How can we create a good life for all without destroying our planet in the process? The answer, according to Oxford professor and former McKinsey partner Eric Beinhocker, involves changing our economic system from a focus on growth to a focus on problem solving. Success therefore is measured in the progress we make in solving humanity’s problems.
Delivering this kind of system will require a fundamental rethinking of the ’moral foundations’ that underpin today’s economic system, and a concerted program of ‘propaganda’ (my word) to change the mindsets and expectations that govern our daily lives. This note is a summary, with some of my commentary, of a lecture given by Professor Beinhocker at Oxford University on June 24, 2019.
The price of growth: the planet
Unfortunately, our record so far is dismal in this regard. Dan O’Neill et al point out in research that plots the progress countries are making in improving quality of life (‘achieving social thresholds’) against environmental impact (‘biophysical boundaries transgressed’). As the graph shows, this is a fairly linear relationship – so far, increasing the quality of life is going hand in hand with making our planet unliveable.
Humans’ infinite capacity for creative problem solving is being woefully misspent. Social media is the new opium of the people (well in addition to the new opium of the people), hooking us on insanely addictive apps that make us crave attention, fuels envy and buy stuff we don’t need. More importantly, we’re not spending time and resources solving big problems. Neither are our political masters; as the global challenges confronting society are amassing to intimidating levels, our political system is delivering more populist, querulous, egotistical (male) leaders, who are in many cases reversing progress.
“It’s easier to imagine the end of the world than the end of capitalism”
It seems we’re facing an existential threat. And at the root of it, according to Prof Beinhocker, is a set of broken assumptions and ideas about the economy. What is the economy? The economy is ‘a set of imagined orders’ according to Yuval Hariri, such as property, law etc. These impact the physical world, and deliver an economic system. And this isn’t working well today. The way we got here, according to Beinhocker, is a set of ‘Russian dolls’. The top layer is our economic system, which is informed by an economic and political ideology, which is informed by an economic theory which in turn is informed by a behaviour theory about humans, That is informed by moral philosophy.
The damaging legacy of the armchair anthropologists
According to Beinhocker, today’s broken system is a result of a group of men (described by Stephen Pinker as “armchair anthropologists”) including Hobbes and Bentham, who constructed a view of humans as “pleasure machines” whose objectives were to maximise their own utility. This overly simplistic view of humans as independent entities bouncing around trying to maximise their own pleasure ignored the reality that humans are social animals, influenced and impacted by others. Humans are not rational actors, as any behavioural economist, psychologist or person on the street will tell you (more on that later).
A set of arbitrary, simplifying assumptions with real consequences
Further, this atomisation of society ignored community. In 1789 Jeremy Bentham said that “the community is a fictitious body” being just a set of individuals, a sentiment echoed by Margaret Thatcher, who said “there’s no such thing as society”.
These moral philosophers are the root cause for the idea that “greed is good”. Co-opting and misconstruing Adam Smith’s invisible hand, to suggest that individuals should maximise their take and magically all will benefit. This was built on by the ‘marginalists’ (Walrus, Pareto, Jevons, Edgeworth) who created the flimsy (and tautological) idea that people earn what they contribute (so today’s excessive salaries are justified because they show excessive value add).
Economics as physics (when it should have been biology)
Thinkers such as Leon Walras decided that economics should be a science, and decided that the physics of static systems was the best place to start (how different would the world be now if he’d picked biology?). This resulted in a set of assumptions about how the world works that have endured to this day, and have little to no link to reality, namely: the economy reverts to equilibrium (no, it grows and adapts or regresses, more like a jungle than a balancing ball), it’s optimising (people know what they want and always maximise their own desires), it’s static, it’s linear (i.e. “society” is just comprised lots of individuals), and it’s closed (i.e. separated from other environments such as politics).
This led in turn to neoclassical theory, that markets being ‘allocatively efficient’ – let the market rule. Growth in GDP became the main objective, and growth in turn is infinite (tell that to the environment). Price was equated to value, governments were relegated to a role of only intervening to avoid market failure and inequality took off.
The rise of neoliberalism
A central point in Prof Beinhocker’s argument is that all this is just a set of memes and ideas. “Neoliberal” is a worldview not a rigorous scientific theory and it’s just another set of stories and narratives to justify power and privilege of the status quo.
Looked at like this, we start to get the discomfiting feeling that we’ve all been living a lie. This resonates with my own experience – I studied Economics as an undergraduate at Cambridge University in the 1990s and always had a distinct sense of unease with microeconomic theory (still taught today to my knowledge) centred on the idea that for this all to work we have to assume humans are selfish, individual, perfectly rational actors with perfect knowledge.
Science and (behavioural) economics fights back
Prof Beinhocker uses advances in cognitive and neuroscience to compare the actual reality of what humans are from today’s set of ‘Econ 101’ assumptions:
We are social creatures – we’re moral, reciprocal, capable of altruism, hierarchical and tribal. We also now know more about systems. In particular, the economy is not just a collection of independent individuals, and it is definitely not in equilibrium. Like the moon, “the only way to be in equilibrium is to be dead”. The economy is instead a “complex adaptive system”; it is dynamic, non-linear, reflexive, self-creating, self-organizing and evolutionary. It impacts and is impacted by the rest of society, culture, society and the environment. It is a “thermodynamically open” system – it uses energy to create matter and order and creates waste in the process.
A new conception of value
All this changes economics and in particular what we regard as the central concept of value. The point of the economy, according to Beinhocker, is not to maximize human happiness (and certainly not to just grow endlessly, destroying the environment by doing so) but to ‘solve human problems’. So the economy is not just about more, but solving problems like helping people eat, finding knowledge or getting around.
So value is solving the problems and wealth is the stock of solutions. Growth is the rate of solving humans problems and make them available (ie inequality is not good). By solving problems “we create capabilities and enhance agency” to help people meet their human potential. Our current hedonic economy is maximising GDP while driving us off a cliff, while a new “eudemonic” economy would, in this telling, lead to maximal human flourishing.
A better goal for the economy and society: solving humanity’s problems
This creates a new approach to markets that Prof Beinhocker calls “market humanism”. This creates new memes such as greed is bad, we solve problems by cooperating, inclusion is the basis of trust, there’s no tradeoff between social justice and growth. The government’s role is to encourage cooperation – it’s not the whole thing (i.e. extreme socialism) but a big part of it. “The role of markets is to create competitions to cooperate and evolve new and better solutions to human problems”. [Note: I do have some questions over this formulation – how do markets create competitions to cooperate? When is competition and cooperation complementary vs antithetical?] So the social duty of business is to solve human problems. And the moral duty is to protect the earth.
How to make it happen? We need ‘propaganda for good’
If this is true, then how do we go forward? We need to implement policies that make it possible. Today there’s little room in politics to move away from the status quo to transformational thinking. Prof Beinhocker shows that there was a quite explicit effort to “rewire” elite thinking towards neoliberalism (via think tanks, media, judiciary, think tanks, business schools etc), delivering a concerted effort to turn a set of self-serving intellectual ideas into politics and norms. This is about “propaganda for good” (and this article is worth reading about how competition between groups rather than individuals is the key, and ironically group-ish thinking successfully pushed the neoliberal narrative of individualism, unregulated free markets and minimal government).
In the Q&A afterwards, the discussion turned to the specifics of making it happen. Prof Beinhocker suggested that framing the challenge to the environment as a moral issue rather than a simple, scientific and rational cost-benefit analysis (the way that Greta Thurnberg has successfully done) is the way to go. Indeed, he raised a surprised laugh when as a ‘carbon abolitionist’ he said he thought carbon needs to be made illegal.
On a personal basis, I first encountered Prof Beinhocker’s work in his previous tour de force, the Origin of Wealth, and delighted to see this approach that pieces together many contemporary ideas into the beginnings of a manifesto for change. I’m looking forward to the new book he’s writing with entrepreneur, investor and writer Nick Hanauer. This approach answers many questions and provides new paths forward, but also opens a whole host of interesting questions, such as how do you decide on what problems to solve, what metrics will be used to measure progress and will selflessness prove as powerful as selfishness to driven human agency? I very much hope we find answers to these questions and more and look forward to seeing this conversation and these ideas go mainstream.
When I was an econ major in the 1980’s, I took a course on Public Finance. First day of class, the professor asked if anyone was uncomfortable with the assumption that, all things being equal, more is better. More roads, more schools, more projects, more wealth. Except for one of us, every student gave their assent. I believe the professor was disappointed, and understood the self-defeating nature of his vocation.