Normally when I write a post, I have a well formed idea of what I want to say, even if I have some uncertainties (I try to make those explicit in case informed readers can shed further light).
Here I am starting a process of working through what amounts to an intellectual intuition. I’ve had these in the past; it’s sort of like seeing something in your peripheral vision. I’ve almost always been able to prove them out. I’m now in what a call the “milling about” stage, where I need to define the scope of the matter better, and gather more information so I can plot a path through the problem. So bear with me.
While this discussion could be enlarged to include certain aspects of legal thinking and political science, let’s stick with economics, since economists remain the only social scientists with a seat at the policy table, and they’ve served as effective propagandists for moving the values of this country in a way that has helped corporations and the top wealthy secure more political and financial advantage relative to ordinary citizens.
The way economists frame and analyze questions make it well-nigh impossible to incorporate matters of ethics. As we discussed in ECONNED at some length, mainstream economics has fetishized the use of mathematics, and consideration of fairness aren’t easily integrated into reductivist models. Even the accepted heresies, like information asymmetry and principal-agent problems, show how markets can fail to deliver desirable outcomes but those sub-optimal results are usually characterized as inefficiencies, not as “unfair” or “bad”. Narrowly speaking, someone who is studying a phenomenon should try to look at results dispassionately.
However, economists in practice want to have it both ways. While their discipline has scientific aspirations, most economists have a clear point of view on what they think the measure of success of economic policies should be, whether it is narrow commercial terms (growth, GDP, interest rates) or broader social outcomes. But even economists who care about the latter (as in they care not just about the level of growth but also how resources are shared), often think of the problem in a combination of distributive and mechanistic terms.
The weakest form of the “greater social welfare” arguments think that the first consideration should be growth and if we have more growth, the distributive problems (who gets how much) are easier to solve. Some who argue more fiercely social welfare oriented policies sometimes do so from a vantage of human dignity, but more often, their arguments are efficiency-based. For instance: poverty leads to poor childhood nutrition, which means they will grow up to be less capable workers; poverty creates cognitive load which makes people function as if they are stupider than they are; poor people are less likely to be able to escape poverty due to lower educational attainment, lack of exposure to settings where they learn the right social cues, etc, and had they been born in a different economic strata, they would likely have been much more successful (waste of human capital).
So another way to think about this problem is that economists effectively put unfair economic outcomes in the same box as externalities like pollution. And just as companies often fight with the public at large over how much pollution is acceptable, so too is there debate over how much unfairness is tolerable. Again, keep in mind that some pundits contend that point of view is nonsensical: any outcome of economic interaction is almost treated as if it were natural and is therefore assumed to be virtuous. Others point out how many actors have or are able to get the rules of the game rewritten in their favor, so looking at results is as important, if nothing else because too much unfairness undermines social stability (witness Arab Spring and our own increasingly frequent mass shootings).
I contend that this perspective is inadequate and in fact has done great harm. Over the course of my life, one of the side effects of the increased infiltration of economic-style thinking into more and more walks of life has been a decline in a sense of social responsibility among what passes for our elites. To the extent that anyone is tasked to see that outcomes are fair, it appears to default to government (food stamps, early childhood education programs, prohibitions agains workplace discrimination, etc). But at the same time, we’ve also been on the receiving end of a forty-year campaign to discredit, co-opt and shrink government. One proof of this pudding is that formerly competent regulators like the SEC and FDA are shadows of their former selves.
The reason the lack of concern with ethics as a focus is that ethics are an important, perhaps the most important, guide for managing complex systems. One of the points that John Kay argues persuasively in his book Obliquity is that most systems are so complex that we cannot map an efficient path through them. He’s taken pairs of companies in the same industry, similarly endowed, one of which focused on maximizing shareholder value, the other which set a richer set of goals which seldom included making shareholders wealthy. The ones with the loftier aspirations also did better for stockholders.
We now live in a world where, at least for those of us in advanced economies, our lives are under the sway of large organizations. We depend on lots of infrastructure that we don’t think about much unless it starts working badly or abuses us: road and transportation systems, water and power utilities, communications and information networks, payment systems, food and clothing providers, to name a few. Many of us also work either directly for large companies or provide services to them. As Doug Smith pointed out in his book On Value and Values, place, as in the community you lived in, provided your most important relationships. Now once you get outside your immediate family, we increasingly interact with other people through networks, organizations, and markets.
It is much harder to discipline bad conduct through systems of weak and transient relationships. The fragmented roles and responsibilities that a world of impersonal transactions, extended supply chains, and short job tenures produce is one ripe for looting. So it should be no surprise that that is what we are seeing on a large-scale basis.
This is another yet to be proven leap, but my gut is that the shift from communities to depersonalized networks and sprawling organizations also increases the risk of collapse. It’s not just that highly interdependent networks, when run for efficiency rather than robustness, will be breakage-prone. I recall being very dissatisfied with the way Jacques Tainter in his book Collapse argued that societal decay resulted from the rising costs of complexity in energy terms. While that’s a persuasive argument, he dismissed all theorists who argued from cultural causes basically as Romantics who were decidedly lacking in rigor. The problem, however, is that Tainter ‘fessed up in an aside that the elites in some societies that started on a collapse trajectory were able to pull themselves out of the nosedive and others failed. Yet Tainter had no explanation as to why. If it wasn’t culture, what was it?
I think the issue here is that highly complex societies don’t simply have rising energy costs, they also have increasingly high information and communication burdens. Those larger spans of control and the difficulties of monitoring make it hard to get incentives right. It’s brutally hard to define rewards and checks well when you have to manage from afar, through reports, infrequent meetings, and results that depend on environmental and competitive conditions, not just skill and effort. There just aren’t good substitutes to the owner who grew up in a business, knows the industry well, knows his people and their job requirements intimately, and can reprimand bad behavior and give rewards based on direct observation.
So the conduct that is promulgated within the systems, both the entity itself and society-wide, is a critically important governor of operations, yet it’s one that has been largely thrown in the wastebin for the last 30 years. And we are reaping the results.