Less Selfish Capitalism

Ghandi believed that any economic system had to have a moral compass - "that economics is untrue which ignores or disregards moral values." During the Great Depression just as now, people are questioning their personal and business values - "keeping up with the Jones" and "maximizing shareholder value" - questioning how well they hold true or should they be changed. Even Trustbusting in the late 19th and early 20th century was about fairness in competition and fairness for consumers. In Thursday March 12th's The Financial Times newspaper was an article written by Richard Layard of the London School of Economics entitled "Now is the time for a less selfish capitalism". You could probably read it online in its entirety, but I wanted to provide the Cliffs notes version here:

"What is progress? 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. "

"Despite massive wealth creation, happiness has not risen since the 1950s in the US or Britain..So accelerated economic growth is not a goal for which we should make large sacrifices. We should not sacrifice the most important source of happiness, which is the quality of human relationships."

"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. 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."

"Our society has become too individualistic...we idolise success and status and thus undermine our mutual respect...the Scandinavians have managed to combine effective economies with much greater equality and mutual respect. They have the greatest levels of trust (and happiness) of any countries in the world."

"We need a trend away from excessive individualism and towards greater social responsibility. It happened in the early 19th century. For the next 150 years there was a growth of social responsibility followed by a decline in the next 50. ...it is often in bad times (such as the 1930s in Scandinavia) that people decide to seek a more cooperative lifestyle."

"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 involves aligning interests through performance compensation and the third is continuous change, which goes against the need for humans to have stability.

"We do not want communism - as research shows, the communist countries were the least happy in the world and also inefficient. but we do need a more humane brand of capitalism, based not only on better regulation but on better values." END

I am sure my Republican friends are screaming "Socialist!" over this article. My Democrat friends are nodding in agreement with parts of the article.

I disagree with his "ideas taught in business schools" comments. He picked up the sound-bite, or perhaps is playing to popular misconception. In business school we learned that efficient markets would also have to be clearing markets, which they are not. We also learned that market pricing, if it were efficient, would exactly eliminate all profit. In fact, the reason people can make money in markets is that asymmetries of information allow profit taking. Completely free and efficient markets in theory would mean everybody would exactly break even (no profits) and sell everything available for sale exactly meeting all demand. Strangely enough, communist central planning attempted to manage and mandate ultra efficient markets like this - which it failed at because economies are immensely complex.

He also takes a swipe at consultants striving to make companies more efficient, which is exactly what Operations Associates does. We help firms continuously improve. Hopefully that translates into those companies being able to pay staff more or invest in new equipment - and the money continues flowing through the economy.

So while he makes good points about people needing to be trained to be more considerate, ethical, and focused on increasing happiness (not just through wealth generation), I think he missteps in applying popular misconceptions about business training (yes, it could use more diverse and compassionate viewpoints - not just Anglo Saxon standards) and in what business consultants are actually trying to achieve with efficiency (it isn't all about cutting staff). Businesses exist to serve people's needs , not the other way around. So when people adjust their needs (like in Scandinavia), businesses can and will respond as efficiently as possible.