A book-review by Christian Felber
Michael Pirson, professor at Fordham and research fellow at Harvard, makes a case for humanistic values, strategies and leadership in organizations. He puts dignity and well-being in the place of financial results and “economistic” targets reconciling ethics and economics, values and figures. His merit is not primarily to offer a new management theory, but to provide a consistent overview of what has been thought, researched and written by diverse scholars in different disciplines. Furthermore, he provides a broader picture of what represents a well-grounded fundament for a new paradigm in management theory and practice.
The central agrument of his theory of change is a thorough deconstruction of neoclassical economics’ model of man: homo oecnomicus, including his slightly more refined successor “REMM”: the Resourceful, Evaluative, Maximizing Model by Michael Jensen and William Meckling. Pirson’s exercise of falsification with an interdisciplinary approach is strikingly successful. One of the insights: Homo oeconomicus is a mutilated version of homo sapiens reducing him to only two drives: the drive to acquire (gain of material goods) and to defend (competition and aggression). At least, two equally important drives are missing in this radically incomplete model: the drive to bond (create trust and fulfilling relationships) and the drive to comprehend (learn, be creative, experience meaning). The humanistic management approach presented by Pirson tries to balance all four drives instead of maximizing only two at the cost of the others. Pirson, who also presides an international network of academics searching in the same direction, differentiates the humanistic from an “economistic” approach to economics and management. Whereas the economistic approach is primarily about money, status and wealth, the humanistic paradigm is mainly about dignity – one’s own and the dignity of all other beings. As a consequence, the ultimate goal behind humanistic management is the common good.
Pirson shows with convincing historical evidence dating back to Aristotle that the humanistic paradigm is much older and broader and that the economistic paradigm is comparatively young and extremely narrow. Experts on economic history have come to the conclusion that dignity is the most important single reason for the success of Western civilization in creating wealth – not property rights, trade or capital investments. Dignity allows for both: Individual initiative in the economy, but it also demands mechanisms of social welfare and progressive democracy.
Unusual for an economist, Pirson uses interdisciplinary material to falsify the assumptions on which neoclassical economics are constructed. One of them: “From simple cells to supersocial animals like us, the story of life on Earth is the story of increasingly complex cooperation”, he quotes the Harvard based psychologist and philosopher Joshua Greene. It is more, the creation of social bonds, sociality and morality – to protect these bonds – are scientifically renown characteristics of humans, whereas the assumptions underlying homo oeconomicus or REMM are mainly assertions, that do not prove valid even in the simplest empirical experiments. For instance, in the famous “Ultimatum Game”, large majorities of participants across the globe chose a solution to their own disadvantage in order to prevent an unjust distribution of goods. According to Pirson, morality and sociality are empirically superior to utility maximization or individual advantage seeking.
Nevertheless, 80 percent of CEOs surveyed in a study said they would pass up making an investment that would fuel a decade’s worth of innovation if it meant that they would miss a quarter of earning results. Obviously, they are strongly misguided – and/or the current design of markets implies counterproductive incentives. Which, again, are a consequence of the neoclassical model of man and a misassumption how humans work best and achieve most. Part of the problem of the current dysfunctional design of markets is that policy makers are lobbied to set antisocial incentives in the regulatory framework of markets.
The damage of neoclassical economic education can also be measured among students: “It makes them more selfish and less concerned about the common good”, concludes Pirson. One obvious reason is the lack or even absence of ethics in economic studies. Only half of all MBA programs examined in a study make ethics a required course, and only 6 percent deal with issues of sustainability in their core curriculum. Pirson argues that business students may take thirty classes based on economistic assumptions and then have one class that questions them. Ed Freeman calls this the “schizophrenic effect of the separation thesis”. He refers to the exclusion from ethics from business judgements but generalizable as a duality between the worlds of management and the humanities. This is even more surprising as the “father” of economics, Adam Smith, was a moral philosopher and thus an expert in ethics. His followers destroyed the unity of ethics and the economy, breeding greedy and irresponsible business leaders. A telling and worrying consequence of this senseless separation is the fact that psychopathology is by far more widespread among business leaders than in the average population. Whereas the “drive to bond” is absent in only 1 percent of all humans, this ratio is 6 to 10 times higher among economic decision-makers, informs the study “Snakes in Suits” by Robert Hare and Paul Babiak. The linkage of psychopathology and success is not only an “irony”, as Pirson puts it, but a major systemic risk and central explanation of the broad range of collateral damage caused by the current economy. This goes from climate and environmental degradation to skyrocketing inequality and social exclusion to erosion of democracy and shared values. Business education has a major part in it.
Consistently, the reintegration of ethics in economics and management theory and education is one of the solutions proposed by Pirson. The current separation, he analyses, is due to an “academic inferiority complex” of economics that tried to emulate natural sciences, especially physics, which also explains the excessive use of mathematics as a method. Nevertheless, using math does not simply turn a social science into an exact science. On the contrary, sophisticated equations help to transform an important part of social life that should be open to democratic deliberation and voting into an esoteric ideology that creates the illusion of unquestionable truths. Scholars who chose a more qualitative or – honestly-transparently normative – approach are attacked as “unscientific”.
Another proposed solution is the enrichment of the model of man by at least the drives to bond and to comprehend and to adjust leadership qualities accordingly. Ultimately, only those leaders who have the capacity to make relationships flourish and to provide the common good also have the qualification for bearing more responsibility than others. Accordingly, “success” in business and the economy as a whole, must not be measured primarily with financial indicators – which don’t contain any reliably information about social values, dignity or well-being – but with alternative indicators that measure the achievement of the actual goals and values of business.
Pirson concludes by offering a larger array of concrete examples of businesses that shift progressively from profit-orientation to wellbeing-orientation. He presents cooperatives (“Humanistic organizations tend to involve stakeholders actively in their decision-making process”), ethical banks such as the Grameen Bank, “conscious capitalism” organizations such as Whole Foods Market or John Lewis Partnership. He mentions frameworks such as B Corps or the Economy for the Common Good, which measure success of businesses with a score card or a Common Good Balance Sheet and encourage policy makers to pass laws that link good ethical results to legal incentives in taxes, tariffs, loans or public procurement.
Interestingly, Pirson ends his book with a call for overcoming neoliberalism. He describes how the originally unpopular neoliberal narrative became hegemonic thanks to the joint effort of scientific networks, think tanks and foundations who engaged in policy consulting, academic research and teaching including textbook dominance. Ethical economists, interdisciplinary scientists, and humanists who develop and propagate models of inclusive wellbeing and a common good-oriented economy could achieve the same.