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Humanist Entrepreneur Offers Four Ways to Change the Dominant Paradigm

October 15, 2018

The Evonomics blog offers weekly articles that offer thought provoking insights into how our economy could evolve into one that serves all consumers and citizens more effectively. This week’s blog offered a post that was an acceptance speech by “serial entrepreneur” Nick Hanauer. And the award he was receiving? The 2018 Harvard and MIT Humanist of the Year. 

His speech was full of pithy quotes about the failed Homo Economicus model that has dominated Western thinking for the past several decades. In the speech, Mr. Hanauer described the flaws of the current economic paradigm and his belief that our perspectives on how the market really works:

I believe (we have) a fundamentally flawed understanding of how market capitalism works, grounded in the dubious assumption that human beings are “homo economicus”:  perfectly selfish, perfectly rational, and relentlessly self-maximizing. It is this behavioral model upon which all the other models of orthodox economics are built. And it is nonsense.

The last 40 years of research across multiple scientific disciplines has proven, with certainty, that homo economicus does not exist. Outside of economic models, this is simply not how real humans behave. Rather, Homo sapiens have evolved to be other-regarding, reciprocal, heuristic, and intuitive moral creatures. We can be selfish, yes—even cruel. But it is our highly evolved prosocial nature—our innate facility for cooperation, not competition—that has enabled our species to dominate the planet, and to build such an extraordinary—and extraordinarily complex—quality of life. Pro-sociality is our economic super power.

In effect, Mr. Hanauer is arguing that that the Ayn Rand philosophy of economics– the so-called “Virtue of Selfishness”– proposed by Milton Friedman that is explicitly endorsed by the Conservatives and implicitly endorsed by the neo-liberals is wrong. Instead of adopting the “Greed is Good” credo we should instead adopt a pro-social credo based on the Golden Rule. If we did use the prosocial approach, here’s what Mr. Hanauer sees as the result… and it is full of great quotes, which are flagged in italicized red:

Properly viewed through this prosocial economic lens, we see clearly that it is our humanity, not the absence of it, that is the source of our prosperity.

But of course, in working to change the way we think about the economy, my ultimate goal is to change the way we act within it. And to this end, I’d like to close by offering four simple heuristics to guide your own actions and activism:

Heuristic number one: Capitalism is self-organizing, but not self-regulating.

The notion of market capitalism as a Pareto-optimal closed, equilibrium system is—to use the technical term—bullshit. Throughout the world, the most broadly prosperous capitalist economies are also the most highly regulated and highly taxed. To be clear: Government investment and intervention is not a necessary evil. It is just plain necessary.

Which leads us to heuristic number two: True capitalism is not shareholder capitalism.

The neoliberal claim that the sole purpose of the corporation is to enrich shareholders is the most egregious grift in contemporary life. Corporations are granted limited liability in exchange for improving the common good. Thus, the true purpose of the corporation is to build great products for customers, provide good jobs for employees, provide a fair return to shareholders and to make their communities stronger—in coequal measure.

Heuristic Three: Capitalism is effective, but not efficient.

Schumpeter’s “perennial gale of creative destruction” has proven extraordinarily effective at raising our aggregate standard of living, but it can also be extraordinarily wasteful, cruel, and unequal—unequal to the point that it threatens to destroy capitalism itself. If our economy and our democracy are to survive the ever-quickening pace of technological change, we must use every tool available to close “the innovation gap” between our economic institutions and our civic institutions.

And finally, heuristic number four: True capitalists are moral capitalists.

Being rapacious doesn’t make you a capitalist. It makes you an asshole and a sociopath. In an economy dependent on complex trust networks to facilitate the cooperative tasks from which prosperity emerges, and when prosperity itself is understood—not as money but as solutions to human problems—true capitalists understand that every economic act is an explicitly moral choice—and they act accordingly.

Mr. Hanauer concluded his speech with this hopeful and uplifting note:

And so, to all the aspiring business and technology leaders in the audience today, I want to challenge you to adopt an alternative credo, far more ambitious—and more humanist—than Google’s “Don’t be evil”: “Be good.” Or maybe, “Always do the right thing.”

And when you do the right thing, do it with confidence that if it is the right thing to do for your customers, for your employees, for your community, and for the planet—then it is also the right thing to do for your shareholders.

I hope the audience heard Mr. Hanauer’s plea and adopts his recommended credo… but I fear that doing right by the shareholders will be a hard paradigm to overcome.

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