Summary: In this article Claus Dierksmeier illustrates how the business world can benefit from the insights of economic philosophy.
In order to identify what economic philosophy can contribute theoretically to the practical problems of business, let us consider the three different levels in which philosophical thinking impacts economics: the realm of the individual, the domain of the corporation, and the sphere of macroeconomics.
MICRO-LEVEL. Economic philosophy provides a view of the individual economic agent that is critical of the homo oeconomicus model. Paradigmatic for neoclassical economics, this model idealizes human rationality, assumes optimal information, minimizes transaction costs, abstracts from community ties, disregards all irrational impulses, and operates from a clear as well as fixed set of preferences. Even proponents of the homo oeconomicus model admit that it does not at all describe reality, but argue for its heuristic and prognostic use.
To employ a theory that does not represent reality is not an innocent endeavor, however. For quite a while, the homo oeconomicus model has ushered in invalid and damaging economic policies. Domestically, for instance, the drive against any (transparency, safety, health, or environmental) regulations has been detrimental, and, in regard to second and third world economies, the policies of the “Washington Consensus” have been even more devastating.
Moreover, the homo oeconomicus model tends to slow down ethical progress. To give but one example: Under its spell, renowned economists dismissed the idea of marketing fair-traded, yet more costly, products as altogether nonviable. Yet producers and customers proved its feasibility. After this success, the defenders of the old model changed course, and equipped the homo oeconomicus with a new kind of preference, namely the one for ethical fairness.
This is how followers of neoclassical economics traditionally react to adverse empirical evidence; they make exceptions on end, yet forever maintain the core paradigm. Economic philosophers argue that, instead, a new way of thinking is called for.
The technical rationality of customary economics is not sufficient if we are to understand and foster economic productivity, creativity and innovation. The complex nature of intrinsic motives (care, duty, virtue, etc.), the pleasures of artistic creation, and the important role of social values, are requisite to explain individual and societal economic agency. We must stop treating what is essential to economic agency as exceptions to economic theory.
MESO-LEVEL. In the past, corporate philosophies have often been chosen arbitrarily, evermore following the siren-calls of various self-proclaimed business gurus. Most companies are still obtusely tagging along with each corporate fad, paying gladly for its every prophet. Led by random predictions, management blindly stumbles down an unknown road, oblivious to where the journey leads. Economic philosophy, however, knows – and shows – a better path.
In stressing the autonomy and dignity of the individual, economic philosophy defends every employee’s right to be respected as ends-in-themselves. Contrary to the alienating functionalism of neoclassical management theories, economic philosophy primarily values the individual as a human being and only secondarily is he regarded as a means to corporate success. This is why philosophy rejects the largely mechanistic theory of incentives in microeconomics (e.g., more money = more effort).
Consider change management. “Change” can never be introduced into corporate culture “ceteris paribus”. The mechanical assumptions of conventional economics fail because people simply do not react to change by leaving “all other things equal”. Workers are not one-dimensional stimulus-response-machines. Like every complex organism, they respond to outside impulses based on a complex interpretation of their situation, and these interpretations naturally differ from one corporate culture to another.
Intrinsic motivation and extrinsic incentives, promotion management and performance assessment, assessment policies and ethical guidelines, corporate ethics and communication policies, corporate symbolism and aesthetics, are all threads of the wobbly mobile of corporate culture. The crucial question is whether they are badly tangled together or systematically arranged by a company’s corporate philosophy. All superficial talk about “corporate identity” aside, corporate philosophy does provide requisite consistency to corporate culture, and that is why the contribution of philosophy to corporate success cannot be overrated.
MACRO-LEVEL. Corporations are intertwined with the world outside through a web of non-economic dimensions. Therefore, corporate philosophies can no longer be the spawn of managerial autism. Instead, they must be developed in harmony with all stakeholders. Corporate citizenship has become a buzzword for a reason. The term welds the “political” and “public” dimension of modern corporate life into one.
In the past decade, stakeholder relations have climbed up on the corporate agenda, if mostly for tactical reasons. It is time for a more strategic perspective. Today’s corporations will establish sustainable relationships with society only if they sincerely acknowledge its concerns. And only by seeing the world from the perspectives of their stakeholders can they respond adequately to their respective needs.
Economics as we know it proclaims to advance the interests of business owners. However, by paying little attention to the nature of ethical commitments, traditional customs, religious systems, or community structures it goes directly against those very interests. While businesspeople have always acknowledged the importance of societal and cultural institutions, economic theory has lagged behind, delayed by its own conceited dismissal of such “messy” subjects.
Elucidating such outside perspectives, economic philosophy has a natural vantage. Along with the normative principles of social consensus, it provides the tools for productive dialogue across the social spectrum. Concerns about the natural and social business environment cannot forever be ignored. Whereas neo-classical economics directs business to maximize its short-term profits, economic philosophy steers corporate decision-making towards policies that are in a corporation’s long-term interest. If the corporate world does not want to endanger its license to operate, it must not turn society and government from friends into foes. Hence it had better listen to economic philosophy.
Claus Dierksmeier is professor for political and economic philosophy at Stonehill College, in Easton (Boston), Mass., USA.
He adds: “I wish to thank my research assistant Amanda Bosson for helping me smooth out my Teutonic English”.
