Tuesday, July 3, 2018

Economic Insanity: Chapter 8 (part 1)

Competition Restrained By a Higher Good (Part 1)

The fundamental question of management theory is: What links
individuals together in cooperative endeavor? The answer, according to the
contemporary management orthodoxy, is self-interest—the raw egoism of Hobbes
and Mandeville, refurbished in chic, modern, linguistic garb. . . . All organizational
behavior is summarized in the inelegant phrase, “What’s in it for me?”

—David K. Hart,
“The Sympathetic Organization”

The suggested changes to our ownership tradition discussed in the preceding chapter are entirely structural in nature. And although structural changes are necessary both to prevent economic suicide and to bring our economy into harmony with our political and social patterns, structural changes alone are not sufficient. Altering the structure of our economy without somehow modifying the habitual patterns of human thought and interaction would be similar to buying new computer hardware, but running the same old virus-infected software. In essence, as individuals we have been operating within the structures and patterns of unbridled capitalism for so long that even if we suddenly found ourselves on a completely different playing field, most of us would go right on behaving as the system has always rewarded us for behaving.
There is a moral aspect to this question of economics that we must deal with on an individual, rather than a structural, level. Implementing a new economic structure with new rules and restrictions would of course reward individuals for behaving in new ways, but some behavioral patterns are quite hard to break—and you can’t legislate everything, morality in particular. Consequently, we must develop a new economic rationale, a moral argument, if you will, to support the types of behavior that must accompany the necessary structural changes. This moral argument must address two related issues: self-interest and competition.

Why We Need a Guiding Philosophy
In The Worldly Philosophers, Robert Heilbroner explains in some detail why we have had political, moral, and social philosophers for millennia, but economists (or worldly philosophers) only in the past few hundred years. There are, he says, three basic approaches to ensuring the survival of the human race. First, society can organize itself by tradition. In essence, people serve particular functions in society because their fathers did, or because they are limited by their class or caste to certain types of labor. Second, authoritarian government can ensure that tasks get done by assigning people to do them, whether they want to or not. Neither of these approaches to ensuring survival required any kind of economic philosophy. Only the third alternative demanded an accompanying rationale. And this third alternative was “an astonishing arrangement in which society assured its own continuance by allowing each individual to do exactly as he saw fit—provided he followed a central guiding rule. The arrangement was called the ‘market system,’ and the rule was deceptively simple: each should do what was to his best monetary advantage.”1
This third arrangement was not unrelated to the social and political philosophies of classical liberalism, suggesting that individuals were more important than the traditionally authoritarian institutions to which they belonged. Liberty, self-rule, justice, equality, private property, happiness—all these ideas added momentum to the great change from traditional or command systems to a free-market economy. “No mistake about it,” says Heilbroner, “the travail was over and the market system had been born. The problem of survival was henceforth to be solved neither by custom nor by command, but by the free action of profit-seeking men bound together only by the market itself. . . . The idea [however] needed a philosophy.”2 And philosophies abounded. Starting with Adam Smith and continuing on to the present day, great and not so great thinkers have put forward their ideas on how to best order and justify this new system. “Out of the mêlée of contradictory rationalizations one thing alone stood clear: man insisted on some sort of intellectual ordering to help him understand the world in which he lived. The harsh and disconcerting economic world loomed ever more important.”3
Indeed, economic matters loom more and more important as time passes, for the simple reason that our economic system must continually rationalize its very existence. That third alternative requires a philosophy, a justification, because when push comes to shove it is in conflict with the political, social, and moral philosophies of classical liberalism, the foundation of our Western way of life. This third arrangement for ensuring the continuance of human society is based solely upon the principle of self-interest, a principle that, when isolated, is at odds with the political theories, social ideals, and moral principles that have shaped our Western world.
Self-interest, however, is too problematic as a sole motivator of people in a community. When made the guiding rule, when unchecked by social constraints, political intervention, or moral concerns, monetary self-interest leads inevitably to centralized power, authoritarian structures, and command systems. In other words, without a motive higher than self-interest to guide or at least temper it, the third alternative inevitably collapses back into some form of the second alternative, and the individual ends up again at the mercy of arbitrary authority. For a while our political system, our social objectives, and our good moral sense held this contrarious economic motivator at bay, but in the end the strain was too great. Something had to give, and self-interested economics had too much momentum, too much appeal. What we need desperately today is a fourth approach, an approach that goes beyond custom, command, and self-interest, an approach consistent with our political, social, and moral heritage.

Republican Disinterest
Self-interest is actually a moral question, not just a value-neutral economic motor that is supposed to drive the mindless machinery of the free market. Indeed, self-interest is a very troubling moral question, for an economic system based on this principle creates almost irresistible incentives for people to behave in patently immoral ways.
Who would argue that we must be a moral people in order for self-government to work? This is what some would call a “no-brainer.” The freer we are, the greater a burden we as individual citizens must bear in creating a society of order and justice. Republicanism, succeeding monarchy as the dominant political system, “put an enormous burden on individuals,” says Gordon Wood. “They were expected to suppress their private wants and interests and develop disinterestedness—the term the eighteenth century most often used as a synonym for civic virtue. . . . Dr. Johnson defined disinterest as being ‘superior to regard of private advantage; not influenced by private profit.’ We today have lost most of this older meaning. Even some educated people now use ‘disinterested’ as a synonym for ‘uninterested,’ meaning indifferent or unconcerned.” Disinterest, however, is actually the exact opposite of self-interest.
“Republics,” Wood continues, “demanded far more morally from their citizens than monarchies did of their subjects. In monarchies each man’s desire to do what was right in his own eyes could be restrained by fear or force.” In republics, the only effective restraint on self-interest and private gratification is the sense among citizens that they must often sacrifice personal advantage for the public welfare. It is indeed ironic that self-interest—the one force that Wood identifies as needing to be restrained if a republic is to hold together—is the only force that traditional economic theory proposes as a social adhesive. This is not only a highly illogical thesis; it is also a disturbingly immoral philosophy.
What we have in modern America, then, is a form of government that requires a disinterested citizenry and an economic system founded on the principle of self-interest—a perfect mismatch. And, unfortunately, the economy is in control. To correct this problem, as I have already suggested, we cannot merely tell people to become disinterested. All the incentives in the present system encourage the exact opposite behavior. What we need is a fundamental change in the structure of the economy, so that our economic system actually encourages disinterested action. But we also need a higher ideal than self-interest to bind us together, for self-interest, even though it does cause us to “do business” with one another, also creates too many impediments to true economic and societal health.

Lip Service
The escalating height and frequency of the hurdles economic America requires companies to jump if they want to stay in the race puts immense pressure on them to increase their productivity and develop innovative new technologies. A very natural consequence of this pressure, within a system that enshrines self-interest, is for companies to become, over time, increasingly and hostilely competitive. American companies have always felt the need for, even thrived on, fierce competition, but as the growth spiral steepens and accelerates, making it harder for companies to climb to the next level, their perceived need to compete will intensify dramatically. In our twentieth-century mercenary marketplace you either eat or get eaten. Consequently, most companies nowadays focus primarily on beating their competitors and enlarging their bottom lines, rather than providing a service to society.
I used to ask the students in my management classes at the university, just to keep a finger on the pulse of their attitudes and misconceptions, what the purpose of a business is. I always asked this out of the blue, without any sort of preamble to bias their replies. And without exception, their first answer was, “To make a profit.” Rarely, even when I dug a little deeper, did they bring up the radical notion that businesses exist to provide a service to society. These were juniors and seniors in the business curriculum, and they had learned their lessons well. They were prepared for life in corporate America, or, as they called it, “the real world.” This “real world,” however, is anything but real. It is both inconsistent with the values of the American Dream and inherently illogical.
I remember reading the account of one business consultant who asked a group of high-level executives the same question. Their answer was identical to that of my students. They said their businesses existed to make a profit. This wise consultant then asked them how their drug and prostitution operations were doing. The executives were, of course, astonished at this request. “I just assumed,” he answered, “if you were in business to make money, that you’d be involved in the most profitable kind of business.” To bypass the best opportunities would be both inefficient and contrary to the stated purpose of their companies. These executives suddenly understood that their business activities were restricted by deeper purposes that they had perhaps not yet fathomed. And so it is with almost all companies.
Businesses today, for the most part, are so caught up in beating the competition, expanding their operations, and making a profit that they are either oblivious to or, at best, pay lip service to the idea of serving society. They are anything but disinterested. Corporate mission statements and hordes of management gurus notwithstanding, businesses have become ends unto themselves rather than instruments for achieving a greater societal good. And their recruits from the business schools already know which side their bread’s buttered on.
The problem with this acute management myopia is that on the practical, everyday side of the ledger the larger question of economics is ignored, thus focusing all the attention and resources of corporate America on the grand ideal of making a buck. The direct consequences of corporate America’s shortsightedness and misdirected energies are not trivial.
Because businesses and other institutions are not knit together in common purpose by an openly acknowledged concern for the greater good of society, but operate primarily on the principles of self-interest and self-perpetuation, the competitive climate in America has become one of hostility and aggression rather than cooperation and fair play. Because of this prevailing climate, modern businesses and business people are necessarily caught up in a brutal fight for survival. They must not only survive the inherent illogic of the system, but they must also survive head-on confrontations with competitors who wouldn’t blink an eye at putting them in their economic grave.
Survival is what twentieth-century American capitalism is all about, not service, not quality, not human development. Companies focus on quality, not for quality’s sake, but in order to survive. They emphasize service, not for the customer’s sake, but to increase market share. They create more humane workplaces, not because of their belief that workers in a free society deserve to more fully develop and express their talents and ingenuity, but because they can no longer compete in today’s demanding marketplace without intelligent, motivated, highly trained workers. At the bottom of American capitalism is the competition for survival—survival of the fittest. And as Abraham Maslow points out, when our survival is threatened, we are simply incapable of paying attention to higher needs and concerns.
1. Robert L. Heilbroner, The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers, 6th ed. (New York: Simon & Schuster, 1986), 20–21.
2. Heilbroner, Worldly Philosophers, 38.
3. Heilbroner, Worldly Philosophers, 41.
4. Gordon S. Wood, The Radicalism of the American Revolution (New York: Knopf, 1991), 104–5.

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