our productivity, we can choose whatever lifestyle is best for our quality of life. [Ed: see this post to understand how out-of-whack productivity-to-pay has been for the past 40 years.]
And what would that involve? The starting point is that, despite massive wealth creation, happiness has not risen since the 1950s in the US or Britain or (over a shorter period) in western Germany. No researcher questions these facts. So accelerated economic growth is not a goal for which we should make large sacrifices. In particular, we should not sacrifice the most important source of happiness, which is the quality of human relationships – at home, at work and in the community. We have sacrificed too many of these in the name of efficiency and productivity growth.
Most of all we have sacrificed our values. In the 1960s, 60 per cent of adults said they believed “most people can be trusted”. Today the figure is 30 per cent, in both Britain and the US. The fall in trustworthy behaviour is clear in the banking sector but can also be seen in family life (more break-ups), in the playground (fewer friends you can trust) and in the workplace (growing competition between colleagues).
Increasingly, we treat private interest as the only motivation on which we can rely and competition between individuals as the way to get the most out of them. This is often counterproductive and does not generally produce a happy workplace since competition for status is a zero-sum game. Instead, we need a society based on positive-sum activities. Humans are a mix of selfishness and altruism but generally feel better working to help each other rather than to do each other down.
Could we have a healthier, happier society if we shared more with others? Yes. But you have to begin to rebuild our sense that we are all in this together. That when my neighbor has healthcare, it helps me too. That when times are tough and companies have to cut back, the cuts are across the board with pay cuts based on a sliding scale, and not just on the unfortunate employees that lose their jobs. That when we have to spend less, it is important to spend on the right things: education, caring for those less fortunate than me, and finding ways to stave off even worse problems such as global warming.
Lord Layard notes that making this kind of change is not easy, especially in a society that has been conditioned to think only of your self-interest, but it can be done.
To build a society based on trust we have to start in school, if not earlier. Children should learn that the noblest life is the one that produces the least misery and the most happiness in the world. This rule should apply also in business and professional life. People should do work that is useful to society and does not just make paper profits. And all professions – including journalism, advertising and business – should have a clear, professional, ethical code that its members are required to observe. It is not for nothing that doctors form the group most respected in our society – they have a code that is enforced and everyone knows it.
And he places the dysfunctional form of capitalism on three basic tenets propagated throughout the business world.
Three ideas taught in business schools have much to answer for. One is the theory of “efficient capital markets”, now clearly discredited. The second is “principal agent” theory, which says the agents will perform best under high-powered financial incentives to align their interests with those of the principal. This has led to excessive performance-related pay, which has often undermined the motive to work well for the sake of doing a good job and introduced unnecessary tension among colleagues. Finally, there is the macho philosophy of “continuous change”, promoted by self-interested consulting companies, which disregards the fundamental human need for stability – in the name of efficiency gains that are often not realised.
What does this mean for our world? As we face the future, it will become increasingly important to have the right values in place to guide us as we make choices among the competing options and solutions. Those values are community, trust and respect for others. Live the golden rule. These are the progressive values that can make the future more rewarding in all ways that matter and might just hold the answer to the coming challenges on which this increasingly interconnected and overstressed world faces.