MAPping the Future

Social enterprise, sustainable products, workplace diversity and inclusion, work-life balance, and mental health – these are words I never spoke or heard of when I was a kid. Back then, the only balance I knew was on a see-saw, and I worried about my health only when I started to shiver from fever. Today, I have three kids – 26, 24, and 22 years old. One millennial, two zillennials. I hear them and their friends mention and discuss carbon emissions, balance, and mental health. The emergence of these topics in their conversations signals a shift in how we should think about ourselves, manage our affairs, and run our organizations and society. We have to tweak our frameworks or models of thinking and doing. One of these is the free market model.

 

Walk into your neighborhood wet market, and you’ll see buyers and sellers of all sorts of products. Take the case of Aling Nita, who sells GG (galunggong fish). She sells at a specific price and is willing to sell at a lower price if you buy more. Many people look, haggle, and buy.

 

The so-called classical and neoclassical economists tell us that self-interest motivates all this buying, selling, and negotiation. They also figuratively refer to an invisible hand that orchestrates all this self-interested activity toward agreed market prices between buyers and sellers, a.k.a. market players. This state of agreement is often alluded to as market equilibrium. This framework we’ve been using since the 19th century to explain the interplay of these three elements (buyers, sellers, and market price) is what we will call the free market model or Model for short.

 

The Model from the wet market applies to a larger community of buyers and sellers of others goods and services traded in a city, province, country, and among countries. This fascinating yet straightforward Model informs much of our governance and business decisions and behavior. As with all frameworks to explain reality, our Model makes assumptions. For instance, it assumes buyers and sellers always act rationally and have complete information on prices and goods. Our Model also creates unintended side effects. These side effects are known as externalities because they aren’t part of the Model.

 

Let’s look at two of these side effects – devaluation of the priceless and inequality of wealth.

 

 

 

 

Side Effect 1: Devaluation of the Priceless

The first side effect of the Model is the devaluation of the priceless. The Model uses the idea of price to measure value, say, P190 is the value of one kilo of GG. In day-to-day conversations, we use price and value interchangeably, and unconsciously, we end up thinking, “Only things that have a price are valuable,” or worse, “If it has no price, it has little or no value.”

 

Price leaves out what has value but is priceless in the real world – unpaid work, natural resources, and social capital. Unpaid work at home like daily cleaning, cooking, and caring, all necessary to get the economic actors productive, have value but aren’t priced. Unpaid work of community volunteers in orphanages, elderly homes, medical missions, mentoring initiatives, feeding programs, and disaster response are undeniably valuable but aren’t priced either. Natural resources and energy used as input to production aren’t priced. Their extraction, distribution, and profit margins are, but not the resources themselves. Waste disposal into the biosphere’s water and air isn’t priced. Seemingly intangible social capital, present when we describe a community or society as ‘generous’, ‘willing to help’, or with ‘strong social support’, isn’t priced either. Despite not showing up in GDP figures, social capital as trust and reciprocity resulting from social networks spurs economic activity. (Gross Domestic Product or GDP is a standard measure of national economic activity.)

 

The market may produce public goods like roads, electricity, water, and communication infrastructure because these are prominent enablers of economic activity. But, left to its own, the market has no mechanism to support priceless goods.

 

Side Effect 2: Wealth Inequality

The second side effect is wealth inequality. This inequality is a natural phenomenon. Many are born into it, but we must correct our ways of thinking, working, and living that aggravate it. The Model ignores increasing wealth accumulation from free market reign. Due to the reinforcing feedback loop of wealth and market power, both create a wealth inequality trap. The wealthy gain more negotiating power in the daily buying and selling, leverage this power to push prices up if they are sellers, or down if they are buyers, and accumulate more wealth as a consequence. A vicious cycle of wealth concentration ensues. We can’t consider this a mere ‘side’ effect. It is impactful enough to undermine the competitive nature that makes the Model work in the first place.

 

Some may argue that we should focus on poverty, not wealth inequality. Yes, poverty is a thorn, but reducing it does not absolve inequality. Wilson and Pickett, in their book Spirit Level, provide strong empirical evidence that national inequality, not wealth, brings about worse social outcomes in teenage pregnancy, mental illness, drug use, obesity, crime, school dropouts, life expectancy, social mobility, and trust. Higher inequality is also associated with weaker environmental policies and higher ecological degradation.

 

Both side effects call for some solutions. Here are two – strong institutions and a socially-oriented mindset.

 

Solution 1: Strong Institutions

Institutions for public goods monitor, regulate, and correct these market externalities. They should also support the development of the ignored valuable goods that are unpriced by the market. They should govern and use their purchasing power to steer economic activity and innovation to provide public goods, temper the excesses of the market, and develop unpaid work, natural resources, and social capital. These institutions include local government units, regulatory bodies, government-owned and controlled corporations, public hospitals and schools, the military, and the police. The Asian Development Bank, in its 2020 publication Asia’s Journey to Prosperity: Policy, Market, and Technology Over 50 Years, confirms that economic development needs strong institutions to complement efficient markets and an effective state. “Strong institutions ensure the orderly functioning of markets and accountability of the state.”

 

We need robust institutions, decoupled from personality politics, because free markets don’t sit in a vacuum. They are embedded in a social ecosystem that defines its functions and corrects its malfunctions through legislation and effective governance. “Good governance requires strong institutions, and it must be brought down to the level of the individual,” emphasized Dr. Jess Estanislao at the recent launch of his book Governance of the Philippines: As a Republic, 1946-2021. Well-crafted laws and good governance come through dependable institutions.

 

Solution 2: Socially-Oriented Mindset

Self-interest is only part of what we are and will get us only part of what we want to be. The same 19th century neoclassical economics that popularized the concept of our free market model has typified you and me as the homo economicus or economic man. Economic man is individualistic, utilitarian, and rational, aptly described in Raworth’s words as “standing alone, money in hand, calculator in head, and ego in heart.” This view of man is another concept we need to tweak. We are economic beings, but we are also social, altruistic, and emotional ones. As social individuals, our survival and well-being are inextricably tied to others. As altruistic beings, we love our partners, rear our kids, care for our elderly, help out a work colleague, console a friend, help an old woman cross the street, volunteer at medical missions, serve at food kitchens, and contribute to the open-source digital community. We also act on emotion, habits, and biases. Check the evidence from behavioral economics. Our biases and habits trigger emotional responses. We sell when the stock price is down, we fear losing more than gaining the same amount (loss aversion bias), and we value a car more once we drive it home than when it is in the showroom (endowment effect). Our emotions unconsciously nudge us toward altruism and gratitude.

 

A socially-oriented mindset is considerate about the impact of our actions on the well-being of others and predisposes us who have to act as stewards for those who have not. This mindset underlies distributive policies and practices that promote priceless goods and temper wealth inequality. It allows us to take on an identity that goes beyond moneymaking.

 

Take a person acting as an agent of governance for public or private enterprise. A socially-oriented agent realizes she is a steward, more than just a moneymaker. Our beliefs about who we are shape who we become. If the agent believes she is just a moneymaker, then all she’ll strive for is to make money. Studies show, for instance, that the way we answer a survey varies based on whether the researchers frame it as a Consumer Reaction Survey or a Citizen Reaction Survey. ‘Consumer’ and ‘citizen’ prime different values in us that cause different behaviors. Consumers display a stronger association with wealth, status, and success than citizens do. Our agent should live by self-oriented values that underlie governance like integrity, meritocracy, discipline, hard work, mental agility and openness, resilience, and self-belief. She should also display socially-oriented values of altruism, solidarity, volunteerism, preferential concern for the poor, and ecological care. These values intrinsically motivate behavior that returns value to the priceless and mitigates wealth inequality.

 

Beyond Economic Man

 

Social enterprise, sustainable products, workplace diversity and inclusion, work-life balance, and mental health are ideas that transcend the goals of economic man. They reflect aspirations for richer human flourishing. To achieve a society that provides conditions that help us flourish, let’s design our governance and policies that strengthen our institutions and support a socially-oriented view of ourselves as citizens. To take this forward, as we will see in the next article, GDP is not and never enough.

 

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is a member of MAP NextGen Committee, Founder and CEO of technology firm Synerbyte Ltd., and author of the book Sh*tty Places & Selfish People: 7 Rules of Engagement. Reach or follow him at www.linkedin.com/in/cliffeala/, www.facebook.com/cliffeala, www.instagram.com/cliff.m.eala/, or cliff@cliffeala.com)