The roots of our current economic failures

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Given the news lately, there's a lot of speculation of what went wrong with the economy.

"Greed" is often cited as the reason for our economic failures. I disagree. It might have been a motivation, sure, but firstly, most motivations are mixed. Secondly, since the market system arguably is designed to channel greed and self interest to fulfill needs, it doesn't tell us as to how the system failed in this case, nor does it give us guidance on how to fix things, as people aren't just going to "stop being greedy". Greed isn't illegal, and not everyone believes it is a sin.

I think the failure basically comes down to "Hubris". The market system certainly IS designed to, in the long run, destroy those that exhibit it.

It's really painful, unfortunately, when an almost an entire society has bought into bad ideas pushed by hubris, to the point that the government has to halt portions of the market system to ensure some level of stability.

Corporate welfare is a dangerous path, one that sacrifices the long run for the short term. I don't doubt we need it for the current crisis, but I fear that this has not been a short term trend but something that's occurred for decades, going back to the Chrysler bailout in the 1980's, numerous airline bailouts, etc. It may be that the U.S. government is not willing to let a major corporation fail -- that they let Lehman Brothers fall is almost a token gesture that we haven't completely abandoned the market's ability to correct hubris.

There at least are five levels that hubris should be considered:

a) belief in managerial and economic principles that are obsolete
b) the primacy of shareholder value over true productivity
c) risk management / faith in statistics
d) technocracy
e) education, particularly in what it means to teach leaders

None of these authors are whack jobs; if anything, they're mainstream iconoclasts; Henry Mintzberg is a common Havard Business Review contributer (even though he is a critic of the school), Peter Drucker is the management guru of the 20th century, John Ralston Saul was the husband of Canada's former Governor-General Adrienne Clarkson, and Nicholas Taleb is the author of the NYTimes best seller, the Black Swan.

"I would hope that American managers--indeed, managers worldwide--continue to appreciate what I have been saying almost from day one: that management is so much more than exercising rank and privilege, that it is about so much more than "making deals." Management affects people and their lives."
-Peter Drucker

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2 Comments

I'd put "hubris" in the same category as greed. It's a basic human trait and it is not going away anytime soon (after all, we got the word from ancient Greece for a reason). So if hubris really is the root of the current crisis then we're condemned to go through it over and over.

A more optimistic (because theoretically fixable) root cause is unchecked conflict of interest. I have good hopes that it is the underlying cause. I have limited hope that it will get fixed. The currently proposed "solutions" clearly don't get in that direction.

Nice list of links in any case. WRT to Taleb, his recent essay for Edge is a good overview of how his findings apply to the current crisis.

Stu, thanks for the post. As always, you open interesting venues for discussion :-).

I really think that what's happening nowadays is a necessary step, albeit painful, in the evolution of corporations and how they relate to their workforce and to the general public in general in an age where information has no barriers anymore.

I also believe that the individual worker's role in the "new" economy is slowly being redefined.

Lets hope its all for the best.

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