Fauxrealism

It was a dramatic moment.  That A-HA! feeling that makes nerve endings tingle.

Economists are always right.

There you go.  That’ll make you economists very happy, right?  Except that, truth be told, economists are also always wrong.  I can see why the job is so appealing – always right, even when wrong.  As soon as someone suggests that your data is flawed it is a straightforward exercise to agree that the data is flawed insomuch as only specific variables have been included and therefore, many other variables have been excluded thus depending upon your paradigm right is right or wrong.  Hocus pocus!

Granted, I have not spent four years studying economics and do not have a detailed knowledge of all the complexities that must underpin this mathematical and statistical magic.  Yet, who out there disagrees that there is always a sense of sleight of hand?  If nobody is prepared to comment to the contrary, your agreement will be tacit.

For a couple of weeks I’ve been swapping between my economics text book, Paul Gilding‘s The Great Disruption and Umair Haque‘s The New Capitalist Manifesto.

Ironically, the text is called Economics for Today; it can only be for today for such an economic approach is surely unable to sustain us tomorrow or each day thereafter.  Traditional economics is based around a formula of fauxrealism which points to an underlying assumption of infinite resources to feed unlimited wants.

C + I + G + X – M = GDP

(C – Consumption (household), I – Investment (private domestic), G – Government expenditure, X – Exports, M – Imports)

Its limitations from a purely economic view are beyond the remit of this blog (except for those of you burned up enough to comment and correct the error of my ways); more broadly, it takes no account of the ecological impacts of business yet without nature there is no business, whereas the opposite is not the case.

Both Gilding and Haque, in somewhat different ways, strongly advocate for new business and economic models for the 21st Century.  Gilding uses some mind-boggling examples of corporate denial, defiance and irresponsibility; the most striking of these is Exxon Valdez.  250,000 barrels of oil were spilled into Alaskan waters in 1989 resulting in a punitive damages charge to Exxon of $5bn.  Nineteen years (and much legal wrangling) later the Supreme Court cut those damages to $507 million, apparently in the same year Exxon posted a $40bn profit.  Gilding’s underlying message for humanity is that no matter how long we choose to sit on our hands, when push comes to shove we will eventually get on with the job of overcoming the challenges of finite resources – the sooner we start, the less suffering down the track.

Some businesses have decided to stand up and take action.  Haque hits top-gear quickly describing 5 new cornerstones of capitalism:  value cycles, value conversations, philosophies, completion and betters.  Amongst his examples, Walmart is a standout for its decision to change its business model to embrace a broader economic model which incorporates communities, societies, the natural work and future generations.  Their seeming 180 degree shift is far from complete.  All the stories in Haque’s book are far from complete.  But each of the companies has started by recognising that they can no longer ‘shift costs to and borrow benefits from’ others and expect to survive tomorrow.  And they are profiting very nicely as a consequence!

I am thoroughly enjoying the journey of both books.  They are deeply thought-provoking and inspiring.  Are you sick of living in an economic fauxrealism?