Few of us would disagree with the vision of a society in which decency, reason, responsibility, sincerity, civility and tolerance are valued.
What if I replace “society” in the sentence above with “economy”?
I’d wager that you may have started thinking something like “Well… if only. But that’s just not possible. Everyone knows that the economy doesn’t work that way. At the end of the day, people are motivated by their own self-interest. And, by extension, businesses are motivated by making more profit.”
It’s true that this has been the dominant dogma in capitalism ever since it was launched in the late 18th century, resulting from a very selective reading of Adam Smith’s The Wealth of Nations. Only recently are economists who have studied Smith’s work in full beginning to make their voices heard. We see from the first line of Smith’s other seminal work, The Theory of Moral Sentiments, that his view of humans was far more nuanced and in line with our modern understanding from social psychology:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
That is, humans are motivated by self-interest and by “moral sentiments” such as altruism and empathy. Or, as British economist Paul Collier puts it pithily in his brilliant 2018 book, The Future of Capitalism, we are motivated as much by “oughts” as by “wants”. And judging by what we regret most – which we intuitively recognise as a measure for what is important to us – oughts seem to trump wants. I know that I will regret for the rest of my life not having visited a dear friend before she passed away after suffering for years from a chronic illness. The exciting job offer that I reluctantly turned down because I knew that it would make life more difficult for those closest to me? All but forgotten.
Most public and organisational policies today are still based on the narrow vision of the self-interested human. So we see financial incentives and penalties – carrots and sticks – used widely, from motivating employee performance to getting people to stay indoors during recent lockdowns.
Behavioural economist Samuel Bowles argues in his 2016 book, The Moral Economy, that this approach often backfires, that “people often act in more self-interested ways in the presence of incentives than in their absence” and that “incentives cannot alone provide the foundations of good governance”. He uses as one of his many examples the often-cited 1998 study of daycare centres in Israel, which showed that imposing a fine on parents who arrived late to pick up their children resulted in parents showing up late twice as often. Even worse, this increase in late arrivals persisted even after the fine had been removed:
Placing a price on lateness, as if putting it up for sale, seems to have undermined the parents’ sense of ethical obligation to avoid inconveniencing the teachers, leading them to think of lateness as just another commodity they could purchase.
He acknowledges that if the fine had been sufficiently high, the parents would no doubt have behaved differently. But what might we gain by designing our policies based on a more holistic vision of what motivates people, choosing judiciously when to appeal more to their oughts instead of their wants?
What’s one incentive-based policy or rule, whether in your family, community or organisation, that you might tweak to bring out the best in others?