Home > Uncategorized > Extra-rational Motivation vs. Material Interests in Capitalism… and in Schooling

Extra-rational Motivation vs. Material Interests in Capitalism… and in Schooling

A recent Evonomics blog post by Peter Turchin, “Does Capitalism Kill Cooperation?”,  examines our current economy and describes the corrosive effects of competition and the benefits of collaboration. At the end of his analysis, he concludes that innovation and the resulting economic growth that stems from innovation is NOT the result of competition– the desire to win—  but rather the result of “extra-rational” motivation.

He opens his post with this description of the current mindset of economists:

Milton Friedman, of course, always argued that economic agents should strictly follow their material interests;there is no place for “extra-rational motives” in business. Most economists today feel the same way, although few are willing to state it as boldly as Friedman did.

Mr. Turchin acknowledges that in many– if not most— cases people make economic decisions based on optimization: they want to get the most value for the lowest cost possible. But he goes on to note that at the systems level capitalism operates differently, emphasizing that capitalism has been successful as a system because it promotes innovation:

But capitalism is not just about buying and selling things—people have been doing commerce for millennia before capitalism. Surely the amazing capacity of capitalism to transform knowledge into innovation, and innovation into economic growth is one of the central of its attributes? So let’s talk about such successful innovation hotspots, as the Silicon Valley. What are the motivations driving successful entrepreneurs within such hotspots?

Mr. Turchin then answers this question using the findings of Victor Hwang and Greg Horowitz whose recent book The Rainforest: The Secret to Building the Next Silicon Valley examines the characteristics of regions where innovation is prevalent. And here’s what they found:

A central theme that recurs throughout the book is that successful entrepreneurs, and the successful innovation systems in which they operate, such as the Silicon Valley or Route 128 in Massachusetts, are the antithesis of the rational businessperson postulated by Branko (a Friedman acolyte) one who is solely motivated by money. In fact, “Rainforests [their term for successful innovation systems] depend on people not behaving like rational actors.” “For Rainforests to be sustainable, greed must be restrained.” “Predatory venture capitalists might win a few in the short run, but they do not last long in the business and are unable to build lasting firms.”

Extra-rational motivations—those that transcend the classical divide between rational and irrational—are not normally considered critical drivers of economic value-creation. …  These motivations include the thrill of competition, human altruism, a thirst for adventure, a joy of discovery and creativity, a concern for future generations, and a desire for meaning in one’s life, among many others.Our work over the years has led us to conclude that these types of motivations are not just “nice to have.” They are, in fact, “must have” building blocks of the Rainforest.

Hwang and Horowitz identify four recommendations to create the “Rainforests” that result in innovation:

First, diversity, which brings people with very different knowledge and skills together, such as a scientist, a venture capitalist, an engineer, a sales specialist, and an administrator (a CEO).

Second, extra-rational motivations, because self-regarding rational actors are simply unable to cooperate to launch a successful innovation enterprise.

Third, social trust, because successful cooperation is the only way to beat the terrible odds against a successful innovation startup, and cooperation requires trust.

Fourth, a set of social norms that regulate the behavior of various cooperating agents, and willingness both to follow them and to enforce these rules by various sanctions.

After listing these recommendations, Mr. Turchin concludes his post with this:

In other words, Hwang and Horowitt describe a system that uses precisely the same components to bring about cooperation that have been studied in other settings (a foraging group, a military troop, a religious sect, and a state), and in the abstract, by cultural evolutionists.

The Rainforest, then, provides ample empirical material to reject the theory that economic growth, which is based on innovation, is moved by self-interested rational agents. But—and it was one of the real eye-openers for me—it also explains why this is so.

The notion that extra-rational motivations are “must haves” in the Rainforest and the four recommendation offered by Mr. Hwang and Horowitt resonate with me. And they underscore my belief that our public school “system” is based on the wrong premises. Indeed, they currently operate on the opposite set up. They are not diverse, they focus on competition and individual performance over collaboration and group performance, they have rules imposed with no input from students or, in some cases, from staff members, and— as a result— there is no effort to create social norms based on consensus.

Politicians, parents, businessmen and voters all seek to have schools that create innovative and caring graduates who can function effectively in our economy and our democracy. If we want that end, we might consider following the recommendations for creating a “Rainforest” instead of staying with our current system that sorts and selects based on a factory model.

 

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