Paper given at the University of Aberdeen, 11 May 2017
Luke 18:22-3 ‘Jesus said, “You still lack one thing: Sell everything you own and give to the poor, and you will have treasure in heaven. Then come, follow Me.” But when the rich young man heard this, he became very sad, because he was extremely wealthy.’
The hypothesis of this Joy and Prosperity event is that Christians have traditionally driven a wedge between them. A bit like the rich young man, there has been a feeling that you can’t have both joy and prosperity: blessed are the poor. Today we are testing that assumption, and my contribution is to look at the question through the lens of the axioms of classical economic thought.
Before I do this, I need to crave your indulgence, because I do not want to fritter away my time with you re-establishing cast-iron definitions of ‘joy’ and ‘prosperity’ in order thereafter to carefully demolish them. I intend to use the terms rather generally, but will explain as I do so where particularly nuances become relevant.
I need to start by introducing some dramatis personae. Once you have met them, I am going to construct an arena on which we might pit them against each other in the joy and prosperity stakes. Then we shall see to what extent capitalism serves either joy or prosperity, and draw some conclusions about where theology might help. Right. Props bag. Here they all are. Each represents one of the Seven Deadly Sins that are still taught in Econ 101. For those of you who will yearn for more scholarship on them than I can provide today, they are written up in more detail in my 2015 book ‘Capitalism’s Toxic Assumptions.’
First, my trophy: Competition.
Competition is still assumed to be the default business strategy. But Game Theory argues that co-operation is a better generic strategy because it yields superior outcomes over time. Winning at all costs is necessary to survive wars or in one-off transactions. But in business companies want longer-term customer and supplier relationships. Of course, brands still need to compete for market share; but not over every aspect of their business.
Maths shows that co-operation and sharing information increases the size of the pie instead of restricting the argument to cutting up the one you already have. And absolute competition isn’t just mathematically questionable, it is sexist, too. While male fight-or-flight physiology favours competition, particularly in challenging environments, it ignores the role that female physiology has to play. Research conducted on female subjects suggests quite a different physiological response, one dubbed “tend-and-befriend”. So being hooked on competition may compound a tendency towards sub-optimal outcomes, reinforced through a traditionally masculine business environment.
Second, the wizard puppet – who looks rather like Rowan Williams: the “Invisible Hand”
But Adam Smith’s ‘psychic balm’ has always been just an optimistic myth, offering a reassuring but inaccurate justification for self-interested behaviour. While order may rise from chaos, there is no evidence to suggest that this always tends towards the good and certainly none sufficient to justify society’s reliance on it. Birds flock into jet engines and fish shoal into the mouths of sharks. The crowd is sometimes wise but not invariably so. In reality, leaving things to the Invisible Hand skews the market in favour of the strongest because they have more “votes”. This maximises their utility but not that of society at large.
We in this room might imagine that God somehow directs human activity, but if you are in the business of running a state it is not appropriate to appeal to an authority that many do not admit, particularly if the ‘free market’ rallying cry is generally a rather cynical and sinister way to cloak the naked exercise of power.
Third, my fish oven glove: Utility
Is maximising it really the best way to measure the success of the market? No, because it only stacks up as a metric if the “invisible hand” really exists. This is because, as the late lamented theologian John Hughes beautifully argued – the concept is an empty one – utility for what?
If there’s no guarantee that individually selfish behaviour produces a good outcome overall, a system based on this thinking cannot be moral without help. And the sort of help this requires – government intervention – is exactly what most economists try to avoid because it interferes with the smooth functioning of the market and gets political, fast.
Even if utility made sense, the idea that “Economic Man” is a rational agent is wildly optimistic. We’re all subject to irrational behaviour through peer pressure or emotion. And assuming we are all robots just leads to poor modelling.
But why the fish? Because of tragedies of the commons. The inevitable result of individually selfish behaviour is that no-one takes care of the commons. In Newfoundland it was the fish. The Canadian government had to introduce a moratorium on cod fishing in the Grand Banks in 1992, because everyone was so busy maximising their own utility that the fish ran out. Only now are the stocks beginning to recover; and Scotland has only avoided over-fishing courtesy of drastic cuts in EU fishing quotas and the de-commissioning of half the British fishing fleet.
So what is the CCTV camera about then? It’s my fourth classical tenet: Agency Theory.
Still an MBA stalwart, Adam Smith’s original notion about the different interests of owners and managers has had catastrophic consequences. This ‘Big Brother Is Watching You’ mentality uses a wholly negative take on human psychology to generate HR policies that assume employee recalcitrance, limiting the ability of organisations to unlock human potential. Worse, it has been used to justify the disastrous ubiquity of executive shareholding. This practice, hand-in-hand with the idea of the supremacy of the shareholder, has made corporate strategy defiantly short-termist and manipulative. Why do we still teach a view of humanity that so few psychologists – let alone theologians – would support?
Here is number 5: my sale banner. Market Pricing.
Do you remember your equilibria graphs? They depict the assumption that the price mechanism, left to its own devices, will settle scientifically where supply meets demand. This ignores the potential for both supply and demand to be manipulated.
As well as airbrushing out the historical debate about “just” prices, market pricing ignores historical questions about cost. This obscures the important debate about hidden costs or “externalities” such as the environmental cost of pollution. In an age where the limits of the Earth are being felt, it is vital that this debate about the market’s embeddedness is not ignored. Apart from the cod in Newfoundland, the planet is running out of species and commodities all the time.
Possibly the besetting sin is number 6: Shareholder Value – my Santa Claus.
This unswerving belief that the shareholder is king owes more to a romanticised ideal about the nature of shareholding than to reality. The average time for which a share is now held? About 11 seconds. Blink and you’ll miss it. Even ignoring the extremely limited legal sense in which shareholders actually own businesses, automated trading makes “the shareholder” a rather bizarre and fleeting concept. Sticking to the idea that the shareholder is a nice old bloke who founded the company just drives short-termism. In an attempt to keep him in socks by keeping share prices high, companies neglect wider issues of accountability and ignore other company stakeholders. This mythology has fuelled the exponential rise of boardroom pay and an overly narrow measurement of corporate performance. But, a bit like Santa Claus, the threat of him is still used to make us all behave.
Finally, number 7 – this share certificate, to stand for Limited Liability.
Ninety-eight per cent of companies currently registered in England and Wales have limited liability. The figures are broadly similar for Scotland. But the monopoly this model enjoys is extremely risky. In a global economy, the resilience of the system will always depend on diversity. No single model should prevail. In institutionalising moral hazard, the dominance of this particular model plays into an increasingly irresponsible shareholder culture because there is no downside. More encouragement in law, policy and professional services of alternative models for enterprise would introduce healthy “competition” between business models. And more employee ownership and mutualisation would spread risk, as well as creating a wider range of businesses with different models of success.
So here they all are, my dramatis personae. The several pillars of capitalism. But while their wisdom may have served us well in the past, they are a bit like this scarificator. Have you seen one of these before? They are for blood-letting. They were still being made in France in the 1920s, because doctors still recommended blood-letting for a wide range of conditions, including headaches. Most of us now just carry paracetamol. This is an example of new data changing science. But Economics suffers from such bad ‘physics envy’ that it wants to cling on to its science at all costs, and acts as though these old hypotheses were permanent laws of nature. That’s why I have dubbed them ‘toxic assumptions’ – this flat-earth thinking is slowly poisoning the system, and we need fresh thinking now.
But what of Joy and Prosperity? Now that we have met our characters, let’s put them to work. How does each further or limit either joy or prosperity? We can establish an arena for them, using Joy and Prosperity as two axes. Let’s work back through our list, and you can help me locate each on this grid.
Competition. Big one for joy, of a certain kind. Serotonin in particular. Which you get from winning. Hurray! And men get double helpings of biological joy if they prevail under pressure. Not great for the losers, though, who feel the opposite. So if we’re in the logic of zero-sum games, we have to average out the joy between the two sides. Prosperity a qualified yes, because the discipline of competition has spurred people on to great inventions and achievements. I would imagine more prosperity might be possible if we assumed that economics was more of a co-operative game. And perhaps we would waste less if there was less duplication of effort in service of this end. But you can have a medium to high for that one.
Invisible Hand. What joy, to relax into paternalism! Even better if we imagine that God is the invisible hand. Off-the-charts high scores for joy. Albeit a childish sort of joy, buy unalloyed for all that. No weighty responsibility here. Phew. Let’s leave it all to the market and snooze in our hammocks. How about prosperity? That’s the whole point, isn’t it, that the invisible hand makes it all come good for us? Sadly not. It just gives the rich license to create the market in their own image. Prosperity for them – and how! But not for the rest of us, so a low scorer on Prosperity in aggregate.
Utility. Perhaps the individual maximisation of utility enables individuals to seek and find joy. So this could score big. As long as that joy is not troubled by conscience. Because prosperity takes a hit here, not at the individual level where it would score equally highly, but at the level of solidarity. Because individualistic utility-maximising behaviours inevitably erodes the commons, whatever and wherever they may be. I’d also argue that morality takes a hit, which I think ultimately affects both joy and prosperity. A narrowly utilitarian view of ethics is a truncated one, which does not enable the schooling of virtue, and disorientates the moral compass by swinging it towards the oscillating expedient.
Agency Theory. Just not Joy. Agency theory assumes a psychology that might admit passion but probably not joy. It’s an anthropology where we need to be moulded into shape if we are to amount to anything useful. Henry Ford banned smiling at work, and that pretty much sums it up. Nul points. Prosperity? Narrowly, yes, in that the reason for wages at all is that people rarely work for others for free. So much of our personal prosperity, in so far as it comes from our labour, owes thanks to agency theory. Maybe a middling score, though, because of the amount of prosperity that it leaves on the table. Just imagine how much more creativity, innovation and engagement there would be if people were nurtured and nourished into their full potential at work? That would certainly boost prosperity across the board.
Market Pricing. Joy to those who like a bargain, or to the rich who love things that are reassuringly expensive; woe to those whose wages and working conditions are suppressed to keep prices down. Woe also to the planet because counting the real cost would drive prices up. The Prosperity index might be slightly higher, because things being so cheap and therefore affordable make it more possible for more people to feel prosperous. But the manipulation of demand through consumerism affects our joy when we can’t keep up with the perceived prosperity and joy of others. So I think this has to score pretty low in both categories.
Shareholder Value. Oh dear. Big loser on both axes would be my hypothesis. Why? Joy. Joy of course for those who take delight in receiving a massive pay packets, and watching the stock line rise as they manage their business expressly (and only) to that end. Prosperity thereto as well. But woe to prosperity generally, as money is siphoned away from investment in the operation or its staff or society and handed directly to the rich through share buy-backs, in order to jack up return on equity ratios in order to inflate share-price still further. Woe also to those staff who are constantly ‘rationalised’ or transferred on to zero hours contracts in order to keep the cost base trim to the same end. And deep woe to society and to the environment, as externalities are kept out of pricing to keep things cheap, and the medium and longer-term are sacrificed at the altar of the shareprice, whose high priests need immediate results not altruistic investments in future earning potential. I would guess also a lack of joy in the workforce, as evidenced by the woeful employee engagement figures that are perennially reported. Is it really a source of deep joy to pledge your labour just to help fat cats get even richer? We can already see from the popularity of employee ownership and the emergence of the B-corps that other models can be more motivating and therefore more conducive to joy at work.
Limited Liability. Joy? I think it scores extremely highly on joy. Not perhaps the kind of joy that is particularly virtuous, but that rather fun and gleeful sense of irresponsibility and fecklessness. Like eating the whole tub of Haagen Dazs. Because Limited Liability is an invitation to take the money and run. There is no downside. Possibly some reputational damage, if it ever becomes public that you were an investor, but all you lose is the value of your share. And because the company in which you have invested is using you as the bogeyman to justify taking all kinds of risks, the odds are that you will be quids in in perpetuity anyway. Prosperity? That is far harder to ascertain. It is true that the commonweal has been greatly enhanced by the large infrastructure projects like roads, railways, canals and bridges that were the original justification for this legal device. But modern-day limited companies? I think we’ll allow that they tend to provide goods and services we need or desire, or they wouldn’t last long. That is a tick for prosperity. But do they enrich society financially? Perhaps through their expenditure on raw materials, services and wages. But their legal structure enriches shareholders. And we know from Thomas Piketty’s work that investments, particularly those that are inherited, act as a ratchet on the wealth of the very richest, and so drive spiralling inequality. So I think the best we can give Limited Liability on the Prosperity axis is half marks.
What might theology have to contribute, to improve this rather dismal mise en scène? First, Man is made in the image of God, and is given stewardship over creation for the good of the whole of creation. Economics, or ‘the running of the household’, is therefore seen by Christians as a sacred trust, not a dismal science. While, on the face of it, competition appears an optimal strategy because it aims to improve outcomes over time, the costs of it are too great. Squandering information by hoarding it is wasteful, and reduces the possibility of enhanced outcomes. While game-playing enables the exercise of God-given intelligence, making it the default approach to economic life privileges ego over outcome, to the dis-benefit of creation as a whole. A bias towards the male of the species is also repugnant to most Christians, in spite of official HR policies to the contrary. What would a regulatory and business context based on ‘co-operate where you can: compete where you must’ look like?
Second, the Invisible Hand looks Christian, in that it borrows from the idea of Divine Providence. And while many Christians still believe in some sort of benign fate, the gift of free will carries with it the responsibility of its exercise. This argues against a laissez-faire attitude, particularly one which has been shown to advantage the rich and powerful at the expense of the poor and vulnerable, and of the planet’s resources more generally. How could the poor’s full participation in the marketplace be accelerated, and the rich’s tempered to restore justice?
Third, ‘utility’ encourages an impoverished interpretation of the nature and destiny of mankind. Our Trinitarian God has created us out of and into relationship. A short-term transactional and competitive frame makes us adversaries not brothers. God has also designed us richly and not as automata, and the complexity of our decision-making is still only partially understood. That we have a capacity and calling to be selfless is a cornerstone of Christian belief, so the selfishness of Economic Man is a travesty. What would a corporate strategy genuinely based on maximising human flourishing mean for the culture and results of organisations?
Fourth, market pricing. Again, laissez-faire is actually a vote for the powerful. Allowing pricing to be manipulated pollutes the entire marketplace by sending distorting signals. And Christians as stewards cannot ignore the issue of costs, just pricing and externalities, as a matter of solidarity and justice. This assumption is perhaps the trickiest to unpick, because history suggests that States distort prices as badly as do unfettered markets. But transparency and disclosure about costs, margins and impacts – even in the subsidiaries of subsidiaries – would allow consumers to make better choices about which products and services to buy. Why can’t corporates publish breakdowns of their costs, margins and impacts more transparently?
Fifth, agency theory, which would appear justified because of Original Sin. Christ’s sacrifice paid this debt, and there is no room for such a stunted reading of human nature in Christian Theology. God gave us the ultimate freedom, and it does violence to the very essence of the Christian story to assume the recalcitrance of man. Of course we incline to sin, but structuring it in just encourages it, creating a race to the bottom that is fundamentally dehumanising, as in the case of executive pay. How might a glass half-full approach, coupled with visibility, encourage better behaviour?
Sixth, the narrow view that the shareholder’s rights trump all others is an affront to the notion of stewardship. It trivialises the human endeavour bound up in an organisation, and encourages an arms-length approach to responsibility. The only Christian way to view the aim of an organisation is to look at its contribution to human and planetary flourishing. The culture of greed inculcated by the twin evils of agency theory and shareholder value is deeply sinful. Why are we hanging on to this model, and what would need to happen for it to be dismissed as a flat-earth philosophy?
Seventh, limited liability, as a model, structures moral hazard into the system, and schools executives in irresponsibility. A Christian reading of the situation argues in favour of a more democratic approach to ownership. One that recognises more fully the contribution and role of employees, who are made in the image of God, and are exercising their God-given talents in the workplace. Given that the results of shared ownership speak for themselves, what is really stopping more companies from migrating to this model?
These themes, of human nature, freedom, responsibility, and the protection of the vulnerable, point towards an economy that is more careful of relationship. It is one which would require the careful balancing of joy and prosperity, and the holding of them in tension, rather than any false dichotomy between them. So, back to our grid, to close. Where is God at work already? He is breathing relationship and co-operation into competition, to move it towards joy and prosperity. He is encouraging us to stand up and make the invisible hand visible: where are the principalities and powers operating in the shadows, and how can we convert them through joy into unlocking prosperity for all? He is offering us a vision of life that is far richer than mere utility, and inviting us to convert our insatiable desire for things into an insatiable desire for joy, and a yearning for the prosperity among the commons not at the expense of it. He is showing us the costliness of things being cheap and the woe of those oppressed by our obsession with a bargain: he is showing us the joy of less and enough. He is releasing us from a need to be defined by our past behaviour and the narrow predictability of selfishness by making us search out meaning and joy in our work. He is making us ask questions about the proper role of the shareholder; and he is raising up many new forms of organisation, full of joy and prosperity, to be the green shoots of a new economy for all. And of course, the birth pangs intensify as the moment approaches. But as a wise lady once told me. First, we breathe; then, we push…