By Henry Leveson-Gower, Founder & CEO of Promoting Economic Pluralism
Mainstream economics justifies the primacy of individual shareholder interests. Unless we challenge this paradigm, the social and environmental will remain marginal. This may seem a major ask but the humiliation of mainstream economics in the crash 10 years ago has weakened it. There are clear alternative frameworks and with your support we can raise their profile and legitimacy.
As we know homo economicus seeks to maximise their own utility. They only consider others in as much as that is required for their own benefit. They have no connections and no relationships. They are essentially selfish. Wider interests in the environment and social cohesion have no meaning for them. Hence shareholders justify a focus only on their individual financial interests.
The problem is then exacerbated by Friedman’s dictum that managers of companies should only consider the interests of their shareholders. Other stakeholders, employees, customers, suppliers and wider society, should only be considered if it is in the interests of those shareholders.
Many claim that companies and their shareholders can only thrive in the long-term if they do operate in the interests of these wider stakeholders. So we don’t need to worry.
However this thesis seems to ignore the fact that the short-term doesn’t go away even if companies seek to focus on the long-term. Shareholders do have short-term demands as Unilever knows too well. And the need to survive in the short term can be at the expense of longer-term wider benefits.
The only way to have companies that we can trust is to redesign the corporation so that social and environmental interests are at its core.
Even if companies are seen as focusing on the benefits of all stakeholders to keep its ‘social licence’, can’t this just be a matter of good PR? How can you rely on a company to determine what is to the benefit of all stakeholders? How can stakeholders tell whether a company is acting in their interests? Even if companies were totally transparent, who would have the time to keep tabs on all of them?
Surely if companies ultimately privilege the interests of shareholders, we fundamentally cannot trust them. Hence the only way to have companies that we can trust is to redesign the corporation so that social and environmental interests are at its core. This may be thought a big ask but The British Academy already has a project to do just that lead by Oxford professor, Colin Mayer.
However such reform involves a full frontal assault on the fundamentals of mainstream economics as well as a powerful set of interests. In the light of that how can we make space for this sort of thinking?
The crash revealed the extraordinary inadequacy of economic models and led to the students’ revolt against their economic teaching. There is now regular commentary on the ‘crisis in economics’ in the mainstream press. The ESRC, the Government’s economic research funder, has established a centre to ‘revolutionise macro-economics’. The Bank of England, EC and OECD are all exploring new modelling and analytical approaches.
This has not however meant that there has been immediate reform in top economic departments – mainstream economics itself suggests that monopolists will resist competition. However, they have been fundamentally weakened and put on the back foot. There is now an openness outside academia to new ideas that has not been seen previously.
We want educators to take a pluralist approach to economic teaching: recognise more than one way of thinking about the economy
We are seeking to capitalise on this by raising the profile and legitimacy of innovative academics outside mainstream departments. There are a wide range of academics on the margins of the economics profession who have built on a rich legacy of thinking on institutions, complexity and uncertainty from the likes of Keynes, Schumpeter and Polanyi which had been discarded by mainstream economics. Furthermore, academics in other disciplines have turned their attention increasingly to socio-economic issues.
This disparate group is growing as it draws in new young researchers, many inspired by the students’ movement for curriculum reform and high-profile non-mainstream economists such as Steve Keen and Ann Pettifor. However it is fragmented across disciplines and departments without a common identity or much traction with policy-makers as yet.
We intend to work with these innovators and other stakeholders to build a common identity and most importantly an increased profile outside academia to be able to influence policy and practice.
As a first step, we are doing this by creating an accreditation system for masters courses that take a pluralist approach to economic teaching ie recognise more than one way of thinking about the economy and encourage critical reflection. This is a key potential interface between these innovators and students about to enter or re-enter work, many going into policy work.
This type of teaching is already happening in many of these innovators’ departments as can be seen in the list of courses here. It is happening in the same high-ranking universities where the economic departments themselves defend the status quo. However the courses have different names in different organisations. Our initiative will give this type of teaching a shared label or brand and help raise its profile and legitimacy.
So what can you do to support change in these urgent times? For a start, you could register your public support for this initiative here. It is crucial that we demonstrate a diverse and wide-ranging support for this initiative particularly outside academia. As you can see on our website, we already have some great supporters so you will be in good company.
Beyond that you can get involved in actually co-creating this scheme. This doesn’t mean that you necessarily have to get involved in the detail or devote huge amounts of time to it. We will ensure people can give their views on the principles and broad approach as easily as possible. Please sign-up here to be involved and if you first want to find out more, sign up for a webinar here.
We look forward to building this new institution together to support the essential task of organising economies that put social and environmental values at the centre rather than the margins.
Thanks Henry! To get involved with the effort to refresh economic thinking, click here.