Continuing the series on a New Economics.
Mainstream economic and financial models, the ones that currently rule the markets and determine value, have shifted their focus over the years from what is best for the society they should try to model to what is mathematically possible to achieve for the benefit of a few. I use the word “mathematically” with a sense of grief. Mathematics is a very serious business; it is thanks to mathematics that we understand the physical world and it is thanks to its rigorousness that we are confident that the scientific method can provide acceptable validity. Sadly, most economists and financiers at best can be considered “hands on” mathematical labourers and their models are far from being the offspring of any scientific method.
Current mainstream economic and financial models are flawed for two sets of reasons:
- They are often divorced from realistic assumptions about the situation they seek to model AND from the managerial actions that should ensure the predicted outcome. In other words, the modelling happens in the vacuum of second tier “mathematical” speculations with flawed assumptions about what is possible or impossible to achieve managerially.
- Mainstream economic and financial models pursue an idea of value that is divorced from any concept of the general wealth and wellbeing of individuals and society, with notable exceptions such as Amartya Sen. Prevailing models are based on a systematically disproven “rational” behaviour that is driven by the lust for individual profit. These models are rooted in the paradigm that if somebody wins somebody else has to lose. They call it “competition” and a gigantic and ineffective apparatus has been created to “ensure” fair competition.
A new kind of freedom
In order to re-assert economics as a useful field of investigation we have to re-ground it in a new paradigm; a new economics can only be originated by a new outlook on value and wealth. As Senator Robert F. Kennedy said more than once, “The GDP cannot be considered a measure for the standard of our lives”.
The starting point is to define what the role of the government should be and which policies an economic model should mirror. Any government should first and foremost protect the freedom of its citizens, for sure: freedom from any risk of slavery. Three major factors impact our freedom, other than the ability to protect ourselves from enemies and practice the religion of our choice: freedom from ignorance, freedom from the tyranny of diseases we cannot afford to cure, freedom to start or adhere to ventures, business or otherwise.
So, the role of the government in establishing and endorsing an economic model is clear: a solid education and research system, affordable healthcare for everyone, a network of support for the development of any form of free enterprise.
How we build these systems, how we manage them and what set of values should inspire them is the kernel of the new economics. Economics then really becomes the science that studies how countries should develop.
This post was by Dr. Domenico Lepore, Founder of Intelligent Management, and is an extract from his latest book: Sechel: Logic, Language and Tools to Manage Any Organization as a Network of Projects
and our series on Systemic Management: